FORM 10-QSB/A
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
- ------------------------------- ----------------------------------
(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 August 3, 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 - 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 - 8
Condensed Financial Statements of Stanley E. Order, M.D., P.C
Condensed Balance Sheets as of March 31, 2001 and December 31,
2000 (Unaudited) 9
Condensed Statements of Operations and (Deficit) for the Three
Months Ended March 31, 2001 and 2000 (Unaudited) 10
Condensed Statements of Cash Flows for the Three Months Ended
March 31, 2001 and 2000 (Unaudited) 11
Notes to Condensed Unaudited 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
SIGNATURES 23
- 2 -
Item 1. Financial Statements
EDG CAPITAL, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
- ASSETS -
March 31, December 31,
2001 2000
-------------- ------------
(Unaudited, as (as restated
restated - see Note 3)
- see Note 3)
CURRENT ASSETS:
Cash $ 516,776 $ 1,032,563
Fees receivable, net of allowance for doubtful accounts
of $715,000 and $520,000 for 2001 and 2000, respectively 259,546 181,647
Income tax refund receivable 984 --
Loans and advances - net 154,411 98,495
Deferred tax asset 10,550 36,550
Prepaid expenses and other 92,041 110,151
----------- -----------
TOTAL CURRENT ASSETS 1,034,308 1,459,406
----------- -----------
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
----------- -----------
$ 1,265,929 $ 1,670,482
=========== ===========
- 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 (1,473,182) (902,364)
----------- -----------
1,008,377 1,579,195
----------- -----------
$ 1,265,929 $ 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
March 31
-----------------------------
2001 2000
------------ -----------
(as restated
- see Note 3)
REVENUE:
Management fees $ 265,999 $ 279,707
License fees 23,700 21,600
------------ -----------
289,699 301,307
------------ -----------
COSTS AND EXPENSES:
Costs of revenues 144,046 82,404
Research and development 265,638 189,745
General and administrative expenses 466,860 48,445
Interest and other income (16,027) (1,136)
------------ -----------
860,517 319,458
------------ -----------
LOSS BEFORE PROVISION
(CREDIT) FOR INCOME TAXES (570,818) (18,151)
Provision (credit) for income taxes -- --
------------ -----------
NET LOSS $ (570,818) $ (18,151)
============ ===========
LOSS PER COMMON SHARE:
Basic and fully diluted $ (.05) $ --
============ ===========
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
----------- -----------
(as restated
- see Note 3)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (570,818) $ (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 205,000 --
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
----------- -----------
Net cash provided by financing activities -- 64,738
----------- -----------
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, 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 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 (see Note 3 re: Restatements).
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.
NOTE 3 - RESTATEMENTS:
The Company has further reviewed the collectibility of its accounts
receivable and loans and advances receivable and has determined that
an increase in the allowance for doubtful accounts of $520,000 and
$50,000, respectively, was necessary as of December 31, 2000
($715,000 and $60,000, respectively, as of March 31, 2001).
Accordingly, the Company has restated its March 31, 2001 and
December 31, 2000 financial statements to reflect the increased
allowance for doubtful accounts.
The following tables present the impact of the restatements:
As Previously
Reported As Restated
------------- --------------
Quarter Ended March 31, 2001:
Balance Sheet:
Accounts receivable - net $ 744,546 $ 259,546
Loans and advances - net 214,411 154,411
Accumulated deficit (928,182) (1,473,182)
Statement of Operations:
Costs and expenses 685,517 860,517
Net loss (395,818) (570,818)
Basic and diluted loss per share $ (.04) $ (.05)
Year Ended December 31, 2000:
Balance Sheet:
Accounts 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
(UNAUDITED)
NOTE 4 - SUBSEQUENT EVENTS:
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 "returned" to a certain Radiation Research
Fund, which is now defunct, and 25% would be "returned" 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.
- 8 -
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
==========================
- 9 -
STANLEY E. ORDER, M.D., P.C.
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
=======================
- 10 -
STANLEY E. ORDER, M.D., P.C.
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
- 11 -
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.
SUBSEQUENT EVENT
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 "returned" to a certain Radiation Research Fund, which
is now defunct, and 25% would be "returned" 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 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 ISI. Subject to shareholder
approval, we intend to amend EDG's certificate of incorporation to
change its name to Isotope Solutions Group, Inc.
EDG Capital, Inc. holds 100 percent of the outstanding capital stock
of Isotope Solutions, Inc. (formerly named Molecular Radiation
Management, Inc.). We are a biopharmaceutical company that began
operations in 1998 as a medical group management company. Although
most of our revenues are still derived from our medical group
management operations, today we are focused primarily on the
development of nuclear pharmaceutical technologies for therapeutic
use in the treatment of various cancers. With the help of the
medical groups we manage, we are developing two anti-cancer nuclear
pharmaceutical technologies for which we own the U.S. patent rights:
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, 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.
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. 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 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
- 13 -
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.
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.
Each of the medical groups we manage was formed at the time we
entered into the management/license agreements with the group. We
provided Stanley E. Order, M.D., P.C., d/b/a Center for Molecular
Medicine, and another medical group, New York Medical Oncology,
P.C., d/b/a Center for Medical Oncology, with the facilities and
equipment they required to start their practices. We did not provide
Mitchell E. Levine, M.D., P.C., d/b/a Center for Neuro-Oncology,
with its own facilities and equipment, but instead provided the
medical group with access to the facilities and equipment we
provided to the other groups. We have also provided the medical
groups with working capital advances, which are described in more
detail under "Liquidity" below. We terminated our management/license
agreement with New York Medical Oncology, P.C., d/b/a Center for
Medical Oncology, in July 2001 when the group's principal physician,
Dr. Ira Braunschweig, left the group to accept a position in the
Oncology Department of Brooklyn Hospital.
License fees and management fees from the medical groups we manage
generated approximately $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 $266,000 and license fees of $24,000 during the
quarter ended March 31, 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 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
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 March 31, 2001, Stanley E. Order, M.D., P.C., d/b/a Center for
Molecular Medicine, owed us an aggregate of approximately $710,000
against fees billed in 2001 and 2000. As of March 31, 2001, Mitchell
E. Levine, M.D., P.C., d/b/a Center for Neuro-Oncology, owed us
approximately $62,600 against fees billed in 2001 and 2000, and New
York Medical Oncology, P.C., d/b/a Center for Medical Oncology, owed
us approximately $201,000 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
March 31, 2001, Stanley E. Order, M.D., P.C., d/b/a Center for
Molecular Medicine, was owed approximately $240,500 for services
rendered to its patients, Mitchell E. Levine, M.D., P.C., d/b/a
Center for Neuro-Oncology, was owed approximately $10,000 for
services rendered to its patients and New York Medical Oncology,
P.C., d/b/a Center for Medical Oncology, was owed approximately
$73,300 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
$715,000 (as restated) as of March 31, 2001. This provision includes
a provision of $132,000 against fees receivable from New York
Medical Oncology, P.C., d/b/a Center for 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
colloidal P32/MAA 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 radioactive cisplatin, when they are conducted,
will help support the application for FDA approval of radioactive
cisplatin.
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.
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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 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 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 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.
Approximately 45% of the patients treated by the medical groups we
manage are enrolled in the clinical studies of our colloidal P32/MAA
technology and approximately 1% are enrolled in third party clinical
studies. Approximately 54% of the patients treated by the medical
groups are 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 months ended March 31, 2001, were $289,699 as
compared to $301,307 for the corresponding period of the prior year.
This decrease of $11,608, or 3.9%, 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 were $144,046 for the three months ended March 31,
2001, and $82,404 for the three months ended March 31, 2000. This
increase of $62,642, or 74.8%, was the result of an increase in
medical supplies cost, which was primarily due to start-up,
equipment and supply costs relating to ISI's contract with New York
Medical Oncology, PC d/b/a Center for Medical Oncology. Research and
development expenses were $265,638 for the three months ended March
31, 2001, and $189,745 for the three months ended March 31, 2000.
This increase of $75,893, or 40.0%, was primarily due to an increase
in isotope costs, 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 were $466,860 for the three months ended
March 31, 2001, and $48,445 for the three months ended March 31,
2000. This increase of $418,415, or 863.7%, was due primarily to an
increase in professional fees associated with our status as a
publicly held entity, costs incurred in the submission of a
registration statement to the Securities and Exchange Commission and
the increase in our allowance for doubtful accounts against fees
receivable and loans and advances of $205,000.
During the first quarter of 2001, we incurred approximately $184,000
of research and development costs relating to the colloidal P32/MAA
technology and approximately $70,000 of 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. We expect that a second Phase
II study, involving pancreatic cancer that has previously been
treated using other methodologies, will be completed in
approximately two years. We expect that the third study, a Phase I
study involving brain cancer, will be completed in approximately six
months. We expect that Phase II studies in brain cancer, which will
follow the Phase I study, will take an additional three to four
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
- 17 -
regarding the adequacy of this data 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. The medical groups we manage are presently
preparing this Phase I study and we expect that it will commence in
the fourth quarter of 2001. 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.
NET INCOME (LOSS):
For the three month period-ended March 31, 2001, we had a net loss
of $570,818 ($.05 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 $776,756 and a current ratio of approximately 4.0
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.
Pursuant to our management/license agreements with the medical
groups, we have provided the medical groups with working capital
advances from time to time. The table below describes the working
capital advances we have made to each of Stanley E. Order, M.D.,
P.C., d/b/a Center for Molecular Medicine, Mitchell E. Levine, M.D.,
P.C., d/b/a Center for Neuro-Oncology, and New York Medical
Oncology, P.C., d/b/a Center for Medical Oncology, and the payments
we have received from the medical groups against the advances:
- 18 -
December 31,
---------------------------------------------- March 31,
1997 1998 1999 2000 2001
------- --------- -------- -------- ---------
Stanley E. Order, M.D., P.C
Advances $56,154 $ 64,241 $ 27,111 $ 75,000 $ 55,000
Repayments -- (120,395) (27,111) (20,000) (15,000)
Interest -- -- -- 169 1,803
------- --------- -------- -------- ---------
Advances receivable - end of period $56,154 $ -- $ -- $ 55,169 $ 96,972
======= ========= ======== ======== =========
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 $ 42,420
Repayments -- -- -- -- (20,000)
Interest -- -- -- 1,510 1,693
------- --------- -------- -------- ---------
Advances receivable - end of period $ -- $ -- $ -- $ 93,326 $ 117,439
======= ========= ======== ======== =========
As of December 31, 2000, we recorded a provision of $50,000 (as
restated) against advances receivable from the medical groups. We
increased the provision to $60,000 (as restated) as of March 31,
2001. This provision includes a provision of $60,000 against
advances receivable from New York Medical Oncology, P.C., d/b/a
Center for Medical Oncology. We believe that this provision will be
sufficient to cover uncollectible advances owed to us by the medical
group through the termination of our relationship with the medical
group.
Cash received from the medical groups is first applied to reduce
working capital advances made and is then applied to fees
receivable.
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 six months. However, we filed an Investigational New Drug
Application with the FDA for the study of our radioactive cisplatin
technology on June 4, 2001, and July 9, 2001, we received approval
from the FDA to commence the clinical studies. We have begun to
incur significant expenses 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 and we will need additional
capital to fund these costs. Except as described in Exhibit 99.1 to
our Annual Report on Form 10-KSB for the year ended December 31,
2000, we are not aware of any other material trend, event or capital
commitment that would potentially adversely affect liquidity.
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.
- 19 -
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 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. 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 "returned" to a certain
Radiation Research Fund, which is now defunct, and 25% would be "returned" 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, 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
- 20 -
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.
- 21 -
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 on August 8, 2001.
By: /s/ Shraga D. Aranoff
---------------------------------------
Shraga D. Aranoff, Vice President
and Treasurer (Principal Accounting Officer)
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