SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED COMMISSION FILE NUMBER
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MAY 31, 1998 0-12561
MEDITECH PHARMACEUTICALS, INC.
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEVADA 95-3819300
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(STATE OR OTHER (I.R.S.EMPLOYER
JURISDICTION OF IDENTIFICATION NO.)
ORGANIZATION)
10105 E. VIA LINDA, #103-382 SCOTTSDALE, AZ 85258
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(602) 614-2874
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(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
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COMMON STOCK $.001 PAR VALUE
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
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STATE THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NON-AFFILIATES OF
THE REGISTRANT. THE AGGREGATE MARKET VALUE SHALL BE COMPUTED BY REFERENCE TO THE
PRICE AT WHICH THE STOCK WAS SOLD, OR THE AVERAGE BID AND ASKED PRICES OF SUCH
STOCK, AS OF A SPECIFIED DATE WITHIN 60 DAYS PRIOR TO THE DATE OF FILING.
$2,426,063.73 (COMPUTED ON THE BASIS OF $.0285 PER SHARE OF COMMON STOCK) AS OF
MAY 31, 1998.
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE REGISTRANT'S CLASSES OF
COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE.
119,016,925 SHARES OF $.001 PAR VALUE COMMON STOCK AS OF MAY 31, 1998.
DOCUMENTS INCORPORATED BY REFERENCE
NONE.
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GLOSSARY OF TERMS
The following Glossary of Terms is helpful in understanding the technology
discussed in this Form 10-K. Many terms used in the following definitions are
themselves defined in this Glossary.
Agrobacterium - A Gram positive bacterium of worldwide distribution that is a
major cause of plant disease responsible for the loss of nursery trees and many
fruit crops.
Aquired Immunodeficiency Syndrome (AIDS) - A uniformly Fatal infection caused by
the Human Immunodeficiency Virus (HIV).
Antiviral - Has the effect of inhibiting replication of a virus.
Aspergillus - A group of fungi containing many types, some of which cause
disease in plants, humans, and animals. In humans, Aspergillus most commonly
causes lung disease due either to direct growth of the organism or by allergic
mechanisms. Some individuals, particularly those with defects in their immune
system, May develop disease widely spread through the body involving many major
organs and leading to serious illness or death. One species, A. flavus, often
grows on stored grain, corn and other foodstuffs causing spoilage, and may
produce toxic substances which render these foods poisonous.
Bacteriostatic - Has the effect of inhibiting or retarding the growth of
bacertia.
Burkitt's Lymphoma - A disease, primarily affecting Africans, causing a
malignant tumor in the jaw or, in children, an abdominal mass. The disease has a
strong association (possibly causal) with the Epstein-Barr virus.
Corynebacterium - One of the bacterium widely distributed in nature. Some types
are found in the skin of humans and contribute causally to acne. Many species
inhabit the soil and a number cause disease in humans and animals. One type is
the cause of diphtheria in humans and other types are responsible for
pseudotuberculosis in sheep, horses, and cattle.
Cytomegalovirus - One of the herpesviruses that causes localized or widespread
diseases in humans.
Disinfectant - A chemical or physical agent which destroys potential infectivity
of microorganisms (including viruses) or contaminated material.
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Double-Blind Study - A technique of research testing designed so that neither
patients nor treating physicians know until the end of the study which patients
receive the active medication and which ones receive a substance inactive in the
treatment of the disease.
Enveloped Virus - A virus in which the infectious particle is surrounded by a
coating made of protein, fatty substances and carbohydrate.
Epstein-Barr Virus - One of the herpesviruses that causes infectious
mononucleosis and is believed to cause Nasopharyngeal carcinoma and Burkitt's
Lymphoma.
Gastroenteritis - Inflammation, often due to an infectious agent, of the
intestinal tract.
Gram Positive Bacteria - Those bacteria which, due to a specialized cell wall
structure, will accept staining with an iodine stain developed by Gram. Examples
of Gram positive organisms include Staphylococci, Streptococci, Corynebacteria,
and many others of medical importance.
Hepatitis B Virus - A virus that is one of the major causes of hepatitis
(inflammation of the liver) in humans.
Herpes Zoster - A disease (commonly known as shingles) consisting of painful
skin lesions caused by reactivation of infection due to Varicella-Zoster virus.
Herpesviruses - A family of DNA-containing viruses that includes Herpes simplex
Types 1 and 2 ("Herpes 1 and 2"), Cytomegalovlcus, Epstein-Barr virus,
Varicella-Zoster, and others.
Human Immunodeficiency Virus (HIV) - A retrovirus that causes a range of
syndromes in humans from asymptomatic infection to AIDS.
Infectious Mononucleosis - A self-limited infectious disease caused by the
Epstein-Barr virus involving primarily the lymphoid system.
In Vitro - A test performed in the laboratory often involving isolated tissue,
organ, or cell preparations.
In Vivo - A test performed on a living plant or animal.
Latent Herpes Infection - A usual consequence of infection with herpesviruses in
which the virus remains in an inactive and noninfectious state within masses of
nerve tissue located outside the brain and spinal cord.
Lymphoid System - Network of vessels that function in returning materials from
body tissues to the blood.
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Mucocacaneous - Relating to certain lubricating linings in the body and/or skin
Herpes simplex virus Cypicallv causes infection at these sites.
Mycotoxins - Toxic chemical substances produced by certain fungi which cause
disease and/or death in humans and animals.
Nasopharyogeal Carcinoma - A cancerous tumor of the nasal region.
Neuralgia - Sharp pain along a nerve.
Neuritis - Inflammation of nerve(s) often resulting in pain, paralysis and/or
sensory disturbances.
Over-the-Counter Product - Any drug or remedy which may be sold without a
prescription.
Pharmacokinetics - Relating to the disposition of drugs in the body as affected
by uptake, distribution, metabolism and elimination.
Primary Herpes - The first occurrence of infection with Herpes 1 or 2. Symptoms
may or may nor be present. The initial episode may not be the primary episode of
infection.
Pseudotuberculosis - A disease of animals, similar in some respects to
tuberculosis, caused by a type of Gram positive bacterium, Pasteurella
pseudotuberculosis.
Recurrent Herpes - Clinical episode(s) of herpes disease due to reactivation of
latent pre-existing infection. Recurrences may be triggered by diet, sunlight,
emotional stress, sexual activity, immunosuppression, and unknown factors.
Rotavirus - A virus that is a major cause of diarrhea and inflammation of the
intestinal tract in infants and in certain animals.
Staphylococcus - A group of bacteria that is widespread in nature, many types of
which cause serious or fatal disease in humans and animals. Staphylococci are a
principal cause of wound infections, boils, and other skin infections in humans,
and mastitis in dairy cows.
Sterilant - A physical or chemical agent that eliminates all triable microbes
including viruses.
Streptococcus - A group of bacteria consisting of numerous types many of which
cause serious or fatal infections in humans and animals. One type is the
principal cause of bacterial sore threats and the major cause of skin
infections, including impetigo.
Varicella-Zoster - One of the herpesviruses that causes chickenpox and Herpes
Zoster.
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Xanthomonas - A group of bacteria containing many types, score of which infect
plants and cause a significant loss of commercially important fruits and
vegetables. One variety, Xanthomonas campestris pv. citri, is the cause of
citrus canker, a deadly disease of orange trees. Other varieties are major
causes of disease in tomatoes, peppers, and other vegetables.
PART I
Item 1. Business
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General
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The Company is a development stage Company organized to research, develop, test
and commercially exploit anti-infective drugs. The Company's parent, Petro-Med
Inc., has filed a Chapter XI Bankruptcy Petition, which was converted to a
Chapter VII on August 26, 1992. See "Legal Proceedings". The Company had been
experiencing severe cash flow difficulties prior to the filing of this petition.
These difficulties have been heightened by the filing. Management believes that
the Company will need to obtain additional financing of at least $3,000,000 in
order to resume its development stage activities. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations-Liquidity and
Capital Resources". The Company is in various stages of planning and developing
products containing the drugs Viraplex(R) and MTCH-24(tm).
Viraplex(R), which is intended to be administered orally in capsule form as a
prescription treatment for oro-facial and genital Herpes simplex virus
infections, is in an advanced phase (the third of three phases) of clinical
testing for safety and effectiveness in humans although such clinical testing
has been suspended pending refinancing of the Company. See "Government
Regulation" and "Products Undergoing Research, Testing and Development." The
Company believes that for the long term MTCH-24(tm) May be used to treat a broad
range of conditions in humans, plants and animals caused by viruses (e.g.,
Herpes simplex and Influenza in humans), fungi (e.g., Aspergillus, a major cause
of spoilage of stored corn and grain) and bacteria (e.g., Streptococcus and
Staphylococcus infections in humans and animals). For the short term, upon the
receipt of refinancing, if any (see above), the Company plans to continue the
research and testing associated with obtaining FDA approval of Viraplex(R) and,
in order to generate positive cash flow, to develop and bring to market as
rapidly as possible two types of products containing MTCH-24(tm):
over-the-counter (non-prescription) products for the treatment of oro-facial
herpes infections (cold sores) and acne (collectively, the "OTC Products"), and
agricultural products for the treatment of viral, bacterial and fungal
infections in plants (the "Agricultural Products"). The Company plans to use
revenues from the OTC Products and Agricultural Products, if and when generated,
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to fund additional research, development and testing necessary to exploit
MTCH-24(tm) for uses other than the OTC Products and Agricultural Products. The
Company has licensed rights to the use of MTCH-24(tm) against three viruses, the
AIDS virus, Epstein-Barr virus and Cytomegalovirus to Viral Research
Technologies, Inc. No revenues apart from the initial licensing fees have been
received under this license. See "Certain Relationships and Related
Transactions". This license has expired.
History
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In 1982, Gerald N. Kern commenced testing of a predecessor drug to Viraplex(R)
for use against herpes simplex virus. Test results indicated that the
predecessor drug had potentially dangerous side effects. Later in 1982, the
Company (of which Mr. Kern was a principal shareholder), retained Dr. Joseph
Michaelson, a biochemist, to evaluate several drugs related to the predecessor
drug, to determine their effectiveness against herpes simplex virus and their
toxicity, if any. One of these drugs, the active ingredient of Viraplex(r), was
shown in laboratory tests to be effective against herpes simplex virus and
non-toxic to humans. The active ingredient is a chemically synthesized drug
which can be produced in large quantities at a relatively low cost. This active
ingredient, in a different dosage and delivery system (the method of
administering the drug), has been readily available for human use for treatment
of disorders other than herpes simplex virus and has a well documented history
of safety. The Company modified the dosage form and delivery system of the
active ingredient to render it useful in treating herpes simplex virus. The
Company's delivery system consists of a capsule (unlike any previous delivery
system for the active ingredient) prepared in a form designed to enhance
absorption of the active ingredient from the intestinal tract into the
bloodstream, and, from there, to the site of the herpes infection. The Company
is not aware of any previous uses of the active ingredient as a treatment for
herpes simplex or other virus infections. Based upon the results of laboratory
testing of the active ingredient in its new dosage form and delivery system, in
May, 1982, Dr. Michaelson applied to the United States Patent Office for a use
patent. The patent application was simultaneously assigned to the Company. A
patent for five claims was granted in March 1989. See "Patents" and "Certain
Relationships and Related Transactions". In addition, in July, 1982 the Company
filed an investigational new drug application which the U.S. Food and Drug
Administration ("FDA") granted in August 1982. see "Government Regulation" and
"Products Undergoing Research, Testing and/or Development".
Based upon research by Gerald N. Kern, and at his direction, commencing in late
1983 the Company tested a number of other drugs to determine their
effectiveness, if any, against herpes simplex virus and other organisms. One of
those drugs, which is the active ingredient in MTCH-24(tm), was found to be
effective in vitro against herpes simplex virus. Subsequent testing showed that
the drug was effective against a broad range of enveloped viruses as well as
selected bacteria and fungi. The active ingredient of MTCH-24(tm) is a
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chemically synthesized drug which is readily available in over-the-counter
products of other companies but in a different dosage and delivery system for
treatment of disorders unrelated to its proposed use by the Company as an
antimicrobial agent. The active ingredient can be produced in large quantities
at a relatively low cost. The Company believes that the active ingredient in
MTCH-24(tm) in the capsule forms currently available from other companies is not
intended for use as an antimicrobial agent. In addition absorption of the drug
in its current capsule forms does not yield sustained concentrations throughout
the body required to render it effective as an antimicrobial agent. To render
the drug effective for treating a variety of viral, bacterial and fungal
infections, the Company, upon refinancing, if any, plans to develop a delivery
system which would employ a capsule thee would provide controlled release of the
active ingredient from the intestinal tract into the bloodstream, and, from
there, to the site of the infection.
The Company believes that the active ingredient of MTCH-24(tm) in the
topical cream forms readily available from other companies is not intended to
act as an antimicrobial agent. In addition, the active ingredient of MTCH-24(tm)
in those creams is not present in sufficient concentrations to render it useful
as an antimicrobial agent. Therefore, the Company has formulated topical cream
preparations containing MTCH-24(tm) in concentrations sufficient to render it
effective as an antimicrobial agent. Based upon the results of laboratory
testing of the active ingredient in its new dosage form and delivery system, Mr.
Kern, beginning in October, 1984, applied to the United States Patent Office for
five U.S. patents. Mr. Kern has assigned those patent applications and the
resulting patents to the Company. Patents have issued for antiviral,
antibacterial uses and antifungal uses for humans. Claims for MTCH-24(tm) as an
antifungal agent for harvested products have been rejected. See "Patents" and
"Certain Relationships and Related Transactions". In February and April, 1985,
the Company filed Investigational New Drug applications, which the FDA granted
in March and May, 1985, respectively. See "Government Regulation" and "Products
Undergoing Research, Testing and/or Development".
The Company was incorporated in Nevada on March 21, 1983, and on that date
acquired all of the issued and outstanding shares of Medical technology
Corporation of America, Inc. ("MTCA"), a predecessor Delaware corporation
organized in May, 1982. MTCA was dissolved in 1986. References to the "Company",
unless the context otherwise indicates, relate to both the Company and MTCA. See
"Security Ownership of Certain Beneficial Owners and Management" and "Certain
Relationships and Related Transactions."
The Company address is 10105 E. Via Linda, #103-382 Scottsdale, AZ 85258,
and its telephone number is (602) 614-2874.
Government Regulation
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The products which the Company seeks to develop are subject to extensive
regulation by the FDA and the U. S. Environmental Protection Agency ("EPA").
Under FDA guidelines, a "new drug" - defined as one not generally recognized as
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safe and effective - may not be marketed for particular uses in the United
States without prior FDA approval of a New Drug Application ("NDA") showing that
the drug is safe and effective for the recommended use as demonstrated by
substantial evidence consisting of adequate and well-controlled clinical
investigations involving human subjects. With the possible exception of some of
the OTC Products, discussed below, human applications of Viraplex(R) and
MTCH-24(tm) are "new drugs" requiring FDA approval.
In order to conduct clinical investigations, an applicant must obtain an
Investigational New Drug exemption ("IND") from the FDA to permit the shipment
and use of the drug for investigational purposes. This requires the filing of an
IND notice with the FDA, setting forth the results of pre-clinical (laboratory
and animal) testing and the applicant's plans for clinical (human) testing. If
the FDA does not deny the exemption or place a "hold" on clinical testing within
30 days of the submission of such notice, the IND is in effect and clinical
testing may begin. Under the FDA's IND regulations, the clinical testing program
required for approval of a new drug involves a three-phase process. In Phase I,
studies are conducted on human volunteers to determine the maximum dosages and
side effects of the substance being tested. In Phase II, studies are conducted
on groups of patients afflicted with a specific disease to gain preliminary
evidence of efficacy and to determine useful dosages. Phase III involves
larger-scale studies conducted on disease-afflicted patients to provide
statistical evidence of efficacy and safety. Frequent reports are required to be
made in each phase and, if unwarranted hazards to subjects are found, the FDA
May request modification or discontinuation of clinical testing until further
pre-clinical work has been-done.
The time necessary to complete clinical testing varies significantly from
product to product, depending on the nature of the product, the claims for the
product, its risk. and side effects , and the clinical testing protocols. In the
case of both Viraplex(R) and MTCH-24(tm), IND notices for particular uses have
been filed and the FDA has authorized Phase III clinical trials for Viraplex(R)
and for bacterial applications of MTCH-24(tm). See the discussions below of the
status of each of the Company's proposed products.
Once clinical testing has been completed pursuant to an IND, the applicant
files an NDA with the FDA. The NDA contains information concerning the chemical
structure of the drug, the goal and purpose of the drug, and data from all
animal and human tests. The FDA reviews the NDA to determine if the drug is safe
and effective and if the applicant can guarantee proper and consistent
manufacture of the drug. Again, the time required for FDA action on an NDA
varies considerably, depending on the characteristics of the drug, whether the
FDA needs more information than is originally provided in the NDA, and whether
the FDA finds problems with the evidence submitted. It cannot be predicted how
much time will elapse between submission of an NDA and final FDA action, but it
is not unusual for the process to take one or two years or more.
The FDA has issued a series of monograph and proposed monograph regulations
concerning certain over-the-counter drug product categories and ingredients
which have been shown to be safe and effective for specified uses. Products in
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such categories containing such ingredients for the specified uses, and which
contain additional ingredients with respect to which no new uses are claimed,
May under certain conditions be marketed without specific FDA approval. The
Company believes the OTC products which would contain MTCH-24(tm) but will not
identify it as an active ingredient, may fall within the scope of FDA monograph
or proposed monograph regulations for cold sore products and acne products and
upon the receipt of refinancing, if any, intends to seek the opinion of special
FDA counsel on compliance with such regulations or proposed regulations prior to
marketing the OTC products.
The EPA regulates the research and sale of agricultural products,
sterilants and disinfectants which are not directly or indirectly involved in
the human food chain. The duration of the EPA approval process, which involves
registration of such products prior to marketing, varies from product to
product, although the EPA process is usually of shorter duration than the FDA
approval process. As with FDA action, it cannot be predicted how much time will
elapse between submission of an application and final action by the EPA.
however, the Company believes it is not unusual for the process to take
approximately one year in its entirety. To date, the Company has neither applied
for nor obtained approval for any of its products from the EPA.
Product Research, Testing and/or Development
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A substantial portion of the Company's capital has been and, upon the
receipt of refinancing, if any, will be allocated to research, testing
(including clinical trials) and development of Viraplex(R) and MTCH-24(tm)
products described below. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations-Liquidity and Capital Resources."
OTC Products
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The Company has developed over-the-counter products containing MTCH-24(tm)
for treating the symptoms of herpes simplex virus infections of the lips, mouth
or face (cold sores) and for the treatment of acne (collectively, the "OTC
products"). The Company plans to formulate the OTC products in skin tones to act
as cover-ups while providing treatment. The drugs identified as the active
ingredients in each product will be drugs other than MTCH-24(tm) which
previously have been recognized by the FDA to be safe and effective for the
intended uses, as specified in FDA monograph or proposed monograph regulations,
and no further claims will be made for the products other than those specified
in the monograph or proposed monograph regulations. Under these conditions the
Company believes the OTC products may fall within the scope of FDA monograph or
proposed monograph regulations and will be able to be brought to market without
prior FDA approval. The Company intends to seek the opinion of special FDA
counsel on compliance with such monograph or proposed monograph regulations
prior to marketing the OTC products upon the receipt of refinancing, if any. See
"Viraplex(R) and MTCH-24(tm) products for herpes simplex viruses."
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Agricultural Products
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Plant diseases due to fungi, bacteria, and viruses cause an enormous loss
of crops worldwide. Within the United States alone the annual potential
agricultural market for antifungal products is estimated at $400 million, for
bacteriostatic products at $30 million (with possible growth to $130 million if
effective broad spectrum agents were available) and for antiviral products at
$360 million. Management believes, based on limited laboratory tests conducted
principally by independent researchers at the request of the Company, that
proposed MTCH-24(tm) products (the "agricultural products"), although
unpatented, could have an impact on plant disease due to microorganisms in each
of these categories.
Aspergillus is one of the major fungi which cause spoilage of stored grain,
corn and other foodstuffs. In addition, the organisms pose a major health hazard
by producing aflatoxins, chemical substances that are highly toxic to humans and
animals. In laboratory tests, MTCH-24(tm) has been shown to be effective at
non-toxic concentrations in inhibiting growth of aspergillus species and in
preventing growth of this organism on wheat and corn.
Organisms of the bacteria genus Xanthomonas cause citrus canker, a disease
that causes loss of oranges and other citrus fruit and trees, and diseases of
vegetables. MTCH-24(tm) has been shown in vitro to inhibit this organism at
concentrations non-toxic to humans. The Company also believes that MTCH-24(tm)
may be effective against Agrobacterium, a Gram positive organism, since it has
been demonstrated to be effective in vitro against all Gram positive organisms
against which it has been tested in studies conducted at the Company's request.
Crop loss due to virus infections has been estimated to be as high as $1.8
billion annually in the United States alone. The Company believes that there
exists a need for an effective treatment for such infections and that, upon the
basis of preliminary laboratory tests, potential exists for using MTCH-24(tm) to
treat plant diseases caused by enveloped viruses (one of the two broad classes
of viruses).
The Company has engaged in very limited testing and development in this
area and is seeking to interest potential licensees and/or joint venturers in
providing assistance in testing, obtaining the necessary approvals for, and
marketing one or more of the Agricultural Products. Testing is being conducted
by one interested company in South America against citrus canker. Preliminary
field results have been positive. These results have been reviewed by the citrus
council at the University of Florida in Gainesville. The Company has tested a
spray product containing MTCH-24(tm) on stored wheat and corn in cooperation
with a private Company in Texas. At this point the Company has not decided which
of the Agricultural Products it will seek to develop commercially or the order
of such development. This will depend in large part on the identity of the
licensees and/or joint venturers, if any, and the wishes and interests of such
parties. To date the Company has neither applied for nor obtained EPA approval.
of any of the Agricultural Products.
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Viraplex(R) and MTCH-24(tm) Products for Herpes Simplex Viruses
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Herpes is the family name of over 50 related viruses that share common
characteristics. The viruses that cause oro-facial (affecting the lips, mouth
and face and sometimes called "cold sores") and genital herpes are two members
of this group and are classified as Herpes simplex virus Type 1 ("Herpes 1") and
Herpes simplex virus Type 2 ("Herpes 2"), respectively. Herpes 1 generally is
acquired from contact with a person with an active cold sore, while Herpes 2
generally is sexually transmitted. The primary episode of infection with Herpes
1 or 2 is often quite severe, lasting two to three weeks or more, and causing
swollen lymph nodes, neuritis and neuralgia, as well as painful skin lesions.
The herpes virus remains in the body in a dormant state following initial
infection. Many patients experience intermittent recurrence of the infection due
to reactivation of the latent virus, although subsequent episodes may differ
from the primary episode in severity and duration. Infections due to Herpes 1
and 2 have now been recognized as reaching epidemic proportions within the
United States, estimated to affect more than 50 million Americans.
The Company has begun the process of conducting clinical trials (although
such trials have been suspended pending refinancing, if any, of the Company)
pursuant to an IND of Viraplex(R) in a capsule designed for oral administration
to provide systemic therapy for Herpes 1 and 2. A 35-patient Phase II study was
completed by the Company in January, 1983 and the results were submitted to the
FDA. The Company then received permission from the FDA to initiate a 320-patient
Phase III study, consisting of 160 patients with genital herpes and 160 patients
with orofacial herpes. To date, approximately 290 patients, including all 160
genital herpes patients, have been tested. Upon refinancing, if any, the Company
intends to complete the Phase III study. Only after Phase III clinical studies
have been completed and evaluated for safety and efficacy could the FDA be
expected to grant new drug approval to the product. Until such approval is
granted, the Company's Viraplex(R) product may not be commercially marketed in
the United States as a treatment for either Herpes 1 or 2.
Laboratory tests of MTCH-24(tm) conducted for the Company have found it to
be effective in the laboratory against Herpes 1 and 2. The Company has applied
for FDA approval to conduct human trials under an IND of a topical preparation
of MTCH-24(tm) for treatment of Herpes 1 and 2. The FDA has requested that
certain pre-clinical studies be completed prior to initiation of human clinical
trials. All testing has been suspended pending refinancing, if any, of the
Company. The Company cannot predict whether or when a MTCH-24(tm) product will
receive FDA approval for treatment of Herpes 1 or 2.
The Company may also seek to develop a MTCH-24(tm)-based hard surface spray
to be tested as a disinfectant against Herpes 1 and 2, which viruses are known
to be able to persist for several hours on hard surfaces such as walls, toilet
seats and sinks, and other related viruses, as well as selected bacteria and
fungi. The work will entail formulation of experimental products and testing for
efficacy and safety in accordance with EPA guidelines. The Company has not yet
commenced development of this product.
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MTCH-24(tm) Products for Other Viruses and Bacterial Infections
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Herpes 1 and 2 are enveloped viruses. How MTCH-24(tm) acts against
enveloped viruses is not fully understood, but, based on limited laboratory
tests conducted for the Company, it is thought to be potentially effective
against all enveloped viruses. In addition to its potential as a treatment for
Herpes Simplex Virus, MTCH-24(tm) has produced positive results in preliminary
in vitro laboratory tests, against a range of other enveloped viruses, such as
influenza, Epstein-Barr virus ("EBV") and cytomegalovirus ("CMV"), as well as
rotavirus, a non-enveloped virus. Influenza can cause problems ranging from
cold-like symptoms to death. Although vaccines against influenza are presently
available, individuals at high risk for influenza (the elderly, infirm and
infants) are also those most likely to suffer adverse vaccine reactions. EBV is
a herpesvirus which causes infectious mononucleosis and may be a cause of
Burkitt's Lymphoma, a disease found mostly in Africa and New Guinea and less
frequently in the United States. EBV causes widespread early childhood disease
in developing countries and is also associated with nasopharyngeal carcinoma, a
malignant tumor of the nose usually affecting young adults. CMV is a virus the
effects of which vary substantially depending upon the age and immune status of
the infected person. Infection of an infant can result in a fatal disease
involving the nervous system, liver and other body sites. Infection acquired
later in life may cause a syndrome clinically indistinguishable from
mononucleosis. Generalized CMV infection, which can be fatal, may also occur in
patients whose immune system has been compromised. Rotavirus is believed to be
the causative agent in over 50% of all acute diarrhea in children requiring
hospitalization. It can be highly contagious and sometimes fatal. Rotavirus is
also a major cause of gastroenteritis in swine and lambs, with a mortality rate
of 30% to 50%.
The Company plans, upon refinancing, if any, to develop a capsule form of
MTCH-24(tm) for oral administration and to seek approval for human testing of
such capsules as a treatment for disorders related to herpesviruses other than
Herpes 1 and 2, including EBV, Varicelia-Zoster, the virus which causes shingles
(Herpes Zoster), and chickenpox. MTCH-24(tm) in systemic form may also be tested
for clinicai activity against Hepatitis B virus.
Pursuant to an agreement dated as of the 26th day of January, 1987, the
Company licensed rights to the use of MTCH-24(tm) against three viruses, the
aids virus (hiv), Epstein-Barr virus and cytomegalovirus to VRT, Inc., a Nevada
corporation ("VRT"). In addition to the license Meditech granted options to
American Medical Venture Capital Group ("AMVCG") to purchase 7,500,000 shares of
Meditech's common stock at 5.04 per share. These options and the license have
expired. AMVCG provided the initial funding for VRT, Inc. In return for the
license, in addition to the share ownership in VRT, Meditech received an advance
minimum royalty of $150,000, the right to receive $50,000 on the first day of
April, May and June, 1987 and an overriding royalty of 6% of net sales, as
defined in the agreement, if any, of the licensed products. As of May 31, 1994,
approximately $99,199 are still owing under the agreement. On April 30, 1987,
VRT, Inc. was combined through statutory merger with Viral Research
13
<PAGE>
Technologies, Inc. ("Viral"), a Nevada corporation, which became the surviving
corporation. Viral issued 15,000,000 shares of its restricted common stock in
exchange for 200,000 shares, the total shares outstanding, of VRT, Inc. Viral
was an inactive public shell, which at the date of the merger had an accumulated
deficit of $5,000. in connection with the combination, there was no step-up in
basis to the assets of Meditech Pharmaceuticals, Inc. and its subsidiaries.
After the merger, the Company owned 37.2 percent of the surviving corporation.
See note 15 to the consolidated financial statements.
Preliminary testing of MTCH-24(tm) was conducted at the Northwick Park
Hospital, in association with the Harrow Health Authority of Harrow, England,
for effectiveness against human immunodeficiency virus (hiv) the virus believed
to cause aids (acquired immunodeficiency syndrome). Testing will be completed
upon refinancing, if any.
There are numerous categories of bacteria which may cause serious or fatal
infections in humans and animals. Streptococcus is the principal cause of
bacterial sore throats and a major cause of skin infections in humans. Various
types of staphylococci are the principal cause of wound infections, boils and
other skin infections in humans and mastitis in dairy cows. Various types of
corynebacterium contribute causally to acne and diphtheria in humans, while
other types cause pseudotuberculosis in sheep, horses, and cattle. MTCH-24(tm)
is being tested by the Company under an IND for its bacteriostatic properties.
The Company has been notified by the FDA that clinical studies to further
determine the effectiveness of MTCH-24(tm) against certain types of bacteria may
be initiated. Clinical investigations for this application of MTCH-24(tm) must
be completed before an NDA may be filed.
On June 3, 1993, the Company received a report from the Department of
Health and Human Services and the National Cancer Institute regarding their
ongoing testing of the Company's drug. Trials show activity against three types
of tumors by inhibiting growth and killing tumor cells. These are new areas of
activity and the Company will need additional financing to obtain patent
protection before releasing more specific information. The Company's drug is one
of ten to fifteen which have shown positive results in the Government's in vitro
testing of these human cancer cells. This testing has been suspended pending the
development of a more soluble form of the drug. In 1997 and 1998, research was
conducted at the University of London School of Pharmacy resulting in the
development of a more soluble form of Viraplex(R). The Company has notified the
testing laboratory for NCI of this development and has requested that testing
resume using the new form of the compound.
Except for treatments of Herpes 1 and 2, the Company has not developed any
products for the virus and bacteriological conditions of humans described in
this subsection, but intends upon the receipt of refinancing, if any, to
continue testing MTCH-24(tm) for the proposed applications.
Competition
- -----------
The Company anticipates substantial competition with respect to all of its
proposed products, including the OTC Products in the markets for
over-the-counter preparations for both cold sores and acne, and the Agricultural
Products, particularly in the market for fungicides and the market for
14
<PAGE>
bactericidal agents. The Company's OTC Products would compete in the market for
cold sore preparations with Orajel, Tanac, Zilactin, Anbesol, Campho-Phenique
and Blistex, among others, and in the market for acne preparations with
Clearasil, Oxy-5 and Oxy-10, among others. These and other similar products are
available in drug and other stores throughout the United States. The Company's
Agricultural Products would compete with fungicides such as Bravo, Deuter,
Terachlor and Ridomil and applications partially controlling certain bacteria
such as Maneb and copper-containing solutions. Management is not aware of any
currently available products effective in controlling citrus canker or virus
infections in plants.
As to Viraplex(R) in capsule form and the proposed MTCH-24(tm) products as
treatments for herpes infections, there is presently available by prescription
an FDA-approved product for the treatment of herpes infections sold by
Burroughs-Wellcome Co. under the name Zovirax (Acyclovir). FDA approval of
Zovirax is limited to selected cases of genital and mucocutaneous herpes and
also to specific usage and duration of treatment. Management is aware that some
of the herpes products proposed to be developed by other companies are vaccines
intended to prevent infection by herpesviruses. No such vaccines have yet been
approved by the FDA. On the basis of data accumulated to date, management is not
aware of any proposed vaccines which, if successfully developed and approved by
the FDA for sale in the United States, would be effective in treating the
symptoms of persons who presently suffer from recurrent herpes infections.
Treatment of persons presently afflicted with recurrent herpes infections is the
primary focus of the Viraplex(R) product being developed by the Company. It is
likely that sales of additional FDA-approved competitive products for the
treatment of herpes infections would have a material adverse effect on the
Company.
Many pharmaceutical and home product companies and other researchers,
including Merck and Co., Inc. and American Cyanamid Co., have announced their
intention to introduce or are believed to be in the process of developing a
variety of products that may perform some or all of the functions of proposed
Viraplex(R) and MTCH-24(tm) products. A substantial number of pharmaceutical
companies in the world have been working on various forms of an aids treatment.
Several drugs, including AZT, have been approved for sale in the United States.
Many others are being tested under the FDA's "fast track" testing program. Some
positive results have been reported although no cure has been claimed by anyone.
Many of the Company's potential competitors are well-known and established
companies with vastly greater capital resources, larger research and development
staffs and more extensive marketing capabilities than those of the Company.
Manufacturing
- -------------
The Company currently has no manufacturing facilities of its own and has
relied on independent pharmaceutical manufacturing firms to produce Viraplex(R)
and MTCH-24(tm) in the limited quantities needed to conduct research,
development and testing. It is anticipated that the Company, upon the receipt of
15
<PAGE>
refinancing, if any, upon the successful completion of its testing procedures
and upon the receipt of any necessary regulatory approvals, will contract with
others for the manufacture of Viraplex(R) and MTCH-24(tm) products.
Marketing
- ---------
The Company has discussed distribution and marketing of its OTC products,
agricultural products, other MTCH-24(tm) products and the Viraplex(R) product,
when and if necessary government approvals are obtained, through licensing
and/or joint venture agreements with a number of pharmaceutical and chemical
companies in the United States and abroad.
The Company previously entered into licensing and distribution agreements
for Viraplex(R) in some European countries and for MTCH-24(tm) in Canada. Those
agreements produced no revenue for the Company. The Viraplex(R) agreement
expired on July 31, 1986. No sales were made under the agreement and the Company
elected to account for any royalty income under this agreement on the cash
basis. No royalties are anticipated. In February, 1986, the Company notified the
licensee for MTCH-24(tm) in Canada that the agreement was terminated. This
termination was disputed by the license, but no liitigation ensued. The Company
also had entered into an agreement with Colgate Venture Company, Inc. to test
MTCH-24(tm) for the purpose of developing commercial topical skin products. This
agreement was mutually rescinded on April 27, 1989.
The Company plans to market the OTC products, when and if developed,
through chain drug stores, drug wholesalers, and independent drug stores. The
Company, upon refinancing, if any, intends to employ independent commission
sales representatives to promote and sell these products. The Company would test
market the products in a limited area, probably southern California, to measure
trade and consumer acceptance. If the products meet certain criteria, the
Company may seek additional marketing funding, through a limited partnership or
a joint venture, to provide advertising and promotional monies. The Company may
offer a royalty on sales in exchange for this additional funding.
Employees
- ---------
As of August 29, 1998, the Company had two part-time non-medical employees,
one of whom was also an executive officer. The Company also had eleven
consultants who devoted up to 10% of their time to the affairs of the Company.
The consultants, most of whom are not currently providing services to the
Company, included one physician who was involved in clinical medical research,
one Ph.D. involved in pre-clinical toxicologic research, and ten who were
16
<PAGE>
involived in financial and business matters. Consultants to the Company are
compensated variously on an hourly, daily or per-job basis for professional
services rendered, many by stock options or grants, pursuant to written or oral
agreements between the individual consultant and the Company. It is anticipated
that the presently inactive consultants will resume their activities on behalf
of the Company upon the receipt of refinancing, if any.
Patents
- -------
The process for obtaining a United States patent begins with the filing of
a patent application in the U. S. Patent and Trademark office. The patent laws
provide that new methods for using a known composition of matter may be patented
by the discoverer of the new method. The patent application is examined by a
patent examiner who may reject or allow all or some of the claims of the patent
application. Applicants may submit arguments in writing to attempt to persuade
the patent examiner to allow the rejected claims or may amend those claims to
attempt to overcome the rejections. If the applicants' arguments or amendments
are unsuccessful, applicants may appeal the rejections to the United States
Patent and Trademark office board of patent appeals and interferences, to the
United States Court of Appeals for the federal circuit, and finally to the
United States Supreme Court. At any stage in this process, allowed claims may be
issued in a United States patent.
Both Viraplex(R) and MTCH-24(tm) have been available for some time under
different names in non-prescription preparations for human use and the original
product patents have expired. Applications claiming various uses of these drugs
have been filed. See "Certain Relationships and Related Transactions". The
United States patent office has granted a patent for five patent claims for the
use of Viraplex(R) for treating herpes simplex conditions, patent no. 4,810,707
dated March 7, 1989. The European patent authorities have also accepted six
claims for the use of Viraplex(R) for treating herpes simplex infections. A
Canadian patent has also been granted for Viraplex(R). Patent applications for
MTCH-24(tm) for the following four uses were submitted by the Company:
antiviral; antibacterial; antifungal for humans; and antifungal for certain
harvested products. Patents have issued for antiviral uses, for antibacterial
uses, and for antifungal uses for human application of MTCH-24(tm). A patent for
antiviral uses of MTCH-24(tm) has been granted in Canada, patent no. 1,256,032
granted 6/20/89. Some foreign patent rights have lapsed due to the Company's
inability to pay for foreign maintenance fees and translations. There can be no
assurance that any patent that has been or may be granted or obtained by the
Company in the future will be enforceable or will provide the Company with
meaningful protection from competition or claim all the intended uses of its
products. It is also not possible to predict with any certainty the time it will
take for patents to issue or be finally rejected. See "Certain Relationships and
Related Transactions."
In addition, there can be no assurance that the Company's products will not
infringe upon the rights of any patent holder or that any suit by a patent
holder would not be successful. The failure to successfully defend a patent
infringement action could have materially adverse consequences for the Company.
In the event any of the Company's products were found to infringe any patent or
17
<PAGE>
rights of others, there can be no assurance that the Company would be able to
obtain any necessary licenses on reasonable terms, if at all. If such licenses
could not be obtained the Company would be unable to market the affected
products. See "Competition" and "Certain Relationships and Related
Transactions".
Item 2. Properties
- ------------------
The administrative offices of the Company are located at 10105 E. Via
Linda, #103-382, Scottsdale, AZ 85258.
The Company's clinical research, upon the receipt of refinancing, if any,
will be conducted on a fee basis by licensed clinical research facilities.
Item 3. Legal Proceedings
- -------------------------
On April 20, 1992, Petro-Med Inc. filed a voluntary Chapter ll bankruptcy
petition under the United States bankruptcy code, case number la-92-25591-br.
This case was converted to a Chapter VII on August 26, 1992. This filing was
made in the United States bankruptcy court, central district of California.
Management lacks sufficient information at this time to determine the ultimate
effect of this filing on the Company's operations, although it may result in a
change of control.
On August 18, 1988, Sergei Givotovsky commenced an action entitled Sergei
Givotovsky against Gerald N. Kern, Petro-Med Inc. and Meditech Pharmaceutical's,
Inc. in the United States district court, southern district of New York. Mr.
Givotovsky seeks damages for an alleged breach of a settlement agreement among
the parties and for fraud, among other things. See security ownership of certain
beneficial owners and management. Mr. Givotovsky is seeking the value of
1,669,293 shares of the Company's common stock but in no event less than
$625,000 plus interest, plus $128,000, a constructive trust on future sales of
Meditech stock, $1,000,000 in punitive damages, plus legal fees, interest and
expenses. The Company, Petro-Med and Gerald N. Kern have cross-complained
against Mr. Givotovsky and intend to vigorously defend against the complaint.
The entire matter is inactive and has been off calendar for approximately five
years. Management lacks sufficient information at this time to evaluate the
amount, if any, for which the Company, Petro-Med or Gerald N. Kern may be
liable.
Management is not aware of any other material litigation pending against
the Company or its properties.
Item 4. Submission of Matters to a Vote of Security Holders
- -----------------------------------------------------------
None.
18
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
- -----------------------------------------------------------------------------
The Company's common stock is traded on the over-the-counter market. On
August 29, 1996, the average closing bid price for the common stock of the
Company was $.02. The high and low closing bid prices therefore during the
quarterly fiscal periods indicated were as follows:
Quarter Ended Low Bid High Bid
- ------------- ------- --------
February 28, 1993 .01 .08
May 31, 1993 .03 .07
August 31, 1993 .03 .07
November 30, 1993 .03 .05
February 28, 1994 .02 .03
May 31, 1994 .02 .03
August 31, 1994 .025 .05
November 30, 1994 .02 .02
February 28, 1995 .02 .02
May 31, 1995 .015 .015
August 31, 1995 .015 .022
November 30, 1995 .01 .02
February 29, 1996 .01 .015
May 31, 1996 .01 .14
August 31, 1996 .02 .07
November 30, 1996 .01 .04
February 28, 1997 .01 .03
May 31, 1997 .01 .03
August 29, 1997 .01 .03
November 28, 1997 .01 .015
February 27, 1998 .01 .011
May 29, 1998 .01 .039
19
<PAGE>
Some of the above prices reflect inter-dealer prices, without retail mark-up,
mark-down or commission and may not necessarily represent actual transactions.
The Company's common stock was reported on Nasdaq through April 30, 1986, at
which time it was deleted because of failure to meet the minimum capital and
surplus and asset requirements of the Nasd by-laws.
As of August 29, 1998, there were 3208 holders of record of the Company's
outstanding shares of common stock.
The Company has not paid any dividends to its shareholders and has no
present intention of changing this policy.
Item 6. Selected Financial Data
- -------------------------------
The following consolidated selected financial data, insofar as it relates
to each of the fiscal years ended May 31, 1983 through 1998, has been derived
from annual financial statements including the consolidated balance sheets at
May 31, 1997, and 1998, and the related consolidated statements of net loss and
deficit accumulated during development stage, of shareholder's equity (deficit)
and of changes in cash for the fifteen fiscal years ended May 31, 1998 and notes
thereto appearing elsewhere herein. This information should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the consolidated financial statements and notes
thereto.
20
<PAGE>
<TABLE>
<CAPTION>
From
May 4, 1982 Twelve month Twelve month Twelve month Twelve month
(Inception) to period ended period ended period ended period ended
May 31, 1983 May 31, 1984 May 31, 1985 May 31, 1986 May 31, 1987
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Results of Operations:
Net loss and deficit accumulated
during development stage ($ 1,022,600) ($ 1,338,400) ($ 1,794,100) (1,533,800) ($ 1,880,200)
Net loss and deficit accumulated
during development stage per
share of common stock (0.02) (0.02) (0.03) (0.02) (0.02)
Consolidated Balance Sheet Data:
May 31, 1983 May 31, 1984 May 31, 1985 May 31, 1986 May 31, 1987
------------ ------------ ------------ ------------ ------------
Working Capital (deficit) ($ 653,100) $ 1,732,600 ($ 95,900) ($ 1,536,900) ($ 1,580,000)
Total assets $ 270,600 $ 1,052,800 $ 456,500 $ 270,400 $ 110,900
Long-term debt -- $ 20,100 $ 16,800 $ 13,400 $ 4,600
Total liabilities $ 715,800 $ 65,700 $ 392,200 $ 1,571,700 $ 1,622,100
Shareholders' equity (deficit) ($ 445,200) $ 1,887,100 $ 64,300 ($ 1,301,300) ($ 1,848,200)
- ------------------------------------------------------------------------------------------------------------------------------------
Twelve month Twelve month Twelve month Twelve month Twelve month
period ended period ended period ended period ended period ended
May 31, 1988 May 31, 1989 May 31, 1990 May 31, 1991 May 31, 1992
------------ ------------ ------------ ------------ ------------
Results of Operations:
Net loss and deficit accumulated
during development stage (4,880,200) ($ 641,400) ($ 522,100) ($ 479,100) ($ 483,100)
Net loss and deficit accumulated
during development stage per
share of common stock (0.01) (0.01) (0.01) (0.01) (0.01)
Consolidated Balance Sheet Data:
May 31, 1988 May 31, 1989 May 31, 1990 May 31, 1991 May 31, 1992
------------ ------------ ------------ ------------ ------------
Working Capital (deficit) ($ 2,154,100) ($ 2,545,000) ($ 3,053,100) ($ 3,457,400) ($ 3,911,400)
Total assets $ 59,000 $ 86,800 $ 35,600 $ 5,300 $ 26,800
Long-term debt $ 0 $ 0 $ 0 $ 0 $ 0
Total liabilities $ 2,163,900 $ 2,597,100 $ 3,054,900 $ 3,462,100 $ 3,935,300
Shareholders' equity (deficit) ($ 2,577,400) ($ 2,698,800) ($ 3,210,300) ($ 3,648,100) ($ 4,099,800)
- ------------------------------------------------------------------------------------------------------------------------------------
From
Twelve month Twelve month Twelve month Twelve month Twelve month May 4, 1982
period ended period ended period ended period ended period ended (inception) to
May 31, 1993 May 31, 1994 May 31, 1995 May 31, 1996 May 31, 1997 May 31, 1997
------------ ------------ ------------ ------------ ------------ ------------
Results of Operations:
Net loss and deficit accumulated
during development stage ($ 449,400) ($ 753,900) ($ 515,600) ($ 501,600) ($ 957,400) ($13,579,000)
Net loss and deficit accumulated
during development stage per
share of common stock (0.01) (0.01) (0.01) (0.01) (0.01) (0.01)
Consolidated Balance Sheet Data:
May 31, 1993 May 31, 1994 May 31, 1994 May 31, 1995 May 31, 1996 May 31, 1997
------------ ------------ ------------ ------------ ------------ ------------
Working Capital (deficit) ($ 4,360,100) ($ 4,897,600) ($ 4,897,600) ($ 5,390,100) ($ 5,900,100) ($ 6,429,700)
Total assets $ 2,900 $ 2,700 $ 2,700 $ 1,700 $ 1,100 $ 600
Long-term debt $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Total liabilities $ 4,360,800 $ 4,898,700 $ ,898,700 $ 5,399,700 $ 5,900,700 $ 6,430,30
Shareholders' equity (deficit) ($ 4,549,200) ($ 5,087,300) ($ 5,087,300) ($ 5,589,300) ($ 6,090,900) ($ 6,621,000)
21
</TABLE>
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
- --------------------------------------------------------------------------------
Development Stage Activities
- ----------------------------
The Company is in the development stage and accordingly has had no
significant operating revenues. Its principal development activities from May 4,
1982 (inception) through May 31, 1997, have been efforts to secure financing,
create a management and business structure, and develop and test Viraplex(R) and
MTCH-24(tm). These efforts have been hampered by the voluntary bankruptcy
petition filed by Petro-Med. See "Legal Proceedings". The Company has directed
and will direct its attention to, upon the receipt of refinancing, if any,
developing and bringing to market as rapidly as possible the OTC products and
the agricultural products. See "Business-General," "Business-Marketing" and
"Liquidity and Capital Resources."
From inception in May, 1982, through May 31, 1997, approximately
$11,542,800 had been expended by the Company in carrying out activities relating
to the research, development and testing of and MTCH-24(tm). This total includes
$1,347,800 for clinical trials, $489,300 for research and development,
$4,620,700 for compensation, $1,276,600 for professional fees and $3,808,400 for
general and administrative expenses, including fees to consultants. For this
period, approximately $2,883,600 (including accrued but unpaid compensation for
this period) representing 27.1% of the total expenditures set forth above was
used to pay compensation to officers of the Company.
Liquidity and Capital Resources
- -------------------------------
Initially the Company funded its activities through a note payable to a
bank, advances from principal shareholders and subordinated debt. In early 1983,
a private offering was undertaken yielding net proceeds of $531,400. Since that
time the Company has financed its development activities from the $3,413,000 net
proceeds of its July, 1983 public offering, minimum royalties from Viral
Research Technologies, Inc. and advances from Petro-Med (see "Certain
Relationships and Related Transactions"). At May 31, 1997, the Company had a
working capital deficiency of $6,429,700 and a shareholders' deficit of
$6,621,000.
The Company requires additional funds with which to carry out its
operations and is now in discussions with a number of financing sources in order
to raise the needed capital. The Company requires approximately $3,000,000 in
22
<PAGE>
financing to develop and market proposed over-the-counter products from
MTCH-24(TM) to complete and analyze the Viraplex(R) clinical studies and to
begin worldwide efforts to secure a licensee or joint venture partner for
marketing the drugs if and when approved. There can be no assurance that such
funds will be available. Failure to receive such funds would have materially
adverse consequences for the Company.
Because the party does not presently have product liability insurance,
claims which could ordinarily be covered by such insurance could have a
materially adverse effect on the liquidity and capital resources and, perhaps,
the continued viability at the Company. No human testing of any of the Company's
products is presently being conducted. During the time when human testing of the
Company's products was performed, it was performed by independent third parties
who were required to provide the Company with proof of adequate liability
insurance.
Inflation
- ---------
The Company has no experience with respect to the effect of inflation on
its business. However, the pharmaceutical industry is well developed and, based
on management's understanding of industry experience, it believes that inflation
will not have a significant impact on the results of the Company's operations in
the future.
Item 8. Financial Statements and Supplementary Data
- ---------------------------------------------------
The financial statements required by this item are set forth as indicated
in Item 14(a)(l).
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
- --------------------------------------------------------------------------------
None.
PART III
Management
- ----------
Item 10. Directors and Executive Officers of the Registrant
- -----------------------------------------------------------
The present directors and executive officers of the Company are listed
below, together with brief accounts of their experience and certain other
information.
23
<PAGE>
Year
First
Name Age Office Elected
- ---- --- ------ -------
Gerald N. Kern 60 Chairman of the Board 1982
of Directors
Stanton G. Axline, M.D. 63 Medical Director 1983
Cynthia S.Kern 48 President, Chief 1995
Executive Officer,
Acting Chief Financial
Officer
Secretary 1983
Lester F. Goldstein, Ph.D. 54 Director 1983
Harry Hall 63 Director 1990
All officers serve at the pleasure of the board. Directors serve until the
next annual meeting of shareholders and until their respective successors are
elected and qualified.
Business Experience of Directors and Executive Officers
- -------------------------------------------------------
Gerald N. Kern is chairman of the Company. Mr. Kern served as President and
Chief Executive officer until September, 1995. He is also Chairman, President
and Chief Executive Officer of Viral Research Technologies, Inc., a minority
owned subsidiary of the Company. Since February, 1983, Mr. Kern has also been
Chairman, President and Chief Executive Officer of Petro-Med, the principal
shareholder of the Company. Petro-Med has filed a Chapter XI bankruptcy petition
which was converted to a Chapter VII on August 26, 1992. He is currently
President and Chief Executive Officer of Gumtech International, Inc., a
manufacturer of nutrient chewing gum products. From September, 1994, to August,
1996, Mr. Kern was President of Aura Interactive, an international exectronics
firm based in El Segundo, California. See "Security Ownership of Certain
Beneficial Owners and Management."
Mr. Kern has been an officer and director of the Company since its
formation in May, 1982. From 1981 through April, 1982, Mr. Kern was President of
HJK Consulting, Inc., a marketing consulting Company specializing in consumer
products marketing. During 1980, Mr. Kern was President of Philip Merrill
International Ltd., a subsidiary of Parfums Lamborghini, and was responsible for
product development, sales and marketing. From 1978 to 1979, he was assistant to
the President and was Executive Vice President of the United States division of
24
<PAGE>
Max Factor & Co. in charge of sales, marketing and general management, in
addition to being head of the worldwide military and "PX" divisions. From 1967
to 1977, Mr. Kern was employed by International Playtex, Inc. in a variety of
positions including Vice President and General Sales Manager of the branded
apparel division, and General Manager of Playtex, Ltd., Canada. Mr. Kern is also
currently the Chairman of the Board, President, Chief Executive Officer and a
principal shareholder of Skin Control Systems, Inc., an inactive Company which
had marketed toiletries and skin care products for men, and Chairman, a
principal shareholder and a consultant to Mas Industries, Inc., an inactive
Company which had engaged in the marketing of cosmetic products in the Hispanic
market. On April 20, 1992, Skin Control Systems, Inc. filed a voluntary chapter
7 bankruptcy petition under the United States bankruptcy code, case number
la-92-25590-ag. This filing was made in the United States bankruptcy court,
central district of California. Skin Control Systems has been discharged in
bankruptcy.
Stanton G. Axline, M.D. has been medical director of the Company since
December, 1983. He also served as Executive Vice President and as a director
from 1983 through 1989. From November 1986 through August 15, 1988, Dr. Axline
was also medical editor of Lifetime Medical Television, a cable television
broadcasting Company. He is currently in a private medical practice in internal
medicine. From November, 1982 until December 1983, Dr. Axline was a consultant
and the medical director of the Company. From 1976 to 1982 he was Associate
Professor of Internal Medicine and Chief of the Infectious Disease Section at
the University of Arizona College of Medicine. Concurrently, he was Associate
Chief of Staff for research and development at the Veterans Administration
Medical Center, Tucson, Arizona. From 1969 to 1976 he was Assistant Professor of
Mdicine at Stanford University Medical Center and Chief of the Infectious
Disease Section at the Veterans Administration Medical Center, Palo Alto,
California. In addition to his clinical interests and training in infectious
diseases, he has designed and conducted numerous laboratory based and clinical
research projects related to the clinical pharmacology of antimicrobial agents,
cellular immunology, and cell biology. He obtained his B.S. and M.D. degrees
from Ohio State University and Ohio State University College of Medicine,
respectively, and received post-doctoral clinical and research training at the
University of Colorado Medical Center, Stanford University, and Rockefeller
University. Over the past year Dr. Axline has devoted less than 5% of his
working time to the affairs of the Company.
Lester F. Goldstein, Ph.D. is currently a business technology consultant.
From 1992 to 1996, he served as a physicist for Aura Systems, Inc., and has
served there since 1992. From 1989 to 1992, he served as the Senior Program
Manager at the TRW Applied Technology Division, Space and Technology Group.
25
<PAGE>
Previously, from 1986 to 1989, he served as as Program Manager of high
technology advanced programs in the Satellite and Space Electronics Division of
Rockwell International. He served as Director of Electro-Optics for the
Satellite Systems Division of Rockwell International from 1981 to 1985. From
1985 to 1986 he served as Chief Scientist in the division. He was responsible
for managing advanced technology, planning and development for the division's
programs. From 1978 to 1981 he was Program Manager at Hughes Aircraft overseeing
various radar and sensor projects. Dr. Goldstein obtained a B.A. degree from
Hofstra University in physics and mathematics and M.S. and Ph.D degrees in
physics from Polytechnic University of New York. He has been a director of
Meditech since March, 1983.
Harry Hall has had more than 25 years of experience as a Senior Executive
in major consumer products companies. He is currently an Executive Vice
President of sales for Evan-Picone and has served in that capacity since April,
1996. He has served as consultant to industry leaders in the apparel and
non-durable goods fields. He is presently a Director of Petro-Med Inc. and Viral
Research Technologies, Inc.
Cynthia S.Kern has been President, Chief Executive Officer and Acting Chief
Financial Officer since September, 1995. Mrs. Kern served as Vice President of
administration from 1982 to 1995. She is the wife of Gerald N. Kern. From 1979
to 1981 she served as an Administrative Assistant with Edgar Rice Burroughs,
Inc. from 1978 to 1979, she was an Executive Secretary with Max Factor & Co. Ms.
Kern devotes up to 50% of her working time to the affairs of the Company. Ms.
Kern is also the Vice President, Secretary and Treasurer of Mas Industries, Inc.
Item 11. Executive Compensation
- -------------------------------
The following table sets forth all cash compensation for the fiscal year
ended May 31, 1998, for (1) each of its most highly compensated Executive
Officers whose aggregate cash compensation exceeded $60,000 and (11) all
Executive Officers of the Company as a group.
Name of
Individual or Capacities in
Persons in Group Which They Serve Salaries
- ---------------- ---------------- --------
Gerald N. Kern Chairman of the $108,000 (1)
Board/President/
Chief Executive
Officer
All Executive Officers $153,000 (2)
as a Group (2 persons)
26
<PAGE>
<TABLE>
<CAPTION>
- ----------
(1) Of the cash compensation set forth for Mr. Kern, $108,000 was accrued but
unpaid.
(2) 0f the cash compensation set forth for all executive officers as a group,
$153,000 was accrued but unpaid. Directors who are not salaried employees
of the Company are compensated at the rate of $500 for each board meeting
attended.
Employment Agreements
- ---------------------
Employment agreement with Gerald N. Kern. The Company entered into an
employment agreement with Gerald N. Kern on November 17, 1982, to employ Mr.
Kern as President and Chief Executive Officer, which agreement, as amended,
provided for a term which ended December 31, 1991, at compensation of $108,000
per annum. In addition-to any bonus Mr. Kern May receive under the Company's
bonus plans, it is contemplated that if and when the Company becomes profitable,
Mr. Kern will receive a bonus in such amount as the Company's Board of Directors
shall determine. See "Certain Relationships and Related Transactions" for
information relating to the grant of an option to Mr. Kern to purchase 8,000,000
shares of the Company's common stock and his exercise of the option.
The Company maintains a bonus plan which contemplates that 10% of the
Company's net pre-tax earnings will be set aside each year for bonuses to key
personnel including Gerald N. Kern and Dr. Axline. Because of the absence of
earnings since inception of the Company, no amounts have been accrued or paid
under such plan.
The Company also employs Cynthia s. Kern as Vice President of
Administration and Secretary at a salary of $45,000 per annum and the law
offices of Robert M. Kern as general counsel at a retainer of $36,000 per annum.
see "Certain Relationships and Related Transactions." The Company has no
employment contract with Cynthia S.Kern or Robert M. Kern.
Stock Options
- -------------
The following table reflects certain information relating to non-qualified
stock options granted to executive officers and directors of the Company through
August 1, 1996:
No. of Shares Exercise
Name of Date of Subject to Price Expiration
Individual Grant Option Per Share Date
- ---------- ----- ------ --------- ----
<S> <C> <C> <C> <C>
Gerald N. Kern Mar. 23, 1988 3,000,000(1) $0.08 Mar. 24, 1993
Dec. 18, 1986 8,000,000(2) $0.01 Dec. 17, 1991
Apr. 3, 1987 500,000(3) $0.04 Apr. 2, 1992
27
<PAGE>
No. of Shares Exercise
Name of Date of Subject to Price Expiration
Individual Grant Option Per Share Date
- ---------- ----- ------ --------- ----
Lester F. Goldstein Aug. 16, 1985 100,000(3) $0.0233 Aug. 15, 1990
Apr. 3, 1987 250,000(3) $0.04 Apr. 2, 1992
Stanton G. Axline Aug. 16, 1985 1,000,000(3) $0.0233 Aug. 15, 1990
Apr. 3, 1987 250,000(3) $0.04 Apr. 2, 1992
Cynthia S. Kern Apr. 3, 1987 250,000(3) $0.04 Apr. 2, 1992
- ----------
(1) This option, which has expired, was granted to Gerald N. Kern by Petro-Med
to purchase shares of the Company's common stock owned by Petro-Med.
(2) This option was exercised March 1, 1989.
(3) These options were not exercised and have expired.
Item 12. Security Ownership of Certain Beneficial Owners and Management
- -----------------------------------------------------------------------
As of August 31, 1998, Petro-Med owned 26,256,794 shares of common stock of
the Company, which constitutes approximately 22.82% of the issued and
outstanding stock of the Company. Petro-Med has filed a Chapter XI bankruptcy
petition which was converted to a Chapter VII on August 26, 1992.
28
</TABLE>
<PAGE>
Petro-Med has been delinquent for some years in making filings with the
Securities and Exchange Commission required by the Securities Exchange Act of
1934. The delinquencies pre-date by a number of years the acquisition by Gerald
N. Kern of substantial holdings in, and control of, Petro-Med. Mr. Kern has been
attempting since 1983 to rectify Petro-Med's filing deficiencies. Petro-Med had
engaged in discussions with the staff of the Securities and Exchange Commission
with respect to compliance. The staff indicated to Petro-Med's counsel that it
would likely seek injunctive relief against Petro-Med, requiring Petro-Med to
make timely filings in the future. See "Certain Relationships and Related
Transactions" for information relating to transactions between Mr. Kern,
Petro-Med and the Company during the last five years.
The following table sets forth, as of August 31, 1998, certain information
concerning the ownership of shares of the Company's common stock by persons
owning more than 5% of the outstanding shares of the common stock and the
directors of the Company and by directors and officers as a group.
Shares Owned
and/or Subject
Name and Address to Presently Percentage of
of Beneficial Owner Exercisable Options Outstanding Shares
- ------------------- ------------------- ------------------
Petro-Med Inc. 26,256,794 (3) 22.82%
10105 E. Via Linda, 103-382
Scottsdale, AZ 85258
Lester F. Goldstein 750,000 .65%
10892 Marietta Avenue
Culver City,
California 90230
Harry Hall 350,000 .30%
10105 E. Via Linda, 103-382
Scottsdale, AZ 85258
Cynthia S. Kern 1,200,000 (1) 1.04%
10105 E. Via Linda, 103-382
Scottsdale, AZ 85258
Gerald N. Kern 5,300,000 4.61%
10105 E. Via Linda, 103-382
Scottsdale, AZ 85258
29
<PAGE>
Shares Owned
and/or Subject
Name and Address to Presently Percentage of
of Beneficial Owner Exercisable Options Outstanding Shares
- ------------------- ------------------- ------------------
Petro-Med and all directors
and officers as a group
(5 persons) 33,856,794 (2)(3) 29.42%
- ----------
(1) Mr. Gerald N. Kern disclaims ownership of these shares of the Company's
common stock owned by his wife.
(2) Includes shares of the Company's common stock owned by Petro-Med because
Mr. Kern, as owner of approximately 16% of the outstanding common stock and
as Chairman, President and Chief Executive Officer of Petro-Med, may be
deemed to have shared voting power with respect to the Company's common
stock owned by that entity.
(3) Petro-Med is currently in Chapter VII bankruptcy. A disposition of the
shares held by Petro-Med by the bankruptcy court could result in a change
of control. See below for information relating to a claim which, if
successful, could also decrease Petro-Med's ownership of the common stock.
30
<PAGE>
The directors of Petro-Med are Gerald N. Kern, Harry Hall and Jerry
Tennant. Gerald N. Kern is the Chairman, President and Chief Executive Officer
of Petro-Med.
Petro-Med may be deemed a "parent" or "promoter" of the Company under the
Securities Act of 1933. Gerald N. Kern May be deemed a "parent" or Petro-Med and
therefore a "parent" of the Company under the Securities Act or 1933. See
"Directors and Executive Officers of the Registrant" and "Certain Relationships
and Related Transactions."
In August, 1985 the Company and Petro-Med entered into one agreement (the
"Settlement Agreement I"), and Gerald N. Kern entered into another agreement
(the "Settlement Agreement II"), with Sergei Givotovsky, a shareholder of
Petro-Med and a former shareholder of the Company. These agreements settled
prior disputes between the parties to the agreements.
Pursuant to the Settlement Agreement I, Mr. Givotovsky has a right to
acquire 1,669,293 shares of the Company's Common Stock held by Petro-Med in
exchange for 841,820 shares of Petro-Med's common stock held by Mr. Givotovsky.
All of these shares have been deposited into escrow. Petro-Med deposited an
additional 3,338,586 shares of the Company's Common Stock into the same escrow
as collateral for certain of its obligations under the Settlement Agreement I.
The monthly exchanges were to consist of approximately 22,449 of Mr.
Givotovsky's Petro-Med shares for 44,516 shares of the Company's Common Stock.
Mr. Givotovsky has the right to require Petro-Med to sell the Company's shares,
and upon refinancing of the Company or Petro-Med, if any, Petro-Med will
guarantee a price per share of $.3744 (to be increased annually by 9% from
August, 1985). Petro-Med has the right, in lieu of selling any Common Stock at
less than the guaranteed price, to retain such shares for its own account and
pay Mr. Givotovsky the guaranteed price. In addition, Mr. Givotovsky is
permitted to pay a certain amount in lieu of an exchange and Petro-Med will not
have to deliver the Company's shares relating to such payment. Certain events
may allow revisions in the number of shares to be exchanged on any installment
date. Mr. Givotovsky has registration rights with respect to the Company's
shares under certain conditions.
Under the Settlement Agreement II, Mr. Givotovsky agreed to transfer to Mr.
Kern, on an installment basis and upon satisfaction of certain conditions,
841,820 shares of Petro-Med's common stock which were placed in escrow. 76,347
shares would be released quarterly until all shares had been delivered to Mr.
Kern. Mr. Givotovsky is permitted to pay an amount equal to $.45 per share in
place of having an installment of Petro-Med's shares released from escrow.
31
<PAGE>
Mr. Givotovsky has claimed that Petro-Med is in breach of the settlement
Agreement 1. As a result no exchanges or sales of stock have occurred under
either agreement and all of the shares remain in escrow. The management of
Petro-Med does not believe it is in breach of the agreement.
On August 12, 1988, Mr. Givotovsky instituted legal action against the
Company, Petro-Med and Gerald N. Kern. the lawsuit alleges, among other things,
a breach of the settlement agreement 1 and fraud. Mr. Givotovsky is seeking the
value of 1,669,293 shares of the Company's common stock but in no event less
than $625,000 plus interest, $128,000, a constructive trust on future sales of
Meditech stock and $1,000,000 in punitive damages. See legal proceedings. If the
result of such action is a final determination that Mr. Givotovsky is entitled
to ownership of the entire 5,007,879 shares of the Company's common stock
presently held in the escrow account, Mr. Givotovsky would then own 4.35% and
Petro-Med would own 18.47% of the outstanding common stock of the Company.
The following table sets forth, as of August 31, 1998, the shares of common
stock of Petro-Med owned of record and beneficially by the directors of the
Company and by all such officers and directors of the Company as a group:
Percentage
Name Shares Owned of Class
- ---- ------------ --------
Gerald N. Kern 3,613,840 (1) 15.85%
Lester F. Goldstein 8,000 .04%
All directors and officers
as a group (4 persons) 3,621,840 15.89%
- ----------
(1) 2,087,270 shares are owned by FSL Cosmetics, Ltd., of which Gerald N. Kern
is the sole shareholder. Cynthia S. Kern, as the wife of Gerald N. Kern,
may be deemed, because of California community property laws, to be a
beneficial owner of 50% of the shares owned by Mr. Kern.
32
<PAGE>
Except for Gerald N. Kern, the above table does not include those persons
who own beneficially more than 5% of Petro-Med's outstanding common stock which
persons are Sergei Givotovsky 1,683,640 shares: and Lakestone Acceptance Corp.,
1,37O,000 or approximately 7.4%, and 6%, respectively. The shares of Mr.
Givotovsky are subject to the agreements described above.
Item 13. Certain Relationships and Related Transactions
- -------------------------------------------------------
On July 24, 1982, Petro-Med Inc. and the shareholders of Medical Technology
Corporation of America, Inc. ("MTCA"), the Company's predecessor, entered into
an agreement (the "Option Agreement") whereby Petro-Med obtained an option to
acquire all the outstanding shares of MTCA. The consideration for the Option
Agreement was a loan of $295,000 to MTCA and the payment of $5,000 to the
shareholders of MTCA. Funds for the $295,000 loan were obtained by the prior
management of Petro-Med, from a private placement of Petro-Med stock. Gerald N.
Kern had no relationship with, and had not engaged in any transactions with,
Petro-Med prior to July 24, 1982. The $295,000 loan to MTCA was evidenced by a
promissory note dated August 5, 1982 which provided for the payment of principal
on August 5, 2002 and annual interest payments thereon at the rate of 9% per
annum commencing August 5, 1983. The Option Agreement provided that Petro-Med
could convert the $295,000 note into 5% of the equity of MTCA. The Option
Agreement also provided that in the event of the exercise of the option,
Petro-Med would issue to the MTCA shareholders 51% of the outstanding shares of
the common stock of Petro-Med in exchange for all of the shares of MTCA. The
principal shareholders of MTCA at the time were Business Development Associates,
Inc. (controlled by Joseph Michaelson, Ph.D.), FSL Cosmetics, Ltd. (controlled
by Gerald N. Kern), Sergei Givotovsky, and Lakestone Acceptance Corporation
(controlled by Lewis H. Rosenberg). Gerald N. Kern and Lewis H. Rosenberg were
officers and directors of MTCA at the time of the transaction. MTCA and
Petro-Med had no board members in common at that time. The purpose of the above
transactions was to provide funding for the continued operation of MTCA. The
Company believes that the consideration to MTCA for the option was as favorable
as could be obtained from other companies with which MTCA was negotiating at
that time. No independent valuation of the option granted to Petro-Med was
established. MTCA's significant asset was its right to Viraplex(R) which Dr.
Michaelson had previously purported to assign to MTCA as its sole inventor.
33
<PAGE>
Petro-Med exercised its option under the Option Agreement and on February
5, 1983 acquired all the issued and outstanding shares of MTCA from its
shareholders in exchange for 11,378,225 shares (51%) of Petro-Med. The $295,000
promissory note was cancelled and the principal amount deemed added to paid-in
capital of MTCA. See "Security Ownership of Certain Beneficial Owners and
Management".
On March 21, 1983, Meditech Pharmaceuticals, Inc. was incorporated under
the laws of the state of Nevada and on the same date acquired all the issued and
outstanding shares of MTCA and a $48,000 capital contribution from Petro-Med in
exchange for 48,000,000 shares of its common stock. This reorganization was
entered into at the request of the underwriter for the initial public offering
of the Company based upon the belief that it would reduce state franchise taxes
and related expenses during the development stage. Board members of the Company
with an interest in the transaction were Gerald n. Kern and Lewis H. Rosenberg
who were principal shareholders, officers and directors of Petro-Med. See
"Security Ownership of Certain Beneficial Owners and Management".
In March, 1983, Petro-Med loaned the Company $100,000 for one year, with
interest payable at a rate equal to one percent above the prime rate at the
Wells Fargo Bank in San Francisco, California. During the second half of fiscal
1984, this loan was repaid in full and from time to time since then the Company
has advanced funds and has had funds advanced to it on an unsecured demand
basis, at 9% per annum, to and from Petro-Med. The purpose of these advances was
to allow the Company to continue its operations. A substantial portion of these
funds was obtained by Petro-Med through exempt private sales of restricted
stock, sales pursuant to exemption from registration under the Securities Act of
1933, by virtue of rule 144 promulgated under that Act, of the Company's common
stock owned by Petro-Med and loans to Petro-Med. $559,990 of amounts owed by the
Company to Petro-Med was converted into 10,000,000 shares of common stock in
June, 1986 at the request of the Company's then proposed underwriter. At May 31,
1997, the Company was indebted to Petro-Med in the principal sum of $3,011,700.
see "Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources." At the time such loans were made,
Gerald N. Kern was the only common director of the Company and Petro-Med. The
entire balance in loans is repayable with interest at 9% per annum as follows:
$36,000 on the second anniversary date of the Company's refinancing and the
balance on demand. Petro-Med obtained these funds through borrowings convertible
into and/or options to purchase an aggregate of 1,533,333 shares of the
Company's common stock presently owned by Petro-Med, and through exempt private
sales and rule 144 sales of restricted shares of common stock of the Company
owned by Petro-Med.
34
<PAGE>
The Company had also advanced funds on an unsecured demand basis with
interest at approximately 12.5% per annum, to Skin Control Systems, Inc. and has
Industries, Inc. The purpose of such loans was to induce those Companies to make
their employees available to the Company for marketing, product development and
financial planning. Mas Industries, Inc. and Skin Control Systems, Inc. are
presently inactive and unable to repay these sums but have indicated that they
will repay their respective indebtedness if and when they are able. Skin Control
Systems, Inc. has been discharged in bankruptcy. At May 31, 1986 the Company
wrote off a total of $55,600 representing all principal and accrued interest
owed by Skin Control Systems, Inc. and Mas Industries, Inc. In addition, the
Company, on the same date, wrote off a total investment of $8,000 in Mas
Industries, Inc. At the time the loans were made, Gerald N. Kern was the only
common director of the Company, Mas Industries, Inc. and Skin Control Systems,
Inc. Robert M. Kern, the son of Gerald N. Kern and General Counsel of the
Company, was a director of Skin Control Systems, Inc. The Company does not
intend to make loans to such affiliated entities in the future.
In January, 1984 the Company made a loan to Gerald N. Kern in the amount of
$24,200. Mr. Kern has repaid the total indebtedness, including 10% interest. The
purpose of the loan was to accommodate the Company's Chief Executive Officer.
The loan was approved by Stanton G. Axline and Lester F. Goldstein, as directors
of the Company. The Company has no policy with respect to granting loans to
officers and directors. Each request is handled on an individual basis. The
Company believes that all of the loans to officers and directors are in
compliance with applicable state law. The Company has no present intention to
make any additional loans to officers and directors. If, in the future, the
Company is asked to make loans to officers or directors, the Company will take
into consideration its working capital and cash flow conditions at such time.
In August, 1984, Gerald Kern assigned to the Company all his rights as an
inventor of Viraplex(R) (which include the rights to make, use and sell the
inventions embodied in patent applications relating to Viraplex(R), the right to
prosecute such patent applications in the United States Patent Office, including
the right to file continuations, divisions and foreign patent applications based
on the U. S. patent applications, all right, title and interest in and to any
patent that issues from the U. S. or related applications, the right to prevent
others from making, using or selling the inventions embodied in the patent, and
the rights to any commercially viable products resulting from testing of
Viraplex(R)). A patent application had initially been filed showing Dr.
Michaelson as the sole inventor. Thereafter, litigation with respect to this
patent application and other matters developed among the Company, Petro-Med,
Gerald Kern, Dr. Michaelson and others. In partial settlement of that
35
<PAGE>
litigation, Dr. Michaelson agreed to recognize Mr. Kern as co-inventor of
Viraplex(R) and to surrender to Petro-Med the shares of Petro-Med common stock
which he had received in exchange for the assignment of his patent rights in
Viraplex(R). The settlement was approved by Drs. Axline and Goldstein as
directors or the Company. The shares or Petro-Med stock so surrendered were
issued to fir. Kern by Petro-Med. At the time of such issuance there was no
active public market for the common stock of Petro-Med and, in addition, the
shares issued to Mr. Kern were "restricted' securities" under Rule 144 of the
Act. The Company believes that the value of the Petro-Med stock at the time of
such issuance to Mr. Kern was nominal, Mr. Kern received no cash or tangible
property from the Company in exchange tor the assignment of his patent rights.
Costs incurred by Mr. Kern in co-inventing Viraplex(R) were nominal. The purpose
or Mr. Kern's assignment was to confirm the Company's rights to its principal
asset, Viraplex(R). The Company required this additional comfort when patent
counsel determined that Mr. Kern could be deemed the sole inventor or a
co-inventor of Viraplex(R). The assignment was approved by Drs. Axline and
Goldstein, as directors of the Company.
On November 7, 1984 Gerald Kern assigned all of his rights as the inventor
of MTCH-24(tm) to the Company in exchange for an option to purchase 8,000,000
shares of the Company's Common Stock at $.02333 per share. On that date, the
closing bid price of the Company's Common Stock was $.344. The purpose of the
agreement was to give the Company a second drug to broaden and enhance its
probability of success. It was approved by Drs. Axline and Goldstein, as
directors of the Company. The compensation was based upon the independent
opinion of an investment banking firm. The option provided that it would not
vest until the FDA had granted all approvals necessary to market MTCH-24(tm) to
the public for any use other than as a treatment for Herpes simplex virus and
would not be exercisable until gross sales of MTCH-24(tm) reached certain
specified levels. Costs incurred by Mr. Kern in inventing MTCH-24(tm) were
nominal. On October 28, 1985 Mr. Kern and the Company entered into an agreement
whereby the option to purchase 8,000,000 shares was rescinded and Mr. Kern
purchased 8,000,000 shares of the Company's Common Stock. On December 18, 1986
the Company entered into an agreement with Mr. Kern pursuant to which Mr. Kern
agreed to return the 8,000,000 shares of the Company's common stock, $.001 par
value, to the Company, a note receivable in the amount of $1,440,000 which Mr.
Kern had given in exchange for the 8,000,000 shares was cancelled and Mr. Kern
received an option to purchase 8,000,000 shares of the Company's common stock,
$.001 par value, for $.01 per share. This option was exercised in March, 1989.
All patent rights were thereby vested in the Company. Mr. Kern's employment
agreement expired December 31, 1991. The agreement was approved by Drs. Axline
and Goldstein, as directors of the Company. See "Directors and Executive
Officers of the Registrant - Executive Compensation".
36
<PAGE>
In early 1983, Petro-Med entered into a joint venture with Aurora
Resources, Inc. in order to complete the joint venture, the Company guaranteed a
loan to Aurora of $100,000, upon which Aurora subsequently defaulted. The loan
was approved by Messrs. Kern and Rosenberg and Dr. Goldstein, as directors of
the Company. Aurora's sole assets were its rights to an ethanol plant and
related technology. Aurora was indebted to the Company for the defaulted amount
of $100,000 plus interest. The entire debt was written off by the Company in
February 1986 based upon adverse developments in the ability of Aurora to repay
the note.
Cynthia S. Kern has been employed as President, Chief Executive Officer and
Acting Chief Financial Officer since September, 1995. She served as Vice
President of administration from 1982 to 1995 and has served as Secretary of the
Company since 1983 and presently draws a salary of $45,000 per annum. In August,
1993, she purchased 3,000,000 shares of the Company's common stock for total
consideration of $90,000. She is the wife of Gerald N. Kern, chairman of the
board, President and Chief Executive Officer of the Company. Ms. Kern's
employment was approved by Mr. Rosenberg and Dr. Goldstein, as directors of the
Company. She devotes up to 50% of her time to the affairs of the Company. Robert
M. Kern has been employed as General Counsel of the Company since September,
1984. His present retainer is $36,000 per annum. He is the son of Gerald N.
Kern. Board approval was not required although it was received in March, 1985.
Robert M. Kern devotes up to 10% of his time to the affairs of the Company. Mrs.
Kern's and Mr. Robert Kern's salaries and fees are based upon current market
rates.
For a description of employment agreements between the Company and certain
officers, see "Directors and Executive Officers of the Registrant - Employment
Agreements."
The Company's administrative offices are located at 10105 E. Via
Linda,#103-382, Scottsdale, AZ 85258. See "Business - Property".
37
<PAGE>
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-k
- -------------------------------------------------------------------------
(a) Documents filed with report:
---------------------------
1. Financial statements and financial statement schedules.
The financial statements and financial statement schedules listed
in the accompanying index to financial statements are filed as
part of this report.
2. Exhibits.
The exhibits listed on the accompanying index to exhibits are
filed as part of this report.
(b) Reports on Form 8-k
-------------------
None.
38
<PAGE>
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Meditech Pharmaceuticals, Inc.
by: /s/ Cynthia S. Kern
----------------------------------------
Cynthia S. Kern, President and
Chief Executive Officer, Acting
Chief Financial and Accounting
Officer
Dated: August 25, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and or the class indicated.
/s/ Gerald N. Kern Dated: August 25, 1998
- ---------------------------------
Gerald N. Kern, Chariman of
The Board of Directors
/s/ Cynthia N. Kern Dated: August 25, 1998
- ---------------------------------
Cynthia S. Kern, President,
Chief Executive Officer and
Acting Chief Financial and
Accounting Officer
/s/ Harry Hall Dated: August 25, 1998
- ---------------------------------
Harry Hall, Director
/s/ Lester F. Goldstein Dated: August 25, 1998
- ---------------------------------
Lester F. Goldstein, Ph.D.
Director
39
<PAGE>
MEDITECH PHARMACEUTICALS, INC.
------------------------------
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
------------------------------------------
FINANCIAL STATEMENTS PAGE
- -------------------- ----
OPINION OF INDEPENDENT ACCOUNTANTS F-l
CONSOLIDATED BALANCE SHEET -
MAY 31, 1997 AND 1998 F-3
CONSOLIDATED STATEMENT OF NET LOSS AND DEFICIT
ACCUMULATED DURING DEVELOPMENT STAGE FOR THE TWELVE
MONTH PERIODS ENDED MAY 31, 1998, 1997, AND 1996 F-4
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(DEFICIT) FROM MAY 4, 1982 (INCEPTION) TO
MAY 31, 1998 F-5
CONSOLIDATED STATEMENT OF CHANGES IN FINANCIAL POSITION
FOR THE TWELVE MONTH PERIODS ENDED MAY 31, 1998, 1997,
AND 1996 F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-9
FINANCIAL STATEMENT SCHEDULES
- -----------------------------
AMOUNTS RECEIVABLE FROM RELATED PARTIES AND
UNDERWRITERS, PROMOTERS, AND EMPLOYEES OTHER
THAN RELATED PARTIES
(SCHEDULE 11) F-23
PROPERTY, PLANT AND EQUIPMENT
(SCHEDULE V) F-24
ACCUMULATED DEPRECIATION, DEPLETION AND
AMORTIZATION OF PROPERTY, PLANT AND
EQUIPMENT (SCHEDULE Vl) F-25
<PAGE>
ROY A. COHEN
CERTIFIED PUBLIC ACCOUNTANT
--------------------------------------------------------
8912 OAK TRAIL DRIVE, SANTA ROSA, CA 95409
INDEPENDENT AUDITOR'S REPORT
----------------------------
THE BOARD OF DIRECTORS
MEDITECH PHARMACEUTICALS, INC. (A SUBSIDIARY OF PETRO-MED INC.)
I HAVE AUDITED THE ACCOMPANYING CONSOLIDATED BALANCE SHEETS OF MEDITECH
PHARMACEUTICALS, INC. AND ITS CONSOLIDATED SUBSIDIARIES ("COMPANY") AS OF MAY
31, 1998, AND MAY 31, 1997, AND THE RELATED CONSOLIDATED STATEMENT OF NET LOSS
AND DEFICIT ACCUMULATED DURING THE DEVELOPMENT STAGE, SHAREHOLDERS' EQUITY
(DEFICIT), CHANGES IN FINANCIAL POSITION AND THE FINANCIAL STATEMENT SCHEDULES
AS INDICATED IN THE ACCOMPANYING INDEX FOR THE YEARS ENDED MAY 31, 1996, MAY 31,
1997 AND MAY 31, 1998. THESE FINANCIAL STATEMENTS AND SCHEDULES ARE THE
RESPONSIBILITY OF THE COMPANY'S MANAGEMENT. MY RESPONSIBILITY IS TO EXPRESS AN
OPINION ON THESE FINANCIAL STATEMENTS AND SCHEDULES BASED ON MY AUDIT.
I CONDUCTED MY AUDIT IN ACCORDANCE WITH GENERALLY ACCEPTED AUDITING STANDARDS.
THOSE STANDARDS REQUIRE THAT I PLAN AND PERFORM THE AUDIT TO OBTAIN REASONABLE
ASSURANCE ABOUT WHETHER THE FINANCIAL STATEMENTS AND SCHEDULES 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 ESTIMATES MADE BY MANAGEMENT AS WELL AS EVALUATING THE OVERALL
FINANCIAL STATEMENT PRESENTATION. I BELIEVE THAT MY AUDIT PROVIDES A REASONABLE
BASIS FOR MY OPINION.
IN MY OPINION, THE CONSOLIDATED FINANCIAL STATEMENTS REFERRED TO ABOVE PRESENT
FAIRLY, IN ALL MATERIAL RESPECTS, THE FINANCIAL POSITION OF MEDITECH
PHARMACEUTICALS, INC. AND ITS SUBSIDIARIES AS OF MAY 31, 1998, AND THE RESULTS
OF THEIR OPERATIONS AND THE CHANGES IN THEIR FINANCIAL POSITION FOR THE YEARS
THEN ENDED IN CONFORMITY WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES. FURTHER,
IN MY OPINION, THE FINANCIAL STATEMENT SCHEDULES REFERRED TO ABOVE PRESENT
FAIRLY, IN ALL MATERIAL RESPECTS IN RELATION TO THE FINANCIAL STATEMENTS TAKEN
AS A WHOLE, THE INFORMATION STATED THEREIN IN CONFORMITY WITH THE REQUIREMENTS
OF THE SECURITIES AND EXCHANGE COMMISSION.
THE ACCOMPANYING CONSOLIDATED FINANCIAL STATEMENTS HAVE BEEN PREPARED ASSUMING
THAT THE COMPANY WILL CONTINUE AS A GOING CONCERN. AS DISCUSSED IN NOTE 2, THE
COMPANY HAS SUFFERED RECURRING LOSSES FROM OPERATIONS AND HAS A WORKING CAPITAL
F-1
<PAGE>
DEFICIT THAT RAISES SUBSTANTIAL DOUBT ABOUT ITS ABILITY TO CONTINUE AS A GOING
CONCERN. MANAGEMENT'S PLANS ABOUT THESE MATTERS ARE DESCRIBED IN NOTE 2. THE
FINANCIAL STATEMENTS DO NOT INCLUDE ANY ADJUSTMENTS THAT MIGHT RESULT FROM THE
OUTCOME OF THIS UNCERTAINTY.
AS DISCUSSED IN NOTE 13 TO THE CONSOLIDATED FINANCIAL STATEMENTS, THE COMPANY,
ITS CHAIRMAN AND PARENT COMPANY ARE DEFENDANTS IN A LAWSUIT ALLEGING BREACH OF A
SETTLEMENT AGREEMENT AMONG THE PARTIES AND FOR FRAUD, AMONG OTHER THINGS, AND
CLAIMING THE VALUE OF 1,669,293 SHARES OF THE COMPANY'S COMMON STOCK HELD IN
ESCROW BUT IN NO EVENT LESS THAN $625,000 PLUS INTEREST, PLUS $128,000, A
CONSTRUCTIVE TRUST ON FUTURE SALES OF THE COMPANY'S STOCK, PUNITIVE DAMAGES,
LEGAL AND OTHER EXPENSES. THE COMPANY INTENDS TO VIGOROUSLY DEFEND THIS LAWSUIT.
THE ULTIMATE OUTCOME OF THE LITIGATION CANNOT PRESENTLY BE DETERMINED.
ACCORDINGLY, NO PROVISION FOR ANY LIABILITY THAT MAY RESULT HAS BEEN MADE IN THE
ACCOMPANYING CONSOLIDATED FINANCIAL STATEMENTS.
IN CONNECTION WITH THE EXAMINATION, I HAVE AUDITED THE STATEMENTS OF NET LOSS
AND DEFICIT ACCUMULATED DURING THE DEVELOPMENT STAGE AND CHANGES IN FINANCIAL
POSITION, THE COMBINATION OF THE AMOUNTS FOR THE YEARS ENDED MAY 31, 1998, 1997,
1996, 1995, 1994, 1993, 1992, 1991, 1990, 1989, 1988, 1987, 1986, 1985, 1984,
1983, AND MAY 4, 1982 (INCEPTION), (ALL EXAMINED BY OTHER AUDITORS, EXCEPT 1989
THROUGH 1998), TO DISCLOSE THE DEVELOPMENT STAGE ACTIVITIES OF THE COMPANY FROM
INCEPTION TO DATE AS REQUIRED BY GENERALLY ACCEPTED ACCOUNTING PRINCIPLES. BASED
ON THIS REVIEW, I BELIEVE THAT THE COLUMN DESCRIBED AS DEVELOPMENT STAGE PERIOD
FROM MAY 4, 1982, TO MAY 31, 1998, IN THE CONSOLIDATED STATEMENTS OF NET LOSS
AND DEFICIT ACCUMULATED DURING THE DEVELOPMENT STAGE AND STATEMENTS OF CHANGES
IN FINANCIAL POSITION OF THE COMPANY ARE APPROPRIATELY PRESENTED.
By: /s/ Roy A. Cohen
----------------------------------------
ROY A. COHEN
CERTIFIED PUBLIC ACCOUNTANT
SANTA ROSA, CALIFORNIA
AUGUST 19, 1998
F-2
<PAGE>
<TABLE>
<CAPTION>
MEDITECH PHARMACEUTICALS, INC.
(A Development-Stage Enterprise)
CONSOLIDATED BALANCE SHEET
May 31, May 31,
1998 1997
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash, including interest-bearing accounts --
Prepaid assets and other current assets 600 600
----------- -----------
Total current assets 600 600
Due from officer --
Equipment and furniture, net --
----------- -----------
TOTAL
600 600
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued expenses 1,082,000 990,600
Accrued professional fees 635,300 635,300
Accrued laboratory expenses 33,900 33,900
Accrued compensation 2,151,600 1,946,000
Advances from parent 3,011,700 2,753,500
Advances from affiliate 0 0
Current portion of long-term debt 0 0
Loan payable 71,000 71,000
----------- -----------
Total current liabilities 6,985,500 6,430,300
Long-term debt
----------- -----------
6,985,500 6,430,300
----------- -----------
Minority interest 191,300 191,300
Commitments and contingencies
Shareholders' equity (deficit):
Preferred stock - $.001 par value, 25,000,000 shares
authorized, none issued or outstanding
Common stock - $.001 par value, 400,000,000 shares
authorized: May 31, 1997, 119,016,925 shares
issued and to be issued; May 31, 1998, 119,016,925
shares issued and to be issued 119,000 119,000
Additional paid-in capital 6,839,000 6,839,000
Deficit accumulated during development stage (14,134,200) (13,579,000)
----------- -----------
Total shareholders' equity (deficit) (7,176,200) (6,621,000)
----------- -----------
TOTAL 600 600
=========== ===========
See accompanying notes to consolidated financial statements
F-3
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MEDITECH PHARMACEUTICALS, INC.
(A Development-Stage Enterprise)
CONSOLIDATED STATEMENT OF NET LOSS AND
DEFICIT ACCUMULATED DURING DEVELOPMENT STAGE
From
Twelve month Twelve month Twelve month May 4, 1982
period ended period ended period ended (inception) to
May 31, 1996 May 31, 1997 May 31, 1998 May 31, 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Research and development expenditures -- -- -- 489,300
----------- ----------- ----------- -----------
Clinical trials -- -- -- 1,347,800
----------- ----------- ----------- -----------
Expenses for efforts to secure financing,
establish affiliations with clinics
and physicians and formulate a
marketing strategy:
Compensation 239,300 240,300 240,300 4,861,000
Professional fees 300 91,400 -- 1,276,600
General and administrative 6,300 339,600 6,600 3,815,000
----------- ----------- ----------- -----------
245,900 671,300 246,900 9,952,600
Organization expenses -- -- -- 16,300
Loss on investments -- -- -- 120,100
Gain on sale of fixed assets -- -- -- (500)
Lawsuit settlement -- -- -- 15,000
Write-off of uncollectible note
receivable -- -- -- 100,000
Interest expense 255,700 286,100 308,300 2,557,000
Interest income -- -- -- (298,500)
Roaylty income (75,000)
Miscellaneous Income -- -- -- (75,100)
Aborted stock offering costs -- -- -- 325,400
Gain on early extinguishment of debt -- -- -- (10,400)
Minority interest in net loss of subsidiary -- -- -- (329,800)
----------- ----------- ----------- -----------
Net loss and deficit accumulated during
development stage 501,600 957,400 555,200 14,134,200
=========== =========== =========== ===========
Net loss and deficit accumulated during
development stage
per share of common stock $ .01 $ .01 $ .01 $ .16
=========== =========== =========== ===========
Weighted average number of shares outstanding 103,676,625 117,060,454 119,016,925 88,699,008
=========== =========== =========== ===========
See accompanying notes to consolidated financial statements
F-4
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MEDITECH PHARMACEUTICALS, INC.
(A Development-Stage Enterprise)
CONSOLIDATED STATEMENT FO SHAREHOLDERS'EQUITY (DEFICIT)
May 4, 1982 (Inception) to May 31, 1998
Deficit
accumulated
Additional Common during Note
paid-in stock development receivable
Common stock capital subscribed stage from officer Total
------------------------------------------------------------------------------------------
Shares Amount
------ ------
(000's)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at May 31, 1989 88,988 89,000 6,129,000 0 (8,916,800) 0 (2,698,800)
Balance at May 31, 1990 89,088 89,100 6,139,500 0 (9,438,900) 0 (3,210,300)
Change in equity of subsidiary
due to issuance of common stock -- -- (700) -- -- -- (700)
Common stock granted for services
during Fiscal 1991 3,000 3,000 39,000 -- -- -- 42,000
Net Loss, year ended May 31, 1991 -- -- -- -- (479,100) -- (479,100)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance at May 31, 1991 92,088 92,100 6,177,800 0 (9,918,000) 0 (3,648,100)
Change in equity of subsidiary
due to issuance of common stock -- -- -- -- -- -- 0
Common stock granted for services
during Fiscal 1992 -- -- -- -- -- -- 0
Sale of stock, February 1992 2,000 2,000 29,400 -- -- -- 31,400
Net Loss, year ended May 31, 1992 -- -- -- -- (483,100) -- (483,100)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance at May 31, 1992 94,088 94,100 6,207,200 0 (10,401,100) 0 (4,099,800)
Net Loss, year ended May 31, 1993 -- -- -- -- (449,400) -- (449,400)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance at May 31, 1993 94,088 94,100 6,207,200 0 (10,850,500) 0 (4,549,200)
Common stock granted for services
during Fiscal 1994 7,105 7,100 195,000 -- -- -- 202,100
Sale of Stock, April 1994 1,400 1,400 12,300 -- -- -- 13,700
Net Loss, year ended May 31, 1994 -- -- -- -- (753,900) -- (753,900)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance at May 31, 1994 102,593 102,600 6,414,500 0 (11,604,400) 0 (5,087,300)
Sale of Stock, Fiscal 1995 1,088 1,100 12,500 -- -- -- 13,600
Net Loss, year ended May 31, 1995 -- -- -- -- (515,600) -- (515,600)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance at May 31, 1995 103,681 103,700 6,427,000 0 (12,120,000) 0 (5,589,300)
Net Loss, year ended May 31, 1996 (501,600) (501,600)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance at May 31, 1996 103,681 103,700 6,427,000 0 (12,621,600) 0 (6,090,900)
Common stock granted for services
during Fiscal 1997 15,335 15,300 412,000 (5,000) 422,300
Common stock subscriptions 5,000 5,000
Net Loss, year ended May 31, 1997 -- -- -- -- (957,400) -- (957,400)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance at May, 31 1997 119,016 119,000 6,839,000 0 (13,579,000) 0 (6,621,000)
Net Loss, year ended May 31, 1998 (555,200) (555,200)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance at May 31, 1998 119,016 119,000 6,839,000 0 (14,134,200) 0 (7,176,200)
=========== =========== =========== =========== =========== =========== ===========
See accompanying notes to consolidated financial statements.
F-5
</TABLE>
<PAGE>
<TABLE>
MEDITECH PHARMACEUTICALS, INC.
(A Development-Stage Enterprise)
CONSOLIDATED STATEMENT OF CHANGES IN FINANCIAL POSITION
From
Twelve month Twelve month Twelve month May 4, 1982
period ended period ended period ended (inception) to
May 31, 1996 May 31, 1997 May 31, 1998 May 31, 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Cash used for:
Net loss (501,600) (957,400) (555,200) (14,134,200)
Less items not affecting
working capital -
Loss on investments -- -- -- 120,100
Depreciation and amortization 600 500 -- 174,100
Common stock options issued
below market price -- -- -- 726,200
Stock grants -- -- -- 213,500
Loss on disposal of fixed assets -- -- -- 37,600
Minority interest in loss of subsidiary -- -- -- (329,800)
Subsidiary stock issued to minority -- -- -- 284,600
Subsidiary common stock options issued to
minority issued below market price -- -- -- 202,700
Allocation to parent of additional
paid-in capital from issuance of
minority stock options and grants -- -- -- (274,000)
Write-off Deferred stock offering costs -- -- -- 154,300
----------- ----------- ----------- -----------
Cash used for development
stage activities (501,000) (956,900) (555,200) (12,824,900)
Long-term debt becoming current -- -- -- (1,500)
Repayment of long-term debt -- -- -- (25,800)
Purchase of equipment, furniture
and leasehold improvements -- -- -- (215,100)
Investments -- -- -- (120,100)
Reclassification of long-term
advances from (repayments to)
parent to short-term advances -- -- -- (54,500)
Deferred offering costs -- -- -- (154,300)
Advances from (to) officer 0
----------- ----------- ----------- -----------
(501,000) (956,900) (555,200) (13,396,200)
----------- ----------- ----------- -----------
See accompanying notes to consolidated financial statements.
F-6
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MEDITECH PHARMACEUTICALS, INC.
(A Development-Stage Enterprise)
CONSOLIDATED STATEMENT OF CHANGES IN FINANCIAL POSITION
From
Twelve month Twelve month Twelve month May 4, 1982
period ended period ended period ended (inception) to
May 31, 1996 May 31, 1997 May 31, 1998 May 31, 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Cash provided by:
Financing activities --
Proceeds from long-term debt -- -- -- 27,300
Advances from (repayments to)
parent and affiliates 215,900 236,200 258,200 2,906,700
Issuance of (retirement of)
common stock -- 15,300 -- 119,000
Additional paid-in capital -- 412,000 -- 5,632,900
Increase in paid-in capital due to
increase in equity of subsidiary
due to issuance of common -- -- -- 274,100
Proceeds from sale of warrants -- -- -- 100
Proceeds from sale of fixed assets -- -- -- 3,400
Proceeds from minority investment in subs -- -- -- 300,000
Issuance of common stock for
repayment of debt to parent -- -- -- (559,900)
----------- ----------- ----------- -----------
215,900 663,500 228,200 8,705,600
Add (subtract) changes in
components of working capital
other than cash -
Current portion of long-term debt -- -- -- 0
Note payable -- -- -- 0
Advances from parent -- -- -- 717,400
Accounts payable 78,600 88,000 91,400 1,082,000
Accrued professional fees 400 -- -- 635,300
Accrued laboratory expenses -- -- -- 33,900
Accrued compensation 206,100 205,400 205,600 2,151,600
Stock subscription proceeds refundable -- -- -- 0
Advances (to) from affiliates -- -- -- 0
Prepaid and other current assets -- -- -- (600)
Proceeds from loan payable -- -- -- 71,000
----------- ----------- ----------- -----------
501,000 956,900 555,200 13,396,200
----------- ----------- ----------- -----------
Net increase (decrease) in cash 0 0 0 0
Cash at the beginning of the period 0 0 0 --
----------- ----------- ----------- -----------
Cash at the end of the period 0 0 0 0
=========== =========== =========== ===========
See accompanying notes to consolidated financial statements.
F-7
</TABLE>
<PAGE>
THIS PAGE INTENTIONALLY LEFT BLANK
F-8
<PAGE>
MEDITECH PHARMACEUTICALS, INC.
(A DEVELOPMENT-STAGE ENTERPRISE)
TWELVE MONTH PERIODS ENDED MAY 31, 1989, 1990, 1991,
1992, 1993, 1994, 1995, 1996, 1997, 1998
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES
- -----------------------------------------------------------
MEDITECH PHARMACEUTICALS, INC. (THE COMPANY) WAS INCORPORATED IN NEVADA ON
MARCH 21, 1983 AND IS A 25.94% OWNED SUBSIDIARY OF PETRO-MED INC. (PETRO-MED), A
NEVADA CORPORATION. THE COMPANY'S INITIAL OUTSTANDING COMMON SHARES WERE
EXCHANGED FOR $48,000 AND THE COMMON STOCK OF MEDICAL TECHNOLOGY CORPORATION OF
AMERICA, INC. (MTCA), A WHOLLY OWNED SUBSIDIARY OF PETRO-MED. THE ACQUISITION
WAS ACCOUNTED FOR AT BOOK VALUE AS A REORGANIZATION. MTCA WAS A DELAWARE
CORPORATION, FORMED MAY 4, 1982, TO DEVELOP ITS OWNERSHIP RIGHTS TO A TREATMENT
FOR HERPES SIMPLEX 1 AND 2. MTCA WAS DISSOLVED IN JANUARY , 1986.
THE COMPANY AND ITS SUBSIDIARIES COMPRISE A DEVELOPMENT-STAGE ENTERPRISE.
ACTIVITIES OF THE COMPANY (AND ITS PREDECESSOR MTCA) HAVE INCLUDED EFFORTS TO
OBTAIN A UNITED STATES FOOD AND DRUG ADMINISTRATION (FDA) LICENSE FOR THE HERPES
TREATMENT, SECURE FINANCING, ESTABLISH AFFILIATIONS WITH CLINICS AND PHYSICIANS,
FORMULATE MARKETING STRATEGIES FOR DEVELOPMENT OF THE HERPES TREATMENT AND
DEVELOP A SECOND DRUG FOR TREATMENT OF VIRUSES, BACTERIA AND FUNGI.
PRINCIPLES OF CONSOLIDATION
THE CONSOLIDATED FINANCIAL STATEMENTS INCLUDE THE ACCOUNTS OF THE COMPANY,
ITS PREDECESSOR, MTCA, AND ITS 33.5% OWNED AND CONTROLLED SUBSIDIARY, RESULTING
IN MINORITY INTEREST ON THE CONSOLIDATED BALANCE SHEET AND CONSOLIDATED
STATEMENT OF DEFICIT ACCUMULATED DURING DEVELOPMENT STAGE. ALL SIGNIFICANT
INTERCOMPANY TRANSACTIONS AND BALANCES HAVE BEEN ELIMINATED IN CONSOLIDATION.
RELATED-PARTY TRANSACTIONS
THE ACCOMPANYING CONSOLIDATED FINANCIAL STATEMENTS INCLUDE SUBSTANTIAL
TRANSACTIONS WITH RELATED PARTIES. SIGNIFICANT RELATED PARTY TRANSACTIONS ARE
IDENTIFIED IN THE NOTES THAT FOLLOW.
EQUIPMENT AND FURNITURE AND DEPRECIATION
EQUIPMENT AND FURNITURE ARE CARRIED AT COST.
F-9
<PAGE>
EQUIPMENT AND FURNITURE ARE DEPRECIATED USING THE STRAIGHT-LINE METHOD OVER
THEIR ESTIMATED USEFUL LIVES OF FIVE TO TEN YEARS.
DEFERRED OFFERING COSTS
DEFERRED OFFERING COSTS AROSE IN FISCAL 1986 FROM LEGAL, ACCOUNTING,
PRINTING AND OTHER COSTS RELATED TO OFFERINGS OF SECURITIES. SUCH COSTS ARE
OFFSET AGAINST THE PROCEEDS OF SUCH OFFERINGS UPON THEIR SUCCESSFUL COMPLETION.
SINCE THE OFFERING WAS NOT SUCCESSFUL, SUCH COSTS WERE CHARGED AGAINST
OPERATIONS IN 1987.
STOCK ISSUANCES
FROM TIME TO TIME THE COMPANY ISSUES ITS COMMON STOCK AS CONSIDERATION FOR
ITS TRANSACTIONS. COMMON STOCK ISSUED IN QUANTITIES OF 100,000 SHARES OR LESS IS
VALUED AT 70% OF THE FAIR MARKET VALUE AT THE TRANSACTION DATE. COMMON STOCK
ISSUED IN QUANTITIES GREATER THAN 100,000 SHARES IS VALUED AT 50% OF THE FAIR
MARKET VALUE AT THE TRANSACTION DATE. THE VALUE OF THE COMMON STOCK IS
DISCOUNTED BECAUSE SUCH COMMON STOCK IS HIGHLY RESTRICTIVE.
DEFICIT ACCUMULATED DURING DEVELOPMENT-STAGE PER SHARE OF COMMON STOCK
THE DEFICIT PER SHARE IS COMPUTED BASED UPON THE WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING DURING THE RESPECTIVE PERIODS. NO CONVERSION OF WARRANTS OR
STOCK OPTIONS OR OTHER TRANSACTIONS WHICH ARE ANTIDILUTIVE ARE INCLUDED.
PROFESSIONAL FEES
PROFESSIONAL FEES INCLUDE LEGAL FEES, ACCOUNTING FEES AND LEGAL PRINTING
FEES. THOSE FEES WHICH ARE NOT SUBJECT TO DISPUTE WILL BE PAID, IN WHOLE OR IN
PART, UPON REFINANCING OF THE COMPANY, IF ANY.
NOTE 2. NEED FOR ADDITIONAL FINANCING
- -------------------------------------
THE CONSOLIDATED FINANCIAL STATEMENTS HAVE BEEN PREPARED ASSUMING THAT THE
COMPANY WILL CONTINUE AS A GOING CONCERN. THE COMPANY HAS INCURRED AN
ACCUMULATED NET LOSS THROUGH MAY 31, 1998, OF $14,134,200 AND, AS OF THAT DATE,
THE COMPANY'S CURRENT LIABILITIES EXCEEDED ITS CURRENT ASSETS BY $6,984,900. THE
COMPANY IS EXPERIENCING SEVERE CASH FLOW DIFFICULTIES AND ANTICIPATES ADDITIONAL
CASH EXPENDITURES WILL BE REQUIRED TO CONTINUE ITS RESEARCH AND DEVELOPMENT
ACTIVITIES. ACCORDINGLY, THE CONTINUED EXISTENCE OF THE COMPANY IS DEPENDENT
UPON ITS ABILITY TO OBTAIN SIGNIFICANT ADDITIONAL WORKING CAPITAL. THE COMPANY
IS CURRENTLY SEEKING TO OBTAIN THIS ADDITIONAL WORKING CAPITAL THROUGH EQUITY
F-10
<PAGE>
FINANCING AND JOINT VENTURES. THERE IS NO ASSURANCE THAT SUCH FINANCING CAN BE
RAISED. THE CONSOLIDATED FINANCIAL STATEMENTS DO NOT INCLUDE ANY ADJUSTMENTS
THAT MIGHT RESULT FROM THE OUTCOME OF THIS UNCERTAINTY.
NOTE 3. DUE FROM OFFICER
- ------------------------
IN JANUARY 1984, THE COMPANY MADE A LOAN TO ITS CHIEF EXECUTIVE OFFICER IN
THE AMOUNT OF $24,200 AT AN ANNUAL INTEREST RATE OF 10%. THE LOAN HAS BEEN
REPAID IN FULL.
NOTE 4. ADVANCES TO (FROM) PARENT AND AFFILIATED COMPANIES
- ----------------------------------------------------------
ADVANCES TO (FROM) PARENT AND AFFILIATED COMPANIES WERE AS FOLLOWS:
MAY 31,
---------------------------
1997 1998
---- ----
PETRO-MED (NOTE 16) $(2,753,500) $(3,011,700)
=========== ===========
THE ADVANCES BETWEEN THE COMPANY AND PETRO-MED BEAR INTEREST IN 1995 AT 9%
PER ANNUM. INTEREST EXPENSE FOR THE YEARS ENDED MAY 31, 1998 AND 1997, WAS
$258,200 AND $236,200, RESPECTIVELY. AT MAY 31, 1998, THE COMPANY WAS INDEBTED
TO PETRO-MED INC. IN THE AMOUNT OF $3,047,000. THESE AMOUNTS ARE REPAYABLE WITH
INTEREST AT 9% PER ANNUM AS FOLLOWS: $36,000 ON THE SECOND ANNIVERSARY OF THE
COMPLETION OF A REFINANCING OF THE COMPANY AND THE BALANCE ON DEMAND.
CERTAIN ADVANCES TO AFFILIATES WERE DUE UPON DEMAND AND IN 1986, $48,100
WERE DETERMINED TO BE UNCOLLECTIBLE AND WRITTEN OFF. CERTAIN OFFICERS AND
DIRECTORS OF THE COMPANY ARE ALSO OFFICERS AND/OR DIRECTORS OF THE PARENT AND
THE AFFILIATED COMPANIES.
IN FISCAL 1988 THE COMPANY WAS ADVANCED $8,000 FROM AN AFFILIATED COMPANY.
THIS ADVANCE, WHICH BEARS NO INTEREST AND IS UNSECURED, IS DUE ON DEMAND.
NOTE 5. EQUIPMENT AND FURNITURE
- -------------------------------
EQUIPMENT AND FURNITURE ARE COMPOSED OF THE FOLLOWING:
MAY 31,
---------------------------------
1996 1997 1998
---- ---- ----
OFFICE EQUIPMENT AND
FURNITURE $135,600 $135,600 $135,600
LESS: ACCUMULATED DEPRECIATION 135,100 $135,600 $135,600
-------- -------- --------
$ 500 $ 0 $ 0
======== ======== ========
F-11
<PAGE>
NOTE 6. INVESTMENTS
- -------------------
DURING 1982 THE COMPANY INVESTED $64,000 FOR A 10% INTEREST IN A PRIVATELY
HELD DEVELOPMENT-STAGE COMPANY WHICH PLANNED TO MANUFACTURE AND DISTRIBUTE
MEDICAL EQUIPMENT. THE INVESTEE WAS 30% BENEFICIALLY OWNED BY A FORMER OFFICER
OF THE COMPANY. THE INVESTEE HAS EXPENDED ALL FUNDS AND HAS NO SIGNIFICANT
ASSETS. ACCORDINGLY, MANAGEMENT HAS STATED THE VALUE OF THE INVESTMENT AT ZERO
IN THE ACCOMPANYING CONSOLIDATED BALANCE SHEET.
IN ADDITION, THE COMPANY OWNS 39,940 SHARES (LESS THAN 1%) OF MAS
INDUSTRIES, INC. WHICH IT ACQUIRED AT A COST OF $8,000 (SEE NOTE 4). AT MAY 31,
1986, MAS INDUSTRIES HAD EXPENDED ALL FUNDS AND HAD NO SIGNIFICANT LIQUID
ASSETS. ACCORDINGLY, MANAGEMENT HAS STATED THE VALUE OF THE INVESTMENT AT ZERO
IN THE ACCOMPANYING CONSOLIDATED BALANCE SHEET.
NOTE 7. LOANS PAYABLE
- ---------------------
THE LOAN PAYABLE OF $71,000 AT MAY 31, 1997, REPRESENTS A BANK LOAN
COLLATERALIZED BY A CERTIFICATE OF DEPOSIT OF A CO-VENTURER. THE LOAN BORE
INTEREST AT THE PRIME RATE PLUS TWO PERCENT AND WAS PAYABLE ON DECEMBER 20,
1985. WHEN THE LOAN WAS NOT REPAID ON DECEMBER 20, 1985, THE BANK LIQUIDATED THE
CO-VENTURER'S CERTIFICATE OF DEPOSIT IN REPAYMENT OF THE LOAN. ACCORDINGLY, THE
COMPANY OWES THE $71,000 PLUS INTEREST TO THE CO-VENTURER.
NOTE 8. LONG-TERM DEBT
- ----------------------
THERE IS CURRENTLY NO LONG-TERM DEBT.
F-12
<PAGE>
NOTE 9. SHAREHOLDERS' EQUITY (DEFICIT)
- -------------------------------------
COMMON STOCK
ON JUNE 30, 1983, THE COMPANY SOLD 4,715,000 SHARES OF ITS COMMON STOCK AT
S.125 PER SHARE IN A PRIVATE OFFERING. TOTAL GROSS PROCEEDS RECEIVED FROM THE
PRIVATE OFFERING, NET OF $250,000 OF CANCELLED STOCK SUBSCRIPTIONS, WERE
$589,400.
IN JULY AND AUGUST 1983, THE COMPANY SOLD 12,000,000 AND 1,200,000 SHARES,
RESPECTIVELY, OF ITS COMMON STOCK AT $.30 PER SHARE IN A PUBLIC OFFERING. TOTAL
GROSS PROCEEDS RECEIVED FROM THE OFFERING WERE $3,960,000.
IN DECEMBER 1983, THE COMPANY SOLD 50,000 SHARES OF COMMON STOCK TO AN
OFFICER AT $.15 PER SHARE FOR $7,500 AND RECORDED $6,500 IN COMPENSATION,
REPRESENTING THE DIFFERENCE BETWEEN THE PRICE PAID AND THE DISCOUNTED MARKET
VALUE OF THE STOCK AT THE DATE OF ISSUANCE.
IN FEBRUARY 1984, THE COMPANY ISSUED 50,000 SHARES OF COMMON STOCK TO A
DIRECTOR AT NO COST FOR PAST SERVICES. THE COMPANY RECORDED $14,000 IN
COMPENSATION, REPRESENTING THE DISCOUNTED MARKET VALUE OF THE STOCK AT THE DATE
OF ISSUE.
ON JUNE 1, 1984, THE COMPANY ISSUED 100,000 SHARES OF COMMON STOCK TO ITS
FORMER CHIEF FINANCIAL OFFICER FOR SERVICES RENDERED DURING THE SIX MONTH PERIOD
ENDED MAY 31, 1984. SUBSEQUENTLY, THIS GRANT OF SHARES WAS RESCINDED AND AN
OPTION TO PURCHASE COMMON STOCK, WHICH IS INCLUDED BELOW, WAS ISSUED.
ON DECEMBER 15, 1985, THE COMPANY INCREASED THE COMMON SHARES AUTHORIZED
FROM 100,000,000 SHARES TO 150,000,000 SHARES.
IN JUNE, 1986 THE COMPANY CONVERTED ADVANCES OF $S59,900 FROM PETRO-MED
INTO 10,000,000 SHARE. OF COMMON STOCK OF THE COMPANY.
IN JUNE, 1986, THE COMPANY INCREASED THE COMMON SHARES AUTHORIZED FROM
150,000,000 TO 400, 000,Q00 SHARES.
ON APRIL 7, 1987, THE COMPANY AUTHORIZED THE ISSUANCE OF 210,000 SHARES OF
COMMON STOCK TO TWO CONSULTANTS FOR SERVICES RENDERED. 200,000 OF THESE SHARES
HAD BEEN ISSUED AS OF AUGUST 31, 1987. THE BALANCE OF 10,000 SHARES WLL} BE
ISSUED UPON RECEIPT BY THE COMPANY OF COMPLETED INVESTMENT LETTERS. THE COMPANY
RECORDED $54,000 IN COMPENSATION, REPRESENTING THE DISCOUNTED MARKET VALUE OF
THE STOCK AT THE DATE OF ISSUE.
F-13
<PAGE>
ON APRIL 16, 1987 THE COMPANY AUTHORIZED THE ISSUANCE OF 100,000 SHARES OF
COMMON STOCK TO THREE CONSULTANTS FOR SERVICES RENDERED. THESE SHARES WERE
ISSUED SUBSEQUENT TO MAY 31, 1987. THE COMPANY RECORDED $2H,000 IN COMPENSATION,
REPRESENTING THE DISCOUNTED MARKET VALUE OF THE STOCK AT THE DATE OF ISSUE.
ON JUNE 11, 1987 THE COMPANY AUTHORIZED THE ISSUANCE OF 100,000 SHARES OF
COMMON STOCK TO A CONSULTANT FOR SERVICES RENDERED. THESE SHARES ARE TO BE
ISSUED SUBSEQUENT TO MAY 31, 1988. THE COMPANY RECORDED S12,200 IN COMPENSATION
REPRESENTING THE DISCOUNTED MARKET VALUE OF THE STOCK ON JUNE 11, 1987.
ON OCTOBER 2, 1987, THE COMPANY AUTHORIZED THE ISSUANCE OF 665,000 SHARES
OF COMMON STOCK TO TWO CONSULTANTS FOR SERVICES RENDERED. THESE SHARES HAVE BEEN
ISSUED. 40,000 SHARES WERE ISSUED SUBSEQUENT TO MAY 31, 1988. THE COMPANY
RECORDED $51,100 IN COMPENSATION, REPRESENTING THE DISCOUNTED MARKET VALUE OF
THE STOCK ON OCTOBER 2, 1987.
ON MARCH 2, 1988 THE COMPANY AUTHORIZED THE ISSUANCE OF 150,000 SHARES OF
COMMON STOCK TO A CONSULTANT FOR SERVICES RENDERED. THESE SHARES HAVE BEEN
ISSUED. THE COMPANY RECORDED $13,900 IN COMPENSATION, REPRESENTING THE
DISCOUNTED MARKET VALUE OF THE STOCK MARCH 2, 1988. '
ON MARCH 17, 1988 THE COMPANY AUTHORIZED THE ISSUANCE OF 25,000 SHARES OF
COMMON STOCK TO A CONSULTANT FOR SERVICES RENDERED. THESE SHARES HAVE BEEN
ISSUED. THE COMPANY RECORDED $3,200 IN COMPENSATION REPRESENTING THE DISCOUNTED
MARKET VALUE OF THE STOCK ON MARCH 17, 1988.
ON MARCH 22, 1988 THE COMPANY AUTHORIZED THE ISSUANCE OF 100,000 SHARES OF
COMMON STOCK TO A CONSULTANT FOR SERVICES RENDERED. THESE SHARES HAVE BEEN
ISSUED SUBSEQUENT. THE COMPANY RECORDED $13,000 IN COMPENSATION, REPRESENTING
THE DISCOUNTED MARKET VALUE OF THE STOCK ON MARCH 22, 1988.
ON MAY 25, 1988 THE COMPANY AUTHORIZED THE ISSUANCE OF SOO,OOO SHARES OF
COMMON STOCK TO A CONSULTANT FOR SERVICES RENDERED. THESE SHARES HAVE BEEN
ISSUED. THE COMPANY RECORDED $33,800 IN COMPENSATION REPRESENTING THE DISCOUNTED
MARKET VALUE OF THE STOCK ON MAY 25, 1988.
ON FEBRUARY 2, 1989 THE COMPANY AUTHORIZED THE ISSUANCE OF 70,000 SHARES OF
COMMON STOCK FOR $5,000. THESE SHARES HAVE NOT BEEN ISSUED.
F-14
<PAGE>
ON MARCH 1, 1989 THE COMPANY AUTHORIZED THE ISSUANCE OF 2,506,832 SHARES OF
COMMON STOCK FOR $125,341.48. THESE SHARES HAVE BEEN ISSUED.
ON MARCH 27, 1989 THE COMPANY AUTHORIZED THE PRIVATE PLACEMENT OF UP TO
6,000,000 SHARES OF COMMON STOCK FOR $.10 PER SHARE. 350,000 SHARES WERE SOLD
AND ISSUED.
ON JANUARY 2, 1991, THE COMPANY AUTHORIZED THE ISSUANCE OF 2,750,000 SHARES
OF COMMON STOCK AS COMPENSATION FOR SERVICES. THESE SHARES HAVE BEEN ISSUED.
ON JULY 12, 1993, THE COMPANY AUTHORIZED THE ISSUANCE OF 6,085,300 SHARES
OF COMMON STOCK FOR A TOTAL OF APPROXIMATELY $130,200 (INCLUDING FORGIVENESS OF
DEBTS OWED BY THE COMPANY) AND 3,300,000 SHARES AS COMPENSATION FOR SERVICES.
THESE SHARES HAVE BEEN ISSUED.
ON JUNE 1, 1994, THE COMPANY AUTHORIZED THE ISSUANCE OF 11,640,300 SHARES
OF COMMON STOCK FOR A TOTAL OF APPROXIMATELY $74,254 (INCLUDING FORGIVENESS OF
DEBTS OWED BY THE COMPANY) AND 2,200,000 SHARES AS COMPENSATION FOR SERVICES.
ALTHOUGH AUTHORIZED ON JUNE 1, 1994, THE SHARES WERE ACTUALLY ISSUED ON JULY 11,
1996.
F-15
<PAGE>
<TABLE>
<CAPTION>
STOCK WARRANTS
IN JULY 1983, THE COMPANY SOLD, FOR $100, WARRANTS TO PURCHASE UP TO
1,200,000 SHARES OF ITS COMMON STOCK WHICH COULD BE EXERCISED AT $.36 PER SHARE
BEFORE UULY 11, 1988. NONE OF THE WARRANTS WERE EXERCISED AND THE WARRANTS HAVE
EXPIRED.
STOCK OPTIONS
THE COMPANY HAS GRANTED THE FOLLOWING OPTIONS TO PURCHASE ITS COMMON STOCK:
EXERCISE
DATE OF NUMBER EXERCISE PRICE PER OPTION
GRANT OF SHARES PERIOD SHARE GRANTED FOR
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FEBRUARY 27, 1984 40,000 EXPIRED APRIL 28 AVERAGE OF BID SERVICES OF CHIEF
1985, NOT EXERCISED AND ASK PRICES ON FINANCIAL OFFICER
FEBRUARY 26, 1985
FEBRUARY 27, 1984 50,000 EXPIRED APRIL 28, AVERAGE OF BID SERVICES OF CHIEF
1986, NOT EXERCISED AND ASK PRICES ON FINANCIAL OFFICER
FEBRUARY 26, 1986
JUNE 1, 1984 100,000 EXPIRED MAY 31, 1989, $.30 SERVICES OF CHIEF
NOT EXERCISED FINANCIAL OFFICER
NOVEMBER 7, 1984 8,000,000 NOVEMBER 7, 1984 $.0233 LICENSING AGREEMENT
(SUBSEQUENTLY TO NOVEMBER 6, WITH CHIEF EXECUTIVE
RESCINDED, SEE 1989 SUBJECT TO OFFICER
NOTE 15) FDA APPROVAL OF A
DRUG AND ACHIEVE-
MENT OF CERTAIN
MINIMUM SALES LEVELS
APRIL 1, 1985 150,000 EXPIRED FEBRUARY 17, $.001 FINANCIAL CONSULTING
1987, NOT EXERCISED AND PUBLIC RELATIONS
SERVICES
APRIL 1, 1985 30,000 EXPIRED MARCH 4, $.25 FINANCIAL CONSULTING
1987, NOT EXERCISED SERVICES
APRIL 1, 1985 150,000 EXPIRED MARCH 17, $.25 FlNANCIAL CONSULTING
1987, NOT EXERCISED SERVICES
F-16
<PAGE>
EXERCISE
DATE OF NUMBER EXERCISE PRICE PER OPTION
GRANT OF SHARES PERIOD SHARE GRANTED FOR
- -----------------------------------------------------------------------------------------------------------------
AUGUST 16, 1985 1,850,000 EXERCISED AS TO $.0233 SERVICES OF VARIOUS
10,000 SHARES. OFFICERS, EMPLOYEES
BALANCE EXPIRED AND CONSULTANTS
AUGUST 15, 1990.
AUGUST 23, 1985 6,000 EXERCISED $.0233 FINANCIAL CONSULTING
SERVICES
OCTOBER 1, 1985 100,000 EXPIRED SEPTEMBER 30, $.001 FINANCIAL CONSULTING
1986, NOT EXERCISED SERVICES
OCTOBER 1, 1985 6,000 EXPIRED SEPTEMBER 30, $.01 PUBLIC RELATIONS
1986, NOT EXERCISED SERVICES
OCTOBER 8, 1985 25,000 EXPIRED OCTOBER 7, $.01 FINANCIAL CONSULTING
1986, NOT EXERCISED SERVICES
OCTOBER 8, 1985 75,000 EXPIRED OCTOBER 7, $.01 FINANCIAL CONSULTING
1986, NOT EXERCISED SERVICES
NOVEMBER 5, 1986 100,000 EXPIRED $.01 FINANCIAL SERVICES
OCTOBER 31, 1987,
NOT EXERCISED
DECEMBER 18, 1986 8,000,000 EXERCISED $.01 COMPENSATION FOR
PATENT RIGHTS
JANUARY 26, 1987 7,500,000 EXPIRED $.08125 COMPENSATION FOR
DECEMBER 1, 1992 JOINT VENTURE
NOT EXERCISED
APRIL 3, 1987 2,050,000 EXERCISED AS TO $.04 COMPENSATION OF
100,000 SHARES VARIOUS OFFICERS,
BALANCE EXPIRED EMPLOYEES AND
APRIL 2, 1992 CONSULTANTS
APRIL 3, 1987 100,000 EXPIRED $.08 COMPENSATION FOR
APRIL 2, 1992 FINANCIAL
NOT EXERCISED CONSULTING
APRIL 16, 1987 350,000 EXPIRED APR. 15, 1992 $.01 COMPENSATION OF
NOT EXERCISED VARIOUS OFFICERS,
EMPLOYEES AND
CONSULTANTS
F-17
<PAGE>
EXERCISE
DATE OF NUMBER EXERCISE PRICE PER OPTION
GRANT OF SHARES PERIOD SHARE GRANTED FOR
- -----------------------------------------------------------------------------------------------------------------
JUNE 11, 1987 50,000 EXPIRED $.08 COMPENSATION FOR
APRIL 2, 1992 PRODUCT LICENSE
NOT EXERCISED CONSULTING
AUGUST 13, 1987 100,000 EXPIRED $.15 COMPENSATION FOR
JULY 31, 1992 PRODUCT LICENSE
NOT EXERCISED CONSULTING
AUGUST 26, 1987 100,000 EXERCISED $.04 COMPENSATION FOR
PRODUCT LICENSE
CONSULTING
MARCH 2, 1988 300,000 EXPIRED $.10 COMPENSATION FOR
NOT EXERCISED FINANCIAL CONSUITING
JULY 11, 1988 200,000 EXPIRED $.05 COMPENSATION FOR
NOT EXERCISED FINANCIAL CONSULTING
SEPTEMBER 15, 1988 150,000 EXPIRED $.01 COMPENSATION FOR
NOT EXERCISED FINANCIAL CONSULTING
SEPTEMBER 15, 1988 100,000 EXPIRED $.07 COMPENSATION FOR
NOT EXERCISED FINANCIAL CONSULTING
OCTOBER 24, 1989 100,000 EXPIRED, NOT EXERCISED $.06 COMPENSATION FOR
LEGAL SERVICES
THE NUMBER OF SHARES EXERCISABLE UNDER OPTIONS AT MAY 31, 1996, WERE 0. NO COMPENSATION WAS RECORDED FOR COMMON
STOCK OPTIONS ISSUED BELOW MARKET PRICE FOR FISCAL YEARS 1995 AND 1996.
F-18
</TABLE>
<PAGE>
IN MARCH 1983, PETRO-MED GRANTED TO THE COMPANY'S CHIEF EXECUTIVE OFFICER
AN OPTION TO PURCHASE FROM PETRO-MED 3,000,000 SHARES OF THE COMPANY'S COMMON
STOCK FOR A PERIOD OF FIVE YEARS AT A PRICE OF $.25 PER SHARE. THIS OPTION
EXPIRED IN MARCH 1988 AND A NEW OPTION WAS GRANTED FOR FIVE YEARS AT THE PRICE
OF $.08 PER SHARE. THIS OPTION HAS EXPIRED.
NOTE 10. INCOME TAXES
- ---------------------
AS OF MAY 31, 1998, THE COMPANY HAD NET OPERATING LOSS CARRYFORWARDS OF
APPROXIMATELY $2,529,800 FOR FEDERAL TAX PURPOSES AND $14,134,200 FOR FINANCIAL
REPORTING PURPOSES WHICH EXPIRE DURING THE PERIOD FROM 2000 THROUGH 2007. THE
DIFFERENCE BETWEEN THE TAX AND FINANCIAL REPORTING NET OPERATING LOSS
CARRYFORWARDS RESULTS PRINCIPALLY FROM START-UP COSTS WHICH HAVE BEEN EXPENSED
FOR FINANCIAL REPORTING PURPOSES AND DEFERRED FOR INCOME TAX PURPOSES.
NOTE 11. LICENSING AGREEMENTS
- -----------------------------
THE COMPANY HAD GRANTED AN EXCLUSIVE THREE-YEAR LICENSING AGREEMENT WHICH
EXPIRED ON JULY 31, 1986 TO DISTRIBUTE AND SELL THE COMPANY'S TREATMENT FOR
HERPES SIMPLEX VIRUS IN BELGIUM, ITALY, LUXEMBOURG, THE NETHERLANDS, AND THE
UNITED KINGDOM. THE LICENSEE WAS RESPONSIBLE FOR OBTAINING THE NECESSARY
APPROVAL OF THE HEALTH ORGANIZATIONS OF EACH COUNTRY BUT FAILED TO DO SO. THE
COMPANY WAS TO RECEIVE A 10% ROYALTY BASED UPON NET SALES, SUBJECT TO CERTAIN
MINIMUM ROYALTIES. NO SALES WERE MADE UNDER THE AGREEMENT.
THE COMPANY HAD ALSO GRANTED AN EXCLUSIVE LICENSE ENDING OCTOBER 9, 1994 TO
DISTRIBUTE AND SELL THE COMPANY'S DRUG FOR TREATMENT OF VIRUSES, BACTERIA AND
FUNGI IN CANADA, PROVIDED THAT THE LICENSEE ASSIST WITH THE CLINICAL RESEARCH
AND OBTAIN THE NECESSARY APPROVAL OF THE HEALTH ORGANIZATIONS OF CANADA. THE
COMPANY WAS TO RECEIVE A 6% ROYALTY BASED UPON NET SALES. IN FEBRUARY 1986, THE
COMPANY NOTIFIED THE LICENSEE THAT THE AGREEMENT WAS TERMINATED. THIS
TERMINATION IS CURRENTLY IN DISPUTE WITH THE LICENSEE.
F-19
<PAGE>
NOTE 12. COMMITMENTS
- --------------------
AT MAY 31, 1985, THE COMPANY WAS A GUARANTOR OF A $100,000 LINE OF CREDIT
ISSUED TO A FORMER CO-VENTURER OF PETRO-MED AND A $50,000 LINE OF CREDIT ISSUED
TO ITS CHIEF EXECUTIVE OFFICER. THE COMPANY HAD PLEDGED A PORTION OF A $167,100
CERTIFICATE OF DEPOSIT AS SECURITY FOR THE GUARANTEE OF THE ABOVE LINES OF
CREDIT. THE $50,000 LINE WAS REPAID BY THE CHIEF EXECUTIVE OFFICER IN 1986 AND
THE RELATED PORTION OF THE CERTIFICATE OF DEPOSIT WAS RELEASED TO THE COMPANY.
ON AUGUST 30, 1985, THE COMPANY'S GUARANTEE OF THE $100,000 LINE OF CREDIT WAS
EXERCISED BY THE LENDER. ACCORDINGLY, THE COMPANY'S CERTIFICATE OF DEPOSIT IN
GUARANTEE OF THE LINE OF CREDIT WAS LIQUIDATED AND PROCEEDS IN THE AMOUNT OF
$100,000 WERE USED TO SATISFY THE OBLIGATION. THE FORMER CO-VENTURER OF
PETRO-MED AGREED TO REPAY THIS AMOUNT TO THE COMPANY. THE NOTE BORE INTEREST AT
2% OVER THE PRIME RATE PER ANNUM AND WAS DUE UPON DEMAND. IN FEBRUARY 1986, THE
COMPANY CONCLUDED THAT THE ABILITY OF THE FORMER CO-VENTURER OF PETRO-MED TO
REPAY THE $100,000 TO THE COMPANY HAD BEEN SIGNIFICANTLY IMPAIRED. ACCORDINGLY,
THE NOTE RECEIVABLE WAS WRITTEN OFF AS OF MAY 31, 1986.
UNDER A BONUS PLAN, 10% OF THE COMPANY'S ANNUAL NET PRE-TAX EARNINGS IS TO
BE ALLOCATED FOR BONUSES TO KEY PERSONNEL. ALLOCATIONS TO KEY PERSONNEL UNDER
THE PLAN ARE BASED ON COMPENSATION LEVELS AND ON DISCRETIONARY FACTORS
DETERMINED BY THE BOARD OF DIRECTORS.
NOTE l3. CONTINGENCIES
- ----------------------
ON AUGUST 18, 1988 A LAWSUIT WAS FILED AGAINST THE COMPANY, ITS CHAIRMAN
AND ITS PARENT IN THE U. S. DISTRICT COURT, SOUTHERN DISTRICT OF NEW YORK,
ALLEGING BREACH OF A SETTLEMENT AGREEMENT AMONG THE PARTIES AND FOR FRAUD, AMONG
OTHER THINGS. PLAINTIFF SEEKS THE VALUE OF 1,669,293 SHARES OF THE COMPANY'S
COMMON STOCK HELD IN ESCROW BUT IN NO EVENT LESS THAN $625,000 PLUS INTEREST,
PLUS $128,000, A CONSTRUCTIVE TRUST ON FUTURE SALES OF THE COMPANY'S STOCK,
$1,000,000 IN PUNITIVE DAMAGES, PLUS LEGAL FEES, INTEREST AND EXPENSES. THE
COMPANY INTENDS TO CROSS-COMPLAIN AND VIGOROUSLY DEFEND THE LAWSUIT. IN THE
OPINION OF MANAGEMENT, ANY LIABILITY RESULTING FROM THIS ACTION WOULD BE THE
RESPONSIBILITY OF THE PARENT. THE ULTIMATE OUTCOME OF THE LITIGATION CANNOT
PRESENTLY BE DETERMINED. ACCORDINGLY, NO PROVISION FOR ANY LIABILITY THAT MAY
RESULT HAS BEEN MADE IN THE ACCOMPANYING FINANCIAL STATEMENTS.
NO ACTION HAS BEEN TAKEN BY ANY PARTY IN THAT MATTER FOR OVER FIVE YEARS.
F-20
<PAGE>
CERTAIN DEVELOPMENTAL AND OTHER ACTIVITIES PERFORMED DIRECTLY AND
INDIRECTLY BY THE COMPANY ARE SUBJECT TO THE RULES AND REGULATIONS OF THE U. S.
FOOD AND DRUG ADMINISTRATION.
THE COMPANY COULD BE SUBJECTED TO CLAIMS FOR PERSONAL INJURIES AND PROPERTY
DAMAGE RESULTING FROM THE USE OF ITS PRODUCTS. THE COMPANY DOES NOT PRESENTLY
HAVE PRODUCT LIABILITY INSURANCE.
NOTE 14. COMMON STOCK OPTION GRANTED TO OFFICER
- -----------------------------------------------
IN OCTOBER 1985, THE STOCK OPTION FOR 8,000,000 SHARES GRANTED BY THE
COMPANY TO ITS CHIEF EXECUTIVE OFFICER WAS RESCINDED. CONCURRENTLY, THE COMPANY
SOLD 8,000,000 SHARES OF ITS COMMON STOCK TO ITS CHIEF EXECUTIVE OFFICER IN
EXCHANGE FOR THE SETTLEMENT OF AN $8,000 SALARY OBLIGATION AND A NOTE IN THE
AMOUNT OF $1,440,000 FROM THE OFFICER. THE COMPANY WAS TO PAY A BONUS OF
$1,253,400 TO THE OFFICER UNDER CERTAIN CIRCUMSTANCES. IN DECEMBER 1986 THE
COMPANY'S CHIEF EXECUTIVE OFFICER RETURNED THE SHARES TO THE COMPANY, THE NOTE
WAS CANCELLED AND THE OFFICER RECEIVED A THREE YEAR OPTION TO PURCHASE 8,000,000
SHARES OF THE COMPANY'S COMMON STOCK FOR $.01 PER SHARE. THIS OPTION WAS
EXERCISED IN MARCH 1989.
NOTE 15. PARTIALLY-OWNED SUBSIDIARY
- -----------------------------------
VRT, INC. (VRT), A NEVADA DEVELOPMENT STAGE COMPANY, WAS INCORPORATED ON
JANUARY 22, 1987 AND SINCE THAT TIME HAS BEEN PRINCIPALLY ENGAGED IN EFFORTS TO
SECURE FINANCING AND FORMULATE A RESEARCH, DEVELOPMENT AND MARKETING STRATEGY
FOR ITS PRODUCTS. PRINCIPAL OPERATIONS WILL START IF AND WHEN FDA LICENSING OR
OTHER PRODUCT APPROVALS ARE RECEIVED.
EFFECTIVE JANUARY 26, 1987, VRT ENTERED INTO A LICENSING AGREEMENT WITH THE
COMPANY. THE LICENSING AGREEMENT GRANTS VRT EXCLUSIVE WORLDWIDE RIGHTS TO
DEVELOP, SELL AND DISTRIBUTE THE COMPANY'S TREATMENT FOR CERTAIN VIRAL DISEASES.
IN RETURN, THE COMPANY RECEIVED 50 PERCENT OF THE OUTSTANDING COMMON STOCK OF
VRT.
THE TERM OF THE LICENSE AGREEMENT IS FOR TEN YEARS, COMMENCING ON DECEMBER
1, 1986 AND EXPIRING ON NOVEMBER 30, 1996, WITH AN EXTENSION FOR AN ADDITIONAL
SEVEN YEARS IF CERTAIN MINIMUM ROYALTIES ARE PAID TO THE COMPANY. THE LICENSE IS
CANCELLABLE AT ANY TIME BY THE COMPANY IF IT SIGNS A LICENSING AGREEMENT WITH A
MAJOR PHARMACEUTICAL COMPANY FOR ALL OR A CERTAIN PART OF THE RIGHTS GRANTED TO
VRT. IN THIS EVENT, VRT WILL BE ENTITLED TO 20`PERCENT OF ALL NET LICENSING FEES
RECEIVED BY THE COMPANY FROM SUCH PHARMACEUTICAL COMPANY FOR SALES OF PRODUCTS
OTHERWISE SUBJECT TO THE AGREEMENT. THE AGREEMENT ALSO CALLS FOR A ROYALTY OF 6
F-21
<PAGE>
PERCENT OF NET SALES BY VRT OR ITS SUBLICENSEES FOR ANY VIRAL TREATMENTS OR
PRODUCTS COVERED UNDER THIS LICENSE AGREEMENT. VRT MUST PAY CERTAIN
NON-REFUNDABLE MINIMUM ROYALTY FEES COMMENCING IN 1987 (YEAR 1) AS FOLLOWS:
$300,000 IN CONSIDERATION OF THIS AGREEMENT AND FOR ROYALTIES DUE IN YEAR 1 AND
$10,000 PER YEAR IN YEARS 2 THROUGH 10. VRT STILL OWES $99,200 TO THE COMPANY OF
THE AMOUNTS PRESENTLY DUE UNDER THIS AGREEMENT.
VRT HAS ENTERED INTO AN EMPLOYMENT AGREEMENT WITH ITS CHIEF EXECUTIVE
OFFICER, WHO IS ALSO THE CHAIRMAN OF THE BOARD OF THE COMPANY. THIS AGREEMENT
PROVIDES FOR YEARLY COMPENSATION TO BE PAID MONTHLY AS THE GREATER OF $12 PER
YEAR OR 2 PERCENT OF VRT'S GROSS INCOME. THE TERM OF THE AGREEMENT IS FROM
JANUARY 22, 1987 (INCEPTION) TO DECEMBER 31, 1987, WITH AUTOMATIC ONE-YEAR
EXTENSIONS UNLESS WRITTEN NON-RENEWAL NOTICE IS PROVIDED BY EITHER PARTY.
TERMINATION OF THE AGREEMENT MAY OCCUR AT ANY TIME GIVEN WRITTEN CONSENT BY
EITHER VRT OR THE CHIEF EXECUTIVE OFFICER. IN THE EVENT OF TERMINATION, THE
CHIEF EXECUTIVE OFFICER IS ENTITLED TO 24 MONTHS OF SALARY, AS DESCRIBED ABOVE,
PLUS BONUSES.
UNDER A BONUS PLAN, 10 PERCENT OF VRT'S ANNUAL' NET PRE-TAX EARNINGS IS TO
BE ALLOCATED FOR BONUSES TO KEY PERSONNEL, INCLUDING THE CHIEF EXECUTIVE
OFFICER. ALLOCATIONS TO KEY PERSONNEL UNDER THE PLAN ARE BASED ON COMPENSATION
LEVELS AND DISCRETIONARY FACTORS DETERMINED BY THE BOARD OF DIRECTORS OF VRT.
ON APRIL 30, 1987, VRT, INC. WAS COMBINED THROUGH STATUTORY MERGER WITH
VIRAL RESEARCH TECHNOLOGIES, INC. ("VIRAL"), A NEVADA CORPORATION, WHICH BECAME
THE SURVIVING CORPORATION. VIRAL ISSUED 15,000,000 SHARES OF ITS RESTRICTED
COMMON STOCK IN EXCHANGE FOR 200,000 SHARES, THE TOTAL SHARES OUTSTANDING, OF
VRT, INC. VIRAL WAS AN INACTIVE PUBLIC SHELL, WHICH AT THE DATE OF THE MERGER
HAD AN ACCUMULATED DEFICIT OF $5,000. IN CONNECTION WITH THE COMBINATION, THERE
WAS NO STEP-UP IN BASIS TO THE ASSETS OF MEDITECH PHARMACEUTICALS, INC. AND
SUBSIDIARIES IN CONNECTION WITH THIS MERGER. AFTER THE MERGER, THE COMPANY OWNED
36.7 PERCENT OF THE SURVIVING CORPORATION.
AS VIRAL IS EFFECTIVELY CONTROLLED BY THE COMPANY, ITS FINANCIAL STATEMENTS
HAVE BEEN CONSOLIDATED AS OF AND FOR THE FISCAL YEARS ENDED MAY 31, 1989,
THROUGH 1997, RESULTING IN THE RECOGNITION OF MINORITY INTEREST AND ADDITIONAL'
LOSSES TO THE COMPANY.
F-22
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE II
Amounts receivable from related parties and underwriters,
promoters and employees other than related parties
Reductions Balance at end of Period
Balance at -----------------------------------------------
Beginning Amounts Amounts Not
Name of Debtor Period of Period Additions Collected Written Off Current Current
================== ====== ========== ========= ========= =========== ======= ========
<S> <C> <C> <C> <C> <C> <C> <C>
Mas Industries, Inc. 6/1/97 to $250 - - - $250 -
5/31/98
6/1/96 to $250 - - - $250 -
5/31/97
6/1/95 to $250 - - - $250 -
5/31/96
6/1/94 to $250 - - - $250 -
5/31/95
6/1/93 to $250 - - - $250 -
5/31/94
6/1/92 to $250 - - - $250 -
5/31/93
6/1/91 to $250 - - - $250 -
5/31/92
6/1/90 to $250 - - - $250 -
5/31/91
Skin Control 6/1/97 to $900 - - - $900 -
Systems, Inc. 5/31/98
6/1/96 to $900 - - - $900 -
5/31/97
6/1/95 to $900 - - - $900 -
5/31/96
6/1/94 to $900 - - - $900 -
5/31/95
6/1/93 to $900 - - - $900 -
5/31/94
6/1/92 to $900 - - - $900 -
5/31/91
6/1/91 to $900 - - - $900 -
5/31/92
6/1/90 to $900 - - - $900 -
5/31/90
JCR Marketing, Inc. 6/1/97 to $100 - - - $100 -
5/31/98
6/1/96 to $100 - - - $100 -
5/31/97
6/1/95 to $100 - - - $100 -
5/31/96
6/1/94 to $100 - - - $100 -
5/31/95
6/1/93 to $100 - - - $100 -
5/31/94
6/1/92 to $100 - - - $100 -
5/31/91
6/1/91 to $100 - - - $100 -
5/31/92
6/1/90 to $100 - - - $100 -
5/31/91
F-23
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE V
PROPERTY, PLANT & EQUIPMENT
BALANCE AT OTHER
BEGINNING OF RETIREMENT CHANGES BALANCE AT
CLASSIFICATION PERIOD ADDITIONS AT COST ADD (DEDUCT) END OF PERIOD
- -------------- ------------ --------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED MAY 31, 1998
FURNITURE, FIXTURES &
EQUIPMENT $135,600 $ 0 $ 0 $ 0 $135,600
CLINIC EQUIPMENT $ 0 $ 0 $ 0 $ 0 $ 0
LEASEHOLD IMPROVEMENTS $ 0 $ 0 $ 0 $ 0 $ 0
-------- -------- -------- -------- --------
$135,600 $ 0 $ 0 $ 0 $135,600
YEAR ENDED MAY 31, 1997
FURNITURE, FIXTURES &
EQUIPMENT $135,600 $ 0 $ 0 $ 0 $135,600
CLINIC EQUIPMENT $ 0 $ 0 $ 0 $ 0 $ 0
LEASEHOLD IMPROVEMENTS $ 0 $ 0 $ 0 $ 0 $ 0
-------- -------- -------- -------- --------
$135,600 $ 0 $ 0 $ 0 $135,600
YEAR ENDED MAY 31, 1996
FURNITURE, FIXTURES &
EQUIPMENT $135,600 $ 0 $ 0 $ 0 $135,600
CLINIC EQUIPMENT $ 0 $ 0 $ 0 $ 0 $ 0
LEASEHOLD IMPROVEMENTS $ 0 $ 0 $ 0 $ 0 $ 0
-------- -------- -------- -------- --------
$135,600 $ 0 $ 0 $ 0 $135,600
YEAR ENDED MAY 31, 1995:
FURNITURE, FIXTURES & $135,600 $ 0 $ 0 $ 0 $135,600
EQUIPMENT
CLINIC EQUIPMENT $ 0 $ 0 $ 0 $ 0 $ 0
LEASEHOLD IMPROVEMENTS $ 0 $ 0 $ 0 $ 0 $ 0
-------- -------- -------- -------- --------
$135,600 $ 0 $ 0 $ 0 $135,600
YEAR ENDED MAY 31, 1994
FURNITURE, FIXTURES &
EQUIPMENT $135,600 $ 0 $ 0 $ 0 $135,600
CLINIC EQUIPMENT $ 0 $ 0 $ 0 $ 0 $ 0
LEASEHOLD IMPROVEMENTS $ 0 $ 0 $ 0 $ 0 $ 0
-------- -------- -------- -------- --------
$135,600 $ 0 $ 0 $ 0 $135,600
YEAR ENDED MAY 31, 1993:
FURNITURE, FIXTURES & $135,600 $ 0 $ 0 $ 0 $135,600
EQUIPMENT
CLINIC EQUIPMENT $ 0 $ 0 $ 0 $ 0 $ 0
LEASEHOLD IMPROVEMENTS $ 0 $ 0 $ 0 $ 0 $ 0
-------- -------- -------- -------- --------
$135,000 $ 0 $ 0 $ 0 $135,000
YEAR ENDED MAY 31,1992
FURNITURE, FIXTURES & $132,700 $ 0 $ 0 $ 0 $132,700
EQUIPMENT
CLINIC EQUIPMENT $ 0 $ 0 $ 0 $ 0 $ 0
LEASEHOLD IMPROVEMENTS $ 0 $ 0 $ 0 $ 0 $ 0
-------- -------- -------- -------- --------
$132,700 $ 0 $ 0 $ 0 $132,700
F-24
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE Vl
ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION OF PROPERTY, PLANT & EQUIPMENT
BALANCE AT ADDITIONS OTHER
BEGINNING OF CHARGED TO CHANGES BALANCE AT
DESCRIPTION PERIOD COSTS/EXPENSES RETIREMENT ADD (DEDUCT) END OF PERIOD
- ----------- ------------ -------------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED MAY 31, 1998
FURNITURE, FIXTURES & $135,100 $ 500 $ 0 $ 0 $135,600
EQUIPMENT
CLINIC EQUIPMENT $ 0 $ 0 $ 0 $ 0 $ 0
LEASEHOLD IMPROVEMENTS $ 0 $ 0 $ 0 $ 0 $ 0
-------- -------- -------- -------- --------
$135,100 $ 500 $ 0 $ 0 $135,600
YEAR ENDED MAY 31, 1997
FURNITURE, FIXTURES & $135,100 $ 500 $ 0 $ 0 $135,600
EQUIPMENT
CLINIC EQUIPMENT $ 0 $ 0 $ 0 $ 0 $ 0
LEASEHOLD IMPROVEMENTS $ 0 $ 0 $ 0 $ 0 $ 0
-------- -------- -------- -------- --------
$135,100 $ 500 $ 0 $ 0 $135,600
YEAR ENDED MAY 31 1996:
FURNITURE, FIXTURES & $134,500 $ 600 $ 0 $ 0 $135,100
EQUIPMENT
CLINIC EQUIPMENT $ 0 $ 0 $ 0 $ 0 $ 0
LEASEHOLD IMPROVEMENTS $ 0 $ 0 $ 0 $ 0 $ 0
-------- -------- -------- -------- --------
$134,500 $ 600 $ 0 $ 0 $135,100
YEAR ENDED MAY 31, 1995
FURNITURE, FIXTURES & $134,000 $ 500 $ 0 $ 0 $134,000
EQUIPMENT
CLINIC EQUIPMENT $ 0 $ 0 $ 0 $ 0 $ 0
LEASEHOLD IMPROVEMENTS $ 0 $ 0 $ 0 $ 0 $0'
-------- -------- -------- -------- --
$134,000 $ 500 $ 0 $ 0 $134,000
YEAR ENDED MAY 31 1994
FURNITURE, FIXTURES & EQUIPMENT $133,400 $ 600 $ 0 $ 0 $133,400
CLINIC EQUIPMENT $ 0 $ 0 $ 0 $ 0 $ 0
LEASEHOLD IMPROVEMENTS $ 0 $ 0 $ 0 $ 0 $ 0
-------- -------- -------- -------- --------
$133,400 $ 600 $ 0 $ 0 $133,400
YEAR ENDED MAY 31, 1993
FURNITURE, FIXTURES & $132,700 $ 700 $ 0 $ 0 $132,700
EQUIPMENT
CLINIC EQUIPMENT $ 0 $ 0 $ 0 $ 0 $ 0
LEASEHOLD IMPROVEMENTS $ 0 $ 0 $ 0 $ 0 $ 0
-------- -------- -------- -------- --------
$132,700 $ 700 $ 0 $ 0 $132,700
YEAR ENDED MAY 31 1992
FURNITURE, FIXTURES & $132,100 $ 600 $ 0 $ 0 $132,100
EQUIPMENT
CLINIC EQUIPMENT $ 0 $ 0 $ 0 $ 0 $ 0
LEASEHOLD IMPROVEMENTS $ 0 $ 0 $ 0 $ 0 $ 0
-------- -------- -------- -------- --------
$132,100 $ 600 $ 0 $ 0 $132,l00
F-25
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