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 November 30, 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 95-819300
---------------- ----------
(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 last practicable date.
140,036,765 shares of $.001 par value common stock, as of November 30, 2000
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)
CONTENTS
NOVEMBER 30, 2000 (UNAUDITED)
================================================================================
Page
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets 1 - 2
Condensed Consolidated Statements of Operations 3 - 4
Condensed Consolidated Statements of Cash Flows 5 - 6
Notes to Condensed Consolidated Financial Statements 7 - 13
<PAGE>
MEDITECH PHARMACEUTICALS, INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONDENSED CONSOLIDATED BALANCE SHEETS
MAY 31, 2000 AND NOVEMBER 30, 2000 (UNAUDITED)
================================================================================
ASSETS
November 30, May 31,
2000 2000
------------ ------------
(unaudited)
CURRENT ASSETS
Cash $ 111,800 $ 114,800
Prepaid expenses 600 600
------------ ------------
Total current assets 112,400 115,400
OTHER ASSETS 26,000 2,100
------------ ------------
TOTAL ASSETS $ 138,400 $ 117,500
============ ============
The accompanying notes are an integral part of these financial statements.
1
<PAGE>
<TABLE>
MEDITECH PHARMACEUTICALS, INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONDENSED CONSOLIDATED BALANCE SHEETS
MAY 31, 2000 AND NOVEMBER 30, 2000 (UNAUDITED)
===================================================================================================
LIABILITIES AND STOCKHOLDERS' DEFICIT
<CAPTION>
November 30, May 31,
2000 2000
------------- -------------
(unaudited)
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 1,498,500 $ 1,502,500
Accrued compensation 2,787,100 2,787,100
Advances from affiliates 3,769,100 3,603,800
Advances from stockholders 42,500 43,500
Loan payable 71,000 71,000
Deferred revenue 100,000 100,000
------------- -------------
Total current liabilities 8,268,200 8,107,900
------------- -------------
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARY 191,300 191,300
------------- -------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT
Preferred stock, $0.001 par value
25,000,000 shares authorized
0 (unaudited) and 0 issued and outstanding - -
Common stock, $0.001 par value
400,000,000 shares authorized
140,046,765 (unaudited) and 136,713,432 shares
issued and outstanding 140,033 136,700
Subscriptions receivable (10,000) (10,000)
Additional paid-in capital 8,022,567 7,743,200
Accumulated deficit (16,473,700) (16,051,600)
------------- -------------
Total stockholders' deficit (8,321,100) (8,181,700)
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 138,400 $ 117,500
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
<TABLE>
MEDITECH PHARMACEUTICALS, INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED NOVEMBER 30, 2000 AND 1999 (UNAUDITED) AND
FOR THE PERIOD FROM MAY 4, 1982 (INCEPTION) TO NOVEMBER 30, 2000 (UNAUDITED)
===========================================================================================================
<CAPTION>
For the
Period from
May 4,
For the Three Months Ended For the Six Months Ended 1982
November 30, November 30, (Inception) to
------------------------------ ------------------------------ November 30,
2000 1999 2000 1999 2000
------------- ------------- ------------- ------------- -------------
(restated)
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
REVENUE $ - $ - $ - $ - $ 25,000
------------- ------------- ------------- ------------- -------------
OPERATING EXPENSES
Research and
development 1,700 - 6,500 - 1,844,800
General and
administrative 142,850 61,200 250,300 244,600 12,333,300
Aborted stock
offering costs - - - - 325,400
------------- ------------- ------------- ------------- -------------
Total operating
expenses 144,550 61,200 256,800 244,600 14,503,500
------------- ------------- ------------- ------------- -------------
LOSS BEFORE OTHER
INCOME (EXPENSE) (144,550) (61,200) (256,800) (244,600) (14,478,500)
------------- ------------- ------------- ------------- -------------
OTHER INCOME
(EXPENSE)
Interest expense (83,600) (76,300) (165,300) (151,100) (2,699,100)
Interest income - - - - 298,500
Other income, net - - - - 75,600
------------- ------------- ------------- ------------- -------------
Total other income
(expense) (83,600) (76,300) (165,300) (151,100) (2,325,000)
------------- ------------- ------------- ------------- -------------
LOSS BEFORE MINORITY
INTEREST IN LOSSES
OF SUBSIDIARY (228,150) (137,500) (422,100) (395,700) (16,803,500)
MINORITY INTEREST IN
LOSSES OF
SUBSIDIARY - - - - 329,800
------------- ------------- ------------- ------------- -------------
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
MEDITECH PHARMACEUTICALS, INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED NOVEMBER 30, 2000 AND 1999 (UNAUDITED) AND
FOR THE PERIOD FROM MAY 4, 1982 (INCEPTION) TO NOVEMBER 30, 2000 (UNAUDITED)
===========================================================================================================
For the
Period from
May 4,
For the Three Months Ended For the Six Months Ended 1982
November 30, November 30, (Inception) to
------------------------------ ------------------------------ November 30,
2000 1999 2000 1999 2000
------------- ------------- ------------- ------------- -------------
(restated)
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
NET LOSS $ (228,150) $ (137,500) $ (422,100) $ (395,700) $(16,473,700)
============= ============= ============= ============= =============
BASIC AND DILUTED LOSS
PER SHARE $ (0.002) $ (0.001) $ (0.003) $ (0.003) $ (0.16)
============= ============= ============= ============= =============
WEIGHTED-AVERAGE
SHARES
OUTSTANDING 138,380,099 123,816,925 137,278,095 129,363,432 99,617,126
============= ============= ============= ============= =============
The accompanying notes are an integral part of these financial statements.
4
</TABLE>
<PAGE>
<TABLE>
MEDITECH PHARMACEUTICALS, INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED NOVEMBER 30, 2000 AND 1999 (UNAUDITED) AND
FOR THE PERIOD FROM MAY 4, 1982 (INCEPTION) TO NOVEMBER 30, 2000 (UNAUDITED)
======================================================================================================
<CAPTION>
For the
Period from
May 4,
For the Six Months Ended 1982
November 30, (Inception) to
------------------------------ November 30,
2000 1999 2000
------------- ------------- -------------
(restated)
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (422,100) $ (395,700) $(16,473,700)
Adjustments to reconcile net loss to net cash
used in operating activities
Depreciation and amortization - - 135,600
Warrants and options issued to employees and
vendors - - 775,100
Minority interest in losses of subsidiary - - (329,800)
Stock issued to employees and vendors - 121,700 1,667,300
Contributed services 182,700 - 309,600
Accrued interest on advances from affiliates 165,300 151,000 2,699,100
Increase in
Prepaid expenses - - (600)
Other assets (20,600) - (22,700)
Increase (decrease) in
Accounts payable and accrued expenses (3,900) 17,400 1,498,600
Accrued compensation - 102,600 2,787,100
Deferred revenue - - 100,000
------------- ------------- -------------
Net cash used in operating activities (98,600) (3,000) (6,854,400)
------------- ------------- -------------
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 stockholders (1,000) - 42,500
Proceeds from advances from affiliates, net - 3,000 2,207,300
Proceeds from loan payable - - 71,000
Proceeds from sale of stock, net 100,000 - 4,784,400
------------- ------------- -------------
Net cash provided by financing activities 99,000 3,000 7,105,200
------------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
<TABLE>
MEDITECH PHARMACEUTICALS, INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED NOVEMBER 30, 2000 AND 1999 (UNAUDITED) AND
FOR THE PERIOD FROM MAY 4, 1982 (INCEPTION) TO NOVEMBER 30, 2000 (UNAUDITED)
======================================================================================================
<CAPTION>
For the
Period from
May 4,
For the Six Months Ended 1982
November 30, (Inception) to
------------------------------ November 30,
2000 1999 2000
------------- ------------- -------------
(restated)
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C>
Net decrease in cash $ (3,000) $ - $ 111,800
CASH, BEGINNING OF PERIOD 114,800 - -
------------- ------------- -------------
CASH, END OF PERIOD $ 111,800 $ - $ 111,800
============= ============= =============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
INTEREST PAID $ - $ - $ -
============= ============= =============
INCOME TAXES PAID $ - $ - $ -
============= ============= =============
The accompanying notes are an integral part of these financial statements.
6
</TABLE>
<PAGE>
MEDITECH PHARMACEUTICALS, INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 2000 AND NOVEMBER 30, 2000 (UNAUDITED)
================================================================================
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 six months ended November 30, 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:
<TABLE>
<CAPTION>
Adjustment for
Corrected Values
For the Six Net Loss, Attributed to
Months Ended as Previously Stock-Based Net Loss,
November 30, Reported Compensations as Corrected
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
1999 $ (274,000) $ (121,700) $ (395,700)
</TABLE>
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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.
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.
7
<PAGE>
MEDITECH PHARMACEUTICALS, INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 2000 AND NOVEMBER 30, 2000 (UNAUDITED)
================================================================================
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Basis of Presentation
---------------------
The accompanying condensed consolidated financial statements have been
prepared by Meditech 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 represent 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 six months ended November 30, 2000
are not necessarily indicative of the results to be expected for the
full year ending May 31, 2001.
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.
8
<PAGE>
MEDITECH PHARMACEUTICALS, INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 2000 AND NOVEMBER 30, 2000 (UNAUDITED)
================================================================================
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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 six months ended November 30, 2000 and 1999, the Company incurred
net losses; therefore, basic and diluted loss per share are the same.
NOTE 4 - COMMITMENTS AND CONTINGENCIES
Leases
------
Currently, the Company uses its operating facilities, which are
provided by its Chief Executive Officer, without a lease. There is no
guarantee the officer will be willing to provide these facilities in
the future (see Note 7).
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 7. 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.
9
<PAGE>
MEDITECH PHARMACEUTICALS, INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 2000 AND NOVEMBER 30, 2000 (UNAUDITED)
================================================================================
NOTE 4 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
Employment Agreements (Continued)
---------------------
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 5. 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. This amount has been recorded
as deferred revenue until such a time as the agreement is executed.
Under the terms of the letter, the Company issued a one-year option to
INR for 10,000,000 shares of common stock, immediately exercisable at
$0.03 per share. 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. During the second quarter of
2000, the agreement was executed. The option was valued at $400,000,
using the Black-Scholes option-pricing model, which has been recorded
as an operating expense on the date granted.
During the three months ended November 30, 2000, INR exercised options
to purchase 3,333,333 shares of common stock and paid $100,000 to the
Company.
10
<PAGE>
MEDITECH PHARMACEUTICALS, INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 2000 AND NOVEMBER 30, 2000 (UNAUDITED)
================================================================================
NOTE 5 - 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.
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.
11
<PAGE>
MEDITECH PHARMACEUTICALS, INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 2000 AND NOVEMBER 30, 2000 (UNAUDITED)
================================================================================
NOTE 6 - INCOME TAXES
Significant components of the Company's deferred tax assets and
liabilities for income taxes consisted of the following:
<TABLE>
<CAPTION>
November 30, May 31,
2000 2000
--------------- ---------------
(unaudited)
<S> <C> <C>
Deferred tax assets
Reserve for finance charges $ 400,000 $ 400,000
Accrued compensation 1,100,000 1,100,000
Interest on related party advances 1,080,000 1,010,000
Operating losses 2,100,000 1,629,000
Valuation allowance (4,680,000) (4,139,000)
--------------- ---------------
NET DEFERRED TAX ASSET $ - $ -
--============= ===============
</TABLE>
The federal operating loss carryforwards at November 30, 2000 were
approximately $5,832,600 (unaudited).
NOTE 7 - RELATED PARTY TRANSACTIONS
Since inception, the Company has received advances from Petro-Med, Inc,
an affiliate, to fund its working capital requirements. At May 31, 2000
and 1999 and November 30, 2000, the Company maintained short-term
advances from affiliates of $3,603,800, $3,294,700, and $3,769,100
(unaudited), 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
$309,000 and $283,000 for the years ended May 31, 2000 and 1999,
respectively.
At May 31, 2000 and November 30, 2000, the Company maintained unsecured
advances from stockholders in the amount of $43,500 and $42,500
(unaudited). 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 May 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).
12
<PAGE>
MEDITECH PHARMACEUTICALS, INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 2000 AND NOVEMBER 30, 2000 (UNAUDITED)
================================================================================
NOTE 7 - RELATED PARTY TRANSACTIONS (CONTINUED)
The Company maintains its primary place of business in facilities owned
by the Chief Executive Officer. In addition, the Company has not paid
or accrued compensation to certain of its officers for the six months
ended November 30, 2000. Related to these services, the Company has
recorded expenses in the amount of $182,700 (unaudited) for the six
months ended November 30, 2000, which have been reflected as an
increase in additional paid-in capital.
13
<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 November 30, 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
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 November 30, 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.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED NOVEMBER 30, 2000 AND 1999.
REVENUES. There were no revenues for the three months ended November 30, 2000
nor were there any revenues for the three months ended November 30, 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, 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.
RESEARCH AND DEVELOPMENT COSTS. Direct research and development costs for the
three months ended November 30, 2000 were $1,700, consisting of the costs of
additional clinical trials on the products. There were no research and
development costs for the three months ended November 30, 1999.
<PAGE>
GENERAL AND ADMINISTRATIVE EXPENSES. Direct costs were $142,850 for the three
months ended November 30, 2000, as compared with $61,200 for the three months
ended November 30, 1999. The increase was primarily due to additional legal and
accounting costs related to the Company's SEC registration.
INTEREST EXPENSE. Interest expense was $83,600 for the three months ended
November 30, 2000 as compared to $76,300 for the three months ended November 30,
1999. This increase was due to the additional debt incurred in 2000. 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.
NET LOSS. Net loss was $228,150 for the three months ended November 30, 2000 as
compared to $137,500 for the three months ended November 30, 1999. The increase
in net loss was due to the increased legal and accounting costs for the
Company's SEC registration statement.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED NOVEMBER 30, 2000 AND 1999.
REVENUES. There were no revenues during the six months ended November 30, 2000
(the "2000 Period") nor were there any revenues for the six months ended
November 30, 1999 (the "1999 Period").
RESEARCH AND DEVELOPMENT COSTS. Direct research and development cost for the
2000 period were $6,500, consisting of the costs of additional clinical trials
on the products. There were no research and development costs for the 1999
period.
GENERAL AND ADMINISTRATIVE EXPENSES. Direct costs were $250,300 for the 2000
Period, as compared with $244,600 for the 1999 Period. The increase was
primarily due to an increase in legal and accounting costs due to the Company's
SEC stock registration, as offset by a decrease in stock-based compensation
expense in the 2000 Period as compared to the 1999 Period. 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.
INTEREST EXPENSE. Interest expense was $165,300 for the 2000 Period as compared
to $151,100 for the 1999 Period. This increase was due to the additional debt
incurred in the 2000 Period. 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.
NET LOSS. Net loss was $422,100 in the 2000 Period compared to $395,700 in the
1999 Period. The increase was primarily due to an increase in legal and
accounting costs due to the Company's SEC stock registration, as offset by a
decrease in stock-based compensation expense in the 2000 Period as compared to
the 1999 Period.
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 were $111,800 at November 30, 2000 (up
from $0 at November 30, 1999). Cash was augmented at November 30, 2000 by net
proceeds from financing activities in fiscal year 2000.
Net cash used in operations in the 2000 Period was $98,600 compared to
$3,000 in the 1999 Period.
Net cash used in investing activities in the 2000 Period was $3,400
compared to $0 in the 1999 Period.
Net cash provided from financing activities in the 2000 Period was
$99,000 compared to $0 in the 1999 Period. The increase in cash was due to the
exercise by INR of options to purchase 3,333,333 shares of common stock of the
Company for which the Company received $100,000.
<PAGE>
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 negative 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.
<PAGE>
Part II - Other information
Item 1 - Legal proceedings
Not applicable
Item 2 - Change in securities
During the three months ended November 30, 2000, INR exercised options to
purchase 3,333,333 shares of common stock and paid $100,000 to the Company.
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
Not applicable
<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)
By: /s/ Cynthia S. Kern Dated January 16, 2001
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Cynthia S. Kern, President
and Acting Chief Financial Officer
