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 June 30, 2001
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission File Number 33-37674-NY
EDG CAPITAL, INC.
(Exact name of small business issuer as specified in its charter)
New York 11-3023098
- --------------------------------------- -----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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.
- 1 -
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 - June 30, 2001 (Unaudited)
and December 31, 2000 3
Condensed Consolidated Statements of Operations (Unaudited) -
Three and Six Months Ended June 30, 2001 and 2000 4
Condensed Consolidated Statements of Cash Flows (Unaudited) -
Six Months Ended June 30, 2001 and 2000 5
Notes to Condensed Consolidated Financial Statements of
EDG Capital, Inc. and Subsidiary (Unaudited) 6 - 8
SUPPLEMENTAL INFORMATION:
Condensed Financial Statements of Stanley E. Order, M.D., P.C.:
Condensed Balance Sheets as of June 30, 2001, and December 31,
2000 (Unaudited) 9
Condensed Statements of Operations and (Deficit) for the
Three and Six Months Ended June 30, 2001, and 2000 (Unaudited) 10
Condensed Statements of Cash Flows for the Six Months Ended
June 30, 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 22
PART I. Financial Information
Item 1. Financial Statements
EDG CAPITAL, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
- ASSETS -
June 30, December 31,
2001 2000
----------- ------------
(Unaudited) (As Restated -
Note 3)
CURRENT ASSETS:
Cash $ 216,445 $ 1,032,563
Fees receivable, net of allowance for doubtful accounts of $835,000 and
$520,000 for 2001 and 2000, respectively 360,573 181,647
Loans and advances - net -- 98,495
Deferred tax asset 10,550 36,550
Prepaid expenses and other 57,858 110,151
----------- -----------
TOTAL CURRENT ASSETS 645,426 1,459,406
----------- -----------
PROPERTY AND EQUIPMENT - NET 76,024 90,209
----------- -----------
OTHER ASSETS:
Intangible assets - net 12,934 13,386
Security deposits and other 2,694 2,694
Deferred tax asset 130,787 104,787
----------- -----------
146,415 120,867
----------- -----------
$ 867,865 $ 1,670,482
=========== ===========
- LIABILITIES AND SHAREHOLDERS' EQUITY -
CURRENT LIABILITIES:
Accounts payable $ 333,522 $ 73,746
Accrued expenses 10,853 17,541
----------- -----------
TOTAL CURRENT LIABILITIES 344,375 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 (1,958,069) (902,364)
----------- -----------
523,490 1,579,195
----------- -----------
$ 867,865 $ 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 Six Months Ended
June 30, June 30,
--------------------------- ---------------------------
2001 2000 2001 2000
------------ ----------- ------------ -----------
REVENUE:
Management fees $ 201,897 $ 124,980 $ 467,896 $ 404,687
License fees 23,700 14,400 47,400 36,000
------------ ----------- ------------ -----------
225,597 160,980 515,296 440,687
------------ ----------- ------------ -----------
COSTS AND EXPENSES:
Costs of revenues 81,707 82,405 225,753 164,809
Research and development 285,435 189,997 551,073 379,742
General and administrative expenses 350,803 57,915 817,663 106,360
Interest and other income (7,461) (1,135) (23,488) (2,271)
------------ ----------- ------------ -----------
710,484 329,182 1,571,001 648,640
------------ ----------- ------------ -----------
LOSS BEFORE PROVISION
(CREDIT) FOR INCOME TAXES (484,887) (168,202) (1,055,705) (207,953)
Provision (credit) for income taxes -- -- -- --
------------ ----------- ------------ -----------
NET LOSS $ (484,887) $ (168,202) $ (1,055,705) $ (207,953)
============ =========== ============ ===========
LOSS PER COMMON SHARE:
Basic and fully diluted $ (.04) $ (.02) $ (.10) $ (.03)
============ =========== ============ ===========
WEIGHTED AVERAGE SHARES
OUTSTANDING 11,052,232 7,440,005 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)
Six Months Ended
June 30,
------------------------
2001 2000
----------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,055,705) $(207,953)
Adjustments to reconcile net loss to net cash flows from operating activities:
Depreciation and amortization 15,221 2,938
Allowance for doubtful accounts 392,753 --
Changes in operating assets and liabilities:
Fees receivable (493,926) 68,656
Prepaid expenses and other 52,293 (28,856)
Accounts payable 259,776 72,895
Accrued expenses (6,688) 17,464
----------- ---------
Net cash (used) by operating activities (836,276) (74,856)
----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (584) (12,940)
Loans and advances 20,742 30,055
Patent costs -- (4,535)
----------- ---------
Net cash provided by investing activities 20,158 12,580
----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Loans from shareholders -- 129,475
----------- ---------
Net cash provided by financing activities -- 129,475
----------- ---------
NET (DECREASE) INCREASE IN CASH (816,118) 67,199
CASH, BEGINNING OF YEAR 1,032,563 15,519
----------- ---------
CASH, END OF PERIOD $ 216,445 $ 82,718
=========== =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $ -- $ --
=========== =========
Income taxes paid $ -- $ --
=========== =========
See notes to condensed consolidated financial statements.
- 5 -
EDG CAPITAL, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001
(Unaudited)
NOTE 1 - DESCRIPTION OF BUSINESS:
EDG Capital, Inc., (the "Company") was incorporated in the State of New
York on August 13, 1990; and was considered a development stage company
until September 2000. On September 13, 2000, the Company merged with
Isotope Solutions, Inc., ("ISI") a New York corporation formerly known
as Molecular Radiation Management, Inc. Subject to shareholder
approval, the Company intends to amend its certificate of incorporation
to change its name to "Isotope Solutions Group, Inc."
The acquisition was effected pursuant to an Agreement and Plan of
Merger (the "Agreement"), dated September 8, 2000, by and among the
Company, MRM Merger Sub, Inc., a New York corporation and a wholly
owned subsidiary of the Company ("Merger Sub"), and ISI. On September
13, 2000, Merger Sub was merged with and into ISI, with ISI being the
surviving corporation, and ISI became a wholly-owned subsidiary of 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.
- 6 -
EDG CAPITAL, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001
(Unaudited)
NOTE 1 - DESCRIPTION OF BUSINESS (Continued):
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) considered necessary for a fair presentation
have been included. Operating results for the three and six months
ended June 30, 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 determined, based upon a review of the collectibility
of its accounts receivable and loans and advances receivable, that an
increase in the allowance for doubtful accounts of $520,000 and
$50,000, respectively, was necessary as of December 31, 2000.
Accordingly, the Company restated its December 31, 2000, financial
statements to reflect the increased allowance for doubtful accounts.
The following tables present the impact of the restatements:
As Previously
Reported As Restated
------------- -----------
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
JUNE 30, 2001
(Unaudited)
NOTE 4 - LEGAL MATTERS:
In May 2001, the Company was advised by Dr. Stanley E. Order that
Associates in Radiation Oncology, P.A. had contacted him by letter
dated April 30, 2001 and claimed that it was entitled to 50% of all
royalties or fees obtained by Dr. Order from patent No. 5,538,726.
Associates in Radiation Oncology's claim is apparently based on an
agreement between Dr. Order and Cooper Hospital/University Medical
Center dated June 5, 1991, pursuant to which Dr. Order became a
clinical professor of radiology at the Robert Wood Johnson Medical
School and a member of Associates in Radiation Oncology. Dr. Order left
the medical school and ended his relationship with Associates in
Radiation Oncology in December 1997, when he formed Stanley E. Order,
M.D., P.C., d/b/a/ Center for Molecular Medicine, a medical practice
group managed by the Company. The agreement between Dr. Order and
Cooper Hospital/University Medical Center provided that, in the event
that research was carried out with any corporate entity on a royalty or
percentage return basis, Dr. Order would receive 50% of the income, 25%
would be "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
JUNE 30, 2001 AND DECEMBER 31, 2000
(UNAUDITED)
- ASSETS -
June 30, December 31,
2001 2000
--------- ------------
CURRENT ASSETS:
Cash $ -- $ 17,628
Accounts receivable - net 239,762 182,654
Other current assets 31,423 65,705
--------- ---------
CURRENT ASSETS 271,185 265,987
--------- ---------
$ 271,185 $ 265,987
========= =========
- LIABILITIES AND STOCKHOLDERS' (DEFICIENCY)-
CURRENT LIABILITIES:
Cash overdraft $ 6,311 $ --
Accounts payable 20,974 61,460
Management/licensing payable - I.S.I. 860,501 486,677
Other current liabilities 3,393 529
--------- ---------
CURRENT LIABILITIES 891,179 548,666
--------- ---------
LONG-TERM LIABILITIES:
Working capital advances - I.S.I. -- 55,169
Other long-term liabilities -- 8,360
--------- ---------
-- 63,529
--------- ---------
TOTAL LIABILITIES 891,179 612,195
--------- ---------
STOCKHOLDER'S (DEFICIENCY):
Common stock 100 100
(Deficit) (620,094) (346,308)
--------- ---------
(619,994) (346,208)
--------- ---------
$ 271,185 $ 265,987
========= =========
9
STANLEY E. ORDER, M.D., P.C.
CONDENSED STATEMENTS OF OPERATIONS AND (DEFICIT) RETAINED EARNINGS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2001 AND 2000
(UNAUDITED)
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- ----------------------
2001 2000 2001 2000
--------- --------- --------- ---------
FEE REVENUE $ 279,473 $ 207,355 $ 452,580 $ 684,842
--------- --------- --------- ---------
OPERATING EXPENSES:
Doctors' compensation 107,500 107,500 215,000 215,000
Management/licensing fee - I.S.I. 154,130 139,259 378,394 440,444
Insurance 20,776 10,470 39,547 20,941
Other operating expenses 47,449 16,160 93,285 45,825
--------- --------- --------- ---------
329,855 273,389 726,226 722,210
--------- --------- --------- ---------
OPERATING (LOSS) (50,382) (66,034) (273,646) (37,368)
Provision for state income taxes (70) (95) (140) (191)
--------- --------- --------- ---------
NET (LOSS) (50,452) (66,129) (273,786) (37,559)
(Deficit) retained earnings - beginning of period (569,642) 76,584 (346,308) 48,014
--------- --------- --------- ---------
(DEFICIT) RETAINED EARNINGS - END OF
PERIOD $(620,094) $ 10,455 $(620,094) $ 10,455
========= ========= ========= =========
10
STANLEY E. ORDER, M.D., P.C.
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2001 AND, 2000
(UNAUDITED)
Six Months Ended
June 30,
---------------------
2001 2000
--------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(273,786) $(37,559)
Adjustments to reconcile net loss to net cash flows from operating activities:
(Increase) decrease in:
Accounts receivable (57,108) 77,794
Prepaid licensing fee -- 36,000
Other current assets 34,281 16,381
Increase (decrease) in:
Bank overdraft 6,311 --
Accounts payable (40,486) (23,485)
Management/licensing fees payable - I.S.I. 373,824 (66,056)
Other current liabilities 2,865 2,058
Other long-term liabilities (8,360) --
--------- --------
Cash flows provided by operating activities 37,541 5,133
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from working capital advances 66,262 --
Payments of working capital advances (121,431) --
--------- --------
Cash flows (used) by financing activities (55,169) --
--------- --------
NET (DECREASE) INCREASE IN CASH (17,628) 5,133
CASH, BEGINNING OF PERIOD 17,628 13,706
--------- --------
CASH, END OF PERIOD $ -- $ 18,839
========= ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $ 5,559 $ 962
========= ========
Income taxes paid $ 155 $ 380
========= ========
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 are being
included as supplemental information to Form 10-QSB of EDG Capital, Inc.
Accordingly, they do not include all of the information and footnotes
required by 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 and six months ended June 30,
2001, are not necessarily indicative of the results that may be expected
for the year ended December 31, 2001.
LEGAL MATTERS
On April 30, 2001 Dr. Stanley E. Order received a letter from Associates
in Radiation Oncology, P.A. ("AROPA") which claimed that AROPA was
entitled to 50% of all royalties or fees obtained by Dr. Order from patent
No. 5,538,726. AROPA's claim is apparently based on an agreement between
Dr. Order and Cooper Hospital/University Medical Center dated June 5,
1991, pursuant to which Dr. Order became a clinical professor of radiology
at the Robert Wood Johnson Medical School and a member of AROPA. Dr. Order
left the medical school and ended his relationship with AROPA in December
1997, when he formed Stanley E. Order, M.D., P.C., d/b/a/ Center for
Molecular Medicine. The agreement between Dr. Order and Cooper
Hospital/University Medical Center provided that in the event that
research was carried out with any corporate entity on a royalty or
percentage return basis, Dr. Order would receive 50% of the income, 25%
would be "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 obligated to pay him or his medical group any royalties in the
future. As a result of this assignment,
13
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
$468,000 and license fees of $47,000 during the six month period ended
June 30, 2001.
The license fees we charge the medical groups are set each year in
advance at a level that is intended to reflect the expected usage of the
licensed technology by the medical group during the year. In December
1999, we determined that the license fee we charged 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 June 30, 2001, Stanley E. Order, M.D., P.C., d/b/a Center for
Molecular Medicine, owed us an aggregate of approximately $861,000
against fees billed in 2001 and 2000. As of June 30, 2001, Mitchell E.
Levine, M.D., P.C., d/b/a Center for Neuro-Oncology, owed us
approximately $68,000 against fees billed in 2001 and 2000 and New York
Medical Oncology, P.C., d/b/a Center for Medical Oncology, owed us
approximately $267,000 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 June 30, 2001, Stanley E.
Order, M.D., P.C., d/b/a Center for Molecular Medicine, was owed
approximately $252,000 for services rendered to its patients and New
York Medical Oncology, P.C., d/b/a Center for Medical Oncology, was owed
approximately $152,000 for services rendered to its patients. As of June
30, 2001, Mitchell E. Levine, M.D., P.C., d/b/a Center for
Neuro-Oncology, had no outstanding accounts receivable for services
rendered to its patients As of December 31, 2000, we recorded a
provision of $520,000 (as restated) against fees receivable from the
medical groups. We increased the provision to $835,000 as of June 30,
2001. This provision includes a provision of $146,000 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.
15
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 and six month periods ended June 30, 2001, were
$225,597 and $515,296, respectively, as compared to $160,980 and
$440,687 for the corresponding periods of the prior year. These
increases of $64,617 (or 40.1%) and $74,609 (or 16.9%), were due to
enhanced revenues generated during the periods by the clinician research
teams of the medical groups we manage. To date, patient accrual, and
income derived from the treatment of those patients, has been dependent
to a great extent, on a public relations effort, which resulted in
extensive media exposure. Our revenues have fluctuated depending on the
timing of media exposure. During 2001, we embarked on a comprehensive
advertising program to complement our existing public relations effort.
COSTS AND EXPENSES:
Costs of revenues were $81,707 and 82,405 for the three month periods
ended June 30, 2001, and 2000, respectively. For the six-month periods
ended June 30, 2001, and 2000 costs of revenues aggregated $225,753 and
$164,809, respectively. This increase of $60,944, or 37.0%, was the
result of an increase in medical supplies costs, 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 and
affected the first quarter of 2001.
Research and development expenses were $285,435 and $189,997 for the
three-month periods ended June 30, 2001, and 2000, respectively,
representing an increase of $95,438, or 50.2%. Research and development
expenses increased by $171,331, or 45.1%, to $551,073 for the six-month
period ended June 30, 2001 from $379,742 for the six-month period ended
June 30, 2000. These increases are attributable 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 (Investigational
New Drug applications) for our nuclear pharmaceutical technologies.
General and administrative expenses were $350,803 and $57,915 for the
three months ended June 30, 2001, and 2000, respectively, reflecting an
increase of $292,888, or 505.7%. General and administrative expenses
were $817,663 and $106,360 for the six months ended June 30, 2001, and
2000, respectively, reflecting an increase of $711,303, or 668.8%. These
increases were 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 $393,000.
During the six months ended June 30, 2001, we incurred approximately
$293,000 of research and development costs relating to the colloidal
P32/MAA technology and approximately $243,000 of research and
development costs relating to the radioactive cisplatin technology.
17
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 regarding the adequacy of this data to
support approval of the product for this indication. We intend 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 June 30, 2001, we had a net loss of
$484,887 ($.04 per share) as compared to a net loss of $168,202 ($.02
per share) for the same period of the prior year. For the six- month
period-ended June 30, 2001, we had a net loss of $1,055,705 ($.10 per
share) as compared to a net loss of $207,953 ($.03 per share) for the
six-month period ended June 30, 2000. The increased loss in the year
2001 was due to the increase in costs and expenses described above.
18
LIQUIDITY AND CAPITAL RESOURCES:
At June 30, 2001, our balance sheet reflected cash of $216,445, working
capital of $301,051 and a current ratio of approximately 1.9 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:
December 31,
------------------------------------------- June 30,
1997 1998 1999 2000 2001
------- --------- -------- -------- ---------
Stanley E. Order, M.D., P.C
Advances $56,154 $ 64,241 $ 27,111 $ 75,000 $ 63,000
Repayments -- (120,395) (27,111) (20,000) (121,431)
Interest -- -- -- 169 3,262
------- --------- -------- -------- ---------
Advances receivable - end of period $56,154 $ -- $ -- $ 55,169 $ --
======= ========= ======== ======== =========
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 $ 63,420
Repayments -- -- -- -- (33,000)
Interest -- -- -- 1,510 4,007
------- --------- -------- -------- ---------
Advances receivable - end of period $ -- $ -- $ -- $ 93,326 $ 127,753
======= ========= ======== ======== =========
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 $127,000 as of June 30, 2001, to provide for 100% of the
advances receivable from New York Medical Oncology, P.C., d/b/a Center for
Medical Oncology. As discussed earlier, we terminated our relationship
with this medical group in July 2001.
Cash received from the medical groups is first applied to reduce working
capital advances made and is then applied to fees receivable.
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 costs in connection
with the launch of the Phase I studies. We expect that these costs may
exceed $5,000,000 during the first year of the studies 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.
19
FORWARD-LOOKING STATEMENTS:
Some of the statements in this report are forward-looking statements that
involve risks and uncertainties. These forward-looking statements include
statements about our plans, objectives, expectations, intentions and assumptions
that are not statements of historical fact. You can identify these statements by
the following words:
o "may" o "plans"
o "will" o "expects"
o "should" o "believes"
o "estimates" o "intends"
and similar expressions. We cannot guarantee our future results, performance or
achievements. Our actual results and the timing of corporate events may differ
significantly from the expectations discussed in the forward-looking statements.
You are cautioned not to place undue reliance on any forward-looking statements.
Potential risks and uncertainties that could affect our future operating results
include, but are not limited to, the risks described in Exhibit 99.1 to our
Annual Report on Form 10-KSB for the year ended December 31, 2000, including our
limited operating history, history of losses, need to raise additional capital,
the high risk nature of our business and our dependence on a few managed medical
groups, as well as our ability to protect our intellectual property rights.
20
Part II. Other Information
Item 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 June 30, 2001, we made the sales of
unregistered securities described below:
On May 4, 2001, we issued options to purchase 30,000 shares of common
stock to Harry Barnett, a director of EDG Capital, Inc., pursuant to the
2000 Long-Term Incentive Plan, at an exercise price of $2.625 per share.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
On June 6, 2001, we filed a Form 8-K regarding the filing of an
Investigational New Drug application with the Food and Drug Administration
by Isotope Solutions, Inc., requesting permission to begin testing Isotope
Solutions, Inc.'s Radioactive Cisplatin technology in patients with liver
cancer.
On May 14, 2001, we filed a Form 8-K regarding the reexamination, by our
accountants, of our financial statements for the year ended December 31,
2000, to determine whether EDG Capital, Inc. needed to take certain
additional reserves against its accounts receivable, in light of certain
subsequent information.
On May 14, 2001, we filed a Form 8-K regarding the election of Harry
Barnett to our board of directors.
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.
Date: August 13, 2001 By: /s/ Jack Schwartzberg
-----------------------------------------------
Jack Schwartzberg, Chief
Executive Officer and President
Date: August 13, 2001 By: /s/ Shraga D. Aranoff
-----------------------------------------------
Shraga D. Aranoff, Vice President
and Treasurer (Principal Financial Officer)
22