United States
Securities and Exchange Commission
Washington, DC 20549
Form 10-QSB
(Mark One)
(X) Quarterly Report Under Section 13 or 15 (D)
of the Securities and Exchange Act of 1934
For Quarter Ended August 31, 2000
or
( ) Transition report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the transition period from ______ to _______
Commission File No. 0-12561
Meditech Pharmaceuticals, Inc.
(Exact name of Registrant as specified in its charter)
Nevada 95-3819300
----------------- -----------
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
PMB 382, 10105 E. Via Linda, #103, Scottsdale, AZ 85258
-------------------------------------------------------
(Address of principal executive offices and zip code)
(480) 614-2874
-------------------
(Registrant's telephone number)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15 (D) of the Securities Exchange Act of 1934
during the preceding 12 months (and 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 XX No
---- ----
Indicate the number of shares outstanding of each of the issuer's class of
common stock, as of the lasts practicable date.
136,703,432 shares of $.001 par value common stock, as of August 31, 2000
<PAGE>
Transactional small business disclosure format (check one): Yes No X
---- ----
This quarterly report on Form 10-QSB (The "Report") may be deemed to contain
forward-looking statements within the meaning of the Private Securities
Litigation Act of 1995 ("The Reform Act".) Forward-looking statements in this
report or hereafter included in other publicly available documents filed with
the Securities and Exchange Commission (The "Commission"), reports to the
Company's stockholders and other publicly available statements issued or
released by the Company involve known and unknown risks, uncertainties and other
factors which could cause the Company's actual results, performance (financial
or operating) or achievements to differ from the future results, performance
(financial or operating) or achievements expressed or implied by such
forward-looking statements. Such future results are based upon management's best
estimates based upon current conditions and the most recent results of
operations. These risks include, but are not limited to, the risks set forth
herein, each of which could adversely affect the Company's business and the
accuracy of the forward-looking statements contained herein.
<PAGE>
MEDITECH PHARMACEUTICALS, INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE QUARTERS ENDED AUGUST 31, 2000 AND 1999
CONTENTS
Page
FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets 1
Condensed Consolidated Statements of Operations 2
Condensed Consolidated Statements of Cash Flows 3
Notes to Consolidated Financial Statements 4 - 10
Management's Discussion and Analysis of Financial
Condition and Results of Operations 11 - 12
<PAGE>
<TABLE>
<CAPTION>
MEDITECH PHARMACEUTICALS, INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONDENSED CONSOLIDATED BALANCE SHEETS
August 31, May 31,
2000 2000
---------- -------
(unaudited)
ASSETS
Current assets
<S> <C> <C>
Cash $ 80,600 $ 114,800
Prepaid expenses 600 600
------------ -----------
Total current assets 81,200 115,400
Fixed assets 3,400 --
Other assets 12,100 2,100
------------ ------------
Total assets $ 96,700 $ 117,500
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities
Accounts payable and accrued expenses $ 1,503,600 $ 1,502,500
Accrued compensation 2,787,100 2,787,100
Advances from affiliates 3,728,000 3,647,300
Loan payable 71,000 71,000
Deferred revenue 100,000 100,000
------------ ------------
Total current liabilities 8,189,700 8,107,900
------------ ------------
Minority interest in consolidated subsidiary 191,300 191,300
Commitments and contingencies
Stockholders' deficit
Preferred stock - $.001 par value, 25,000,000 shares
authorized, none issued and outstanding
Common stock - $.001 par value, 400,000,000 shares
authorized: August 31, 2000, 136,713,432 shares issued;
May 31, 2000 136,713,432 shares issued 136,700 136,700
Treasury stock, 8,000,000 shares at cost -- --
Subscriptions receivable (10,000) (10,000)
Additional paid-in capital 7,216,300 7,216,300
Accumulated deficit (15,627,300) (15,524,700)
------------ ------------
Total shareholders' equity (deficit) (8,284,300) (8,181,700)
------------ ------------
Total liabilities and stockholders' deficit $ 96,700 $ 117,500
============= =============
The accompanying notes are an integral part of these financial statements.
1
</TABLE>
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<TABLE>
<CAPTION>
MEDITECH PHARMACEUTICALS, INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Period from Period from From
June 1, 2000 June 1, 1999 May 4, 1982
to to (inception) to
August 31, August 31, August 31,
2000 1999 2000
------------- ------------- -------------
(Unaudited) (Unaudited) (Unaudited)
(restated)
<S> <C> <C> <C>
Revenue $ -- $ -- $ 25,000
------------- ------------- -------------
Operating expenses
Research and development 4,800 -- 1,843,100
General and administrative 16,100 183,485 11,572,200
Aborted stock offering costs -- -- 325,400
------------- ------------- -------------
Total operating expenses 20,900 183,485 13,740,700
------------- ------------- -------------
Loss before other income (expense) (20,900) (183,485) (13,715,700)
------------- ------------- -------------
Other income (expense)
Interest expense (81,700) (74,700) (2,615,500)
Interest income -- -- 298,500
Other income, net -- -- 75,600
------------- ------------- -------------
Total other income (expense) (81,700) (74,700) (2,241,400)
------------- ------------- -------------
Loss before minority interest in losses of subsidiary (102,600) (258,185) (15,957,100)
Minority interest in losses of subsidiary -- -- 329,800
------------- ------------- -------------
Net loss $ (102,600) $ (258,185) $ (15,627,300)
============= ============= =============
Basic and diluted loss per share $ (0.001) $ (0.002) $ (0.16)
============= ============= =============
Weighted-average shares outstanding 136,713,432 123,816,925 99,202,643
============= ============= =============
The accompanying notes are an integral part of these financial statements.
2
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MEDITECH PHARMACEUTICALS, INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Period from Period from From
June 1, 2000 June 1, 1999 May 4, 1982
to to (inception) to
August 31, August 31, August 31,
2000 1999 2000
------------- ------------- -------------
(Unaudited) (Unaudited) (Unaudited)
(restated)
Cash flows from operating activities
<S> <C> <C> <C>
Net loss $ (102,600) $ (258,185) $(15,627,300)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities
Depreciation and amortization -- -- 135,600
Warrants and options issued to employees
and vendors -- 121,685 775,100
Minority interest in loss of subsidiary -- -- (329,800)
Stock issued to employees and vendors -- -- 1,267,300
Accrued interest on advances from affiliates 81,700 74,700 2,615,500
Increase in
Prepaid expenses -- -- (600)
Other assets (10,000) -- (12,100)
Increase in
Accounts payable and accrued expenses 1,100 11,000 1,503,600
Accrued compensation -- 50,800 2,787,100
Advances from affiliates (1,000) -- (1,000)
Deferred revenue -- -- 100,000
------------ ------------ ------------
Net cash provided by (used in) operating activities (30,800) 0 (6,786,600)
------------ ------------ ------------
Cash flows from investing activities
Purchase of furniture and equipment (3,400) -- (139,000)
------------ ------------ ------------
Net cash used in investing activities (3,400) -- (139,000)
------------ ------------ ------------
Cash flows from financing activities
Proceeds from advances from affiliates, net -- -- 2,250,800
Proceeds from loan payable -- -- 71,000
Proceeds from sale of stock, net -- -- 4,684,400
------------ ------------ ------------
Net cash provided by financing activities 0 0 7,006,200
------------ ------------ ------------
Net increase (decrease) in cash (34,200) -- 80,600
Cash, beginning of period 114,800 -- --
------------ ------------ ------------
Cash, end of period $ 80,600 $ 0 $ 80,600
============ ============ ============
Supplemental disclosures of cash flow information
Interest paid $ -- $ -- $ --
------------ ------------ ------------
Income taxes paid $ -- $ -- $ --
------------ ------------ ------------
The accompanying notes are an integral part of these financial statements.
3
</TABLE>
<PAGE>
MEDITECH PHARMACEUTICALS, INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
August 31, 2000
================================================================================
NOTE 1 - DESCRIPTION OF BUSINESS
Meditech Pharmaceuticals, Inc. ("Meditech") is a drug development company,
which is focused in the areas of research, development, and marketing in
the biomedical industry, with an emphasis on anti-infective drugs. Meditech
was incorporated in Nevada on March 21, 1983 and completed its initial
public offering in August 1983. Since then, it has been engaged in research
and development activities associated with bringing its products to market.
NOTE 2 - RESTATEMENTS
Stock and Options Issued to Employees and Consultants
-----------------------------------------------------
During the quarter ended August 31, 1999, the Company incorrectly recorded
the fair market value of its shares and stock options issued to employees
and consultants. These changes have been corrected to reflect the
appropriate values. Total adjustments and their relative impact on the
Company's net loss are as follows:
Adjustment
for Corrected
Values
Net Loss, Attributed to
Quarter Ending as Previously Stock-Based Net Loss,
Aug. 31, Reported Compensations Corrected
-------------- ------------- -------------- --------------
1999 $ (136,500) $ (121,685) $ (258,185)
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
---------------------
The unaudited condensed consolidated financial statements have been
prepared by Meditech Pharmaceuticals, Inc. and subsidiary, pursuant to the
rules and regulations of the Securities and Exchange Commission. The
information furnished herein reflects all adjustments (consisting of normal
recurring accruals and adjustments) which are, in the opinion of
management, necessary to fairly present the operating results for the
respective periods. Certain information and footnote disclosures normally
present in annual consolidated financial statements prepared in accordance
with generally accepted accounting principles have been omitted pursuant to
such rules and regulations. The results of the three months ended Aug. 31,
2000 are not necessarily indicative of the results to be expected for the
full year ending May 31, 2001.
Going Concern Issues
--------------------
The Company has received a report from its independent auditors that
includes an explanatory paragraph describing the Company's uncertainty to
continue as a going concern. These consolidated financial statements
contemplate the ability to continue as such and do not include any
adjustments that might result from this uncertainty.
4
<PAGE>
MEDITECH PHARMACEUTICALS, INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
August 31, 2000
================================================================================
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Principles of Consolidation
---------------------------
The consolidated financial statements include the accounts of Meditech
and its 37% owned and controlled subsidiary Viral Research Technologies,
Inc. ("Viral") (collectively, the "Company"). All significant intercompany
transactions and balances have been eliminated in consolidation.
Development Stage Enterprise
----------------------------
The Company is a development stage company as defined in Statement of
Financial Accounting Standards ("SFAS") No. 7, "Accounting and Reporting by
Development Stage Enterprises." The Company is devoting substantially all
of its present efforts to establish a new business, and its planned
principal operations have not yet commenced. All losses accumulated since
inception have been considered as part of the Company's development stage
activities.
Estimates
---------
In preparing financial statements in conformity with generally accepted
accounting principles, management makes estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements,
as well as the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Revenue
-------
Revenue represents license fees that are recognized when earned over the
period of the applicable license agreement.
Impairment of Long-Lived Assets
-------------------------------
The Company reviews its long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. Recoverability of assets to be held and used is
measured by a comparison of the carrying amount of the assets to future net
cash flows expected to be generated by the assets. If the assets are
considered to be impaired, the impairment to be recognized is measured by
the amount by which the carrying amount exceeds the fair value of the
assets. To date, no impairment has occurred.
Income Taxes
------------
The Company utilizes SFAS No. 109, "Accounting for Income Taxes," which
requires the recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been included in the
financial statements or tax returns. Under this method, deferred income
taxes are recognized for the tax consequences in future years of
differences between the tax bases of assets and liabilities and their
financial reporting amounts at each period end based on enacted tax laws
and statutory tax rates applicable to the periods in which the differences
are expected to affect taxable income. Valuation allowances are
established, when necessary, to reduce deferred tax assets to the amount
expected to be realized.
5
<PAGE>
MEDITECH PHARMACEUTICALS, INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
August 31, 2000
================================================================================
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Loss per Share
--------------
The Company utilizes SFAS No. 128, "Earnings per Share." Basic loss per
share is computed by dividing loss available to common stockholders by the
weighted-average number of common shares outstanding. Diluted loss per
share is computed similar to basic loss per share except that the
denominator is increased to include the number of additional common shares
that would have been outstanding if the potential common shares had been
issued and if the additional common shares were dilutive. For the three
months ended Aug. 31, 2000 and 1999, the Company incurred net losses;
therefore, basic and diluted loss per share are the same.
Reclassifications
-----------------
Certain reclassifications have been made to the Aug. 31, 1999 financial
statements to conform with the Company's current presentation.
Comprehensive Income
--------------------
For the year ended May 31, 2000, the Company adopted SFAS No. 130,
"Reporting Comprehensive Income." This statement establishes standards for
reporting comprehensive income and its components in a financial statement.
Comprehensive income as defined includes all changes in equity (net assets)
during a period from non-owner sources. Examples of items to be included in
comprehensive income, which are excluded from net income, include foreign
currency translation adjustments and unrealized gains and losses on
available-for-sale securities. Comprehensive income is not presented in the
Company's financials statements since the Company did not have any of the
items of comprehensive income in any period presented.
Recently Issued Accounting Pronouncements
-----------------------------------------
In June 1999, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 136, "Transfer of Assets to a Not-for-Profit Organization or Charitable
Trust that Raises or Holds Contributions for Others." This statement is not
applicable to the Company.
In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities." The Company does not expect adoption
of SFAS No. 137 to have a material impact, if any, on its financial
position or results of operations.
In June 2000, the FASB issued SFAS No. 138, "Accounting for Certain
Instruments and Certain Hedging Activities." This statement is not
applicable to the Company.
In June 2000, the FASB issued SFAS No. 139, "Rescission of FASB Statement
No. 53 and Amendments to Statements No. 63, 89, and 121." This statement is
not applicable to the Company.
6
<PAGE>
MEDITECH PHARMACEUTICALS, INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
August 31, 2000
================================================================================
NOTE 4 - COMMITMENTS AND CONTINGENCIES
Leases
------
Currently, the Company uses its operating facilities, which are provided by
its Chief Executive Officer, without a lease and without payment. There is
no guarantee the officer will be willing to provide these facilities in the
future.
Employment Agreements
---------------------
The Company entered into an employment agreement dated as of February 3,
2000 with its Chief Executive Officer, contingent upon completion of the
offering discussed in Note 6. The agreement is for a three-year term and
provides for a base salary of $150,000 per annum for the first year with an
increase at least equal to the consumer price index over each succeeding
year. The agreement provides for a severance payment including the unearned
salary for the remainder of the contract plus any prorated earned bonuses
in the event of termination without cause or upon change of control.
Additionally, the agreement grants options to purchase 15,950,000 shares of
common stock exercisable at various prices and vesting over the course of
his employment agreement.
The Company entered into an employment agreement dated as of February 3,
2000 with its Chief Financial Officer, contingent upon completion of the
offering discussed in Note 6. The agreement is for a three-year term
providing for a base salary of $120,000 per annum for the first year and
not less than $120,000 per annum during the second and third years of the
agreement. In addition, the officer will be granted a total of 13,950,000
warrants exercisable at various prices and vesting over the course of the
agreement. The agreement provides for a severance payment including the
remainder of the base salary due under the agreement if the officer is
discharged without cause or if the officer is terminated within 12 months
of a change of control of the Company. The severance payment will be equal
to 12 months of the current salary.
Litigation
----------
The Company may become involved in various legal proceedings and claims
which arise in the ordinary course of its business. Management does not
believe that these matters will have a material adverse effect on the
Company's consolidated position or results of operations.
License Agreement
-----------------
On February 3, 2000, the Company received $25,000 from Immune Network
Research, Ltd. ("INR"), a Canadian pharmaceutical development company under
a letter of intent. The payment was made for a one-year irrevocable option
granting the right to negotiate for an exclusive license for pharmaceutical
applications worldwide outside of the United States. The Company then
received an additional $100,000 from INR in anticipation of a definitive
agreement. Under the terms of the letter, if an agreement is reached, the
Company will issue an option to INR for up to 10,000,000 shares of common
stock, under terms still in negotiation. In return, the Company will
receive royalties equal to 7% of net sales for all MTCH-24(TM) products
sold and 4% of net sales for all Viraplex(R) products sold by INR.
7
<PAGE>
MEDITECH PHARMACEUTICALS, INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
August 31, 2000
================================================================================
NOTE 5 - STOCK PURCHASE WARRANTS ISSUED TO UNDERWRITERS
On May 16, 2000, the Company issued warrants to purchase 7,000,000 shares
of common stock as a condition of entering into the investment agreement
described in Note 6. The warrants are exercisable immediately at $0.03 per
share and expire in 10 years. The warrants are valued at $2,380,000 and
represent offering costs. When the transaction closes, it will be reflected
as a reduction in the net proceeds from the offering, or, if the
transaction is aborted, will be charged to operations.
NOTE 6 - INVESTMENT AGREEMENT
On June 30, 2000, the Company entered into an investment agreement with
Swartz Private Equity, LLC ("Swartz"). The investment agreement entitles
the Company to issue and sell common stock to Swartz in the form of put
rights for up to an aggregate of $30,000,000 from time to time during a
three-year period beginning on the date of an effective registration
statement.
Under the agreement, in order to invoke a put right, the Company must have
an effective registration statement on file with the Securities and
Exchange Commission and provide Swartz with at least 10 but not more than
20 business days advance notice of the date on which the Company intends to
exercise a put right and must indicate the number of shares of common stock
the Company intends to sell to Swartz. The Company may also designate a
maximum dollar amount of common stock (not to exceed $2,000,000), which the
Company will sell to Swartz during the put and/or a minimum purchase price
per common share at which Swartz may purchase shares during the put. The
number of shares of common stock sold to Swartz in a put may not exceed the
lesser of (i) 1,500,000 shares; (ii) 15% of the aggregate daily reported
trading volume of the Company's common shares, excluding certain block
trades, during the 20 business days after the date of a put notice, with
certain restrictions; (iii) 15% of the aggregate daily reported trading
volume of common shares during the 20 business days before the put date,
excluding certain block trades; or (iv) a number of shares that, when added
to the number of shares acquired by Swartz under the investment agreement
during the 31 days preceding the put date, would exceed 9.99% of the total
number of shares of common stock outstanding.
For each common share, Swartz will pay the Company the lesser of (i) the
market price for such put, minus $0.075 or (ii) 91% of the market price for
the put. This may be construed as a below-market issuance of securities and
could result in significant charges to the Company's earnings.
8
<PAGE>
MEDITECH PHARMACEUTICALS, INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
August 31, 2000
================================================================================
NOTE 6 - INVESTMENT AGREEMENT (Continued)
Additionally, within five business days after the end of each pricing
period, the Company is required to issue and deliver to Swartz a warrant to
purchase a number of shares of common stock equal to 10% of the common
shares issued to Swartz in the applicable put. Each warrant will be
exercisable at a price which will initially equal 110% of the market price
for the applicable put. The warrants will have semi-annual reset
provisions. Each warrant will be immediately exercisable and have a term
beginning on the date of issuance and ending five years thereafter.
Further, under the provisions of the agreement, during the term of the
investment agreement and for a period of one-year thereafter, the Company
is prohibited from engaging in certain financing transactions involving the
Company's equity securities.
NOTE 7 - INCOME TAXES
Significant components of the Company's deferred tax assets and liabilities
for income taxes consisted of the following:
Deferred tax assets
Reserve for finance charges $ 400,000
Accrued compensation 1,100,000
Interest on related party advances 1,042,700
Operating losses 1,637,400
Valuation allowance (4,180,100)
------------
Net deferred tax asset $ --
============
The federal operating loss carryforwards at August 31, 2000 were
approximately $4,627,600.
NOTE 8 - RELATED PARTY TRANSACTIONS
Since inception, the Company has received advances from Petro-Med, Inc, an
affiliate, to fund its working capital requirements. At August 31, 2000 and
1999, the Company maintained short-term advances from affiliates of
$3,685,500 and $3,369,500, respectively. Accrued interest is attributed to
the outstanding balance as incurred. The advances bear interest at 9% per
annum on any outstanding balance. Interest expense on the advances was
$81,700 and $74,700 for the three months ended August 31, 2000 and 1999,
respectively.
9
<PAGE>
MEDITECH PHARMACEUTICALS, INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
August 31, 2000
================================================================================
NOTE 8 - RELATED PARTY TRANSACTIONS (Continued)
At August 31, 2000, the Company maintained unsecured advances from
stockholders in the amount of $42,500. The advances are unsecured,
non-interest-bearing, and are payable on demand.
Due to cash shortages, the Company has accrued deferred salaries and
related taxes payable to certain officers who are stockholders and
directors of the Company. At August 31, 2000, the aggregate amount of
accrued compensation was $2,787,100.
The Company has entered into certain employment agreements with its
officers and stockholders (see Note 5).
The Company maintains its primary place of business in facilities owned by
the chief executive officer (see Note 4).
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion of our financial condition and
operations in conjunction with the condensed consolidated financial statements
and the related notes included elsewhere in this filing. This discussion
contains forward-looking statements that involve risks and uncertainties. Our
actual results may differ materially from those anticipated in these
forward-looking statements as a result of many factors.
Overview
We are a drug development company, founded in 1982, focused in the areas of
research, development, and marketing in the biomedical industry, with an
emphasis on anti-infective drugs. The Company has completed various stages of
planning and developing products containing its proprietary drugs Viraplex (R)
and MTCH-24(TM).
Our development activities since inception (May 4, 1982) have included
efforts to secure financing, create a management and business structure, and
develop and test Viraplex (R) and MTCH-24(TM) for release as both OTC and
ethical products. These activities have produced very little in operating
revenues.
Since we became a public company, our operations have related primarily to
securing our patents, initiating and continuing clinical tests, recruiting
personnel and raising capital. Through August 31, 2000, we have derived our
revenues from the sale of a license option to Immune Network Research, Inc. to
develop and market our patented products. Both companies are currently
negotiating the terms of the license
Results of Operations
There were no new revenues during the period from June 1, 2000 through
August 31, 2000. The consolidated August 31, 2000 financial statements included
a net loss of $102,600 (down from losses of $258,185 at August 31, 1999) , which
were primarily due to the elimination of officer salary accruals in the quarter
ended August 31, 2000 and to the increase in legal costs of the proposed SB-2
offering through Swartz Equity Partners LLC.
Sources of Revenues and Revenue Recognition
Revenues consist entirely of fees from a licensing agreement with Immune
Network Research, Ltd. ("IMM") of Vancouver, British Columbia, for the
development and marketing of several applications of MTCH-24(TM) and Viraplex
(R). The Company received $25,000 for the license agreement and $100,000 for
deferred revenues through August 31, 2000.
We recognize revenues from license in the year it was granted. The initial
license has a one-year life, eliminating the need to amortize option revenue
over multiple years.
Revenue and expenses for 2000 and 1999
Our expenses include research and development and general and
administrative. Research and development consists of laboratory expenses,
consulting expenses, test expenses, clinical and research salaries, and other
costs associated with the development of products not yet being marketed.
General and administrative expenses include the salaries and benefits costs of
management and other non-manufacturing employees, sales and marketing expenses,
11
<PAGE>
rent, accounting, legal and operational costs. Personnel compensation and
facilities costs represent a high percentage of our operating expenses and are
relatively fixed in advance of each quarter.
Revenues. There were no revenues for the quarter ended August 31, 2000.
Research and Development Costs. Direct research and development cost for the
quarter ending August 31, 2000 were $4,800, consisting of the costs of
additional clinical trials on the products.
General and Administrative Expenses. Direct costs were $16,100 as of August
31,2000, consisting primarily of transfer agent costs and filing fees
(approximately $2,800), computers (approximately $1,100) product samples
($1,650) and promotional expenses (approximately $5,300). None of the corporate
officers was paid salaries for the quarter ended August 31, 2000. In the future,
we expect direct costs to increase in absolute dollar terms but to decrease as a
percentage of revenues due to OTC products reaching the market and the sale of
additional product licenses. In the future, we expect selling, general and
administrative expenses to increase in absolute dollars but to decrease as a
percentage of revenues due to improved economies of scale and higher overall
revenues.
Additionally, there was an interest expense of $81,700 during the quarter. This
interest is accrued at a rate of 9% simple interest per annum on funds advanced
to the company by Petro-Med Inc. Meditech's Chief Executive Officer, Gerald N.
Kern, also serves as Chairman of Petro-Med Inc.
Liquidity and Capital Resources
Since inception, we have funded our operations and investments in property
and equipment through cash from equity financings and cash from licensing fees.
Our cash and cash equivalents remained $0 at August 31, 2000. Cash was not
augmented by net proceeds from financing activities in either year.
On June 30, 2000, we entered into an investment agreement with Swartz
Private Equity, LLC. The investment agreement entitles us to issue and sell our
common stock to Swartz for up to an aggregate of $30 million from time to time
during a three-year period beginning on the date that this registration
statement is declared effective. This is also referred to as a put right. The
trading volume limits the dollar amount of each sale and a minimum period of
time must occur between sales. In order to sell shares to Swartz, there must be
an effective registration statement on file with the SEC covering the resale of
the shares by Swartz and we must meet certain other conditions. The agreement is
for a three-year period ending June 30, 2003. Any time that the shares are
putted, the discount between the put price to Swartz and the trading price will
result in a selling discount for the Swartz shares which will be part of our
operating expenses in the income statement.
We have incurred recurring operating losses and positive cash flows from
operating activities and have negative working capital. We believe that our
available equity financing arrangement with Swartz will be sufficient to meet
our working capital and capital expenditure requirements for at least the next
two years. However, there can be no assurance that we will receive financing
from Swartz, that we will not require additional financing within this time
frame or that such additional financing, if needed, will be available on terms
acceptable to us, if at all.
Should the Swartz financing fail to close, we will lack the capital
necessary to meet operational requirements and achieve our business plan. In
addition, the shareholders will suffer dilution from the 7 million warrants
which have been granted to Swartz prior to the proposed offering. The warrants
are valued at $2,380,000 and represent offering costs. If the transaction is
aborted, these costs will be charged to operations.
12
<PAGE>
Part II - Other information
Item 1 - Legal proceedings
Not applicable
Item 2 - Change in securities
Not applicable
Item 3 - Defaults upon senior securities
Not applicable
Item 4 - Submission of matters to a vote of security holders
Not applicable
Item 5 - Other information
Not applicable
Item 6 - Exhibits and reports on Form 8-K
Form 8-K filed 7/5/2000
Item 6 Exhibits and reports on Form 8-K
Form 8-K filed 7/5/2000
<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
Form 8-K
CURRENT
Pursuant to Section 13 of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
June 30, 2000
Meditech Pharmaceuticals, Inc.
----------------------------------------------------
(Exact name of registrant as specified in its charter)
NEVADA 000-12561 95-3819300
--------------------------- ----------- ------------------
(State or other jurisdiction of (Commission (IRS employer
incorporation or organization) File No.) Identification no.)
PMB 382, 10105 E. Via Linda, #103, Scottsdale, AZ 85258
-----------------------------------------------------------------------
(Address of principal executive offices and zip code)
(480) 614-2874
------------------
(Registrant's telephone number)
<PAGE>
Item 5. Other Events
------------
Attached hereto as Exhibit 00.2 is a copy of Meditech Pharmaceutical, Inc.'s
press release dated July 6, 2000 titled "Meditech Pharmaceuticals, Inc. Secures
$30 Million Funding Commitment".
The agreement contains confidentiality provisions designed to safeguard the
confidential information to be shared by the parties under the agreement.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
-------------------------------------------------------------------
(c) Exhibits
EXHIBIT
NUMBER DESCRIPTION
------ -----------
99.1 Meditech Pharmaceutical, Inc.'s press release dated July 6, 2000
titled "Meditech Pharmaceuticals, Inc. secures $30 Million Funding
Commitment:.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Signatures
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Meditech Pharmaceuticals, Inc.
(Registrant)
By: /s/ Gerald N. Kern
-------------------------
Gerald N. Kern
Chief Executive Officer
Date: July 5, 2000
<PAGE>
PRESS RELEASE
Meditech Pharmaceuticals, Inc. Secures $30 Million Funding Commitment
SCOTTSDALE, AZ, July 6, 2000 -- Meditech Pharmaceuticals, Inc. (MDCH-OTC BB), an
Arizona based drug researcher, manufacturer and marketer, announced today that
it has secured a $30 million agreement from an institutional investor. Meditech
CEO Gerald Kern states "We are extremely pleased to have entered into this
financial arrangement with this institutional investor. The availability of this
financing of up to $30,000,000, if and when completed, will allow us to move
forward rapidly in accomplishing the steps necessary for marketing our products
in the US and abroad."
The financial agreement calls for a private equity line for the purchase of
common stock, subject to registration and certain other conditions, and limited
to a percentage of dollar trading volume. Based upon the availability of these
funds, the new capital will be used for completing final tests on Meditech's OTC
drug Zorex, for inventory, marketing, sales expenses and general operating
expenses. This will enable Meditech to compete with other companies in the OTC
and ethical drug markets and to further develop its line of OTC, ethical and
agricultural products .
Meditech has been involved in the research and development of OTC and ethical
pharmaceuticals since 1983. The Company is entered into a research and licensing
joint venture with Immune Network Research, Ltd. (CDNX:IMM) of Vancouver, Canada
earlier this year. Laboratory tests conducted under the direction of IMM have
shown promising results. The Company is also sponsoring agricultural tests of
another of its products for use against a variety of organisms which affect
agricultural crops and products.
Meditech Pharmaceuticals, Inc. is a Nevada Corporation based in Scottsdale,
Arizona. Meditech trades on the OTC-BB with the symbol MDCH.
"Safe Harbor" Statement under the Private Securities Litigation Reform Act of
1995: The statements contained in this release that are not historical facts are
forward-looking statements subject to risks and uncertainties which could cause
actual results to differ materially from those set forth in or implied by
forward-looking statements. These risks are described in detail in the Company's
Securities and Exchange Commission filings.
Media Contact:
Steven Kern, Chief Operating Officer
Meditech Pharmaceuticals, Inc.
PMB 382, 10105 E. Via Linda #103, Scottsdale, AZ 85258
Tel: (480) 614-2874
Fax: (480) 614-0560
Internet: http://www.mdch.net
E-mail: [email protected]
<PAGE>
Signature(s)
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Meditech Pharmaceuticals, Inc.
(Registrant)
Dated October 12, 2000 By: /s/ Cynthia S. Kern
------------------------------------
Cynthia S. Kern, President
and Acting Chief Financial
Officer
