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, 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
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
700 Stewart Avenue, Garden City, NY 11530
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(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 May 17, 2001 was 11,052,232 shares.
EDG CAPITAL, INC.
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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 - March 31, 2001
(Unaudited) and December 31, 2000 3
Condensed Consolidated Statements of Operations (Unaudited) -
Three Months Ended March 31, 2001 and 2000 4
Condensed Consolidated Statements of Cash Flows (Unaudited) -
Three Months Ended March 31, 2001 and 2000 5
Notes to Condensed Consolidated Financial Statements of
EDG Capital, Inc. and Subsidiary (Unaudited) 6-7
Condensed Financial Statements of Stanley E. Order, M.D., P.C.
Condensed Balance Sheets as of March 31, 2001 and December 31,
2000 (Unaudited) 8
Condensed Statements of Operations and (Deficit) for the
Three Months Ended March 31, 2001 and 2000 (Unaudited) 9
Condensed Statements of Cash Flows for the Three Months Ended
March 31, 2001 and 2000 (Unaudited) 10
Notes to Condensed Unaudited Financial Statements of
Stanley E. Order, M.D., P.C. (Unaudited) 11
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 12-17
PART II. Other Information 18
SIGNATURES 19
-2-
PART I. Financial Information
Item 1. Financial Statements
EDG CAPITAL, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
- ASSETS -
March 31, December 31,
2001 2000
------------ ------------
(Unaudited)
CURRENT ASSETS:
Cash $ 516,776 $ 1,032,563
Fees receivable, net of allowance for doubtful accounts
of $230,000 and $200,000 for 2001 and 2000, respectively 744,546 501,647
Loans and advances 214,411 148,495
Deferred tax asset 10,550 36,550
Prepaid expenses and other 93,025 110,151
------------ ------------
TOTAL CURRENT ASSETS 1,579,308 1,829,406
------------ ------------
PROPERTY AND EQUIPMENT - NET 84,980 90,209
------------ ------------
OTHER ASSETS:
Intangible assets - net 13,160 13,386
Security deposits and other 2,694 2,694
Deferred tax asset 130,787 104,787
------------ ------------
146,641 120,867
------------ ------------
$ 1,810,929 $ 2,040,482
============ ============
- LIABILITIES AND SHAREHOLDERS' EQUITY -
CURRENT LIABILITIES:
Accounts payable $ 235,201 $ 73,746
Accrued expenses 22,351 17,541
------------ ------------
TOTAL CURRENT LIABILITIES 257,552 91,287
------------ ------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, par value $.001; authorized
50,000,000 shares; 11,052,232 shares issued and
outstanding in 2001 and 2000 11,052 11,052
Additional paid-in capital 2,470,507 2,470,507
Accumulated deficit (928,182) (532,364)
------------ ------------
1,553,377 1,949,195
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$ 1,810,929 $ 2,040,482
============ ============
See notes to condensed consolidated financial statements.
-3-
EDG CAPITAL, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended
March 31
----------------------------
2001 2000
------------ ------------
REVENUE:
Management fees $ 265,999 $ 279,707
License fees 23,700 21,600
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289,699 301,307
------------ ------------
COSTS AND EXPENSES:
Costs of revenues 144,046 82,404
Research and development 291,860 189,745
General and administrative expenses 265,638 48,445
Interest and other income (16,027) (1,136)
------------ ------------
685,517 319,458
------------ ------------
LOSS BEFORE PROVISION
(CREDIT) FOR INCOME TAXES (395,818) (18,151)
Provision (credit) for income taxes -- --
------------ ------------
NET LOSS $ (395,818) $ (18,151)
============ ============
LOSS PER COMMON SHARE:
Basic and fully diluted $ (.04) $ --
------------ ------------
WEIGHTED AVERAGE SHARES OUTSTANDING 11,052,232 7,440,005
============ ============
See notes to condensed consolidated financial statements.
-4-
EDG CAPITAL, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended
March 31,
--------------------------
2001 2000
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (395,818) $ (18,151)
Adjustments to reconcile net loss to net cash flows from
operating activities:
Depreciation and amortization 5,768 1,682
Allowance for doubtful accounts 30,000 --
Changes in operating assets and liabilities:
Fees receivable (272,899) (63,834)
Prepaid expenses and other 17,126 (1,443)
Accounts payable 161,455 36,447
Accrued expenses 4,810 16,096
----------- -----------
Net cash (used) by operating activities (449,558) (29,203)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (313) (6,470)
Loans and advances (65,916) --
Patent costs -- (2,202)
----------- -----------
Net cash (used) by investing activities (66,229) (8,672)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Loans from shareholders -- 64,738
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Net cash provided by financing activities -- 64,738
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NET INCREASE IN CASH (515,787) 26,863
CASH, BEGINNING OF YEAR 1,032,563 15,519
----------- -----------
CASH, END OF PERIOD $ 516,776 $ 42,382
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $ -- $ --
=========== ===========
Income taxes paid $ 237 $ --
=========== ===========
See notes to condensed consolidated financial statements.
-5-
EDG CAPITAL, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(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 EDG.
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, reflects 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 our 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, 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
group's research.
The accompanying consolidated unaudited condensed financial
statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-QSB. Accordingly, they do not include all of
the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting of normal
accruals and adjustments)
-6-
EDG CAPITAL, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - DESCRIPTION OF BUSINESS (Continued):
considered necessary for a fair presentation have been included.
Operating results for the three months ended March 31, 2001 are not
necessarily indicative of the results that may be expected for the
year ended December 31, 2001.
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.
-7-
STANLEY E. ORDER, M.D., P.C.
CONDENSED BALANCE SHEETS
MARCH 31, 2001 AND DECEMBER 31, 2000
(UNAUDITED)
ASSETS March 31, 2001 December 31, 2000
-------------- -----------------
Current Assets:
Cash $ 4,611 $ 17,628
Accounts receivable, net 228,495 182,654
Other current assets 48,565 65,705
-----------------------------
Current Assets / Total Assets $ 281,671 $ 265,987
=============================
LIABILITIES AND STOCKHOLDER'S
(DEFICIENCY)
Current Liabilities:
Accounts payable $ 41,456 $ 61,460
Management/licensing fee payable -
I.S.I 710,941 486,677
Other current liabilities 1,843 529
-----------------------------
Current Liabilities 754,240 548,666
-----------------------------
Long - Term Liabilities:
Working capital advances - I.S.I 96,972 55,169
Other long-term liabilities -- 8,360
-----------------------------
Total long-term liabilities -- 63,529
-----------------------------
Total Liabilities 851,212 612,195
-----------------------------
Stockholder's (Deficiency):
Common stock 100 100
(Deficit) Retained earnings (569,641) (346,308)
-----------------------------
Stockholder's (Deficiency) (569,541) (346,308)
-----------------------------
Total Liabilities and Stockholder's
(Deficiency) $ 281,671 $ 265,987
=============================
-8-
STANLEY E. ORDER, M.D., P.C.
CONDENSED STATEMENTS OF OPERATIONS AND (DEFICIT)
FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000
(UNAUDITED)
2001 2000
---- ----
Fee revenue $ 173,107 $ 477,487
------------------------
Operating expenses:
Doctors' compensation 107,500 107,500
Management/licensing fee -- I.S.I 224,264 301,185
Insurance 18,771 10,471
Other operating expenses 45,836 29,665
------------------------
Total Operating Expenses 396,371 448,821
------------------------
Operating (Loss) Income (223,264) 28,666
Provision for state income taxes (70) (96)
------------------------
Net (Loss) Income (223,334) 28,570
(Deficit) Retained earnings - Beginning of
period (346,307) 48,014
------------------------
(Deficit) Retained earnings - End of period $(569,641) $ 76,584
========================
-9-
STANLEY E. ORDER, M.D., P.C.
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000
(UNAUDITED)
2001 2000
---- ----
Cash flows provided (used) by operating
activities:
Net (loss) Income $(223,334) $ 28,570
-------------------------
Adjustments to reconcile net (loss) income to net
cash (used) provided by operating activities:
(Increase) decrease in:
Accounts receivable (45,841) (89,415)
Prepaid licensing fee -- 18,000
Other current assets 17,140 8,191
Increase (decrease) in:
Accounts payable (20,004) (11,743)
Management/licensing fee payable - I.S.I 224,264 47,935
Other current liabilities 1,315 1,029
Other long - term liabilities (8,360) --
-------------------------
Total adjustments 168,514 (26,003)
-------------------------
Cash flows (used) provided by operating
activities (54,820) 2,567
-------------------------
Cash flows provided by financing activities:
Proceeds from working capital advances 56,803 --
Repayments of working capital advances (15,000) --
-------------------------
Cash flows provided by financing activities 41,803 --
-------------------------
Net (decrease) increase in cash and
equivalents (13,017) 2,567
Cash and equivalents - Beginning of period 17,628 13,706
-------------------------
Cash and equivalents - End of period $ 4,611 $ 16,273
=========================
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest expense $ 1,304 $ 481
Income taxes $ 155 $ 191
-10-
STANLEY E. ORDER, M.D., P.C.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
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 (the "agreement") with Isotope
Solutions, Inc. ("ISI") formerly known as Molecular Radiation
Management Inc.
The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form
10-QSB. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles 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
months ended March 31, 2001 are not necessarily indicative of the
results that may be expected for the year ended December 31, 2001.
-11-
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, the Company acquired
Isotope Solutions, Inc. ("ISI"), a New York corporation formerly
known as Molecular Radiation Management, Inc. Subject to shareholder
approval, EDG intends to amend its certificate of incorporation to
change its name to Isotope Solutions Group, Inc.
EDG holds 100 percent of the outstanding capital stock of ISI. 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, or
radioactive cisplatin, a radioactive variation of a commonly used
chemotherapy drug, and colloidal P32 macro-aggregated albumin, 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 assigned Patent No. 5,424,288
to ISI and in August 2000, Dr. Order 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.
We paid Dr. Order one dollar for the assignment of each of the
patents. We are not obligated to pay him 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 these drugs to treat cancer. The
patents do not give us the right to prevent others from using the
drugs 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 Stanley E. Order, M.D., P.C., d/b/a 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 this drug to treat cancer.
The patent does not give us the right to prevent others from using
the drug in other ways.
-12-
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 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.
License fees and management fees from the medical groups we manage
generated approximately $2,240,000 in gross revenues in the past two
years, including $2,033,000 in license fees and $207,000 in
management fees.
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 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 Stanley E. Order, M.D., P.C., d/b/a
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 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.
As of December 31, 2000, Stanley E. Order, M.D., P.C., d/b/a Center
for Molecular Medicine, owed us an aggregate of approximately
$486,700 against fees billed in 2000. As of December 31, 2000,
Mitchell E. Levine, M.D., P.C., d/b/a Center for Neuro-Oncology,
owed us approximately $69,500 against fees billed in 2000 and New
York Medical Oncology, P.C., d/b/a Center for Medical Oncology, owed
us approximately $145,500 against fees billed in 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. At
December 31, 2000, Stanley E. Order, M.D., P.C., d/b/a Center for
Molecular Medicine, was owed approximately $182,000 for services
rendered to its patients, Mitchell E. Levine, M.D., P.C., d/b/a
Center for Neuro-Oncology, was owed approximately $21,800 for
services rendered to its patients and New York Medical Oncology,
P.C., d/b/a Center for Medical Oncology, was owed approximately
$45,800 for services rendered to its patients. As of December 31,
2000, we have recorded a provision of $200,000 against fees
receivable from the medical groups. 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.
-13-
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 has
not yet 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.
Although we supply 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 pharmaceuticals.
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. Prior to December 21, 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 the Center for Molecular Medicine to
submit an Investigational New Drug Application for colloidal
P32/MAA. The Center for Molecular Medicine filed the IND that month.
On December 21, 2000, the FDA advised 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 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. The Center for Molecular Medicine has 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.
The medical groups we manage also participate in clinical studies
sponsored by third parties. Because certain portions of the
management fees we are paid by the medical groups we manage are
based on a percentage of the medical groups' billings, we share in
the revenues earned by the medical groups for their participation in
third party clinical studies. As with the clinical studies of our
nuclear pharmaceuticals, 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.
-14-
Approximately 45% of the patients treated by the medical groups we
manage are enrolled in the clinical studies of colloidal P32/MAA and
approximately 1% are enrolled in third party clinical studies.
Approximately 54% of the patients treated by the medical groups are
not enrolled in any formal study being conducted by the medical
groups we manage.
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 months ended March 31, 2001, were
approximately $290,000 as compared to approximately $301,000 for the
corresponding period of the prior year. This decrease of $11,000, or
3.6%, was due to diminished revenue generated by the clinician
research teams during this period. 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. In 2001, we have embarked
on a comprehensive advertising program to complement our existing
public relations effort.
COSTS AND EXPENSES:
Costs of revenues increased by approximately $62,000 when comparing
the three months ended March 31, 2001 to the three months ended
March 31, 2000 as a result of an increase in medical supplies cost,
which was primarily due to start-up, equipment and supply costs
relating to ISI's new contract with New York Medical Oncology, PC
d/b/a Center for Medical Oncology. Research and development
increased from approximately $190,000 to approximately $292,000 when
comparing the three-month periods ended March 31, 2000 to 2001. This
increase of $102,000 is represented by an increase in medical
supplies (isotopes), and costs incurred in generating media exposure
and thereby increasing our patient accrual for our clinical
research, as well as costs associated with the preparation of INDs
for our nuclear pharmaceutical technologies. General and
administrative expenses increased by approximately $217,000 when
comparing the three months ended March 31, 2001 to the three months
ended March 31, 2000. The primary reasons for this increase are 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.
From 1997 through December 31, 2000, we incurred an aggregate of
approximately $1,467,000 in research and development costs relating
to our colloidal P32/MAA technology, and approximately $190,000 in
research and development costs relating to our radioactive cisplatin
technology. During the first quarter of 2001, we incurred
approximately $184,000 of additional research and development costs
relating to the colloidal P32/MAA technology and approximately
$70,000 of additional research and development costs relating to the
radioactive cisplatin technology.
The medical groups we manage have enrolled over 90 patients in three
separate studies of P32/MAA. One study, a Phase II study involving
pancreatic cancer that has not previously been treated using other
methodologies, is nearing completion. A second Phase II study in
pancreatic cancer that has been previously been treated using other
methodologies, is expected to be completed in approximately two
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years. The third study, a Phase I study involving brain cancer, is
expected to be completed in approximately six months. Phase II
studies in brain cancer, which will follow the Phase I study, are
expected to take an additional three to four years. We intend to
approach the FDA shortly regarding the adequacy of the data gathered
in the Phase II study of pancreatic cancer that has not previously
been treated with other methodologies to support approval of the
product for this indication. We will 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. 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. These Phase II studies, which may last
several years, are expected to 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.
NET INCOME (LOSS):
For the three month period-ended March 31, 2001, we had a net loss
of $395,818 ($.04 per share). For the three month period-ended March
31, 2000, we had a net loss of $18,151 ($.00 per share). The
increased loss in the year 2001 was due to the increase in costs and
expenses described above.
LIQUIDITY AND CAPITAL RESOURCES:
At March 31, 2001, our balance sheet reflected cash of $516,776,
working capital of $1,321,756 and a current ratio of approximately
6.1 to 1. At our year end of December 31, 2000, the balance sheet
reflected cash of $1,032,563, working capital of $1,738,119 and a
current ratio of 20.0 to 1.
We believe that our cash on hand and revenues we expect to generate
from our business will be sufficient to fund operations for at least
the next 12 months. However, we expect to file Investigational New
Drug Applications with the FDA for the study of our radioactive
cisplatin technology as soon as possible. Once we receive FDA
approval to commence FDA clinical trials of this technology, we will
begin to incur significant expenses in connection with the launch of
the Phase I studies. We expect that these costs may exceed
$2,000,000 during the first year of the studies. We are not aware of
any other material trend, event or capital commitment that would
potentially adversely affect liquidity.
FORWARD-LOOKING STATEMENTS:
The statements contained in this Quarterly Report on Form 10-QSB
that are not historical facts are
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forward-looking statements. Such forward-looking statements may be
identified by, among other things, the use of forward-looking
terminology such as "believes," "expects," "intends," "plans,"
"may," "will," "should," or "anticipates," or the negative thereof
or other variations thereon or comparable terminology, or by
discussions of strategy that involve risks and uncertainties. These
forward-looking statements involve predictions. Our actual results,
performance or achievements could differ materially from the results
expressed in, or implied by, these 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.
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Part II. Other Information
Item 1. Legal Proceedings.
In May 2001, we were 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 one of the patents he assigned to us
relating to our colloidal P32/MAA technology. At present, we are not
aware that any litigation has been commenced in this matter. We
believe that Associates in Radiation Oncology's claim is without
merit and that we and Dr. Order have meritorious defenses to this
claim. We intend to defend against this claim vigorously.
Item 2. Changes in Securities and Use of Proceeds
During the three months ended March 31, 2001, we made the sales of
unregistered securities described below:
On January 15, 2001, we issued options to purchase 30,000 shares of
common stock to Stanley F. Barshay, a director of EDG Capital, Inc.,
pursuant to the 2000 Long-Term Incentive Plan, at an exercise price
of $0.8065 per share.
On February 15, 2001, we issued options to purchase an aggregate of
15,000 shares of common stock to an employee and a consultant to EDG
Capital, Inc., pursuant to the 2000 Long-Term Incentive Plan, at an
exercise price of $3.50 per share.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
On February 15, 2001, we filed a Form 8-K regarding the issuance of
a press release announcing that we are resuming clinical trials of
colloidal P32 and macro-aggregated albumin (P32/MAA) in the
treatment of brain cancer.
On January 19, 2001, we filed a Form 8-K regarding the issuance of a
press release announcing the filing of an Investigational New Drug
application with the Food and Drug Administration to investigate the
use of colloidal P32 and macro-aggregated albumin (P32/MAA) in the
treatment of solid tumors.
On January 17, 2001, we filed a Form 8-K regarding the resignation
of Robert G. M. Keating, Maurice H. Kolodin and Gail Shields from
our board of directors on January 5, 2001, January 5, 2001 and
January 15, 2001, respectively, and the election to the board of
directors of Stanley F. Barshay on January 15, 2001.
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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: May 21, 2001 By:/s/ Jack Schwartzberg
----------------------------------
Jack Schwartzberg, Chief
Executive Officer and President
Date: May 21, 2001 By:/s/ Shraga D. Aranoff
---------------------------------------
Shraga D. Aranoff, Vice President
and Treasurer (Principal Accounting Officer)
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