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 September 30, 2001
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
EDG CAPITAL, 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) (Zip Code)
(516) 222-7749
----------------------------
(Issuer's telephone number)
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 --------------
The number of shares of the issuer's common stock, par value $.001 per share,
outstanding on November 9, 2001 was 11,052,232 shares.
EDG CAPITAL, INC.
- INDEX -
PAGE(S)
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PART I. Financial Information
Item 1. Condensed Consolidated Financial Statements of EDG Capital, Inc.
and Subsidiary:
Condensed Consolidated Balance Sheets - September 30, 2001 (Unaudited)
and December 31, 2000 3
Condensed Consolidated Statements of Operations (Unaudited) -
Three and Nine Months Ended September 30, 2001 and 2000 4
Condensed Consolidated Statements of Cash Flows (Unaudited) -
Nine Months Ended September 30, 2001 and 2000 5
Notes to Condensed Consolidated Financial Statements of
EDG Capital, Inc. and Subsidiary (Unaudited) 6 - 8
SUPPLEMENTAL INFORMATION:
Condensed Financial Statements of Stanley E. Order, M.D., P.C.:
Condensed Balance Sheets as of September 30, 2001, and December 31,
2000 (Unaudited) 9
Condensed Statements of Operations and (Deficit) for the Three and
Nine Months Ended September 30, 2001, and 2000 (Unaudited) 10
Condensed Statements of Cash Flows for the Nine Months Ended
September 30, 2001, and 2000 (Unaudited) 11
Notes to Condensed Financial Statements of
Stanley E. Order, M.D., P.C. (Unaudited) 12
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 13-20
PART II. Other Information 21
Item 2. Changes in Securities 21
Item 4. Submission of Matters to a Vote of Security Holders 21-22
Item 5. Other Information 22-23
Item 6. Exhibits and Reports on Form 8-K 23
SIGNATURES 24
- 2 -
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
EDG CAPITAL, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
- ASSETS -
September 30, December 31,
2001 2000
------------- ------------
(Unaudited) (As Restated
- Note 3)
CURRENT ASSETS:
Cash $ 224,325 $ 1,032,563
Fees receivable - net of allowance for doubtful accounts of $1,380,000 and $520,000
for 2001 and 2000, respectively 60,973 181,647
Loans and advances - net 123,704 98,495
Deferred tax asset 24,475 36,550
Prepaid expenses and other 75,421 110,151
------------ --------------
TOTAL CURRENT ASSETS 508,898 1,459,406
------------ --------------
71,975 90,209
------------ --------------
PROPERTY AND EQUIPMENT - NET
OTHER ASSETS:
Patents - net 72,011 13,386
Security deposits and other 2,694 2,694
Deferred tax asset 116,862 104,787
------------ --------------
191,567 120,867
------------ --------------
$ 772,440 $ 1,670,482
============ ==============
- LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) -
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 618,860 $ 91,287
Notes payable 500,000 -
------------ --------------
TOTAL CURRENT LIABILITIES 1,118,860 91,287
------------ --------------
COMMITMENTS AND CONTINGENCIES (NOTE 4)
SHAREHOLDERS' EQUITY (DEFICIT):
Common stock, par value $.001; authorized 50,000,000 shares; 11,052,232
shares issued and outstanding in 2001 and 2000, respectively 11,052 11,052
Additional paid-in capital 2,470,507 2,470,507
Accumulated deficit (2,827,979) (902,364)
------------ --------------
(346,420) 1,579,195
------------ --------------
$ 772,440 $ 1,670,482
============ ==============
See notes to condensed consolidated financial statements.
- 3 -
EDG CAPITAL, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------------- ------------------------------------
2001 2000 2001 2000
---------------- ---------------- ---------------- ----------------
REVENUES:
Management fees $ 226,799 $ 216,532 $ 694,695 $ 621,219
License fees 18,600 39,575 66,000 75,575
---------------- ---------------- ---------------- ----------------
245,399 256,107 760,695 696,794
---------------- ---------------- ---------------- ----------------
COSTS AND EXPENSES:
Costs of revenues 128,512 175,708 354,265 340,517
Research and development 199,707 162,821 750,780 542,563
General and administrative expenses 786,619 143,157 1,604,282 249,517
Interest and other expenses (income) 471 190 (23,017) (2,081)
---------------- ---------------- ----------------- -----------------
1,115,309 481,876 2,686,310 1,130,516
---------------- ---------------- ---------------- ----------------
LOSS BEFORE PROVISION
(CREDIT) FOR INCOME TAXES (869,910) (225,769) (1,925,615) (433,722)
Provision (credit) for income taxes - - - -
---------------- ---------------- ---------------- ---------------
NET LOSS $ (869,910) $ (225,769) $ (1,925,615) $ (433,722)
================= =============== ================= ===============
LOSS PER COMMON SHARE:
BASIC AND FULLY DILUTED $ (0.08) $ (0.03) $ (0.17) $ (0.05)
================ ============== ================ ==============
WEIGHTED AVERAGE SHARES OUTSTANDING 11,052,232 8,433,062 11,052,232 8,089,956
================ ================ ================ ================
See notes to condensed consolidated financial statements.
- 4 -
EDG CAPITAL, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended
September 30,
--------------------------------
2001 2000
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,925,615) $ (433,722)
Adjustments to reconcile net loss to net cash flows used by operating activities:
Depreciation and amortization 23,092 6,118
Allowance for doubtful accounts 853,202 -
Compensatory shares - 83,876
Changes in operating assets and liabilities:
Fees receivable (739,326) (88,018)
Prepaid expenses and other 34,730 (16,881)
Accounts payable and accrued expenses 527,573 140,427
------------ ------------
Net cash (used) by operating activities (1,226,344) (308,200)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (4,181) (72,996)
Loans and advances (18,411) -
Patent costs (59,302) (6,548)
------------ ------------
Net cash (used) by investing activities (81,894) (79,544)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Notes payable 500,000 -
Net proceeds from sale of common shares - 1,902,731
------------ ------------
Net cash provided by financing activities 500,000 1,902,731
------------ ------------
NET (DECREASE) INCREASE IN CASH (808,238) 1,514,987
CASH, BEGINNING OF PERIOD 1,032,563 19,145
------------ ------------
CASH, END OF PERIOD $ 224,325 $ 1,534,132
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $ - $ 2,937
------------ ------------
Income taxes paid $ 2,020 $ -
============ ============
See notes to condensed consolidated financial statements.
- 5 -
EDG CAPITAL, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001
(UNAUDITED)
NOTE 1 - DESCRIPTION OF BUSINESS:
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.
Subject to shareholder approval, the Company intends to amend its
certificate of incorporation to change its name 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 effected (a) 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 retroactively 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 has also adopted
the fiscal year end of ISI, which is December 31. EDG Capital,
Inc., the former reporting company, had no operations prior to the
recapitalization.
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, or 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 -
EDG CAPITAL, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001
(UNAUDITED)
NOTE 1 - DESCRIPTION OF BUSINESS (CONTINUED):
The accompanying consolidated unaudited condensed financial
statements have been prepared in accordance with accounting
principles generally accepted in the United States of America for
interim financial information and with the instructions to Form
10-QSB (see Note 3 re: Restatements). 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
management, all adjustments (consisting of normal accruals and
adjustments) considered necessary for a fair presentation have
been included. Operating results for the three and nine months
ended September 30, 2001, are not necessarily indicative of the
results that may be expected for the year ended December 31, 2001.
In addition to losses realized during 2000, the Company has
sustained further operating losses of $1,925,615 during the
nine-month period ended September 30, 2001, and as of that date
had a working capital deficit of $609,962 and a net worth
deficiency of $346,420. The Company believes that its current cash
reserves are insufficient to finance its operations and is
actively seeking additional funding. See Item 5 in Part II of this
Form 10-QSB for information concerning the Company's efforts to
raise additional funds.
NOTE 2 - INCOME (LOSS) PER COMMON SHARE:
Basic income (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 2001 and 2000,
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.
NOTE 3 - RESTATEMENTS:
The Company determined, based upon a review of the collectibility
of its fees receivable and loans and advances receivable, that an
increase in the allowance for doubtful accounts of $520,000 and
$50,000, respectively, was necessary as of December 31, 2000.
Accordingly, the Company restated its December 31, 2000, financial
statements to reflect the increased allowance for doubtful
accounts.
The following table presents the impact of the restatements:
As Previously
Reported As Restated
------------- ---------------
Year Ended December 31, 2000:
Balance Sheet:
Fees receivable - net $ 701,647 $ 181,647
Loans and advances - net 148,495 98,495
Accumulated deficit (332,364) (902,364)
- 7 -
EDG CAPITAL, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001
(UNAUDITED)
NOTE 4 - LEGAL MATTERS:
In May 2001, the Company was advised by Dr. Stanley E. Order that
Associates in Radiation Oncology, P.A. had contacted him by letter
dated April 30, 2001 and claimed that it was entitled to 50% of
all royalties or fees obtained by Dr. Order from patent No.
5,538,726. Associates in Radiation Oncology's claim is apparently
based on an agreement between Dr. Order and Cooper
Hospital/University Medical Center dated June 5, 1991, pursuant to
which Dr. Order became a clinical professor of radiology at the
Robert Wood Johnson Medical School and a member of Associates in
Radiation Oncology. Dr. Order left the medical school and ended
his relationship with Associates in Radiation Oncology in December
1997, when he formed Stanley E. Order, M.D., P.C., d/b/a/ Center
for Molecular Medicine, a medical practice group managed by the
Company. The agreement between Dr. Order and Cooper
Hospital/University Medical Center provided that, in the event
that research was carried out with any corporate entity on a
royalty or percentage return basis, Dr. Order would receive 50% of
the income, 25% would be remitted to a certain Radiation Research
Fund, which is now defunct, and 25% would be remitted to
Associates in Radiation Oncology. The agreement also provided that
in the event Dr. Order severed his relationship with Associates in
Radiation Oncology, his percentage payment of any royalty payments
or fees would continue. The agreement did not address the
ownership or use of any patents or technology and was silent
regarding assignment of any patents or technology. Associates in
Radiation Oncology claims that the fees for obtaining the patent
were paid by Associates in Radiation Oncology with the presumption
of return based on future earnings.
At present, the Company is not aware that any litigation has been
commenced in this matter and believes that Associates in Radiation
Oncology's claim is without merit. The Company and Dr. Order
believe that they have meritorious defenses to this claim and
intend to defend against this claim vigorously.
NOTE 5 - RECLASSIFICATIONS:
Certain reclassifications have been made to the 2000 consolidated
statements of operations and cash flows to conform to
classifications used in 2001.
NOTE 6 - NOTES PAYABLE:
In August and September 2001, the Company raised $500,000 in a
private placement in which it 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 common stock purchase warrant to
purchase 12,500 shares of common stock. The notes accrue interest
at a rate of 8% per annum and are automatically convertible into
shares of common stock, at a price of $2.00 per share, upon the
closing of a private offering of common stock that the Company is
making during the third and fourth quarters of fiscal 2001. The
warrants are exercisable for a period of five years at an exercise
price of $2.00 per share.
See Item 5 of this Form 10-QSB for further information concerning
the private offering of common stock that the Company is making
during the third and fourth quarters of fiscal 2001.
- 8 -
SUPPLEMENTAL INFORMATION:
STANLEY E. ORDER, M.D., P.C.
CONDENSED BALANCE SHEETS
SEPTEMBER 30, 2001 AND DECEMBER 31, 2000
(UNAUDITED)
- ASSETS -
September 30, December 31,
2001 2000
------------- ------------
CURRENT ASSETS:
Cash $ 11,205 $ 17,628
Accounts receivable - net 122,216 182,654
Other current assets 14,559 65,705
------------ --------------
TOTAL CURRENT ASSETS 147,980 265,987
------------ --------------
$ 147,980 $ 265,987
============ ==============
- LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIENCY) -
CURRENT LIABILITIES:
Accounts payable and other current liabilities $ 6,707 $ 61,989
Working capital advances - I.S.I. 101,704 --
Management/licensing fees payable - I.S.I. 1,047,565 486,677
------------ --------------
TOTAL CURRENT LIABILITIES 1,155,976 548,666
------------ --------------
LONG-TERM LIABILITIES:
Working capital advances - I.S.I. -- 55,169
Other long-term liabilities -- 8,360
------------ --------------
-- 63,529
------------ --------------
TOTAL LIABILITIES 1,155,976 612,195
------------ --------------
STOCKHOLDER'S EQUITY (DEFICIENCY):
Common stock 100 100
(Accumulated deficit) (1,008,096) (346,308)
------------ --------------
(1,007,996) (346,208)
------------ --------------
$ 147,980 $ 265,987
============ ==============
- 9 -
STANLEY E. ORDER, M.D., P.C.
CONDENSED STATEMENTS OF OPERATIONS AND (DEFICIT) RETAINED EARNINGS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
(UNAUDITED)
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------------- ------------------------------------
2001 2000 2001 2000
---------------- ---------------- ---------------- ----------------
FEE REVENUE $ 151,534 $ 241,462 $ 604,114 $ 926,304
---------------- -------------- ---------------- --------------
OPERATING EXPENSES:
Doctors' compensation 107,500 107,500 322,500 322,500
Management/licensing fees - I.S.I. 187,063 199,196 565,457 639,640
Insurance 20,130 13,246 59,677 34,187
Other operating expenses 224,773 31,464 318,058 77,289
---------------- ---------------- ---------------- ----------------
539,466 351,406 1,265,692 1,073,616
---------------- ---------------- ---------------- ----------------
OPERATING LOSS (387,932) (109,944) (661,578) (147,312)
Provision for state income taxes (70) (94) (210) (285)
----------------- ----------------- ----------------- -----------------
NET LOSS (388,002) (110,038) (661,788) (147,597)
(Deficit) retained earnings - beginning of period (620,094) 10,455 (346,308) 48,014
----------------- --------------- ----------------- ----------------
(DEFICIT) - END OF PERIOD
$ (1,008,096) $ (99,583) $ (1,008,096) $ (99,583)
================= ================ ================= =================
- 10 -
STANLEY E. ORDER, M.D., P.C.
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001 AND, 2000
(UNAUDITED)
Nine Months Ended
September 30,
----------------------------------
2001 2000
-------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (661,788) $ (147,597)
Adjustments to reconcile net loss to net cash flows from operating activities:
Allowance for doubtful accounts (3,181) (6,981)
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable 63,619 139,619
Prepaid licensing fees - 54,000
Prepaid expenses and other current assets 51,146 24,571
Increase (decrease) in:
Accounts payable and other current liabilities (55,282) (33,730)
Management/licensing fees payable - I.S.I. 560,888 (18,801)
Other long-term liabilities (8,360) -
-------------- --------------
CASH FLOWS (USED) PROVIDED BY OPERATING ACTIVITIES (52,958) 11,081
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from working capital advances 167,966 -
Payments of working capital advances (121,431) -
-------------- --------------
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES 46,535 -
-------------- --------------
NET (DECREASE) INCREASE IN CASH (6,423) 11,081
CASH, BEGINNING OF PERIOD 17,628 13,706
-------------- --------------
CASH, END OF PERIOD $ 11,205 $ 24,787
============== ==============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $ 5,559 $ 1,112
============== ==============
Income taxes paid $ 280 $ 380
============== ==============
STANLEY E. ORDER, M.D., P.C.
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001
(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,
thirty 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 EDG
Capital, 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 Stanley
E. Order, M.D., P.C., all adjustments (consisting of normal
accruals and adjustments) considered necessary for a fair
presentation have been included. Operating results for the three
and nine months ended September 30, 2001, are not necessarily
indicative of the results that may be expected for the year ended
December 31, 2001.
NOTE 2- LEGAL MATTERS:
On April 30, 2001, Dr. Stanley E. Order received a letter from
Associates in Radiation Oncology, P.A. ("AROPA") which claimed
that AROPA was entitled to 50% of all royalties or fees obtained
by Dr. Order from patent No. 5,538,726. AROPA's claim is
apparently based on an agreement between Dr. Order and Cooper
Hospital/University Medical Center dated June 5, 1991, pursuant to
which Dr. Order became a clinical professor of radiology at the
Robert Wood Johnson Medical School and a member of AROPA. Dr.
Order left the medical school and ended his relationship with
AROPA in December 1997, when he formed Stanley E. Order, M.D.,
P.C., d/b/a/ Center for Molecular Medicine. The agreement between
Dr. Order and Cooper Hospital/University Medical Center provided
that in the event that research was carried out with any corporate
entity on a royalty or percentage return basis, Dr. Order would
receive 50% of the income, 25% would be remitted to a certain
Radiation Research Fund, which is now defunct, and 25% would be
remitted to AROPA. The agreement also provided that in the event
Dr. Order severed his relationship with AROPA, his percentage
payment of any royalty payments or fees would continue.
The agreement did not address the ownership or use of any patents
or technology and was silent regarding assignment of any patents
or technology. AROPA claims that the fees for obtaining the patent
were paid by AROPA with the presumption of return based on future
earnings.
Currently, the Company is not aware that any litigation has been
commenced in this matter and believes that AROPA's claim is
without merit. The Company and Dr. Order believe that they have
meritorious defenses to this claim and intend to defend against
this claim vigorously. Therefore, the ultimate outcome of this
matter cannot presently be determined.
- 12 -
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
INTRODUCTION
------------
EDG Capital, Inc. ("EDG") 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, EDG acquired 100
percent of the outstanding capital stock of Isotope Solutions, Inc.
("ISI") (formerly named Molecular Radiation Management, Inc.).
Subject to shareholder approval, we intend to amend EDG's
certificate of incorporation to change its name to Isotope
Solutions Group, 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: the use of Radioactive
Cisplatin, a radioactive variation of a commonly used chemotherapy
drug, in the treatment of cancer and a method of treating cancer
using colloidal P32 macro-aggregated albumin ("colloidal P32/MAA"),
which is 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. We
own all right, title and interest to any and all improvements to
the nuclear pharmaceutical technologies that derive from the
medical groups' research.
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" 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 ISI's 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 him or his medical group any
royalties in the future. As a 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
- 13 -
this drug to treat cancer. The patent does not give us the right to
prevent others from using the drug in other ways.
Pursuant to the management/license agreements with the medical
groups 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 groups' 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.
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 ("New York 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 ("Center for Neuro-Oncology"), with its own
facilities and equipment, but instead provided this 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" below. We terminated our management/license agreement
with New York 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 $2,240,000 in gross revenues in the
two-year period ended December 31, 2000, including $2,033,000 in
management fees and $207,000 in license fees. We generated
additional management fees of approximately $695,000 and license
fees of $66,000 during the nine-month period ended September 30,
2001.
The license fees we charge the medical groups 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. In
December 1999, we determined that the license fee we charged the
Center for Molecular Medicine for 1999 should be adjusted downwards
in view of the number of patients enrolled in the medical group's
colloidal P32/MAA clinical studies during the year. On January 1,
2000, we waived all license fees for the Center for Molecular
Medicine, for the year 2000 and agreed that the license fee paid
for 1999 would cover 2000 as well. As a result, we effectively
reduced the license fee for 1999 retroactively by approximately
50%. In December 2000 we set the license fee to be paid by the
Center for Molecular Medicine in 2001 at $60,000. We do not
presently anticipate that we will waive any portion of the 2001
license fee.
- 14 -
As of September 30, 2001, the Center for Molecular Medicine owed us
an aggregate of approximately $1,048,000 against fees billed in
2001 and 2000. As of September 30, 2001, the Center for
Neuro-Oncology owed us approximately $72,000 against fees billed in
2001 and 2000 and New York Medical Oncology owed us approximately
$321,000 against fees billed in 2001 and 2000.
Typically, there is a lag between our invoice to the medical groups
and payment of the invoices by the medical groups. The lag exists
because the medical groups must receive payment for their services
from the patients and their insurance companies before they can pay
us, and patients and their insurance companies do not always pay
the medical groups' invoices promptly. Since the medical groups'
patient receivables may not be fully collectible from the patients
or their insurance companies, the medical groups may experience
write-offs of uncollectible amounts. However, the medical groups
are still liable to us for our fees, even though we record an
allowance against our receivable based on the net receivables of
the medical groups. At September 30, 2001, the Center for Molecular
Medicine was owed approximately $129,000 for services rendered to
its patients and New York Medical Oncology was owed approximately
$60,000 for services rendered to its patients. As of September 30,
2001, the Center for Neuro-Oncology had no outstanding accounts
receivable for services rendered to its patients. As of December
31, 2000, we recorded a provision of $520,000 (as restated) against
fees receivable from the medical groups. We increased the provision
to $1,380,000 as of September 30, 2001. This provision includes a
provision of $304,000 against fees receivable from New York Medical
Oncology, a group with which we terminated our management/license
agreement in July 2001. We believe that this provision will be
sufficient to cover uncollectible fees owed to us by the medical
group through the termination of our relationship with the medical
group.
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
the colloidal P32/MAA technology is being studied, since
Radioactive Cisplatin 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 the Radioactive
Cisplatin technology, when they are conducted, will help support
the application for FDA approval of our Radioactive Cisplatin
technology.
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 from 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
-15 -
payment for the radiation and chemotherapy treatments, and for the
application of the colloidal P32/MAA.
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. If the medical groups are required to repay these charges
the medical groups may have difficulty paying us the fees they owe
us.
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 new 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.
Historically, approximately 45% of the patients treated by the
medical groups we manage were enrolled in the clinical studies of
our colloidal P32/MAA technology and approximately 1% were
enrolled in third party clinical studies. Approximately 54% of the
patients treated by the medical groups were not enrolled in any
formal study being conducted by the medical groups.
- 16 -
The following discussion is based on financial information
presented as if the acquisition of ISI had taken place as of the
earliest period presented.
RESULTS OF OPERATIONS
---------------------
REVENUES:
Revenues for the three and nine month periods ended September 30,
2001, were $245,399 and $760,695, respectively, as compared to
$256,107 and $696,794 for the corresponding periods of the prior
year. The increase of $63,901 (or 9.2%) for the nine-month period
ended September 30, 2001 as compared to the comparable period of
the prior year was due to enhanced revenues generated primarily by
the addition of New York Medical Oncology in the September 2000
period. We terminated our management/license agreement with New
York Medical Oncology in July 2001. The decrease of $10,708 (or
4.2%) for the three-month period ended September 30, 2001 as
compared to the comparable period of the prior year was due
primarily to the continued reduction of fees generated in the
medical groups we manage as a result of our focus on the
development of our nuclear pharmaceutical technologies. To date,
patient accrual, and income derived from the treatment of those
patients, has been dependent to a great extent, on a public
relations effort, which resulted in extensive media exposure. Our
revenues have fluctuated depending on the timing of media exposure.
During the first half of 2001, we embarked on a targeted
advertising program to complement our existing public relations
effort.
COSTS AND EXPENSES:
Costs of revenues were $128,512 and $175,708 for the three-month
periods ended September 30, 2001, and 2000, respectively. For the
nine-month periods ended September 30, 2001 and 2000, costs of
revenues aggregated $354,265 and $340,517, respectively. The
increase for the comparative nine- month period of $13,748 (or
4.0%), was primarily the result of the Company's advertising and
public relations efforts. The decrease for the comparative
three-month period of $47,196 (or 26.9%), was primarily due to the
termination of our management/license agreement with New York
Medical Oncology in the beginning of July 2001.
Research and development ("R&D") expenses were $199,707 and
$162,821 for the three-month periods ended September 30, 2001, and
2000, respectively, representing an increase of $36,886 (or 22.7%).
R&D expenses increased by $208,217 (or 38.4%), to $750,780 for the
nine-month period ended September 30, 2001 from $542,563 for the
nine-month period ended September 30, 2000. These increases are
primarily attributable to costs associated with the preparation of
INDs for our nuclear pharmaceutical technologies and costs incurred
in generating media exposure. Additionally, a portion of Director's
and Officer's liability insurance is attributable to the increase
in R&D expenses, as well as the addition of a key-man life
insurance policy on Dr. Order. This was offset by a reduction in
the purchase of isotopes due to the Company's focus on the
development of our nuclear pharmaceutical technologies. R&D
expenses for the nine months ended September 30, 2001 are broken
down as follows:
Colloidal P32/MAA technology $ 371,458
Radioactive Cisplatin technology 360,063
Other 19,259
-------------
$ 750,780
General and administrative expenses were $786,619 and $143,157 for
the three-month periods ended September 30, 2001, and 2000,
respectively, reflecting an increase of $643,462 (or 449.5%).
General
- 17 -
and administrative expenses were $1,604,282 and $249,517 for the
nine months ended September 30, 2001, and 2000, respectively,
reflecting an increase of $1,354,765 (or 543.0%). These increases
were due primarily to the increase in our allowance for doubtful
accounts against fees receivable and loans and advances of
approximately $853,000, an increase in professional fees associated
with our status as a publicly held entity and costs incurred in the
submission of a registration statement to the Securities and
Exchange Commission.
The medical groups we manage have enrolled over 90 patients in
three separate studies of our colloidal P32/MAA technology. One
study, a Phase II study involving pancreatic cancer that has not
previously been treated using other methodologies, is nearing
completion. We expect that a second Phase II study, involving
pancreatic cancer that has previously been treated using other
methodologies, will be completed in less than two years. We expect
that the third study, a Phase I/II study involving brain cancer,
will be completed in approximately three to six months. We expect
that Phase II studies in brain cancer, which will follow the Phase
I study, will take an additional two to three years. The
researchers in the medical groups we manage are continuing to
accrue and treat patients in the Phase II study of pancreatic
cancer that has not previously been treated with other
methodologies and are analyzing the data gathered in the study.
Once patient accrual and treatment and data analysis are complete,
we intend to approach the FDA regarding the adequacy of this data
to support approval of the product for this indication. We also
intend to approach the FDA regarding the adequacy of the data from
the other Phase II studies once the studies have been completed. It
is possible that the FDA may require that a Phase III study be
conducted for one or more of these indications. Because we do not
know how much additional research will be required in order to
support approval of this technology for each of these indications,
we cannot be certain how long it will take or how much additional
costs we will incur before we can market this technology for these
indications.
We will need data from a minimum of three clinical studies of our
Radioactive Cisplatin technology in order to demonstrate to the FDA
that this technology is safe and effective. We expect that the
initial study will be a 15 patient Phase I safety study that will
last up to two years. The medical groups we manage are presently
preparing this Phase I study and we expect that it will commence in
the first quarter of 2002. The timing of the commencement of this
study will depend primarily on how quickly the medical groups can
attract patients for the study. We expect that the medical groups
we manage will need to conduct two Phase II studies, involving
perhaps 60 patients each, to determine the proper dose,
effectiveness, and safety of the product. We expect that the Phase
II studies, which may last several years, will involve various
solid tumor cancers. It is possible that a Phase III study may be
necessary depending on the results of the Phase II studies. Because
we do not know how much research will be required in order to
support approval of this technology, we cannot be certain how long
it will take or how much additional costs we will incur before we
can market this technology for these indications.
- 18 -
LIQUIDITY AND CAPITAL RESOURCES:
At September 30, 2001, our balance sheet reflected cash of $224,325
and negative working capital of $609,962 and a current ratio of
approximately 0.5 to 1. At our year-end of December 31, 2000, the
balance sheet reflected cash of $1,032,563, working capital of
$1,368,119 and a current ratio of 16.0 to 1.
In addition to losses realized during 2000, we sustained further
operating losses of $1,925,615 during the nine-month period ended
September 30, 2001, and as of that date had a working capital
deficit of $609,962 and a net worth deficiency of $346,420. We
believe that our current cash reserves are insufficient to finance
our operations and we are actively seeking additional funding. In
order for us to continue our current operations at existing levels,
we will require approximately $1,740,000 of additional funds over
the next twelve months.
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 have begun 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 and we may not be
able to continue our current operations. Therefore, we will 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 and September 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 common stock purchase warrant to
purchase 12,500 shares of our common stock. The notes accrue
interest at a rate of 8% per annum and are 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 we are making during the third and fourth quarters of
fiscal 2001. The warrants are exercisable for a period of five
years at an exercise price of $2.00 per share.
We are currently making a private offering of a minimum of
1,750,000 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 will terminate on November 30, 2001, but may be
extended through December 31, 2001. If the offering is completed,
we plan to use the proceeds, less the expenses of the offering, for
capital expenditures and general corporate purposes, including
internal research and development, clinical trials of our
Radioactive Cisplatin technology, toxicity studies and patent fees.
The net proceeds will be reduced by the principal amount of the
convertible notes sold in August and September 2001, which will
convert into common stock at a price of $2.00 per share upon the
initial closing of the private offering. We cannot assure you that
the offering will be completed nor can we assure you that we will
obtain the additional funding we need for our operating
requirements.
See Item 5 of Part II of this Form 10-QSB for additional
information concerning the private offering.
Pursuant to our management/license agreements with the medical
groups 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
- 19 -
Medical Oncology, P.C., d/b/a Center for Medical Oncology, and the
payments we have received from the medical groups against the
advances:
DECEMBER 31, SEPTEMBER 30,
---------------------------------------------------------- ---------------
1997 1998 1999 2000 2001
------------ ------------ ------------ ------------ ---------------
STANLEY E. ORDER, M.D., P.C.
Advances $ 56,154 $ 64,241 $ 27,111 $ 75,000 $ 164,000
Repayments - (120,395) (27,111) (20,000) (121,431)
Interest - - - 169 3,966
------------ ------------ ------------ ------------ ------------
Advances receivable - end of period $ 56,154 $ - $ - $ 55,169 $ 101,704
============ ============ ============ ============ ============
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 - - - - (103,000)
Interest - - - 1,510 5,811
------------ ------------ ------------ ------------ ------------
Advances receivable - end of period $ - $ - $ - $ 93,326 $ 65,201
============ ============ ============ ============ ============
As of December 31, 2000, we recorded a provision of $50,000 (as
restated) against advances receivable from the medical groups. We
decreased the provision to $43,201 as of September 30, 2001, to
provide for 100% of the advances receivable from New York Medical
Oncology, after a $22,000 repayment in October 2001. As discussed
earlier, we terminated our relationship with this medical group in
July 2001.
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, 2000, 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.
- 20 -
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
The following table sets forth certain information with respect to our
issuance of certain securities during the quarter ended September 30,
2001, without registration of such securities under the Securities Act:
EXEMPTION TERMS OF USE OF
--------- -------- ------
SECURITIES SOLD DATE SOLD PURCHASERS CONSIDERATION CLAIMED CONVERSION OR PROCEEDS
--------------- --------- ---------- ------------- ------- -------------
EXERCISE
--------
Options to July 11, 2001 Several Services Section 4(2) Options are We did not
purchase 290,000 employees, exercisable for receive cash
shares of common directors and 10 years at a proceeds for
stock officers of, price of $3.00 these options
and per share
consultants
to, the
Company
Options to July 20, 2001 A consultant Services Section 4(2) Options are We did not
purchase 10,000 to the Company exercisable for receive cash
shares of common 10 years at a proceeds for
stock price of $3.00 these options
per share
10 Units, each August 24, 2001 Five $500,000 Section Notes are Working capital
consisting of accredited 4(2) and convertible into
(i) a investors Rule 506 of Common Stock at
convertible Regulation D the rate of $2.00
promissory note per share upon
in the the satisfaction
principal of certain
amount of conditions
$50,000 and
(ii) a common Warrants are
stock purchase exercisable for
warrant to five years at a
purchase 12,500 price of $2.00
shares of per share
common stock
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On August 16, 2001, we held our Annual Meeting of Shareholders. At the
meeting the following proposals were approved by the vote specified
below:
A proposal to elect five (5) directors of the Company to serve for a
one-year term expiring at the Annual Meeting of Shareholders in 2002
was approved by the shareholders. The nominees received the following
votes:
Name Votes For Votes Against Votes Abstaining
- -------------------------------------------------------------------------------------------------------------
Shraga David Aranoff 6,964,537 -- --
Stanley F. Barshay 6,964,537 -- --
Harry Barnett 6,964,537 -- --
Jay M. Haft 6,964,537 -- --
Jack Schwartzberg 6,964,537 -- --
- 21 -
A proposal was introduced to approve the 2000 Long-Term Incentive Plan,
authorizing the grant of stock options to attract and retain employees
and physicians in the medical groups managed by the Company. This
proposal was approved with the following votes:
Votes For: 6,918,320
Votes Against: 12,500
Votes Withheld: 0
In addition, a proposal was introduced to ratify the appointment of
Lazar, Levine & Felix LLP as independent public accountants of the
Company for the fiscal year ending December 31, 2001. This proposal
received the following votes:
Votes For: 4,542,946
Votes Against: 0
Votes Withheld: 2,421,591
ITEM 5. OTHER INFORMATION
The following notice is provided pursuant to Rule 135c under the
Securities Act of 1933 and in satisfaction of the filing requirement of
paragraph (d) of that rule.
In August and September 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 common stock purchase warrant to purchase 12,500 shares of our common
stock. The notes accrue interest at a rate of 8% per annum and are
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 we are making during the third and fourth quarters of
fiscal 2001. The warrants are exercisable for a period of five years at
an exercise price of $2.00 per share.
We are currently making a private offering of a minimum of 1,750,000
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 will
terminate on November 30, 2001, but may be extended through December
31, 2001. If the offering is completed, we plan to use the proceeds,
less the expenses of the offering, for capital expenditures and general
corporate purposes, including internal research and development,
clinical trials of our Radioactive Cisplatin technology, toxicity
studies and patent fees. The net proceeds will be reduced by the
principal amount of the convertible notes sold in August and September
2001, which will convert into common stock at a price of $2.00 per
share upon the initial closing of the private offering. We cannot
assure you that the offering will be completed nor can we assure
you that we will obtain the additional funding we need for our
operating requirements.
We are offering the common stock in reliance on an exemption from
registration for offers and sales of securities that do not involve a
public offering. The offering has not been registered under the
Securities Act of 1933, as amended, and the common stock may not be
offered or sold in the United States absent registration or an
applicable exemption from registration requirements. This disclosure is
neither an offer to purchase nor a solicitation of an offer to sell
securities in any jurisdiction in which such an offer or sale would be
unlawful.
This notice contains "forward-looking" information within the meaning
of the federal securities laws. The forward-looking information
includes statements concerning our outlook for the future, as well as
other statements of belief, future plans and strategies or anticipated
events, and similar expressions concerning
- 22 -
matters that are not historical facts. The forward-looking statements
are subject to risks and uncertainties that could cause actual results
and outcomes to differ materially from those expressed in, or implied
by, the statements.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Practice Management Services Termination Agreement,
dated July 10, 2001, by and between Isotope Solutions, Inc.
and New York Medical Oncology, P.C. (incorporated by reference
to the Company's Current Report on Form 8-K, filed July 12,
2001).
(b) Reports on Form 8-K
On July 12, 2001, we filed a Form 8-K regarding the issuance
of three press releases announcing, respectively, the
resignation of Dr. Ira Braunschweig and the termination of the
management/license agreement with New York Medical Oncology,
P.C., the Company's receipt of FDA clearance to initial
clinical trials of Radioactive Cisplatin in humans, and the
filing of two provisional patent applications for nine new
radiopharmaceutical technologies for the treatment of cancer.
- 23 -
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: November 13, 2001 By:/s/ Jack Schwartzberg
----------------------------------
Jack Schwartzberg, Chief
Executive Officer and President
Date: November 13, 2001 By:/s/ Shraga D. Aranoff
---------------------------------------
Shraga D. Aranoff, Vice President
and Treasurer (Principal Financial Officer)
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