FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period-ended March 31, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission File Number 33-37674-NY
ISOTOPE SOLUTIONS GROUP, INC.
(Exact name of small business issuer as specified in its charter)
New York 11-3023098
- -------------------------------- ---------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
700 Stewart Avenue, Garden City, NY 11530
-----------------------------------------
(Address of principal executive offices)
(516) 222-7749
--------------------------
(Issuer's telephone number)
EDG Capital, Inc.
-------------------------------------
(Former name, former address and former fiscal year,
if changed from last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X NO
--- ---
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 11,458,987 shares of common stock,
par value $.001 per share, were outstanding on May 13, 2002.
Transitional Small Business Disclosure Format (Check one): YES NO X
--- ---
ISOTOPE SOLUTIONS GROUP, INC.
- INDEX -
Page(s)
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PART I. Financial Information:
Item 1. Consolidated Financial Statements of Isotope Solutions
Group, Inc. and Subsidiary:
Consolidated Balance Sheets - March 31, 2002 (unaudited),
and December 31, 2001 3
Consolidated Statements of Operations (unaudited) -
Three Months Ended March 31, 2002, and 2001 4
Consolidated Statements of Cash Flows (unaudited) -
Three Months Ended March 31, 2002, and 2001 5
Notes to Consolidated Financial Statements of
Isotope Solutions Group, Inc. and Subsidiary (unaudited) 6 - 9
SUPPLEMENTAL INFORMATION:
Condensed Financial Statements of Stanley E. Order, M.D.,
P.C., d/b/a Center for Molecular Medicine:
Condensed Balance Sheets as of March 31, 2002 (unaudited),
and December 31, 2001 (audited) 10
Condensed Statements of Operations and Accumulated Deficit
(unaudited) for the Three Months Ended March 31, 2002,
and 2001 11
Condensed Statements of Cash Flows (unaudited) for the Three
Months Ended March 31, 2002, and 2001 12
Notes to Condensed Financial Statements of Stanley E. Order,
M.D., P.C., d/b/a Center for Molecular Medicine (unaudited) 13
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 14 - 22
PART II. Other Information 23
Item 2. Changes in Securities and Use of Proceeds 23
Item 6. Exhibits and Reports on Form 8-K 23
SIGNATURES 24
2
See notes to consolidated financial
statements.
3
#326208 v03 08433-0003-000
PART I. Financial Information
Item 1. Financial Statements
- ----------------------------
ISOTOPE SOLUTIONS GROUP, INC. AND SUBSIDIARY
--------------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
- ASSETS -
March 31, December 31,
2002 2001
------------ -------------
(unaudited)
CURRENT ASSETS:
Cash $ 11,568 $ 98,259
Fees receivable - net of allowance for doubtful accounts of - -
$1,806,831 and $1,634,545 for 2002 and 2001, respectively
Loans and advances - net 55,023 98,687
Prepaid expenses and other 189,192 265,557
------------ --------------
TOTAL CURRENT ASSETS 255,783 462,503
------------ --------------
58,121 65,481
------------ --------------
FIXED ASSETS - NET
OTHER ASSETS:
Intangible assets - net 85,404 76,213
Security deposits and other 2,694 2,694
------------ --------------
88,098 78,907
------------ --------------
$ 402,002 $ 606,891
============ ==============
- LIABILITIES AND SHAREHOLDERS' DEFICIT -
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 1,070,381 $ 832,176
Notes payable 680,000 630,000
------------ --------------
TOTAL CURRENT LIABILITIES 1,750,381 1,462,176
------------ --------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' DEFICIT:
Preferred stock, par value $.001; authorized 1,000,000
shares; none issued and outstanding - -
Common stock, par value $.001; authorized 50,000,000
shares; 11,052,232 shares issued and outstanding
in 2002 and 2001 11,052 11,052
Additional paid-in capital 2,739,607 2,739,607
Accumulated deficit (4,099,038) (3,605,944)
------------- ---------------
(1,348,379) (855,285)
------------- ---------------
$ 402,002 $ 606,891
============ ==============
See notes to consolidated financial statements.
3
ISOTOPE SOLUTIONS GROUP, INC. AND SUBSIDIARY
--------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
(UNAUDITED)
Three Months Ended
March 31,
-------------------------------------
2002 2001
REVENUE:
Management fees $ 153,686 $ 265,999
License fees 18,600 23,700
---------------- ----------------
172,286 289,699
---------------- ----------------
COSTS AND EXPENSES:
Costs of revenues 79,168 144,046
Research and development 176,948 265,638
General and administrative expenses 341,224 466,860
Interest expense 72,032 -
Interest and other income (3,992) (16,027)
----------------- -----------------
665,380 860,517
---------------- ----------------
LOSS BEFORE PROVISION (CREDIT) FOR INCOME TAXES (493,094) (570,818)
Provision (credit) for income taxes - -
---------------- ---------------
NET LOSS $ (493,094) $ (570,818)
================ =================
LOSS PER COMMON SHARE:
Basic and diluted $ (.04) $ (.05)
================ ================
WEIGHTED AVERAGE SHARES OUTSTANDING 11,052,232 11,052,232
================ ================
See notes to consolidated financial statements.
4
ISOTOPE SOLUTIONS GROUP, INC. AND SUBSIDIARY
--------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(UNAUDITED)
Three Months Ended
March 31,
-------------------------------------
2002 2001
---------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (493,094) $ (570,818)
Adjustments to reconcile net loss to net cash flows
from operating activities:
Depreciation and amortization 8,477 5,768
Allowance for doubtful accounts 166,442 205,000
Amortization of discount on notes payable 58,500 -
Changes in operating assets and liabilities:
Fees receivable (172,286) (272,899)
Prepaid expenses and other 17,865 17,126
Accounts payable and accrued expenses 238,205 166,265
--------------- --------------
Net cash (used in) operating activities (175,891) (449,558)
--------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures - (313)
Loans and advances 49,508 (65,916)
Patent costs (10,308) -
-------------- ---------------
Net cash provided by (used in) investing activities 39,200 (66,229)
-------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt 50,000 -
-------------- ---------------
Net cash provided by financing activities 50,000 -
-------------- ---------------
NET (DECREASE) IN CASH (86,691) (515,787)
CASH, BEGINNING OF PERIOD 98,259 1,032,563
-------------- ---------------
CASH, END OF PERIOD $ 11,568 $ 516,776
============== ==============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $ - $ -
============== =============
Income taxes paid $ - $ -
============== =============
See Notes to consolidated financial statements.
5
ISOTOPE SOLUTIONS GROUP, INC. AND SUBSIDIARY
--------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
MARCH 31, 2002
--------------
(UNAUDITED)
NOTE 1 - DESCRIPTION OF BUSINESS:
Isotope Solutions Group, Inc., formerly known as EDG Capital, Inc.
("the Company"), was incorporated in the State of New York on August
13, 1990, and was considered a development stage company until
September 2000. On September 13, 2000, the Company merged with Isotope
Solutions Inc., ("ISI") a New York corporation formerly known as
Molecular Radiation Management, Inc. ("the Acquisition"). In November
2001, the Company's Certificate of Incorporation was amended to change
its name from EDG Capital, Inc. to Isotope Solutions Group, Inc.
The Acquisition was effected pursuant to an Agreement and Plan of
Merger (the "Agreement"), dated September 8, 2000, by and among the
Company, MRM Merger Sub, Inc., a New York corporation and a wholly
owned subsidiary of the Company ("Merger Sub"), and ISI. On September
13, 2000, Merger Sub was merged with and into ISI, with ISI being the
surviving corporation, and ISI became a wholly-owned subsidiary of the
Company.
Pursuant to the Agreement, all of ISI's outstanding common stock,
excluding its treasury stock which was cancelled, was converted into
the right to receive an aggregate of 7,440,005 shares of the Company's
common stock. Simultaneously with the closing of the Acquisition, the
Company (a) effected a 2.57315 for one stock split in the form of a
stock dividend payable to shareholders of record on August 23, 2000
(with all fractional shares being rounded up), and (b) raised gross
proceeds of $2,100,000 from a private placement to accredited
investors of 2,603,844 shares of common stock at a price of $.8065 per
share.
The merger was accounted for and retroactively restated as a
recapitalization rather than a business combination and, accordingly,
no goodwill has been recognized in this transaction. Historical
information presented herein for periods prior to the merger have been
restated to reflect only the operations of ISI, the operating company
and the new reporting entity. The Company, which had no operations
prior to the recapitalization, has also adopted the fiscal year end of
ISI, which is December 31.
ISI is a biopharmaceutical company that began operations in 1998 as a
medical group management company. Although most of its revenues are
still derived from its medical group management operations, today ISI
is focused primarily on the development of nuclear pharmaceutical
technologies for therapeutic use in the treatment of various cancers.
With the help of the medical groups it manages, ISI is developing two
anti-cancer nuclear pharmaceutical technologies for which it owns the
U.S. patent rights: 195mPt-Cisplatin ("Radioactive Cisplatin"), a
radioactive variation of a commonly used chemotherapy drug, and
colloidal P32 macro-aggregated albumin ("colloidal P32/MAA"), a
nuclear-isotope use and delivery system. Pursuant to long-term
contracts with these unrelated medical groups, ISI provides them with
business, financial and marketing support while they conduct research
and treat patients using ISI's technologies and traditional cancer
treatment techniques. ISI charges the medical groups administrative
fees for its services and license fees for the use of its nuclear
pharmaceutical technologies in their practices. ISI owns all right,
title and interest to any and all improvements to the nuclear
pharmaceutical technologies that derive from the medical groups'
research.
6
ISOTOPE SOLUTIONS GROUP, INC. AND SUBSIDIARY
--------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
MARCH 31, 2002
--------------
(UNAUDITED)
NOTE 2 - GOING CONCERN UNCERTAINTY:
The accompanying financial statements have been prepared in conformity
with accounting principles generally accepted in the United States of
America, which contemplates continuation of the Company as a going
concern. The Company has incurred losses of $493,094, $2,703,580 and
$925,671 for the three months ended March 31, 2002, and the years
ended December 31, 2001 and 2000, respectively. At March 31, 2002,
current liabilities exceed current assets by $1,494,598, total
liabilities exceed total assets by $1,348,379 and the accumulated
deficit aggregated $4,099,038. In view of these matters, realization
of a major portion of the assets in the accompanying balance sheet is
dependent upon the Company's ability to meet its financing
requirements, and the success of its future operations.
Operating losses have had a negative effect on the Company's cash
balance. During the past two years and three months, the Company has
not generated positive cash flows from operations and has funded its
operations primarily with the proceeds from the sale of equity
securities as well as from the proceeds of debt and investor advances.
The Company will need to raise more money to continue to finance its
operations and expects that significant additional resources will need
to be expended in order to continue its research and development
activities.
Between September 2001 and May 2002, the Company made a private
offering of a minimum of 1,250,000 shares and a maximum of 2,500,000
shares of common stock to certain accredited investors, at a price of
$2.00 per share. The offering ended on May 1, 2002, without being
consummated.
During the three months ended March 2002, the Company received cash
advances aggregating $50,000 from certain investors. In April and May
2002, subsequent to the balance sheet date, the Company received
additional cash advances aggregating $100,000 from certain of these
investors. The terms of these advances have not yet been determined.
NOTE 3 - EARNINGS (LOSS) PER COMMON SHARE:
Earnings (loss) per common share are calculated under the provisions
of SFAS No. 128, "Earnings per Share". SFAS No. 128 requires the
Company to report both basic earnings per share, which is based on the
weighted-average number of common shares outstanding, and diluted
earnings per share, which is based on the weighted-average number of
common shares outstanding plus all potential dilutive common shares
outstanding, on the face of the statements of operations.
Basic earnings (loss) per common share is calculated by dividing net
income (loss) for the period by the weighted average number of shares
outstanding for each respective period in accordance with SFAS No.
128. Diluted earnings per share is computed by dividing income
available to common shareholders by the weighted average number of
common shares outstanding adjusted to reflect potentially dilutive
securities. Due to losses in 2002 and 2001, such potentially dilutive
securities are not included in the computation of diluted loss per
share because the effect would be to reduce the loss per share.
All per share and weighted average share amounts have been restated to
reflect the stock split referred to in Note 1.
7
ISOTOPE SOLUTIONS GROUP, INC. AND SUBSIDIARY
--------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
MARCH 31, 2002
--------------
(UNAUDITED)
NOTE 4 - RECLASSIFICATIONS:
Certain reclassifications have been made to the 2001 consolidated
statements of operations and cash flows to conform to classifications
used in 2002.
NOTE 5 - NOTES PAYABLE:
In August 2001, the Company raised $500,000 in a private placement
from the sale of 10 units, each consisting of a convertible promissory
note in the principal amount of $50,000 and a warrant to purchase
12,500 shares of Company common stock. These unsecured notes accrue
interest at a rate of 8% per annum and were automatically convertible
into shares of common stock, at a price of $2.00 per share, upon the
closing of a private offering of Company common stock that was pending
when the notes were issued (the "Private Offering"). The notes are
payable on the earliest of (i) the first anniversary of the date of
issuance, (ii) the date of the first closing of the Private Offering,
(iii) the date of consummation of a sale of all or substantially all
assets or a merger or consolidation involving the Company in which the
Company is not the surviving entity, (iv) the date of consummation of
the sale or exchange (including by way of merger) of all or
substantially all outstanding shares of common stock, or (v) upon the
termination of the Private Offering by the placement agent under
certain circumstances. The Private Offering expired by its terms on
May 1, 2002, without causing the notes to become due. The warrants are
exercisable for a period of five years at an exercise price of $2.00
per share.
In December 2001, the Company raised $130,000 in a private placement
from the sale of 2.6 units, each consisting of a convertible
promissory note in the principal amount of $50,000 and a warrant to
purchase 12,500 shares of our common stock. The notes accrue interest
at a rate of 8% per annum and were automatically convertible into
shares of common stock, at a price of $2.00 per share, upon the
closing of the Private Offering. The notes are secured by a first
priority security interest in our patent No. 6,074,626 covering
"Radioactive Cisplatin in the Treatment of Cancer". The notes are
payable on the earliest of (i) December 26, 2002, (ii) the date of the
first closing of the Private Offering, (iii) the date of consummation
of a sale of all or substantially all assets or a merger or
consolidation involving the Company in which the Company is not the
surviving entity, (iv) the date of consummation of the sale or
exchange (including by way of merger) of all or substantially all
outstanding shares of common stock, or (v) upon the termination of the
Private Offering by the placement agent under certain circumstances.
The Private Offering expired by its terms on May 1, 2002, without
causing the notes to become due. If the Company is unable to repay the
principal and accrued interest on the notes when they become due, the
Company could lose its patent rights to the Radioactive Cisplatin
technology. These warrants are also exercisable for a period of five
years at an exercise price of $2.00 per share.
In accordance with APB No. 14, the proceeds of debt issued with stock
purchase warrants should be allocated based on the fair value of the
debt without the warrants and of the warrants themselves when issued.
Accordingly, the Company recorded deferred financing costs and
additional paid-in capital of $234,000 for the value of the warrants.
Such deferred costs are being charged to operations as additional
interest expense over the term of the notes.
During the three months ended March 2002, the Company received cash
advances aggregating $50,000 from certain investors. In April and May
2002, subsequent to the balance sheet date, the Company received
additional cash advances aggregating $100,000 from certain of these
investors. The terms of these advances have not yet been determined.
8
ISOTOPE SOLUTIONS GROUP, INC. AND SUBSIDIARY
--------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
MARCH 31, 2002
--------------
(UNAUDITED)
NOTE 6 - SUBSEQUENT EVENTS:
On April 22, 2002, the Company issued 406,755 shares of common stock
to Davis & Gilbert LLP, its corporate and securities counsel, at a
price of $1.05 per share. Davis & Gilbert paid the purchase price by
canceling an aggregate of $427,093 of accrued fees owed by the
Company. The subscription agreement between the Company and Davis &
Gilbert gives Davis & Gilbert piggyback registration rights. The
subscription agreement also provides that, in the event the Company
consummates a private placement offering of common stock or
equivalents to third party investors by October 22, 2002, at a price
that is higher or lower than $1.05 per share, the number of shares of
common stock issued to Davis & Gilbert will be increased or decreased
so that the effective price paid by Davis & Gilbert for each share it
purchased is the same as the price per share of common stock (or the
equivalent thereof) paid by the third party investors in the
subsequent offering. Davis & Gilbert also agreed not to sell the
shares until six months after the date a registration statement in
which they are included is declared effective by the Securities and
Exchange Commission or April 22, 2003, whichever is earlier.
9
SUPPLEMENTAL INFORMATION:
STANLEY E. ORDER, M.D., P.C.,
D/B/A CENTER FOR MOLECULAR MEDICINE
CONDENSED BALANCE SHEETS
March 31, 2002 December 31, 2001
(unaudited) (audited)
-------------- -----------------
ASSETS
Current Assets:
Cash $ 24,498 $ 5,000
Accounts receivable, net 105,387 93,687
Other current assets 48,488 65,601
------------- ------------
Current Assets / Total Assets $ 178,373 $ 164,288
============= =============
LIABILITIES AND STOCKHOLDER'S (DEFICIENCY)
Current Liabilities:
Management/licensing fee payable - ISI $ 1,404,423 $ 1,236,637
Working capital advances - ISI 74,724 121,540
Accounts payable and other current liabilities 134,169 122,585
------------ ------------
Current Liabilities / Total Liabilities 1,613,316 1,480,762
------------ ------------
COMMITMENTS AND CONTINGENCIES
Stockholder's (Deficiency):
Common stock, $.001 par value, 1,000 shares
authorized, issued and outstanding 1 1
Additional paid-in capital
99 99
Accumulated (Deficit) (1,435,043) (1,316,574)
------------- ------------
Stockholder's (Deficiency) (1,434,943) (1,316,474)
------------- ------------
Total Liabilities and Stockholder's (Deficiency) $ 178,373 $ 164,288
============= ============
10
STANLEY E. ORDER, M.D., P.C.,
D/B/A CENTER FOR MOLECULAR MEDICINE
CONDENSED STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
(UNAUDITED)
Three Months Ended
March 31,
2002 2001
-------------- ------------
Fee revenue $ 206,285 $ 173,107
------------- ------------
Operating expenses:
Doctors' compensation 78,750 107,500
Management/licensing fee - ISI 167,786 224,264
Insurance 19,515 18,771
Other operating expenses 58,703 45,906
------------- ------------
Total operating expenses 324,754 396,441
------------- ------------
Operating (loss) (118,469) (223,334)
Provision (credit) for income taxes - -
------------- ------------
Net (loss) (118,469) (223,334)
Accumulated (deficit) - Beginning of period (1,316,574) (346,308)
-------------- -----------
Accumulated (deficit) - End of period $ (1,435,043) $ (569,642)
============= ===========
11
STANLEY E. ORDER, M.D., P.C.,
D/B/A CENTER FOR MOLECULAR MEDICINE
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended
March 31,
2002 2001
---------------- --------------
Cash flows provided (used) by operating activities:
Net (loss) $ (118,469) $ (223,334)
--------------- --------------
Adjustments to reconcile net (loss) income to
net cash provided (used) by operating activities:
Allowance for doubtful accounts (39,705) 2,413
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable 28,005 (48,254)
Prepaid expenses and other current assets 17,112 17,140
Increase (decrease) in:
Accounts payable and other current liabilities 11,585 (18,689)
Management/licensing fee payable - ISI 167,786 224,264
Other long - term liabilities - (8,360)
--------------- ---------------
Total adjustments 184,783 168,514
--------------- ---------------
Cash flows provided by (used in) operating activities 66,314 (54,820)
--------------- ---------------
Cash flows provided by financing activities:
Proceeds from working capital advances 6,084 56,803
Repayments of working capital advances (52,900) (15,000)
--------------- ---------------
Cash flows (used in) provided by financing activities (46,816) 41,803
--------------- ---------------
Net increase (decrease) in cash and equivalents 19,498 (13,017)
Cash and equivalents - Beginning of period 5,000 17,628
--------------- ---------------
Cash and equivalents - End of period $ 24,498 $ 4,611
=============== ===============
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest $ - $ -
============== ==============
Income taxes $ - $ -
============== ============== =
12
STANLEY E. ORDER, M.D., P.C., D/B/A CENTER FOR MOLECULAR MEDICINE
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 2002
(UNAUDITED)
NOTE 1 - DESCRIPTION OF BUSINESS:
Stanley E. Order, M.D., P.C., doing business as the Center for
Molecular Medicine ("the Company"), was incorporated in New York on May
8, 1997. The Company specializes in radiation oncology research and
treatment. Radiation oncology is the treatment of tumors through
radiation. The Company employs two physicians, Stanley E. Order, M.D.,
Sc.D, F.A.C.R. and Wayne S. Court, Ph.D., M.D. From the time of its
incorporation through December 1, 1997, the Company had no operations.
The Company commenced operations in December 1997, when it entered into
an exclusive, full service, 30-year management/licensing agreement with
Isotope Solutions Inc. ("ISI") formerly known as Molecular Radiation
Management Inc.
The accompanying unaudited condensed financial statements are
being included as supplemental information to Form 10-QSB of Isotope
Solutions Group, Inc. Accordingly, they do not include all of the
information and footnotes required by accounting principles generally
accepted in the United States of America for complete financial
statements. In the opinion of the management of the Company, all
adjustments (consisting of normal accruals and adjustments) considered
necessary for a fair presentation have been included. Operating results
for the three months ended March 31, 2002 are not necessarily
indicative of the results that may be expected for the year ended
December 31, 2002.
13
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
INTRODUCTION
We were incorporated in the State of New York on August 13,
1990, and were considered a development stage company until September
2000. On September 13, 2000, we acquired Isotope Solutions Inc.
("ISI"). On November 14, 2001, we amended our certificate of
incorporation, changing our name from "EDG Capital, Inc." to "Isotope
Solutions Group, Inc."
We hold all of the outstanding capital stock of ISI (formerly
named Molecular Radiation Management, Inc.). We are a biopharmaceutical
company that began operations in 1998 as a medical group management
company. Although most of our revenues are still derived from our
medical group management operations, today we are focused primarily on
the development of nuclear pharmaceutical technologies for therapeutic
use in the treatment of various cancers. With the help of the medical
groups we manage, we are developing two anti-cancer nuclear
pharmaceutical technologies for which we own the U.S. patent rights:
195mPt-Cisplatin ("Radioactive Cisplatin"), a radioactive variation of
a commonly used chemotherapy drug, and colloidal P32 macro-aggregated
albumin ("colloidal P32/MAA"), a nuclear-isotope use and delivery
system. Pursuant to long-term contracts with the medical groups, we
provide them with business, financial and marketing support while they
conduct research and treat patients using our technologies and
traditional cancer treatment techniques. We charge the medical groups
administrative fees for our services and license fees for the use of
our nuclear pharmaceutical technologies in their practices.
In June 1995, Dr. Stanley E. Order was granted Patent No.
5,424,288 by the U.S. Patent and Trademark Office covering a "Method of
Treating Solid Tumor Cancers Utilizing Macro Aggregated Proteins and
Colloidal Radioactive Phosphorus." In July 1996, Dr. Order was granted
Patent No. 5,538,726 by the U.S. Patent and Trademark Office covering a
"Method and Compositions for Delivering Cytotoxic Agents to Cancer." In
March 1999, Dr. Order formally assigned Patent No. 5,424,288 to ISI and
in August 2000, Dr. Order formally assigned Patent No. 5,538,726 to
ISI, in each case in consideration for ISI's agreement to provide
services under the management/license agreement between ISI and Stanley
E. Order, M.D., P.C., d/b/a Center for Molecular Medicine ("Center for
Molecular Medicine"). Both of these patents had been orally assigned to
ISI by Dr. Order in December 1997, when the parties entered into the
management/license agreement. We paid Dr. Order one dollar for the
assignment of each of the patents. Dr. Order assigned the patents to us
because we agreed to help him establish a practice and to provide the
space, supplies, equipment and working capital advances, pursuant to
the management/license agreement, to enable him to do so. We provide
additional information regarding the working capital advances we have
made to Dr. Order's medical group under "Liquidity and Capital
Resources" below. We are not obligated to pay Dr. Order or his medical
group any royalties in the future. As a result of these assignments, we
own all rights to the colloidal P32/MAA technology described in these
patents. These are use patents, which give us exclusive rights to the
manner in which we are using the drug to treat cancer. The patents do
not give us the right to prevent others from using the drug in other
ways.
In June 2000, Dr. Stanley E. Order was granted Patent No.
6,074,626 by the U.S. Patent and Trademark Office covering "Radioactive
Cisplatin in the Treatment of Cancer." In March 1999, Dr. Order
assigned the application for this patent to ISI in consideration for
our agreement to provide services under the management/license
agreement between ISI and Center for Molecular Medicine. We paid Dr.
Order one dollar for the assignment of the patent. We are not obligated
to pay Dr. Order or his medical group any royalties in the future. As a
14
result of this assignment, we own all rights to the Radioactive
Cisplatin technology described in the patent. This is a use patent,
which gives us exclusive rights to the use of this drug to treat
cancer. The patent does not give us the right to prevent others from
using the drug in other ways.
Each of the medical groups we manage was formed at the time we
entered into the management/license agreements with the group. We
provided the Center for Molecular Medicine and another medical group,
New York Medical Oncology, P.C., d/b/a Center for Medical Oncology,
with the facilities and equipment they required to start their
practices. We did not provide Mitchell E. Levine, M.D., P.C., d/b/a
Center for Neuro-Oncology, with its own facilities and equipment, but
instead provided the medical group with access to the facilities and
equipment we provided to the other groups. We have also provided the
medical groups with working capital advances, which are described in
more detail under "Liquidity and Capital Resources" below. We
terminated our management/license agreement with New York Medical
Oncology, P.C., d/b/a Center for Medical Oncology, in July 2001 when
the group's principal physician, Dr. Ira Braunschweig, left the group
to accept a position in the Oncology Department of Brooklyn Hospital.
License fees and management fees from the medical groups we
manage generated approximately $1,968,000 in gross revenues in the
two-year period ended December 31, 2001, including $1,754,000 in
management fees and $214,000 in license fees. We generated additional
management fees of approximately $154,000 and license fees of
approximately $19,000 during the three-month period ended March 31,
2002. The license fee billed to the Center for Molecular Medicine in
2001 was $60,000. In December 2001 we set the license fee to be paid by
the Center for Molecular Medicine in 2002 at $60,000.
As of March 31, 2002, the Center for Molecular Medicine owed
us an aggregate of approximately $1,404,000 against fees billed in
2002, 2001 and 2000. As of March 31, 2002, Mitchell E. Levine, M.D.,
P.C., d/b/a Center for Neuro-Oncology, owed us approximately $81,000
against fees billed in 2002, 2001 and 2000, and New York Medical
Oncology, P.C., d/b/a Center for Medical Oncology, owed us
approximately $321,000 against fees billed in 2001 and 2000. We
evaluated the medical groups' ability to pay, and, based on this
analysis, we determined that an allowance of approximately $1,807,000,
the aggregate amount of fees receivable, is required at March 31, 2002.
The medical groups have not paid a substantial portion of the fees due
us because the number of patients treated by them declined
significantly beginning in 2001. This decline is largely attributable
to the commencement of formal FDA clinical trials of the P32/MAA
technology in December 2000, which resulted in limitations on patient
enrollment and eligibility.
At March 31, 2002, the Center for Molecular Medicine was owed
approximately $165,000 for services rendered to its patients, Mitchell
E. Levine, M.D., P.C., d/b/a Center for Neuro-Oncology had no
receivables from its patients and New York Medical Oncology, P.C.,
d/b/a Center for Medical Oncology, was owed approximately $19,000 for
services rendered to its patients.
We intend to carry the amounts owed by the medical groups
forward.
The medical groups are obligated to perform research relating
to our nuclear pharmaceutical technologies. All right, title and
interest in and to any and all improvements to the nuclear
pharmaceutical technologies that derive from the medical groups'
research belong to us.
We must have FDA approval for our colloidal P32/MAA and
Radioactive Cisplatin technologies before we can begin marketing them.
The FDA requires that new drugs undergo thorough clinical testing
before granting approval for the marketing of the drugs. Currently,
only colloidal P32/MAA is being studied, since Radioactive Cisplatin
15
has only recently been approved by the FDA for clinical trials. We
expect that the clinical trials being performed by the medical groups
we manage will help support the application for FDA approval of our
colloidal P32/MAA technology. Similarly, we expect that the clinical
trials of Radioactive Cisplatin, when they are conducted, will help
support the application for FDA approval of Radioactive Cisplatin.
Prior to November 2000, the Center for Molecular Medicine and
the other medical groups conducting the clinical studies of colloidal
P32/MAA also charged patients for the colloidal P32/MAA administered to
them. In November 2000, the FDA asked Dr. Stanley Order to submit an
Investigational New Drug ("IND") Application for colloidal P32/MAA. The
FDA asked Dr. Order, rather than ISI, to file the IND because Dr. Order
was the principal researcher for the clinical studies. For that reason,
and because the FDA's request was directed to Dr. Order, we asked Dr.
Order to file the IND. Dr. Order, through the Center for Molecular
Medicine, filed the IND in November 2000. On December 21, 2000, the FDA
advised Dr. Order and the Center for Molecular Medicine that because of
the higher dosages and novel ways in which the drug was administered in
the studies, the colloidal P32/MAA as administered in the studies was a
new drug within the meaning of the FDA's regulations and asked Dr.
Order and the Center for Molecular Medicine to submit a request for
permission to charge for the drug. The FDA's regulations require
persons conducting studies of new drugs that are the subject of an IND
to obtain the FDA's permission before charging participants in the
studies for the costs of the drug administered to them. Dr. Order and
the Center for Molecular Medicine have submitted a request for
permission to charge patients for the colloidal P32/MAA administered in
the studies. Until such permission is obtained, however, the medical
groups we manage are not charging patients for the colloidal P32/MAA
administered to them. Prior to November 2000, the medical groups
charged patients in the clinical studies an aggregate of approximately
$300,000 for colloidal P32/MAA administered in the studies. If
patients, or their insurance providers, who paid for the colloidal
P32/MAA administered in the studies successfully claim that the medical
groups were not entitled to charge for the colloidal P32/MAA
administered to the patients, the medical groups could be liable to
repay the amounts charged.
In the future we may license our collodial P32/MAA technology
and certain related non-proprietary technologies to various radiation
oncology facilities. We believe that radiation oncology facilities may
be willing to pay license fees to us in order to participate in our
clinical studies of these technologies and obtain access to patients
who wish to be treated with these technologies. By participating in our
studies, these radiation oncology facilities could receive payments
from the patients' insurance companies or other payors for services
that would normally be a part of the treatment protocol for these
patients in the absence of the technology being studied. We believe
that the participation of these radiation oncology facilities in the
studies may help accelerate data collection for the studies and perhaps
ultimately result in earlier approval of these technologies by the FDA.
Traditionally, however, radiation oncology facilities and other medical
groups do not pay to participate in studies of new technologies prior
to the approval of such technologies by the FDA, but rather are
typically paid by drug developers to do so. We cannot assure you that
we will be able to persuade radiation oncology facilities to pay us
license fees to participate in clinical studies of our technologies.
We are also considering entering into joint development
arrangements with established biotechnology and pharmaceutical
companies seeking promising new technologies, or with established
radiopharmaceutical companies seeking to improve their product
pipelines. An arrangement with an established company for the joint
development of one or both of our principal proprietary technologies
could provide us with the necessary funds to accelerate the development
of our Radioactive Cisplatin technology and the other radioactive
platinum technologies in our product pipeline. We have not entered into
16
any joint development arrangements yet and we cannot assure you that we
will be able to do so. Even if we do enter into a joint development
arrangement, we cannot assure you that it will be beneficial to us.
From time to time we may retain consultants to assist us in
connection with our efforts to license our technologies and enter into
joint development arrangements. To date, we have retained several
consultants for this purpose. We have agreed to pay certain
compensation to the consultants, including contingent compensation
payable upon the closing of a partnering or financing transaction with
a third party introduced by the consultant.
Through March 31, 2002, approximately 55% of the patients
treated by the medical groups we manage are enrolled in the clinical
studies of our colloidal P32/MAA technology and approximately 1% are
enrolled in third party clinical studies. Approximately 44% of the
patients treated by the medical groups are not enrolled in any formal
study being conducted by the medical groups.
CRITICAL ACCOUNTING POLICIES
Revenue Recognition:
Pursuant to the management/license agreements with the medical
groups that we manage, we provide the medical groups with laboratory
and treatment space and all necessary supplies, including the
components of our nuclear pharmaceuticals. We also provide the medical
groups with all clerical personnel and other non-medical personnel
necessary to manage the groups' practice and research activities.
Pursuant to the agreements, we also license our nuclear pharmaceutical
technologies to the groups and provide the groups with a range of
consulting and practice management services, including billing and
collection. In return, we charge the medical groups license fees on a
monthly basis and management fees on a weekly and monthly basis. The
weekly management fee covers consulting, billing and collection
services and medical supplies. The monthly management fee covers
treatment and laboratory space, furnishings and equipment, clerical
services and staff and managerial and administrative services. The
billing and collection services portion of the weekly management fee is
based upon a percentage of the medical group's billings. The consulting
and medical supplies portions of the weekly management fee are each
equal to our actual costs plus a percentage of such costs as a markup.
The weekly fee markup and the monthly license and management fees are
set each year in advance by mutual agreement of the parties. Revenues
generated from such services are recognized as such services are
provided. The license fees we charge the medical groups for the use of
our colloidal P-32 patented technology are set each year in advance at
a level that is intended to reflect the expected usage of the licensed
technology by the medical group during the year. Revenues generated
from such licensing arrangements are recognized on a monthly basis.
Use of Estimates:
The management/license agreements entered into with the
medical groups do not provide for relief against amounts owed to us.
Management fees owed are based on the original amounts billed, whether
or not the medical groups experience write-offs of uncollectible
amounts from their patients and/or their patients insurance carriers.
However, we provide for an allowance against fees receivable to reflect
the medical groups' ability to pay. The medical groups' ability to pay
is based on an evaluation of its patient receivables, net of
liabilities. Cash received from the medical groups is first applied to
reduce working capital advances made and is then applied to fees
receivable.
17
Clinical Trials Expense:
Although we provide the medical groups with the supplies they
need to conduct the clinical studies, we recoup the costs of these
supplies through the management fees we receive from the medical
groups. The medical groups bill the patients participating in the
studies for the treatments they are given. Consequently, the patients,
and their insurance companies, provide revenue to the medical groups,
who in turn pay us management and licensing fees, thus providing
funding that supports the clinical studies of our nuclear
pharmaceutical technologies. If we were to conduct this research on our
own, without the medical groups, the costs would be prohibitive since
they would not be offset by the license fees and management fees
derived from the treatment of patients that we receive from the medical
groups.
The medical groups receive payment by the patients' insurance
companies and other payors for treatments and procedures that, while
part of the study being conducted, are accepted treatments and
procedures that would normally be a part of the treatment protocol for
these patients in the absence of the drug or methodology being studied.
For example, a patient participating in the study may receive
treatments of colloidal P32/MAA, radiation and chemotherapy. The
medical groups would receive payment for the radiation and chemotherapy
treatments, and for the application of the colloidal P32/MAA.
The medical groups we manage also participate in clinical
studies sponsored by third party pharmaceutical companies. Because
certain portions of the weekly management fees we charge the medical
groups are based on a percentage of their billings, we share in the
revenues that the medical groups earn through their participation in
the third party clinical studies. As with the clinical studies of our
nuclear pharmaceutical technologies, the medical groups receive payment
by the patients' insurance companies and other payors for treatments
and procedures that would normally be a part of the treatment protocol
for these patients in the absence of the drug or methodology being
studied, but are not reimbursed for any investigational drugs
administered to the patients unless such reimbursement has been
approved by the FDA. The medical groups also receive fees from the
third party sponsors of the clinical studies for participating in the
studies.
RESULTS OF OPERATIONS
Three Months Ended March 31, 2002 and 2001
Revenues
Revenues for the three months ended March 31, 2002, were
$172,286, as compared to $289,699 for the three months ended March 31,
2001. This decrease of $117,413, or 40.5%, was due primarily to the
reduction of fees generated in the medical groups we manage as a result
of our focus on the development of our nuclear pharmaceutical
technologies in the second half of 2001. To date, patient accrual, and
income derived from the treatment of those patients, has been dependent
to a great extent on our public relations efforts and the resulting
media exposure. Our revenues have fluctuated depending on the timing of
media exposure. Approximately $50,000 of this decrease was due to the
termination of our management/license agreement with New York Medical
Oncology, P.C., d/b/a Center for Medical Oncology in July 2001, when
the group's principal physician, Dr. Ira Braunschweig, left the group
to accept a position in the Oncology Department of Brooklyn Hospital.
Costs and Expenses
Costs of revenues were $79,168 for the three months ended
March 31, 2002, and $144,046 for the three months ended March 31, 2001.
This decrease of $64,878, or 45.0%, was primarily the result of the
18
termination of our management/license agreement with New York Medical
Oncology, P.C., d/b/a Center for Medical Oncology in July 2001.
Research and development ("R&D") expenses decreased from
$265,638 for three months ended March 31, 2001, to $176,948 for the
three months ended March 31, 2002. This decrease of $88,690, or 33.4%,
was primarily a result of the Company's advertising and public
relations efforts to accrue patients for our clinical trials research
during the first quarter of 2001. We did not advertise in the first
quarter of 2002.
R&D expenses for the three months ended March 31, 2002, are
broken down as follows:
Colloidal P32/MAA technology $ 76,970
Radioactive Cisplatin technology 96,598
Other 3,380
-------------
$ 176,948
=============
General and administrative expenses were $341,224 for the
three months ended March 31, 2002, and $466,860 for the three months
ended March 31, 2001. This decrease of $125,636, or 26.9%, was
primarily due to professional fees incurred in the submission of a
registration statement to the Securities and Exchange Commission and a
decrease in our bad debt expense against fees receivable of
approximately $39,000.
Interest expense was $72,032 for the three months ended March
31, 2002. There was no interest expense for the three months ended
March 31, 2001. Interest expense is recognized on the notes payable
issued in August, September and December 2001, as well as advances
received from certain investors in the three months ended March 31,
2002, the terms of which have not been determined (see "Liquidity and
Capital Resources" below). Additionally, the amortization of the
discount related to the warrants issued in connection with the notes
payable resulted in interest costs that were not present in the
corresponding period of the prior year.
Net Loss
For the three months ended March 31, 2002, we had a net loss
of $493,094 ($0.04 per share) versus a net loss of $570,818 ($0.05 per
share) for the three months ended March 31, 2001. This decrease in the
loss was due to the items as described above.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2002, our balance sheet reflected cash of
$11,568, negative working capital of $1,494,598 and a current ratio of
approximately 0.1 to 1. At December 31, 2001, the balance sheet
reflected cash of $98,259, negative working capital of $999,673 and a
current ratio of 0.3 to 1. This net decrease in cash and working
capital is primarily attributable to the aging of accounts payable due
to costs incurred on behalf of the medical groups we managed, for which
we have not been repaid through management fees charged to them. This
decrease was partially offset by advances received from certain
investors to fund our ongoing operations, as further discussed below.
In addition to losses realized during 2001, we sustained
further operating losses of $493,094 during the three months ended
March 31, 2002, and as of that date had a net worth deficiency of
$1,348,379. We believe that our current cash reserves are insufficient
to finance our operations and we are actively seeking additional
funding. To continue our current operations at existing levels, we will
require approximately $1,600,000 of additional funds over the next 12
months.
19
We filed an Investigational New Drug Application with the FDA
for the study of our Radioactive Cisplatin technology on June 4, 2001,
and on July 9, 2001, we received approval from the FDA to commence the
clinical studies. We continue to incur significant costs in connection
with the launch of the Phase I studies. We expect that these costs may
exceed $5,000,000 during the first year of the studies. Without
additional funding, we will not be able to launch the Phase I studies
of our Radioactive Cisplatin technology. Therefore, we need to raise
additional funds through equity or debt offerings. Additional funding
may not be available to us on favorable terms, or at all. Our ability
to obtain such additional funding and to achieve our operating goals is
uncertain.
In August 2001, we raised $500,000 in a private placement in
which we sold, pursuant to an exemption from registration under Section
4(2) of the Securities Act of 1933, 10 units, each consisting of a
convertible promissory note in the principal amount of $50,000 and a
warrant to purchase 12,500 shares of our common stock. These unsecured
notes accrue interest at a rate of 8% per annum and were automatically
convertible into shares of our common stock, at a price of $2.00 per
share, upon the closing of a private offering of our common stock that
was pending when the notes were issued. The notes are payable on the
earliest of (i) the first anniversary of the date of issuance, (ii) the
date of the first closing of the private offering of common stock,
(iii) the date of consummation of a sale of all or substantially all
assets or a merger or consolidation involving Isotope Solutions Group,
Inc. in which Isotope Solutions Group, Inc. is not the surviving
entity, (iv) the date of consummation of the sale or exchange
(including by way of merger) of all or substantially all outstanding
shares of common stock, or (v) upon the termination of the private
offering of common stock by the placement agent under certain
circumstances. The private offering expired by its terms on May 1,
2002, without causing the notes to become due. The warrants are
exercisable for a period of five years at an exercise price of $2.00
per share.
In December 2001, we raised $130,000 in a private placement in
which we sold, pursuant to an exemption from registration under Section
4(2) of the Securities Act of 1933, 2.6 units, each consisting of a
convertible promissory note in the principal amount of $50,000 and a
warrant to purchase 12,500 shares of our common stock. The notes accrue
interest at a rate of 8% per annum and were automatically convertible
into shares of our common stock, at a price of $2.00 per share, upon
the closing of a private offering of our common stock that was pending
when the notes were issued. The notes are secured by a first priority
security interest in our patent No. 6,074,626 covering "Radioactive
Cisplatin in the Treatment of Cancer". The notes are payable on the
earliest of (i) December 26, 2002, (ii) the date of the first closing
of the private offering of common stock, (iii) the date of consummation
of a sale of all or substantially all of our assets or a merger or
consolidation involving Isotope Solutions Group, Inc. in which Isotope
Solutions Group, Inc. is not the surviving entity, (iv) the date of
consummation of the sale or exchange (including by way of merger) of
all or substantially all of our outstanding shares of common stock, or
(v) upon the termination of the private offering of common stock by the
placement agent under certain circumstances. The private offering
expired by its terms on May 1, 2002, without causing the notes to
become due. If we are unable to repay the principal and accrued
interest on the notes when they become due, we could lose our patent
rights to our Radioactive Cisplatin technology. These warrants are also
exercisable for a period of five years at an exercise price of $2.00
per share.
The proceeds of debt issued with the stock purchase warrants
related to the August and December 2001 financings are allocated based
on the fair value of the debt without the warrants and of the warrants
themselves when issued. Accordingly, we recorded deferred financing
costs and additional paid-in capital of $234,000 for the value of the
warrants. Such deferred costs are being charged to operations as
additional interest expense over the term of the notes.
20
During the three months ended March 2002, the Company received
cash advances aggregating $50,000 from certain investors. In April and
May 2002, subsequent to the balance sheet date, the Company received
additional cash advances aggregating $100,000 from certain of these
investors. The terms of these advances have not yet been determined.
Between September 2001 and May 2002, we made a private
offering of a minimum of 1,250,000 shares and a maximum of 2,500,000
shares of our common stock to certain accredited investors, at a price
of $2.00 per share. The offering ended on May 1, 2002, without being
consummated.
We continue to pursue several different possible ways to solve
our existing liquidity problems. We are seeking additional financing
through private financing sources, including equity or debt financing.
We are evaluating proposals for strategic transactions such as a merger
or the sale of certain segments of our business operations.
In the future we may license our collodial P32/MAA technology
and certain related non-proprietary technologies to various radiation
oncology facilities. We believe that radiation oncology facilities may
be willing to pay license fees to us in order to participate in our
clinical studies of these technologies and obtain access to patients
who wish to be treated with these technologies. By participating in our
studies, these radiation oncology facilities could receive payments
from the patients' insurance companies or other payors for services
that would normally be a part of the treatment protocol for these
patients in the absence of the technology being studied. We believe
that the participation of these radiation oncology facilities in the
studies may help accelerate data collection for the studies and perhaps
ultimately result in earlier approval of these technologies by the FDA.
Traditionally, however, radiation oncology facilities and other medical
groups do not pay to participate in studies of new technologies prior
to the approval of such technologies by the FDA, but rather are
typically paid by drug developers to do so. We cannot assure you that
we will be able to persuade radiation oncology facilities to pay us
license fees to participate in clinical studies of our technologies.
We are also considering entering into joint development
arrangements with established biotechnology and pharmaceutical
companies seeking promising new technologies, or with established
radiopharmaceutical companies seeking to improve their product
pipelines. An arrangement with an established company for the joint
development of one or both of our principal proprietary technologies
could provide us with the necessary funds to accelerate the development
of our Radioactive Cisplatin technology and the other radioactive
platinum technologies in our product pipeline. We have not entered into
any joint development arrangements yet and we cannot assure you that we
will be able to do so. Even if we do enter into a joint development
arrangement, we cannot assure you that it will be beneficial to us.
From time to time we may retain consultants to assist us in
connection with our efforts to license our technologies and enter into
joint development arrangements. To date, we have retained several
consultants for this purpose. We have agreed to pay certain
compensation to the consultants, including contingent compensation
payable upon the closing of a partnering or financing transaction with
a third party introduced by the consultant.
Pursuant to our management/license agreements with the medical
groups that we manage, we have provided the medical groups with working
capital advances from time to time. The table below describes the
working capital advances we have made to each of Stanley E. Order,
M.D., P.C., d/b/a Center for Molecular Medicine, Mitchell E. Levine,
M.D., P.C., d/b/a Center for Neuro-Oncology, and New York Medical
Oncology, P.C., d/b/a Center for Medical Oncology, and the payments we
have received from the medical groups against the advances:
21
1997
through March 31,
1999 2000 2001 2002
------------ ---------- ----------- -----------
Stanley E. Order, M.D., P.C.
Advances $ 147,506 $ 75,000 $ 207,000 $ 4,000
Repayments $ (147,506) (20,000) (146,431) (52,900)
Interest - 169 5,802 2,084
---------- ----------- ------------ ------------
Advances receivable - end of period - $ 55,169 $ 121,540 $ 74,724
Mitchell E. Levine, M.D., P.C.
Advances 555 - - -
Repayments - (555) - -
Interest - - - -
----------- ------------ ------------ -----------
Advances receivable - end of period $ 555 - - -
New York Medical Oncology, P.C.
Advances - 91,816 69,064 -
Repayments - - (144,000) (3,000)
Interest - 1,510 6,557 308
----------- ------------ ------------ -----------
Advances receivable - end of period $ - $ 93,326 $ 24,947 $ 22,255
As of March 31, 2002, we recorded a provision of $41,956
against working capital advances receivable from the medical groups.
Cash received from the medical groups is first applied to
reduce working capital advances made and is then applied to fees
receivable.
FORWARD-LOOKING STATEMENTS
Some of the statements in this report are forward-looking
statements that involve risks and uncertainties. These forward-looking
statements include statements about our plans, objectives,
expectations, intentions and assumptions that are not statements of
historical fact. You can identify these statements by the following
words:
o "may" o "plans"
o "will" o "expects"
o "should" o "believes"
o "estimates" o "intends"
and similar expressions. We cannot guarantee our future results,
performance or achievements. Our actual results and the timing of
corporate events may differ significantly from the expectations
discussed in the forward-looking statements. You are cautioned not to
place undue reliance on any forward-looking statements. Potential risks
and uncertainties that could affect our future operating results
include, but are not limited to, the risks described in Exhibit 99.1 to
our Annual Report on Form 10-KSB for the year ended December 31, 2001,
including our limited operating history, history of losses, need to
raise additional capital, the high risk nature of our business and our
dependence on a few managed medical groups, as well as our ability to
protect our intellectual property rights.
22
Part II. Other Information
Item 2. Changes in Securities
The following table sets forth certain information with
respect to our issuance of certain securities during and after the
quarter ended March 31, 2002, without registration of such securities
under the Securities Act:
Securities Date Exemption
Sold Sold Purchaser Consideration Claimed Use of Proceeds
---------- ---- --------- ------------- ---------- --------------
406,755 shares April 22, 2002 Davis & Gilbert Cancellation of Section 4(2) We did not
of common stock LLP, our general accrued fees and receive cash
counsel disbursements for proceeds for
legal services these securities
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
On January 3, 2002, we filed a Form 8-K regarding (i) the
consummation of a private placement of $130,000 of units of our
securities, pursuant to an exemption from registration under Section
4(2) of the Securities Act of 1933, as amended, and (ii) the status of
a private placement offering of our common stock, pursuant to an
exemption from registration under Section 4(2) of the Securities Act of
1933, as amended.
23
SIGNATURES
In accordance with the requirements of the Securities and Exchange Act
of 1934, the Registrant caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
Date: May 15, 2002 By:/s/ Jack Schwartzberg
----------------------------------
Jack Schwartzberg, Chief
Executive Officer and President
Date: May 15, 2002 By:/s/ Shraga D. Aranoff
---------------------------------------
Shraga D. Aranoff, Vice President
and Treasurer (Principal Financial Officer)
24