SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
(Amendment No. 1)
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of report (Date of earliest event reported): September 13, 2000
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EDG CAPITAL, INC.
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(Exact name of registrant as specified in its charter)
NEW YORK 33-37674-NY 11-3023098
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(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
700 Stewart Avenue, Garden City, New York 11530
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (516) 222-7749
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<PAGE>
This Current Report on Form 8-K/A amends the Current Report on Form
8-K filed by EDG Capital, Inc., a New York corporation (the "Company"), on
September 19, 2000 solely to add the financial statements of the business
acquired required by Item 7(a) and the pro forma financial information required
by Items 7(a)(1) and 7(b)(1), respectively, as permitted by Items 7(a)(4) and
7(b)(2), respectively.
ITEM 7. Financial Statements and Exhibits
(a) Financial Statements of Business Acquired.
Attached are the following financial statements of Isotope
Solutions, Inc. (formerly Molecular Radiation Management, Inc.):
Audited financial statements for the year ended December 31, 1999 (Revised):
Report of Kurcias, Jaffe & Company
Balance Sheet, December 31, 1999 (Revised)
Statement of Income, Year Ended December 31, 1999 (Revised)
Statement of Stockholders' Equity, Year Ended December 31, 1999 (Revised)
Statement of Cash Flows, Year Ended December 31, 1999 (Revised)
Notes to Financial Statements (Revised)
Schedule 1 - Operating Expenses, Year Ended December 31, 1999 (Revised)
Audited financial statements for the year ended December 31, 1998 (Revised):
Report of Kurcias, Jaffe & Company
Balance Sheet, December 31, 1998 (Revised)
Statement of Income, Year Ended December 31, 1998 (Revised)
Statement of Stockholders' Equity, Year Ended December 31, 1998 (Revised)
Statement of Cash Flows, Year Ended December 31, 1998 (Revised)
Notes to Financial Statements (Revised)
Schedule 1 - Operating Expenses, Year Ended December 31, 1998 (Revised)
(b) Pro Forma Financial Information.
Attached are the following unaudited pro forma condensed
consolidated financial statements that give effect to the acquisition by the
Company of 100% of the outstanding capital stock of Isotope Solutions, Inc.:
Introduction to Condensed Consolidated Proforma Financial Statements
Condensed Consolidated Proforma Balance Sheet, June 30, 2000
Condensed Consolidated Proforma Statement of Operations for the Six Months
Ended June 30, 2000
Condensed Consolidated Proforma Statement of Operations for the Year Ended
December 31, 1999
Notes to Condensed Consolidated Proforma Financial Statements
(c) Exhibits.
2.1 Agreement and Plan of Merger dated September 8, 2000 by and
among the Company, EDG Capital, Inc., MRM Merger Sub, Inc. and
Molecular Radiation Management, Inc. (previously filed).
2
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MOLECULAR RADIATION MANAGEMENT, INC.
FINANCIAL REPORT
FOR THE YEAR ENDED
DECEMBER 31, 1999
(REVISED)
3
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MOLECULAR RADIATION MANAGEMENT, INC.
INDEX TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
(REVISED)
Page
----
Independent Auditors' Report 5 - 6
Balance Sheet 7 - 8
Statement of Income 9
Statement of Stockholders' Equity 10
Statement of Cash Flows 11
Notes to Financial Statements 12 - 20
Schedule I - Operating Expenses 21
4
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KURCIAS, JAFFE, & COMPANY LLP
CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors
Molecular Radiation Management, Inc.
Garden City, New York
Independent Auditors' Report
We have audited the accompanying balance sheet of Molecular Radiation
Management, Inc. (a New York corporation) as of December 31, 1999 and the
related statements of income, stockholders' equity and cash flows for the year
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Molecular Radiation Management,
Inc. as of December 31, 1999 and the results of its operations and its cash
flows for the year then ended in conformity with generally accepted accounting
principles.
As further discussed in the notes to financial statements, certain changes in
information resulting in a misstatement of previously reported financial
statement accounts as of December 31, 1999 and for the year then ended were
discovered by the management of the Company subsequent to the issuance of our
review report on those financial statements dated March 8, 2000. Accordingly,
the accompanying financial statements as of December 31, 1999 and for the year
then ended have been restated to reflect the changes.
5
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Independent Auditors' Report (Continued)
Our audit was conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplementary information presented
in Schedule I on page 21 is presented for purposes of additional analysis and is
not a required part of the basic financial statements. Such information has been
subjected to the auditing procedures applied in the audit of the basic financial
statements, and, in our opinion, is fairly stated in all material respects in
relation to the basic financial statements.
Great Neck, New York
August 2, 2000 (except for the last
note of the notes to financial statements,
which date is August 11, 2000)
/s/ Kurcias, Jaffe & Company LLP
Kurcias, Jaffe & Company LLP
Certified Public Accountants
6
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MOLECULAR RADIATION MANAGEMENT, INC.
BALANCE SHEET
DECEMBER 31, 1999
(REVISED)
ASSETS
Current Assets:
Cash $ 15,519
Unexpired insurance 5,866
Prepaid income taxes 19,154
Management fee due from
Stanley E. Order, M.D., P.C 435,421
---------
Total Current Assets $ 475,960
Property and Equipment (at cost):
Furniture and fixtures 12,685
Computer equipment 35,992
Telephone equipment 19,169
---------
67,846
Less: accumulated depreciation (58,149)
---------
Total Property and Equipment - net 9,697
Other Assets:
Patents, net of accumulated
amortization of $261 7,393
Loan due from Mitchell E. Levine,
M.D., P.C. 555
Security deposits 2,694
---------
Total Other Assets 10,642
---------
Total Assets $ 496,299
=========
See accompanying notes to financial statements.
7
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MOLECULAR RADIATION MANAGEMENT, INC.
BALANCE SHEET
DECEMBER 31, 1999
(REVISED)
(CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 70,007
Accrued expenses 980
--------
Total Current Liabilities $ 70,987
Stockholders' Equity:
Common Stock, $.01 par value;
200,000 authorized; 1,000
shares issued and outstanding 10
Additional paid-in-capital 399,995
Retained earnings 95,307
--------
495,312
Less: stock subscription receivable (30,000)
treasury stock (40,000)
--------
Total Stockholders' Equity 425,312
--------
Total Liabilities and Stockholders' Equity $496,299
========
See accompanying notes to financial statements.
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MOLECULAR RADIATION MANAGEMENT, INC.
STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1999
(REVISED)
Management Fees $1,297,766
Operating expenses (Schedule I) 1,255,015
----------
Operating Income 42,751
Other income:
Forgiveness of debts $ 18,280
Interest 1,366
----------
Total other income 19,646
----------
Income before provision for depreciation
and amortization and income taxes 62,397
Provision for depreciation and
amortization 16,456
----------
Income before provision for federal
and state income taxes 45,941
Provision for federal and state
income taxes 10,096
----------
Net Income $ 35,845
==========
See accompanying notes to financial statements.
9
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MOLECULAR RADIATION MANAGEMENT, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1999
Additional Retained
Common Paid-in Earnings
Stock Capital (Deficit) Total
--------- --------- --------- ---------
Beginning of year $ 10 $ 399,995 $ 59,462 $ 459,467
Net income - for the
year ended
December 31, 1999 -- -- 35,845 35,845
--------- --------- --------- ---------
Subtotal $ 10 $ 399,995 $ 95,307 495,312
--------- --------- --------- ---------
Less: stock subscription
receivable (30,000)
treasury stock (40,000)
---------
End of Year $ 425,312
=========
See accompanying notes to financial statements.
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MOLECULAR RADIATION MANAGEMENT, INC.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1999
(REVISED)
Cash flows provided (used) by operating activities:
Net Income $ 35,845
--------
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Depreciation and amortization 16,456
Changes in assets and liabilities:
(Increase) decrease in:
Management fee due from
Stanley E. Order, M.D., P.C 56,184
Prepaid income taxes (12,578)
Other loans receivable (555)
Security deposits (2,694)
Increase (decrease) in:
Accounts payable (33,370)
Accrued expenses (43)
--------
Total adjustments 23,400
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Net cash provided by operating activities 59,245
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Cash flows provided (used) by investing activities:
Cash payments for the purchase of
equipment (11,715)
Cash payments for patent applications and
patent assignments (7,654)
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Net cash (used) by investing activities (19,369)
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Cash flows provided (used) by financing activities:
Purchase of treasury stock (40,000)
Proceeds from issuance of common stock 10,005
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Net cash (used) by financing activities (29,995)
--------
Net increase in cash and equivalents 9,881
Cash and equivalents, beginning of year 5,638
--------
Cash and equivalents, end of year $ 15,519
========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Income Taxes $ 22,674
See accompanying notes to financial statements.
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MOLECULAR RADIATION MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
(REVISED)
Significant accounting policies and other matters
The following significant accounting policies and other matters are set forth to
facilitate the understanding of data presented in the financial statements.
Organization and nature of operations
Molecular Radiation Management, Inc. (hereafter referred to as the "Company")
was incorporated in New York State on January 28, 1997. 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 a management
agreement with its initial client, Stanley E,. Order, M.D., P.C. (hereafter
referred to as the "P.C."). The Company offers administrative and other services
to health care providers in the New York metropolitan area, particularly Long
Island. The Company's function is to help provide medical practice groups with
office space and equipment, nonmedical personnel, administrative services,
billing, consulting, receivables collection, regulatory compliance, and other
nonmedical services. All of the Company's revenues for the year ended December
31, 1999 came solely from the P.C.. The P.C. is a medical practice that
evaluates and treats cancer patients.
Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires the Company's management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and cash equivalents
For purposes of the statement of cash flows, the Company considers all
investment instruments with a maturity of three months or less to be cash
equivalents.
Concentration of credit risk
For the year ended December 31, 1999, the P.C. accounted for all of the
Company's revenues. In addition, it accounted for all of the Company's accounts
receivable as of December 31, 1999. Until December 31, 1999, the P.C. had been
the Company's sole client. (reference is made to the note regarding the
subsequent event - management agreement - Mitchell E. Levine, M.D., P.C.)
Cash accounts at one high quality bank may at times exceed federally insured
limits of $100,000. The Company has not incurred any losses on these accounts.
Management believes it is not exposed to any significant credit risk regarding
these accounts.
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MOLECULAR RADIATION MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
(REVISED)
(CONTINUED)
Significant accounting policies and other matters (continued)
Property and equipment - at cost
Depreciation of property and equipment is provided for over the estimated useful
lives of the related assets (5 to 7 years). Depreciation is computed by using
either the straight line or modified accelerated cost recovery system (MACRS)
methods. Depreciation is computed on the same basis for both financial statement
and income tax purposes. Under provisions of Section 179 of the Internal Revenue
Code, taxpayers can elect to expense (with certain limitations for loss years,
etc.) up to $19,000 annually of depreciable business property acquired each
year. The amount of depreciable business property taxpayers' can expense in the
year of purchase under Section 179 will gradually increase from the current
$19,000 to $25,000 by the year 2003. Depreciation expense for the year ended
December 31, 1999 was $16,195. The Company elected to expense $11,715 of
depreciable business property under Section 179 for the year ended December 31,
1999. The depreciation methods and estimated useful lives that are used by the
Company are different than those prescribed under generally accepted accounting
principles. This variance caused by using MACRS and Section 179 is not
considered to be material.
Maintenance and repairs are charged to operations when incurred. When property
and equipment are sold or otherwise disposed of, the asset and the related
accumulated depreciation account are relieved, and any gain or loss is included
in operations.
Patent amortization
Legal fees incurred in connection with establishing and filing patents as well
as legal fees incurred in reregistering patents assigned to the Company are
being amortized on the straight line method over their remaining lives, ranging
from 9 to 19 years. Amortization expense for the year ended December 31, 1999
was $261.
Long-lived assets
In March 1995, the FASB issued Statement No. 121, Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets To Be Disposed Of, which requires
impairment losses to be recorded on long-lived assets used in operations when
indicators of impairment are present and the undiscounted cash flows estimated
to be generated by those assets are less than the assets' carrying amounts. The
statement also addresses the accounting for long-lived assets that are expected
to be disposed of. The Company adopted statement No. 121 as of January 1, 1999;
its adoption has had no effect on the financial statements.
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MOLECULAR RADIATION MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
(REVISED)
(CONTINUED)
Significant accounting policies and other matters (continued)
Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107 "Disclosures about Fair
Value of Financial Instruments" ("FAS 107"), requires the Company to disclose
the estimated fair values of its financial instruments. Fair values generally
represent estimates of amounts at which a financial instrument could be
exchanged between willing parties in a current transaction other than in forced
liquidation. The carrying amount of receivables and payables approximates fair
value.
Fair value estimates are subjective and are dependent on a number of significant
assumptions based on management's judgment regarding future expected loss
experience, current economic conditions, risk characteristics of various
financial instruments, and other factors. In addition, FAS 107 allows a wide
range of valuation techniques, therefore, comparisons between entities, however
similar may be difficult.
Income taxes
The components of the provision for Federal and State income taxes for the year
ended December 31, 1999, is as follows:
Federal income tax $ 5,796
State income tax 4,300
--------
Total $ 10,096
========
Marketing and business promotion
The Company's policy is to expense marketing and business promotion as incurred.
Marketing and business promotion expense for the year ended December 31, 1999
was $79,703.
Allowance for doubtful accounts
The Company's management does not believe that it is necessary to record an
allowance for doubtful accounts since the Company has historically collected all
of its accounts receivable from the P.C. and has a security interest in the
P.C.'s accounts receivable.
14
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MOLECULAR RADIATION MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
(REVISED)
(CONTINUED)
Restated retained earnings as of December 31, 1999 and net income for the year
then ended
The Company's management has restated its net income and retained earnings in
the accompanying December 31, 1999 financial statements from its previously
issued December 31, 1999 reviewed financial statements dated March 8, 2000. The
restatement was due to the following items:
Capitalization of certain legal fees
relating to patent applications and
patent assignments, net of amortization $ 7,393
(Decrease) in prepaid income taxes (2,435)
Decrease in accounts payable 9,849
--------
Total increase to net income and
retained earnings for the year ended
December 31, 1999 14,807
Retained earnings, as previously reported 80,500
--------
Retained earnings, as restated, December 31, 1999 $ 95,307
========
Management agreement - Stanley E. Order, M.D., P.C.
On December 1, 1997, the Company entered into an exclusive, full service,
thirty-year management agreement (the "agreement") with the P.C., expiring on
November 30, 2027. The agreement provides for a fee, to be paid to the Company
on a weekly basis, (including arrears). The amount of the fee is equal to the
Company's cost to provide the services described below. In addition, the
agreement also provides for a monthly fee which is subject to adjustment January
1, of each year and such adjustment shall be agreed upon mutually, each year, by
the Company and the P.C.. If an understanding cannot be reached on a new monthly
fee, then the fee shall be increased by the greater of 20% or the cost of living
adjustment as determined by the U.S. Labor Department. For 1999, the monthly fee
was $16,850. The monthly fee for 2000 has yet to be agreed upon.
The services the Company is to provide in exchange include, but are not limited
to, treatment and laboratory space, furnishings and equipment, medical supplies
and medicines, clerical non-medical services and staff, managerial and
administrative services, consulting, and billing and collection. In addition,
the Company also licenses to the P.C. several patents for treating solid tumor
cancer.
15
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MOLECULAR RADIATION MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
(REVISED)
(CONTINUED)
Management agreement - Stanley E. Order, M.D., P.C. (continued)
Pursuant to the agreement, the Company maintains a security interest in all of
the P.C.'s accounts receivable for the full and timely payments of all amounts
owed to the Company by the P.C.. As of December 31, 1999, the management fee due
under the agreement totaled $435,421.
The contract may be terminated by either party due to non-compliance of the
terms under the agreement. However, the agreement contains certain
non-competition and restrictive covenants against the P.C. if the agreement is
terminated, regardless of any reason.
The agreement also allows the Company to purchase the P.C. for $100 should it
ever become lawful for the Company to acquire and operate the medical practice
of the P.C.
Working capital advances to the P.C., as outlined in the agreement bear interest
at a rate of 8.5 percent and have no specific due date. There were no working
capital advances at or for the year ended December 31, 1999.
Key man life insurance
The Company is the owner and beneficiary of a $2,000,000 face value term life
insurance policy on Dr. Stanley E. Order.
Stanley E. Order, M.D. - physician's employment contract with Stanley E. Order,
M.D., P.C.
On January 1, 1998, the P.C. entered into a three year employment agreement,
expiring on December 31, 2000, with its sole stockholder and president, Stanley
E. Order, M.D.. This agreement was amended and modified on January 1, 2000 and
expires on December 31, 2003.
The original agreement provided for an annual salary of $300,000 to be paid to
Dr. Order. Subsequently, beginning January 1, 2000, the agreement was modified
to an annual salary of $180,000 based on a three day work week. Dr. Order had
been working 4 days a week through December 31, 1999. In addition, Dr. Order
received a $100,000 signing bonus. Moreover, per the agreement, the P.C. is to
maintain for the benefit of Dr. Order, medical malpractice insurance coverage
under primary and excess policies with respect to all patients seen on behalf of
the practice, with coverage of at least $1 million per event and $3 million in
the aggregate. Present coverage is $5 million per event and $7 million in the
aggregate. Other compensation that the P.C. is to provide to Dr. Order, under
the agreement, includes various employee benefits.
16
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MOLECULAR RADIATION MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
(REVISED)
(CONTINUED)
Stanley E. Order, M.D. - physician's employment contract with Stanley E. Order,
M.D., P.C. (continued)
In exchange for the above compensation package, Dr. Order is to practice
medicine and conduct research in the field of oncological radiology and to care
for and treat patients of the practice. Dr. Order is to work on a full time
basis of three days per week.
The agreement also contains certain covenants for Dr. Order not to compete for a
period of one year to be applied after either the expiration or termination of
the agreement. In addition, this contract may be terminated by either party,
prior to its expiration, for reasonable cause such as the loss of the
physician's license by Dr. Order.
Wayne S. Court, M.D. - physician's employment contract with Stanley E. Order,
M.D., P.C.
On July 15, 1998, the P.C. entered into a one-year employment agreement, which
expired on July 14, 1999, with Wayne S. Court, M.D. This agreement has similar
terms to Dr. Order's employment agreement with the P.C. (reference is made to
the note regarding Physician's employment agreement with Dr. Stanley E. Order,
M.D., P.C.). However, this agreement provides for an annual salary of $250,000
to be paid to Dr. Court. In addition, the agreement provides for an annual bonus
of up to $150,000 to be paid to Dr. Court. Such bonus is to be determined
annually by the Board of Directors. Furthermore, Dr. Court is to be employed on
a full time basis of five days per week. Present malpractice insurance coverage
on Dr. Court is $1 million per event and $3 million in the aggregate. This
contract is currently on a month to month basis and has yet to be formally
renewed.
Treasury stock
Treasury stock of $40,000 is shown at cost, and at December 31, 1999 consisted
of 50 shares of common stock. Subsequently, on June 27, 2000, the Company
purchased back 50 more shares of common stock for forgiveness of a $10,000 stock
subscription receivable from a former shareholder (reference is made to the note
regarding stock subscription receivable). Then on June 30, 2000, the Company
sold 50 shares of treasury stock to certain existing shareholders for $20,525.
Office lease
The Company presently has a month to month lease.
17
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MOLECULAR RADIATION MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
(REVISED)
(CONTINUED)
Stock subscription receivable
The stock subscription receivable of $30,000 as of December 31, 1999, includes
receivables from various stockholders. These receivables were due in full to the
Company by July, 1, 1999. Accordingly, $30,000 was past due as of December 31,
1999.
All stock certificates have been issued to their respective shareholders as of
December 31, 1999.
Subsequently, on June 27, 2000, the Company forgave a $10,000 stock subscription
receivable from a former shareholder in exchange for 50 shares of the Company's
own common stock (reference is made to the note regarding treasury stock).
Patents
The Company presently has two patents registered to it; "Radioactive Cisplatin
in the Treatment of Cancer", patent number 6074626 which expires 3-19-2119; and
"Modification of Solid Tumors by Macroaggregated Albumin to Increase Radioactive
Receptor Ligans For Tumor Dose", patent number 5424288 which expires 6-13-2009.
The Company leases the use of these patents to Stanley E. Order M.D., P.C. by
way of the monthly fee charged to the P.C. (reference is made to the note
regarding the management agreement with Stanley E. Order, M.D., P.C.). The
Company is also presently leasing these patents to Mitchell E. Levine, M.D.,
P.C. on a month to month basis. The former patent became effective on 6-13-00.
The latter patent was obtained by assignment from Dr. Stanley E. Order, M.D.
during 1998.
The Company is presently securing an assignment from Dr. Order of an existing
patent, "Method of Compositions for Delivering Cytotoxic Agents to Cancer",
patent number 5538726.
Year 2000 date problem
Many computerized systems use only two digits to record the years in date fields
(for example, the year 1999 is recorded as 99), such systems may not be able to
process dates accurately in the year 2000 and thereafter. The effect of this
problem may vary from system to system and may adversely affect an entity's
operations as well as its ability to prepare financial statements.
The Company cannot presently determine the effect, if any, of the above Year
2000 problem on their computer systems, applications and operations. However,
the Company believes that it has prepared adequately to minimize any such
effects.
18
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MOLECULAR RADIATION MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
(REVISED)
(CONTINUED)
Subsequent event-management agreement - Mitchell E. Levine M.D., P.C.
On January 1, 2000, the Company entered into an exclusive, full service, thirty
year management agreement (the "agreement") with Mitchell E. Levine, M.D., P.C.
(hereafter referred to as the "MEL P.C."). MEL P.C. specializes in Neuro-Surgery
and Neuro-Oncology. The agreement provides for a weekly fee to be paid to the
Company. The amount of the fee is equal to the Company's cost to provide the
services described below. In addition, the agreement also provides for a monthly
fee. This fee is subject to adjustment January 1, of each year under the
agreement and such adjustment shall be agreed upon mutually, each year, by the
Company and MEL P.C.. If an understanding cannot be reached on a new monthly
fee, then the fee shall be adjusted by the following two factors: (a) the cost
of living adjustment as determined by the U.S. Labor Department and (b) the
Company's reasonable evaluation as to the costs associated with any increase in
time, effort, manpower, supplies, etc. required to be provided to MEL P.C. by
the Company. For 2000, the initial monthly fee has been set at $1,500 per month.
The services the Company is to provide in exchange include, but are not limited
to, treatment and laboratory space and furnishing, medical equipment and
supplies, medicines, office supplies, clerical non-medical services and
personnel, managerial and administrative services, consulting services, billing
and collection services. In addition, the Company also grants and licenses to
MEL P.C., use of its trade name and logo as well as the right to use several
patents for treating solid tumor cancer.
The agreement also outlines terms for any working capital advances made to MEL
P.C..
Pursuant to the agreement, the Company maintains a security interest in all of
MEL P.C.'s accounts receivable for the full and timely payments of all amounts
owed to the Company by MEL P.C.
The agreement may be terminated by either party due to non-compliance of the
terms under the agreement. However, the agreement contains certain
non-competition and restrictive covenants against MEL P.C. if this agreement is
terminated, regardless of reason.
The agreement also allows the Company to purchase 50% of MEL P.C. for $100
should it ever become lawful for the Company to acquire and operate the medical
practice of MEL P.C.
Presently, Mitchell E. Levine, M.D. does not have a written employment contract
with MEL, P.C., devotes only part time employment with MEL P.C., and is required
to maintain his own malpractice insurance. Operations of MEL P.C. commenced
January 1, 2000.
19
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MOLECULAR RADIATION MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
(REVISED)
(CONTINUED)
Subsequent event - stockholders loans / purchase of stock
On June 30, 2000, certain stockholders made loans to the Company totaling
$129,475. These loans are payable in full by the Company to the respective
stockholders on November 30, 2000 with interest at a rate of twelve percent
(12%) per annum and shall accrue from July 1, 2000 to November 30, 2000. In
addition, these same shareholders also purchased 50 shares of treasury stock in
the aggregate for a total of $20,525 (reference is made to the note regarding
treasury stock).
Subsequent event - management agreement - New York Medical Oncology P.C.
The Company entered into a thirty year full-service management agreement with
New York Medical Oncology, P.C. ("NYM") (name is awaiting final approval) which
will be effective September 1, 2000. The management fee terms of the agreement
are substantially the same as the terms of the management agreement with
Mitchell E. Levine, M.D., P.C. (reference is made to the note regarding the
management agreement with Mitchell E. Levine, M.D., P.C.). The initial monthly
fee effective September 1, 2000 has not yet been established.
The agreement also allows the Company to purchase 95% of this P.C. for $100
should it ever become lawful for the Company to acquire and operate a medical
practice.
Pursuant to this agreement, NYM has agreed to employ Dr. Ira Braunschweig for
the period September 1, 2000 to August 31, 2002, unless sooner terminated by
either party as further stipulated in the agreement. Dr. Braunschweig shall
receive an annual base salary of $150,000. In addition, Dr. Braunschweig shall
receive an annual productivity bonus based on a stipulated formula which will be
capped at $75,000 and $150,000 for the first and second employment year,
respectively. Certain other fringe benefits for Dr. Braunschweig are obligated
under the agreement.
Subsequent event - private placement/merger and subsequent name change
As of August 11, 2000, the Company, through a private placement agent (G-V
Capital Corp.), is attempting to merge into EDG Capital, Inc. ("EDG"), a
publicly held shell company. The intent of the placement is as follows: EDG,
which has 242,500 shares outstanding is to have a 2.57315 for 1 forward stock
split which will result in 623,989 shares outstanding. In addition, the
Company's current shareholders will receive 7,440,000 shares of the newly merged
entity. The newly merged entity will have a private placement offering of
2,231,866 shares at an offering price of $.8065 per share ($1,800,000) and the
placement agent (G-V Capital Corp.) shall receive commissions in the amount of
five percent (5%) of the aggregate offering price of the shares sold and 104,000
shares of the newly merged entity.
The newly merged entity plans to rename itself Isotop Solutions, Inc. ("ISI")
when all is completed. In addition, it is intended that ISI will have an
employee stock option plan for 12% of the total initial outstanding shares.
20
<PAGE>
MOLECULAR RADIATION MANAGEMENT, INC.
SCHEDULE 1 - OPERATING EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1999
(REVISED)
Medical supplies, medical equipment
rental and medicines $ 497,599
Chief Executive Officer's salary 200,000
Chief Operating Officer's salary 86,979
Other salaries 97,415
Payroll taxes 22,560
Rent 49,808
Office equipment and furniture rental 4,359
Professional fees 26,607
Marketing and business promotion 79,703
Cleaning and laundry 5,211
Consulting fees 2,850
Collection fees 5,575
Computer and website costs 5,825
Contributions and gifts 6,213
Dues, subscriptions and professional memberships 1,165
Insurance 58,640
Miscellaneous expenses 2,411
Office expense and supplies 23,763
Postage and delivery 7,099
Repairs and maintenance 695
Service charges 1,184
Telephone 29,010
Temporary help 247
Travel and patient transportation 40,097
----------
Total Operating Expenses $1,255,015
==========
See accompanying notes to financial statements.
21
<PAGE>
ISOTOPE SOLUTIONS, INC.
(formerly Molecular Radiation Management, Inc.)
FINANCIAL REPORT
FOR THE YEAR ENDED
DECEMBER 31, 1998
(REVISED)
22
<PAGE>
ISOTOPE SOLUTIONS, INC.
(formerly Molecular Radiation Management, Inc.)
INDEX TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
(REVISED)
Page
----
Independent Auditors' Report 24 - 25
Balance Sheet 26 - 27
Statement of Income 28
Statement of Stockholders' Equity 29
Statement of Cash Flows 30
Notes to Financial Statements 31 - 40
Schedule I - Operating Expenses 41
23
<PAGE>
KURCIAS, JAFFE, & COMPANY LLP
CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Isotope Solutions, Inc.
Garden City, New York
Independent Auditors' Report
We have audited the accompanying balance sheet of Isotope Solutions Inc.
(formerly Molecular Radiation Management, Inc.) as of December 31, 1998 and the
related statements of income, stockholders' equity and cash flows for the year
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Isotope Solutions, Inc. as of
December 31, 1998 and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
As further discussed in the notes to financial statements, certain changes in
information resulting in a misstatement of previously reported balance sheet
accounts as of December 31, 1998 were discovered by the management of the
Company subsequent to the issuance of our review report dated February 18, 1999
regarding the Company's financial statements for the thirteen month period
December 1, 1997 (inception of operations) thru December 31, 1998. Accordingly,
the accompanying financial statements as of December 31, 1998, and for the year
then ended, have been restated to reflect the changes.
24
<PAGE>
Board of Directors
Isotope Solutions, Inc.
Garden City, New York
Page 2
Independent Auditors' Report (Continued)
Our audit was conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplementary information presented
in Schedule 1 on page 41 is presented for purposes of additional analysis and is
not a required part of the basic financial statements. Such information has been
subjected to the auditing procedures applied in the audit of the basic financial
statements, and, in our opinion, is fairly stated in all material respects in
relation to the basic financial statements.
Great Neck, New York
October 30, 2000
/s/ Kurcias, Jaffe & Company LLP
Kurcias, Jaffe & Company LLP
Certified Public Accountants
25
<PAGE>
ISOTOPE SOLUTIONS, INC.
(formerly Molecular Radiation Management, Inc.)
BALANCE SHEET
DECEMBER 31, 1998
(REVISED)
ASSETS
Current Assets:
Cash $ 5,638
Unexpired insurance 5,866
Prepaid income taxes 6,576
Management fee due from
Stanley E. Order, M.D., P.C 491,605
---------
Total Current Assets $ 509,685
Property and Equipment (at cost):
Furniture and fixtures 12,685
Computer equipment 24,277
Telephone equipment 19,169
---------
56,131
Less: accumulated depreciation (1,955)
---------
Total Property and Equipment - net 14,176
Other Assets:
Patents 1,776
---------
Total Assets $ 525,637
=========
See accompanying notes to financial statements.
26
<PAGE>
ISOTOPE SOLUTIONS, INC.
(formerly Molecular Radiation Management, Inc.)
BALANCE SHEET
DECEMBER 31, 1998
(REVISED)
(CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 105,152
Accrued expenses 1,023
---------
Total Current Liabilities $ 106,175
Stockholders' Equity:
Common Stock, $.01 par value;
200,000 authorized; 1,000
shares issued and outstanding 10
Additional paid-in-capital 399,995
Retained earnings 59,462
---------
459,467
Less: stock subscription receivable (40,005)
---------
Total Stockholders' Equity 419,462
---------
Total Liabilities and Stockholders' Equity $ 525,637
=========
See accompanying notes to financial statements.
27
<PAGE>
ISOTOPE SOLUTIONS, INC.
(formerly Molecular Radiation Management, Inc.)
STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1998
(REVISED)
Management Fees $974,810
Operating expenses (Schedule I) 877,688
--------
Operating Income 97,122
Other income:
Interest $ 2,255
Miscellaneous 31,828
--------
Total other income 34,083
--------
Income before provision for depreciation
and amortization and income taxes 131,205
Provision for depreciation and
amortization 41,955
--------
Income before provision for federal
and state income taxes 89,250
Provision for federal and state
income taxes 27,555
--------
Net Income $ 61,695
========
See accompanying notes to financial statements.
28
<PAGE>
ISOTOPE SOLUTIONS, INC.
(formerly Molecular Radiation Management, Inc.)
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1998
(REVISED)
Additional Retained
Common Paid-in Earnings
Stock Capital (Deficit) Total
--------- --------- --------- ---------
Beginning of year $ 10 $ 399,995 $ (2,233) $ 397,772
Net income - for the
year ended
December 31, 1998 -- -- 61,695 61,695
--------- --------- --------- ---------
Subtotal $ 10 $ 399,995 $ 59,462 459,467
--------- --------- --------- ---------
Less: stock subscription
receivable (40,000)
---------
End of Year $ 419,462
=========
See accompanying notes to financial statements.
29
<PAGE>
ISOTOPE SOLUTIONS, INC.
(formerly Molecular Radiation Management, Inc.)
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1998
(REVISED)
Cash flows provided (used) by operating activities:
Net Income $ 61,695
---------
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation and amortization 41,955
Changes in assets and liabilities:
(Increase) decrease in:
Management fee due from
Stanley E. Order, M.D., P.C (435,451)
Prepaid expenses (5,866)
Prepaid income taxes (6,576)
Increase (decrease) in:
Accounts payable 105,152
Accrued expenses 1,023
---------
Total adjustments (299,763)
---------
Net cash (used) by operating activities (238,068)
---------
Cash flows (used) by investing activities:
Cash payments for the purchase of
property and equipment (56,131)
Cash payments for patent applications and
patent assignments (1,776)
---------
Net cash (used) by investing activities (57,907)
---------
Cash flows provided by financing activities:
Proceeds from issuance of common stock 160,000
---------
Net cash provided by financing activities 160,000
---------
Net decrease in cash and equivalents (135,975)
Cash and equivalents, beginning of year 141,613
---------
Cash and equivalents, end of year $ 5,638
=========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Income Taxes $ 34,131
See accompanying notes to financial statements.
30
<PAGE>
ISOTOPE SOLUTIONS, INC.
(formerly Molecular Radiation Management, Inc.)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
(REVISED)
Significant accounting policies and other matters
The following significant accounting policies and other matters are set forth to
facilitate the understanding of data presented in the financial statements.
Organization and nature of operations
Isotope Solutions, Inc., (formerly Molecular Radiation Management, Inc.),
(hereafter referred to as the "Company") was incorporated in New York State on
January 28, 1997. On September 13, 2000, the Company was acquired by EDG
Capital, Inc. (hereafter referred to as "EDG") (reference is made to the note
regarding subsequent event - private placement/merger and subsequent name
change).
The acquisition was effected pursuant to an Agreement and Plan of Merger (the
"Agreement"), dated September 8, 2000, by and among the EDG, MRM Merger Sub,
Inc., a New York corporation and a wholly owned subsidiary of EDG ("Merger
Sub"), and the Company. On September 13, 2000, Merger Sub was merged with and
into the Company, with the Company being the surviving corporation, and the
Company became a wholly owned subsidiary of EDG.
Pursuant to the Agreement, all of the Company'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 EDG's common stock.
Simultaneously with the closing of the Acquisition, EDG 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 (the "Private
Placement") to accredited investors, of 2,603,845 shares of common stock at a
price of $.8065 per share.
The merger was accounted for as a reverse acquisition in a manner similar to a
pooling of interests.
From the time of its incorporation through December 1, 1997, the Company had no
operations. There was a nominal loss of $2,233 for 1997. The Company commenced
operations in December 1997 when it entered into a management agreement with its
initial client, Stanley E. Order, M.D., P.C. d/b/a Center for Molecular Medicine
(hereafter referred to as the "P.C."). All of the Company's revenues for the
year ended December 31, 1998 came solely from the P.C. The P.C. is a medical
research practice that also evaluates and treats cancer patients.
The Company is a biopharmaceutical company engaged in research, development and
testing of nuclear pharmaceuticals for therapeutic use in the treatment of
various cancers. The Company's research and development is conducted by
clinicians that have entered into long term contracts with the Company.
31
<PAGE>
ISOTOPE SOLUTIONS, INC.
(formerly Molecular Radiation Management, Inc.)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
(REVISED)
Significant accounting policies and other matters (Continued)
Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires the Company's management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and cash equivalents
For purposes of the statement of cash flows, the Company considers all
investment instruments with a maturity of three months or less to be cash
equivalents.
Concentration of credit risk
For the year ended December 31, 1998, the P.C. accounted for all of the
Company's revenues. In addition, it accounted for all of the Company's accounts
receivable as of December 31, 1998. Until December 31, 1998, the P.C. had been
the Company's sole client. (reference is made to the notes regarding the
subsequent events - management agreement - Mitchell E. Levine, M.D., P.C. and
management agreement - New York Medical Oncology P.C.).
Cash accounts at one high quality bank may at times exceed federally insured
limits of $100,000. The Company has not incurred any losses on these accounts.
Management believes it is not exposed to any significant credit risk regarding
these accounts.
Property and equipment - at cost
Depreciation of property and equipment is provided for over the estimated useful
lives of the related assets (5 to 7 years). Depreciation is computed by using
either the straight line or modified accelerated cost recovery system (MACRS)
methods. Depreciation is computed on the same basis for both financial statement
and income tax purposes. Under provisions of Section 179 of the Internal Revenue
Code, taxpayers can elect to expense (with certain limitations for loss years,
etc.) up to $20,000 annually of depreciable business property acquired each
year. The amount of depreciable business property taxpayers' can expense in the
year of purchase under Section 179 will gradually increase from the current
$20,000 to $25,000 by the year 2003. Depreciation expense for the year ended
December 31, 1998 was $ 41,955. The Company elected to utilize the maximum
expense allowable pursuant to Section 179 for the 12 months ended December 31,
1998. The depreciation methods and estimated useful lives that are used by the
Company are different than those prescribed under generally accepted accounting
principles. This variance caused by using MACRS and Section 179 is not
considered to be material.
Maintenance and repairs are charged to operations when incurred. When property
and equipment are sold or otherwise disposed of, the asset and the related
accumulated depreciation account are relieved, and any gain or loss is included
in operations.
32
<PAGE>
ISOTOPE SOLUTIONS, INC.
(formerly Molecular Radiation Management, Inc.)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
(REVISED)
Significant accounting policies and other matters (Continued)
Patent amortization
Legal fees incurred in connection with establishing and filing patents as well
as legal fees incurred in reregistering patents assigned to the Company are
being amortized on the straight line method over their remaining lives starting
January 1, 1999, ranging from 9 to 19 years. Amortization expense for the year
ended December 31, 1998 was $0.
Long-lived assets
In March 1995, the FASB issued Statement No. 121, Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets To Be Disposed Of, which requires
impairment losses to be recorded on long-lived assets used in operations when
indicators of impairment are present and the undiscounted cash flows estimated
to be generated by those assets are less than the assets' carrying amounts. The
statement also addresses the accounting for long-lived assets that are expected
to be disposed of. The Company adopted statement No. 121 as of January 1, 1998
in connection with these revised statements; its adoption has had no effect on
the financial statements.
Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107 "Disclosures about Fair
Value of Financial Instruments" ("FAS 107"), requires the Company to disclose
the estimated fair values of its financial instruments. Fair values generally
represent estimates of amounts at which a financial instrument could be
exchanged between willing parties in a current transaction other than in forced
liquidation. The carrying amount of receivables and payables approximates fair
value.
Fair value estimates are subjective and are dependent on a number of significant
assumptions based on management's judgment regarding future expected loss
experience, current economic conditions, risk characteristics of various
financial instruments, and other factors. In addition, FAS 107 allows a wide
range of valuation techniques, therefore, comparisons between entities, however
similar may be difficult.
33
<PAGE>
ISOTOPE SOLUTIONS, INC.
(formerly Molecular Radiation Management, Inc.)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
(REVISED)
Income taxes
The components of the provision for Federal and State income taxes for the year
ended December 31, 1998, is as follows:
Federal income tax $ 18,957
State income tax 8,598
--------
Total $ 27,555
========
Marketing and business promotion
The Company's policy is to expense marketing and business promotion as incurred.
Marketing and business promotion expense for the year ended December 31, 1998
was $30,097.
Significant accounting policies and other matters (Continued)
Allowance for doubtful accounts
The Company's management does not believe that it is necessary to record an
allowance for doubtful accounts since the Company has historically collected all
of its accounts receivable from the P.C. and has a security interest in the
P.C.'s accounts receivable.
Restated balance sheet as of December 31, 1998
The Company's management has restated its balance sheet in the accompanying
revised December 31, 1998 financial statements from its previously issued
reviewed financial statements dated February 18, 1999 for the thirteen-month
period December 1, 1997 (inception of operations) thru December 31, 1998. The
restatement for the year ended December 31, 1998 was due to the following items:
Capitalization of certain legal fees
relating to patent applications and
Patent assignments, net of amortization $ 1,776
Increase in accounts payable (1,776)
---------
Net increase to net income for the period $ --
---------
Management agreement - Stanley E. Order, M.D., P.C.
On December 1, 1997, the Company entered into an exclusive, full service,
thirty-year management agreement (the "agreement") with the P.C., expiring on
November 30, 2027. The agreement provides for a fee, to be paid to the Company
on a weekly basis, (including arrears). The amount of the fee is equal to the
Company's cost to provide the services described below. In addition, the
agreement also provides for a monthly fee which is subject to adjustment January
1,
34
<PAGE>
ISOTOPE SOLUTIONS, INC.
(formerly Molecular Radiation Management, Inc.)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
(REVISED)
of each year and such adjustment shall be agreed upon mutually, each year, by
the Company and the P.C.. If an understanding cannot be reached on a new monthly
fee, then the fee shall be increased by the greater of 20% or the cost of living
adjustment as determined by the U.S. Labor Department. For 1998, the management
fee was $974,810.
The services the Company is to provide in exchange include, but are not limited
to, treatment and laboratory space, furnishings and equipment, medical supplies
and medicines, clerical non-medical services and staff, managerial and
administrative services, consulting, and billing and collection. In addition,
the Company also licenses to the P.C. several patents for treating solid tumor
cancer.
Pursuant to the agreement, the Company maintains a security interest in all of
the P.C.'s accounts receivable for the full and timely payments of all amounts
owed to the Company by the P.C. As of December 31, 1998, the management fee due
under the agreement totaled $491,605.
Management agreement - Stanley E. Order, M.D., P.C. (continued)
Either party due to non-compliance of the terms may terminate the contract under
the agreement. However, the agreement contains certain non-competition and
restrictive covenants against the P.C. if the agreement is terminated,
regardless of any reason.
The agreement also allows the Company to purchase the P.C. for $100 should it
ever become lawful for the Company to acquire and operate the medical practice
of the P.C.
Working capital advances to the P.C., as outlined in the agreement bear interest
at a rate of 8.5 percent and have no specific due date. There were no working
capital advances at or for the year ended December 31, 1998.
Key man life insurance
The Company is the owner and beneficiary of a $2,000,000 face value term life
insurance policy on Dr. Stanley E. Order.
Stanley E. Order, M.D. - physician's employment contract with Stanley E. Order,
M.D., P.C.
On January 1, 1998, the P.C. entered into a three year employment agreement,
expiring on December 31, 2000, with its sole stockholder and president, Stanley
E. Order, M.D. This agreement was amended and modified on January 1, 2000 and
expires on December 31, 2003.
The original agreement provided for an annual salary of $300,000 to be paid to
Dr. Order. Subsequently, beginning January 1, 2000, the agreement was modified
to an annual salary of $180,000 based on a three-day workweek. Dr. Order had
been working 4 days a week through
35
<PAGE>
ISOTOPE SOLUTIONS, INC.
(formerly Molecular Radiation Management, Inc.)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
(REVISED)
December 31, 1999. In addition, Dr. Order received a $100,000 signing bonus.
Moreover, per the agreement, the P.C. is to maintain for the benefit of Dr.
Order, medical malpractice insurance coverage under primary and excess policies
with respect to all patients seen on behalf of the practice, with coverage of at
least $1 million per event and $3 million in the aggregate. Present coverage is
$5 million per event and $7 million in the aggregate. Other compensation that
the P.C. is to provide to Dr. Order, under the agreement, includes various
employee benefits.
In exchange for the above compensation package, Dr. Order is to practice
medicine and conduct research in the field of oncological radiology and to care
for and treat patients of the practice. Dr. Order is to work on a full time
basis of three days per week per the amended agreement.
The agreement also contains certain covenants for Dr. Order not to compete for a
period of one year to be applied after either the expiration or termination of
the agreement. In addition, either party, prior to its expiration, for
reasonable cause such as the loss of the physician's license may terminate this
contract with Dr. Order.
Subsequent event - Wayne S. Court, M.D. - physician's employment contract with
Stanley E. Order, M.D., P.C.
On July 15, 1998, the P.C. entered into a one-year employment agreement, which
expired on July 14, 1999, with Wayne S. Court, M.D. This agreement has similar
terms to Dr. Order's employment agreement with the P.C. (reference is made to
the note regarding Physician's employment contract with the P.C.). However, this
agreement provides for an annual salary of $250,000 to be paid to Dr. Court. In
addition, the agreement provides for an annual bonus of up to $150,000 to be
paid to Dr. Court. Such bonus is to be determined annually by the Board of
Directors. Furthermore, Dr. Court is to be employed on a full time basis of five
days per week. Present malpractice insurance coverage on Dr. Court is $1 million
per event and $3 million in the aggregate. This contract is currently on a month
to month basis and has yet to be formally renewed.
Stock subscription receivable and subsequent events
The stock subscription receivable of $40,005 as of December 31, 1998, includes
receivables from various stockholders. These receivables were due in full to the
Company by July 1, 1999. All stock certificates had been issued to their
respective shareholders as of December 31, 1998.
Subsequently, $5 of the above receivable was collected on December 31, 1999 and
an additional $20,000 was received on August 24, 2000. In addition, on September
1, 1999, the Company paid $30,000 and forgave a $10,000 stock subscription
receivable from a former shareholder in exchange for 50 shares of the Company's
own common stock. Moreover, on June 27, 2000, the Company forgave the remaining
$10,000 stock subscription receivable from the same former shareholder in
exchange for an additional 50 shares of the Company's own common stock.
36
<PAGE>
ISOTOPE SOLUTIONS, INC.
(formerly Molecular Radiation Management, Inc.)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
Patents
The Company presently has three patents registered to it; "Radioactive Cisplatin
in the Treatment of Cancer", patent number 6074626; "Modification of Solid
Tumors by Macroaggregated Albumin to Increase Radioactive Receptor Ligans For
Tumor Dose", patent number 5424288; and "Method and Compositions for delivering
Cytotoxic Agents to Cancer", patent number 5538726. The Company leases the use
of these patents to Stanley E. Order M.D., P.C. (reference is made to the note
regarding the management agreement with Stanley E. Order, M.D., P.C.) and New
York Medical Oncology, P.C. (reference is made to the note regarding subsequent
event - management agreement with New York Medical Oncology, P.C.) by way of the
monthly fees. The Company is also presently leasing these patents to Mitchell E.
Levine, M.D., P.C. on a month to month basis. The former patent became effective
on 6-13-00. The latter two patents were obtained by assignment from Stanley E.
Order, M.D. during 1998 and 2000.
Subsequent event - office lease
On August 1, 2000, the Company entered into a 32 month lease for the premises it
had been renting on a month to month basis. The lease commenced September 1,
2000 and will expire on April 30, 2003. The lease calls for an annual rental fee
of $56,100 due in monthly installments of $4,675. Rent expense for the year
ended December 31, 1998 was $45,192. Future minimum rental payments for the next
five years, as of December 31, 1998 and in the aggregate are as follows:
Year ending
December 31, Amount
------------ ------
1999 $ --
2000 18,700
2001 56,100
2002 56,100
2003 18,700
--------
Total $149,600
========
Year 2000 date problem
Many computerized systems use only two digits to record the years in date fields
(for example, the year 1999 is recorded as 99), such systems may not be able to
process dates accurately in the year 2000 and thereafter. The effect of this
problem may vary from system to system and may adversely affect an entity's
operations as well as its ability to prepare financial statements.
The Company cannot presently determine the effect, if any, of the above Year
2000 problem on their computer systems, applications and operations. However,
the Company believes that it has prepared adequately to minimize any such
effects.
37
<PAGE>
ISOTOPE SOLUTIONS, INC.
(formerly Molecular Radiation Management, Inc.)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
Subsequent event-management agreement - Mitchell E. Levine M.D., P.C.
On January 1, 2000, the Company entered into an exclusive, full service, thirty
year management agreement (the "agreement") with Mitchell E. Levine, M.D., P.C.
d/b/a Center for Neuro-Oncology (hereafter referred to as the "MEL P.C."). MEL
P.C. specializes in Neuro-Surgery and Neuro-Oncology. The agreement provides for
a weekly fee to be paid to the Company. The amount of the fee is equal to the
Company's cost to provide the services described below. In addition, the
agreement also provides for a monthly fee. This fee is subject to adjustment
January 1, of each year under the agreement and such adjustment shall be agreed
upon mutually, each year, by the Company and MEL P.C. If an understanding cannot
be reached on a new monthly fee, then the fee shall be adjusted by the following
two factors: (a) the cost of living adjustment as determined by the U.S. Labor
Department and (b) the Company's reasonable evaluation as to the costs
associated with any increase in time, effort, manpower, supplies, etc. required
to be provided to MEL P.C. by the Company. For 2000, the initial monthly fee has
been set at $1,500 per month.
Subsequent event-management agreement - Mitchell E. Levine M.D., P.C.
(continued)
The services the Company is to provide in exchange include, but are not limited
to, treatment and laboratory space and furnishing, medical equipment and
supplies, medicines, office supplies, clerical non-medical services and
personnel, managerial and administrative services, consulting services, billing
and collection services. In addition, the Company also grants and licenses to
MEL P.C., use of its trade name and logo as well as the right to use several
patents for treating solid tumor cancer.
The agreement also outlines terms for any working capital advances made to MEL
P.C..
Pursuant to the agreement, the Company maintains a security interest in all of
MEL P.C.'s accounts receivable for the full and timely payments of all amounts
owed to the Company by MEL P.C..
The agreement may be terminated by either party due to non-compliance of the
terms under the agreement. However, the agreement contains certain
non-competition and restrictive covenants against MEL P.C. if this agreement is
terminated, regardless of reason.
The agreement also allows the Company to purchase 50% of MEL P.C. for $100
should it ever become lawful for the Company to acquire and operate the medical
practice of MEL P.C.
Presently, Mitchell E. Levine, M.D. does not have a written employment contract
with MEL, P.C., devotes only part time employment with MEL P.C., and is required
to maintain his own malpractice insurance. Operations of MEL P.C. commenced
January 1, 2000.
38
<PAGE>
ISOTOPE SOLUTIONS, INC.
(formerly Molecular Radiation Management, Inc.)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
Subsequent event - management agreement - New York Medical Oncology P.C.
The Company entered into a thirty year full-service management agreement with
New York Medical Oncology, P.C. d/b/a Center for Medical Oncology ("NYM")
effective September 1, 2000. The management fee terms of the agreement are
substantially the same as the terms of the management agreements with MEL P.C.
and P.C. (reference is made to the notes regarding the management agreements
with MEL P.C. and P.C.). The initial monthly fee effective September 1, 2000 has
not yet been established.
The agreement also allows the Company to purchase 95% of this P.C. for $100
should it ever become lawful for the Company to acquire and operate a medical
practice.
The agreement also outlines terms for any working capital advances made to NYM.
Subsequent event - management agreement - New York Medical Oncology P.C.
(Continued)
Pursuant to this agreement, NYM has agreed to employ Dr. Ira Braunschweig for
the period September 1, 2000 to August 31, 2002, unless sooner terminated by
either party as further stipulated in the agreement. Dr. Braunschweig shall
receive an annual base salary of $150,000. In addition, Dr. Braunschweig shall
receive an annual productivity bonus based on a stipulated formula, which will
be capped at $75,000 and $150,000 for the first and second employment years,
respectively. Certain other fringe benefits for Dr. Braunschweig are obligated
under the agreement.
Subsequent event - private placement/merger and subsequent name change
As further described in the first note entitled Organization and Nature of
Operations, in September 2000, the Company, through a private placement agent,
was acquired by EDG Capital, Inc. ("EDG"), a publicly held shell company. EDG
subsequently completed the sale of 2,603,844 (post-split) shares of its common
stock at a per share price of $.8065, realizing net proceeds of $1,902,731. EDG
also issued 104,000 shares of its common stock to two finders of the acquisition
which shares were valued in the aggregate at $83,876.
On September 13, 2000, Molecular Radiation Management, Inc. changed its name to
Isotope Solutions, Inc. ("ISI"). In addition, ISI adopted an employee stock
option plan for 1,247,983 shares, pending stockholder approval.
Subsequent event - employment agreement - executives
On September 8, 2000, as a condition of the acquisition of the Company by EDG
(reference is made to the note regarding Subsequent event - private
placement/merger and subsequent name change), EDG entered into employment
agreements with the chief executive officer and chief operating officer of the
Company.
39
<PAGE>
ISOTOPE SOLUTIONS, INC.
(formerly Molecular Radiation Management, Inc.)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
Chief Executive Officer/President
Effective September 8, 2000, EDG entered into a three year employment contract,
expiring on September 7, 2003, with the Company's chief executive officer and
president, Jack Schwartzberg.
The agreement provides for an annual base salary of $200,000 to be paid to Mr.
Schwartzberg. This base salary shall be reviewed no less frequently than
annually for purposes of making reasonable increases, but not less than 5%
annually, at the discretion of the Board of Directors. He is also eligible for
an annual cash bonus based on performance. Furthermore, per the agreement, he is
entitled to receive 175,000 stock options at a price per share of $.8065,
subject to the approval of the Company's 2000 Long term Incentive Plan by the
shareholders. In addition, EDG is to reimburse him or pay for all reasonable and
necessary business and promotion expenses incurred during the term of
performance.
Subsequent event - employment agreement - executives (Continued)
Chief Executive Officer/President (Continued)
In return for the above, Mr. Schwartzberg is to act as chief executive officer
and president of EDG until September 7, 2003.
Chief Operating Officer/Vice President
Effective September 8, 2000, EDG entered into a three year employment contract,
expiring on September 7, 2003, with the Company's chief operating officer and
vice president, Shraga D. Aranoff.
The agreement provides for an annual base salary of $125,000 to be paid to Mr.
Aranoff. This base salary shall be reviewed no less frequently than annually for
purposes of making reasonable increases, but not less than 5% annually, at the
discretion of the Chief Executive Officer. He is also eligible for an annual
cash bonus based on performance. Furthermore, per the agreement, he is entitled
to receive 100,000 stock options at a price per share of $.8065, subject to the
approval of the Company's 2000 Long term Incentive Plan by the shareholders. In
addition, EDG is to reimburse him or pay for all reasonable and necessary
business and promotion expenses incurred during the term of performance.
In return for the above, Mr. Aranoff is to act as chief operating officer, vice
president and secretary of EDG until September 7, 2003.
40
<PAGE>
ISOTOPE SOLUTIONS, INC.
(formerly Molecular Radiation Management, Inc.)
SCHEDULE 1 - OPERATING EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1998
(REVISED)
Medical supplies, medical equipment
rental and medicines $273,084
Chief Executive Officer's salary 200,000
Chief Operating Officer's salary 33,333
Other salaries 89,726
Payroll taxes 18,890
Rent 45,192
Office equipment and furniture rental 5,135
Professional fees 31,126
Marketing and business promotion 30,097
Cleaning and laundry 4,549
Consulting fees 750
Computer and website costs 16,553
Contributions and gifts 898
Dues, subscriptions and professional memberships 3,750
Insurance 41,062
Miscellaneous expenses 5,453
Office expense and supplies 17,362
Postage and delivery 6,151
Repairs and maintenance 2,526
Service charges 911
Telephone 20,730
Temporary help 2,325
Travel and patient transportation 28,085
--------
Total Operating Expenses $877,688
========
See accompanying notes to financial statements.
41
<PAGE>
EDG CAPITAL, INC.
INTRODUCTION TO CONDENSED CONSOLIDATED PROFORMA
FINANCIAL STATEMENTS
(Unaudited)
The following unaudited proforma financial statements have been prepared based
upon certain proforma adjustments to the historical financial statements of EDG
Capital, Inc. (the "Company"). These proforma financial statements should be
read in conjunction with the notes thereto and with the Company's historical
financial statements included with its annual report on Form 10-KSB.
The accompanying financial statements have been prepared as if the transactions
below had been consummated as of the beginning of the earliest period presented
(January 1, 1999)
On September 13, 2000, the Company acquired Isotope Solutions, Inc. (ISI),
formerly known as Molecular Radiation Management, Inc. Pursuant to an Agreement
and Plan of Merger (the "Agreement"), dated September 8, 2000, by and among the
Company, MRM Merger Sub, Inc., a New York corporation and a wholly owned
subsidiary of the Company ("Merger Sub"), and ISI. On September 13, 2000, Merger
Sub was merged with and into ISI, with ISI being the surviving corporation, and
ISI became a wholly-owned subsidiary of the Company.
Pursuant to the Agreement, all of ISI's outstanding common stock, excluding its
treasury stock which was cancelled, was converted into the right to receive an
aggregate of 7,440,005 shares of the Company's common stock.
Simultaneously with the closing of this acquisition, the Company (a) effected a
2.57315 for one stock split in the form of a stock dividend payable to
shareholders of record on August 23, 2000 (with all fractional shares being
rounded up), and (b) raised gross proceeds of $2,100,000 from a private
placement of 2,603,844 shares of its common stock to accredited investors.
42
<PAGE>
EDG CAPITAL, INC.
CONDENSED CONSOLIDATED PROFORMA BALANCE SHEET
JUNE 30, 2000
(Unaudited)
<TABLE>
<CAPTION>
Historical
---------- Proforma
EDG Isotope Adjustments
Capital, Solutions, ----------- Consolidated
Inc. Inc. Debit Credit Proforma
-------- ---------- ----- ------ ------------
<S> <C> <C> <C> <C> <C>
- ASSETS -
Current Assets:
Cash $ 13,474 $ 69,244 $1,902,731 (c) $ 1,985,449
Management fee receivable -- 401,163 401,163
Prepaid expenses and other -- 27,906 27,906
--------- --------- -----------
Total Current Assets 13,474 498,313 2,414,518
Property and equipment - net -- 19,829 19,829
Investment in subsidiary -- -- 350,530 (b) 350,530 (d) --
Other assets -- 14,492 14,492
--------- --------- -----------
$ 13,474 $ 532,634 $ 2,448,839
========= ========= ===========
- LIABILITIES AND SHAREHOLDERS' EQUITY -
Current Liabilities:
Accounts payable and accrued expenses $ 7,658 $ 155,549 $ 163,207
Loans payable - shareholders -- 129,475 129,475
--------- --------- -----------
Total Current Liabilities 7,658 285,024 292,682
--------- --------- -----------
Shareholders' equity:
Common stock 243 10 10 (d) 381 (a) 10,668
7,440 (b)
2,604 (c)
Additional paid-in capital 82,610 350,520 381 (a) 343,090 (b) 2,325,446
350,520 (d) 1,900,127 (c)
Accumulated deficit (77,037) (102,920) (179,957)
--------- --------- -----------
5,816 247,610 2,156,157
--------- --------- -----------
$ 13,474 $ 532,634 $ 2,448,839
========= ========= ===========
</TABLE>
43
<PAGE>
EDG CAPITAL, INC.
CONDENSED CONSOLIDATED PROFORMA STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2000
(Unaudited)
<TABLE>
<CAPTION>
Proforma
-------- Proforma
EDG Isotope Adjustments
Capital, Solutions, ----------- Consolidated
Inc. Inc. Debit Credit Proforma
-------- ---------- ----- ------ ------------
<S> <C> <C> <C> <C> <C>
REVENUES:
Management fee income $ -- $ 440,687 $ 440,687
--------- --------- -----------
COSTS AND EXPENSES:
Medical supplies -- 244,750 244,750
Marketing costs -- 42,853 42,853
General and administrative 9,726 353,582 363,308
Interest and other income -- (2,271) (2,271)
--------- --------- -----------
9,726 638,914 648,640
--------- --------- -----------
(LOSS) BEFORE TAXES (9,726) (198,227) (207,953)
Provision for income taxes -- -- --
--------- --------- -----------
NET (LOSS) $ (9,726) $(198,227) $ (207,953)
========= ========= ===========
EARNINGS (LOSS) PER
COMMON SHARE:
Basic and fully diluted $ (.03)
===========
WEIGHTED AVERAGE SHARES
OUTSTANDING 7,935,337
===========
</TABLE>
44
<PAGE>
EDG CAPITAL, INC.
CONDENSED CONSOLIDATED PROFORMA STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
Proforma
-------- Proforma
EDG Isotope Adjustments
Capital, Solutions, ----------- Consolidated
Inc. Inc. Debit Credit Proforma
-------- ---------- ----- ------ ------------
<S> <C> <C> <C> <C> <C>
REVENUES:
Management fee income $ -- $1,297,766 $ 1,297,766
--------- --------- -----------
COSTS AND EXPENSES:
Medical supplies -- 497,599 497,599
Marketing costs -- 79,703 79,703
General and administrative 17,739 694,169 711,908
Interest and other income -- (19,646) (19,646)
--------- --------- -----------
17,739 1,251,825 1,269,564
--------- --------- -----------
INCOME (LOSS) BEFORE TAXES (17,739) 45,941 28,202
Provision for income taxes -- 10,096 10,096
--------- --------- -----------
NET INCOME (LOSS) $ (17,739) $ 35,845 $ 18,106
========= ========= ===========
EARNINGS (LOSS) PER
COMMON SHARE:
Basic and fully diluted $ --
===========
WEIGHTED AVERAGE SHARES
OUTSTANDING 7,858,142
===========
</TABLE>
45
<PAGE>
EDG CAPITAL, INC.
NOTES TO CONDENSED CONSOLIDATED PROFORMA FINANCIAL STATEMENTS
(Unaudited)
(a) On September 13, 2000, EDG Capital, Inc. ("EDG") effected a 2.57315 for
one stock split in the form of a stock dividend. As a result, EDG had
623,989 shares outstanding with a par value of $.001.
(b) Simultaneously with the above transaction, EDG, through a newly-formed,
wholly owned subsidiary acquired all of the outstanding common stock of
Isotope Solutions, Inc., ("ISI") in exchange for 7,440,005 shares of EDG
common stock. This acquisition was accounted for as a reverse acquisition
and treated in a manner similar to a pooling of interests. As a result of
this merger, EDG changed its fiscal year end to December 31, the year end
of ISI, the accounting acquiror.
(C) On September 13, 2000, EDG sold 2,603,844 of its common shares in a
private placement to accredited investors. The per share price was $.8065
and EDG realized net proceeds of $1,902,731.
(d) This adjustment eliminates EDG's investment in ISI.
46
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
EDG Capital, Inc.
By: /s/ Jack Schwartzberg
-------------------------------------
Jack Schwartzberg, President
Date: November 27, 2000
47
