The following item
was the subject of
a Form 12b-25 and
is included herein:
Item 7--Financial
Statements
U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB/A
(AMENDMENT NO. 1)
(RESTATED ENTIRELY)
(Mark One)
____ Annual Report Under Section 13 or 15(d) of the Securities
Exchange Act of 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1995
-----------------
____ Transition Report Under Section 13 or 15(d) of the Securities
Exchange Act of 1934 (NO FEE REQUIRED)
For the transition period from ________________ to ___________________.
Commission file number 0-12627
------------------------------------------------
Medical Discoveries, Inc.
- ------------------------------------------------------------------------
(Name of small business issuer in its charter)
Utah 87-0407858
- ---------------------------------- -----------------------------------
(State or other Jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Page 1
<PAGE>
<PAGE>
2040 East Murray-Holladay Road, Suite 116, Salt Lake City, UT 84117
- ------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Issuer's Telephone Number, Including Area Code: (801) 273-7388
------------------------
Securities Registered under Section 12(b) of the Exchange Act:
Title of Each Class Name of Each Exchange on Which Registered
------------------- -----------------------------------------
None None
- ------------------------- -----------------------------------------
Securities registered under Section 12(g) of the Exchange Act:
Common Stock
- ------------------------------------------------------------------------
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 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
--- ---
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this
Form 10-KSB or any amendment to this Form 10-KSB. _____
The Company had revenues of $41,288 during the recent fiscal year
ended December 31, 1995.
The aggregate market value of the voting stock held by non
affiliates of the registrant (16,676,925 shares) is approximately
$14,675,694. The aggregate market value has been computed by reference
to the average bid and asked prices of such stock ($0.88 per share) as
of May 31, 1996 (which date is within 60 days of the filing of this
Form 10-KSB/A).
The number of shares outstanding of the issuer's Common Stock as of
May 31, 1996 was 20,675,555.
Page 2
<PAGE>
<PAGE>
PART I
ITEM 1. BUSINESS OVERVIEW
THE COMPANY. Medical Discoveries, Inc. ("MDI" or the "Company")
has developed a product (hereafter "MDI-P") that appears to have the
ability to destroy certain human viruses and bacteria. MDI-P may also
have the ability to kill other infectious agents, possibly including
pathogenic fungi and parasites. MDI-P may possibly be used as a
sterilizing agent for medical, dental, and veterinary instruments. MDI
P may also potentially be used to remove or inactivate infectious agents
in human and animal blood-derived products, such as plasma and gamma
globulin.
MDI-P. MDI-P stands for "Medical Discoveries, Inc. -
Pharmaceutical." MDI-P is a saline solution that is electrolyzed to
render it a highly effective microbicide. IN VITRO applications, such
as the sterilization of surgical instruments, would simply involve the
washing and/or submersion of the instrument or material in the MDI-P
solution. In the Company's currently proposed protocol for treating
human diseases, this electrolyzed solution would be administered
intravenously to a patient in a series of injections over a two-week
period. MDI-P could also conceivably be administered orally, nasally,
or topically.
PATENTS AND PATENT APPLICATIONS. MDI has filed a patent
application with the U.S. Patent and Trademark Office ("U.S. PTO"),
covering the application of MDI-P to a variety of human diseases and
ailments, including "acquired immune deficiency syndrome" ("AIDS"). The
U.S. PTO has granted the Company a patent with respect to the
application of MDI-P to multiple sclerosis and cardiomyopathy. (Patent
No. 5,334,383 for "Electrically Hydrolyzed Salines as In Vivo
Microbicides or Treatment of Cardiomyopathy and Multiple Sclerosis").
The Company intends to pursue its current application to expand the
scope of its patent protection to include other diseases and ailments,
particularly the human immunodeficiency virus ("HIV") that causes AIDS.
The Company is also pursuing other United States and foreign
applications to provide patent protection for other uses of MDI-P. MDI
has also received an official Notice of Allowance of a patent by the
United States PTO for the electrolyzer required to generate MDI-P.
(Patent No. 5,507,932 for "Apparatus for Electrolyzing Fluids").
APPLICATION OF MDI-P AS A STERILIZING AGENT. MDI has entered into
a preliminary research project with Steril*Med, an affiliate of Cooley &
Cooley, Ltd. of Houston, Texas, a distributor of Copalite dental
products. Steril*Med has given MDI a $30,000 research grant to
determine if MDI-P has potential as a sterilizing agent for medical,
dental, and veterinary instruments. This preliminary project was
completed on of March 22, 1996 and suggests that potential exists for
MDI-P to be used as a sterilizing agent. THE COMPANY HAS ONLY CONDUCTED
PRELIMINARY TESTS USING MDI-P AS A STERILIZING AGENT. THE COMPANY HAS
NOT YET DEMONSTRATED THE SAFETY OR EFFICACY OF MDI-P AS A STERILIZING
Page 3
<PAGE>
<PAGE>
AGENT IN COMPREHENSIVE LABORATORY TESTING OR IN WIDE SPREAD CLINICAL
TRIALS.
APPLICATION OF MDI-P TO HIV. MDI has data from limited tests using
MDI-P against the HIV. HIV is the precursor to AIDS. In preliminary
laboratory tests, MDI-P has been shown to destroy HIV. In preliminary
studies on five HIV positive patients conducted outside the United
States, a significant rise in absolute CD4 counts was observed, without
significant adverse side effects. Initial animal toxicity studies have
not demonstrated toxicity with MDI-P. THE COMPANY HAS CONDUCTED ONLY
PRELIMINARY TESTS USING MDI-P ON A FEW PATIENTS WITH HIV. THE COMPANY
HAS NOT YET DEMONSTRATED THE SAFETY OR EFFICACY OF MDI-P FOR HIV
POSITIVE PATIENTS IN COMPREHENSIVE LABORATORY TESTING OR IN WIDESPREAD
CLINICAL TRIALS.
APPLICATION OF MDI-P AS AN ANTI-BACTERIAL AGENT. Initial results
from the Company's preliminary in vitro studies have shown that MDI-P is
able to kill such resistant pathogenic bacteria as methicillin-resistant
STAPHYLOCOCCUS AUREUS and vancomycin-resistant ENTEROCOCCUS FAECALIS.
THE COMPANY HAS ONLY CONDUCTED PRELIMINARY TESTS USING MDI-P AS AN ANTI
BACTERIAL AGENT. THE COMPANY HAS NOT YET DEMONSTRATED THE SAFETY OR
EFFICACY OF MDI-P AS AN ANTI-BACTERIAL AGENT IN COMPREHENSIVE LABORATORY
TESTING OR IN WIDESPREAD CLINICAL TRIALS.
OTHER RESEARCH EFFORTS. During the last half of 1994 and early
1995, MDI commenced two separate joint research efforts with two large,
United States-based pharmaceutical/biotechnology companies. The primary
focus of these preliminary research efforts is the use of MDI-P to
remove or inactivate infectious agents in blood-derived products. One
company is focusing on product applications for humans while the other
company is focusing on the veterinary market. Studies underway have
demonstrated killing of the bovine diarrhea virus, a significant viral
pathogen in cattle, which is also used as a laboratory model for the
hepatitis virus.
NEW MEMBER OF THE BOARD OF DIRECTORS. The Company has appointed
David Walker as a director of the Company. He represents a group of
investors who recently invested in the Company in a private stock
offering. He has been general manager of Sunheaven Farms in Heaven
Hills, Washington (a twelve thousand acre agricultural operation) for
twenty years.
ADVISOR TO THE BOARD OF DIRECTORS. The Company has engaged Gerald
T. Simmons as an Advisor to the Board of Directors to advise the Board
on various strategic management issues. Mr. Simmons has more than
twenty years' experience managing pharmaceutical and biotechnology
companies.
THE FUTURE. In regard to applications of MDI-P other than the
direct treatment of human diseases, MDI intends to actively pursue the
potential application of MDI-P as a sterilizing agent for medical,
dental, and veterinary in the U.S. and overseas. MDI intends, as soon
Page 4
<PAGE>
<PAGE>
as the necessary studies are completed, to file a 510(k) pre-market
notification in this regard with the FDA. In regard to use of MDI-P for
human diseases, MDI intends to file an "investigational new drug"
application ("IND Application") with the FDA for use of MDI-P on
patients in the United States who are HIV-positive or who have AIDS.
The Company has filed a pre-IND submission in this regard. The Company
will also seek funding to commence clinical trials on such patients upon
approval of the IND Application. Beyond the initial focus sterilization
and on HIV, and as funds will allow, the Company intends to conduct
research into the use of MDI-P with respect to multiple sclerosis and
cardiomyopathy and with respect to other human diseases and ailments.
Additionally, the Company intends to further investigate the ability of
MDI-P to kill certain highly resistant and pathogenic bacteria. Also,
MDI intends to continue cooperative research efforts with the two major
pharmaceutical/biotechnology companies mentioned above with respect to
blood-derived products and veterinary diseases. The results of the
current preliminary research in these areas will determine the course of
future research efforts.
THE MDI-P PRODUCT
DESCRIPTION. MDI-P is a saline solution that is chemically changed
by electrolysis to form the MDI-P solution, which is then injected into
the body intravenously or is applied to the surface of a surgical
instrument, for example. Electrolysis is the method whereby a certain
type of electric current is passed through a chemical solution. The
electrical current causes the chemicals in the saline solution to alter,
producing a variety of chemical compounds, such as ozone and
hypochlorous acid. Different electrical currents produce different
concentrations of these and related products. In previously published
scientific literature, electrolyzed saline solutions have been shown to
have an intense microbicidal effect.
RESEARCH AND DEVELOPMENT. MDI is a start-up company with limited
resources. During the two fiscal years ended December 31, 1994 and
1995, the Company spent approximately $850,000 and $140,000 respectively
on research and development of MDI-P. The Company intends actively to
pursue and expand its research efforts as funds will allow. The focus
of the initial research will be on the use of MDI-P as a sterilizing
agent for medical, dental, and veterinary instruments, as a potential
anti-bacterial agent, and as a potential anti-HIV agent. As funds will
allow, the Company will also focus its research on the use of MDI-P
against multiple sclerosis and cardiomyopathy, the two diseases for
which a U.S. patent has been issued. Also, as funds will allow, the
Company will expand its research efforts to encompass the use of MDI-P
against other diseases and ailments and other applications.
PATENTS, TRADE SECRETS, AND LICENSES
MORROW LICENSE AGREEMENT. MDI-P was initially developed by
Dr. Robert E. Morrow, the founder of the Company. Dr. Morrow filed a
Page 5
<PAGE>
<PAGE>
patent application for the use of MDI-P in the human body for a variety
of diseases and ailments, including AIDS. Initially, Dr. Morrow filed
this patent application in his own name. Subsequently, Dr. Morrow
licensed MDI-P to MDI in exchange for royalties (the "Morrow License
Agreement"). The Morrow License Agreement was subsequently amended to
assign all of Dr. Morrow's right, title, and interest in MDI-P to MDI in
exchange for continuing royalties. In connection with the amendment and
wholesale assignment of MDI-P to the Company, Dr. Morrow also assigned
all existing patents and patent applications to the Company with respect
to MDI-P. On March 26, 1996, however, Dr. Morrow agreed to terminate
any future royalties to him in exchange for $1,500. Consequently, the
Company owes no further royalties to Dr. Morrow in connection with the
use or sale of MDI-P.
PATENTS AND PATENT APPLICATIONS. The original patent application
for MDI-P, as now owned by MDI, covers IN VIVO and IN VITRO use of MDI-P
on a variety of diseases and ailments. The U.S. PTO has granted a
patent to the Company for the IN VIVO use of electrically hydrolyzed
salines as microbicides and the treatment of multiple sclerosis and
cardiomyopathy. (Patent No. 5,334,383 for "Electrically Hydrolyzed
Salines as In Vivo Microbicides or Treatment of Cardiomyopathy and
Multiple Sclerosis.") Multiple sclerosis is a serious nervous system
disorder. Cardiomyopathy is a typically chronic disorder, sometimes of
viral origin, of the heart muscle that may involve enlargement and
obstructive damage to the heart. MDI will continue to seek patent
protection for the other inventions pending in its current application
to the U.S. PTO. MDI has also received an official Notice of Allowance
of a patent by the U.S. PTO for the electrolyzer required to generate
MDI-P. (Patent No. 5,507,932 for "Apparatus for Electrolyzing Fluids").
The Company also has patents pending with the U.S. PTO on electrically
hydrolyzed salines as microbicides (covering IN VIVO and IN VITRO uses
of MDI-P). The Company plans to file other applications to expand the
scope of its patent protection where possible, including other types of
microbicide applications. Additionally, MDI has filed foreign patent
applications corresponding to the above defined United States
applications.
TECHNOLOGY PROTECTION POLICY AND DISCLAIMERS. It is the Company's
policy to protect its technology by, among other means, filing patent
applications to protect technology which it considers important to the
development of its business. The Company will also rely upon trade
secrets and improvements, unpatented know-how, and continuing
technological innovation to develop and maintain its competitive
position. Despite the Company's policy to seek patent protection
wherever appropriate, there can be no assurance that the Company's
patent applications will result in further patents being issued or that,
if issued, the patents will afford protection against competitors with
similar technology. There can also be no assurance that any patent
issued to the Company will not be infringed or circumvented by others or
that others will not obtain patents that the Company would need to
license or circumvent. There can be no assurance that licenses, which
might be required for the Company's processes or products, would be
Page 6
<PAGE>
<PAGE>
available on reasonable terms or that patents issued to others would not
prevent the Company from developing and marketing its products. In
addition, there can be no assurance that the patents, if issued, would
be held valid by a court of competent jurisdiction. To the extent the
Company also relies upon unpatented trade secrets, there can be no
assurance that others will not independently develop substantially
equivalent proprietary information and techniques or otherwise gain
access to the Company's trade secrets or disclose such technology.
CONFIDENTIALITY POLICY AND DISCLAIMERS. MDI, as a matter of
policy, requires its employees, consultants, and advisors to execute a
confidentiality agreement upon the commencement of an employment or
consulting relationship with the Company. The Company also, as a matter
of policy, obtains such confidentiality agreements from appropriate
independent parties. The agreements provide that all confidential
information developed or made known to the individual during the course
of the relationship shall be kept confidential and not be disclosed to
others except in specified circumstances. In the case of employees and
certain consultants, the agreements contain non-competition clauses and
provide that all inventions conceived by the individual shall be the
exclusive property of the Company. There can be no assurance, however,
that these agreements will provide meaningful protection for the
Company's trade secrets in the event of unauthorized use or disclosure
of such information.
APPLICATION OF MDI-P AS A STERILIZING AGENT
RESULTS OF STERILIZATION TESTS. The Company has entered into a
preliminary research project with Steril*Med, an affiliate of Cooley &
Cooley, Ltd. of Houston, Texas, a distributor of Copalite dental
products. Steril*Med has given MDI a $30,000 research grant to
determine if MDI-P has potential as a sterilizing agent for medical,
dental, and veterinary instruments. This preliminary project was
completed on March 22, 1996 and suggests that potential exists for MDI-P
to be used as a sterilizing agent. This preliminary test evaluated the
use of MDI-P to sterilize dental handpieces. After a six-minute
exposure to MDI-P of a highly resistant bacterial spore "contaminated"
dental handpiece, no viable bacterial spores could be detected. The
dental handpiece is one of the most difficult health care related
instruments on which sterilization can be demonstrated. These tests
follow FDA criteria for evaluating the sterilizing ability of new
products. It is the intent of the Company, with appropriate funding, to
continue with these kinds of studies and use this data for an FDA 510(k)
pre-market notification approval for MDI-P as a sterilizing agent for
medical, dental, and veterinary instruments. THE COMPANY HAS ONLY
CONDUCTED PRELIMINARY TESTS USING MDI-P AS A STERILIZING AGENT. THE
COMPANY HAS NOT YET DEMONSTRATED THE SAFETY OR EFFICACY OF MDI-P AS A
STERILIZING AGENT IN COMPREHENSIVE LABORATORY TESTING OR IN WIDE SPREAD
CLINICAL TRIALS.
Page 7
<PAGE>
<PAGE>
APPLICATION OF MDI-P TO HIV
THE AIDS PANDEMIC. The first officially recognized cases of AIDS
were reported in 1981. During 1983 and 1984, various clinical
investigators identified HIV as the cause of AIDS. The number of HIV
infected individuals is currently estimated at one to two million in the
United States, with a worldwide incidence of approximately 20 million.
Since HIV-infected individuals ultimately develop AIDS, with a mortality
rate believed to be effectively 100 percent, AIDS presents a significant
societal threat. There were 401,749 individuals reported with AIDS in
the United States through June 1994, of which 243,423 have died. The
Center for Disease Control projects that the total number of AIDS cases
could reach 500,000 by the end of 1995 in the United States. Certain
sources estimate the number of AIDS cases worldwide to reach 12-15
million by the end of 1995. Projections of the number of AIDS cases are
based on currently available information and may not reflect the actual
number of future cases.
HIV AND AIDS. Shortly after an individual is infected with HIV,
the virus multiplies rapidly and can be detected in the blood. The
immune system responds by producing antibodies. While this response is
usually sufficient to temporarily arrest the progress of the infection
and reduce levels of virus in the blood, the virus continues to actively
replicate within certain cells. This latent phase may last from a
period of months to several years or longer. During this time, levels
of antibodies to HIV remain high and the virus continues to replicate.
Other indicators of immune status, however, progressively decline,
including cell-mediated immune response (as measured by skin testing)
and the number of the certain white blood cells, known as CD4 cells,
which are needed to maintain the immune system. The development of
certain early clinical symptoms of AIDS is referred to as AIDS-related
complex ("ARC") and may occur during the later portion of this latent
phase. The latent phase eventually ends, at which time the level of
antibodies declines and the concentration of HIV in the blood increases.
Thereafter, the disease progresses with the collapse of the immune
system, leaving the body susceptible to fatal infections and cancers.
AIDS represents the end stage of the infection by HIV and is
characterized by dementia, pneumonia, and other infectious diseases of
the pulmonary system, central nervous system, gastrointestinal tract and
skin, as well as cancers.
RESULTS OF TESTS ON AIDS PATIENTS. MDI has conducted preliminary
tests with MDI-P on AIDS patients outside the United States. Initially,
five patients have received MDI-P. Blood specimens were drawn from
these five patients prior to the first treatment and at regular
intervals during and after these treatments. These blood specimens were
sent to independent laboratories for testing. It should be noted that
one of these five patients declined to participate in the later blood
test. There was a significant rise in absolute CD4 cell count (43%)
occurring after two months of treatment. This CD4 cell count increase
is important in bolstering the patients' immune response. It is also
important to note that a lack of toxicity of MDI-P was observed in the
Page 8
<PAGE>
<PAGE>
five patients by their normal tests of liver function throughout their
treatment. All of the above patients verbally reported that they felt
improved, less fatigued, and less depressed through the course of
therapy. There were no serious complications during these preliminary
treatments. The minor complications were occasional sore arms from the
intravenous needles, as well as intestinal cramps and diarrhea. The
patient who was not followed by later tests reported verbally that he
was feeling better and was working at his occupation. THE COMPANY HAS
CONDUCTED ONLY PRELIMINARY TESTS USING MDI-P ON A FEW PATIENTS WITH HIV.
THE COMPANY HAS NOT YET DEMONSTRATED THE EFFICACY OR SAFETY OF MDI-P FOR
HIV-POSITIVE PATIENTS IN COMPREHENSIVE LABORATORY TESTING OR IN
WIDESPREAD CLINICAL TRIALS.
RESULTS OF LABORATORY TESTS AGAINST HIV. MDI-P has been tested by
classical laboratory methods to assess its anti-HIV activity and
toxicity toward human lymphocytes. These laboratory experiments were
performed by a reputable, independent testing laboratory. Exposure of
human lymphocytes infected with HIV (HB-2 cells) to MDI-P results in a
five log reduction in HIV after one minute of exposure without
significant toxicity to the lymphocytes. Extension of the incubation
period to 10 minutes demonstrated similar trends in HIV killing
(measured by the ELISA HIV p24 antigen assay) and minimal toxicity.
Clinical isolates of HIV (HIV isolated from patients with HIV, in
contrast to laboratory isolates such as HB-2 cells) that were subjected
to MDI-P were also killed in identical time frames, indicating a lack of
resistance to MDI-P from such "field" isolates. THE COMPANY HAS ONLY
CONDUCTED PRELIMINARY LABORATORY TESTS OF MDI-P ON HIV. THE COMPANY HAS
NOT YET DEMONSTRATED THE EFFICACY OR SAFETY OF MDI-P IN TREATING HIV
POSITIVE PATIENTS IN COMPREHENSIVE LABORATORY TESTING OR WIDESPREAD
CLINICAL TRIALS.
ONGOING TESTS AGAINST HIV. Preliminary animal toxicity testing in
two animal populations has demonstrated that up to 40 times the
recommended dose for human subjects was tolerated without any evidence
of toxicity. Additional animal studies provided data sufficient to meet
the United States Pharmacopeia requirements for transport of the MDI-P
solution in appropriate containers. During 1994, The Company submitted
a pre-IND application to the FDA which included the results of initial
animal toxicity studies. The FDA responded to the Company's pre-IND
submission by letter, dated August 30, 1994, indicating that certain
additional information and testing data should be included in the IND
Application. The letter also suggested items to assist the Company in
designing the proposed initial clinical development plan for a Phase I
trial of MDI-P. As funding becomes available, the Company intends to
pursue the recommendations of the FDA in conducting further testing and
compiling additional information necessary to make its IND Application
complete. The Company is currently attempting to raise additional funds
for this purpose. THE COMPANY HAS ONLY CONDUCTED PRELIMINARY LABORATORY
TESTS OF MDI-P ON HIV. THE COMPANY HAS NOT YET DEMONSTRATED THE
EFFICACY OR SAFETY OF MDI-P IN TREATING HIV-POSITIVE PATIENTS IN
COMPREHENSIVE LABORATORY TESTING OR WIDESPREAD CLINICAL TRIALS.
Page 9
<PAGE>
<PAGE>
APPLICATION OF MDI-P AS AN ANTI-BACTERIAL AGENT
RESULTS OF ANTI-BACTERIAL TESTS. Initial results from the
Company's preliminary in vitro studies have shown that MDI-P is able to
kill such resistant pathogenic bacteria as methicillin-resistant
STAPHYLOCOCCUS AUREUS and vancomycin-resistant ENTEROCOCCUS FAECALIS.
Other clinically important pathogenic bacteria have also been studied,
such as PSEUDOMONAS AERUGINOSA and ESCHERICHIA COLI, with comparable
results. It is the intent of the Company, with appropriate funding, to
continue with these kinds of studies for possible joint venture
collaborations with pharmaceutical companies. THE COMPANY HAS ONLY
CONDUCTED PRELIMINARY TESTS USING MDI-P AS AN ANTI-BACTERIAL AGENT. THE
COMPANY HAS NOT YET DEMONSTRATED THE SAFETY OR EFFICACY OF MDI-P AS AN
ANTI-BACTERIAL AGENT IN COMPREHENSIVE LABORATORY TESTING OR IN
WIDESPREAD CLINICAL TRIALS.
OTHER POTENTIAL APPLICATIONS OF MDI-P
In addition to the above tests, in the last half of 1994 and early
1995, the Company commenced cooperative research efforts with two other
companies to determine the usefulness of MDI-P for other applications.
In one instance, MDI has entered into a confidential joint research
effort with a major United States pharmaceutical company to conduct
preliminary research into the effectiveness of using MDI-P in removing
or inactivating infectious agents in blood-derived products such as
gamma globulin. In the other instance, MDI has entered into a
confidential joint research effort with a major United States
veterinary/pharmaceutical company to conduct preliminary research into
the effectiveness of using MDI-P in removing or inactivating infectious
agents in animal blood products, such as horse and bovine gamma globulin
or plasma, as well as the use of MDI-P in the treatment of important
horse and bovine viral diseases. Studies underway have demonstrated
killing of the bovine diarrhea virus, a significant viral pathogen in
cattle, which is also used as a laboratory model for the hepatitis
virus. In both instances, the research will likely be funded completely
by the other company involved.
COMPETITION
COMPETITION WITH RESPECT TO STERILIZATION TECHNIQUES. The most
commonly used technique for sterilizing medical and dental instruments
is the autoclave apparatus. An autoclave is a chamber in which the
instruments or materials to be sterilized are placed. This chamber is
then heated to 121 C. and pressurized to 15 psi for 15 to 20 minutes.
Autoclaves are manufactured and distributed by a variety of companies,
notably Barnstead and Amsco Scientific. Another sterilization technique
is the use of ethylene oxide gas, a toxic gas, that requires 18 hours to
complete. This technique has primarily been used in the past by large
hospitals or clinics, however, its use is currently declining in the
United States due to strict controls that have been placed on its use in
the United States by the Environmental Protection Agency ("EPA"). In
addition to the autoclaving and ethylene oxide techniques, there are
Page 10
<PAGE>
<PAGE>
several other sterilization processes, which are used on a limited
basis. Sterris Corporation manufactures and distributes its "Sterris
System I," a chemical sterilant process for immersible medical and
surgical instruments. This process requires approximately 30 minutes.
Another sterilization technique is the "Sterrad Sterilization System"
which is manufactured and distributed by a division of Johnson &
Johnson. This technique uses hydrogen peroxide and requires over one
hour to complete. Another sterilization technique is the "Plazlyte
Sterilization System," which is manufactured and distributed by AbTox,
Inc. This process also uses chemical sterilants and requires six hours
to complete. Finally, there is the "Karlson Ozone Sterilization
System," which is manufactured and distributed by Ozone Sterilization
Products. This technique is a gas sterilization system. As of August
1995, this process had not yet been approved by the FDA. MDI's
preliminary tests of MDI-P as a sterilizing agent have shown that
sterilization of "contaminated" dental handpieces can be accomplished in
six minutes or less. Moreover, MDI-P is a non-toxic sterilizing agent,
in contrast to some of the techniques currently in the marketplace that
use toxic chemicals or toxic gas. Based on these preliminary tests,
MDI's management believes that MDI-P has the potential to be competitive
in the sterilization marketplace. Nevertheless, future sterilization
techniques may be developed that could compete directly with MDI-P.
COMPETITION WITH RESPECT TO HIV. Competition among companies
addressing the treatment and prevention of AIDS and infection by the HIV
virus is intense. In general, this competition falls into four
categories: (i) drugs designed to chemically inhibit the replication of
HIV; (ii) non-specific immune system stimulants; (iii) receptor proteins
(such as T4) that inhibit viral binding; and (iv) therapeutic and
preventive vaccines. The first category includes Invirase (Saquinavir
Mesylate), which is manufactured by Hoffman-LaRoche, Inc., Ritnonavir
(ABT-538), which is manufactured by Abbott Laboratories, AZT, which is
manufactured by Burroughs Wellcome Co., the United States subsidiary of
Wellcome PLC, dideoxyinosine ("ddI"), which is manufactured by Bristol
Myers Squibb Company, and dideoxycytidine ("ddC") which is under
development by Hoffman-LaRoche, Inc. AZT, ddC in combination with AZT,
and ddI have been approved by the FDA for use in certain HIV infected
individuals. Although AZT, ddC in combination with AZT, and ddI have
been found to be effective, over time patients appear to resume the
decline in immune function associated with HIV infection. In addition,
AZT, ddC in combination with AZT, and ddI have been associated with
significant toxicity in some treated subjects. Although the receptor
protein and non-specific immune system stimulant approaches have been
shown to be non-toxic in humans, their effectiveness has not been
established. As for the fourth approach, a variety of vaccines are
under development by pharmaceutical companies and public and private
research institutions. It is possible that one or more of these
existing anti-HIV agents may be used effectively with MDI-P.
Substantial government funding has been made available to promote AIDS
related research at certain public and private institutions. This
research could lead to the development of products that would compete
Page 11
<PAGE>
<PAGE>
directly with MDI-P, and the level of funding made available to promote
such research could be significantly increased in the future.
COMPETITION WITH RESPECT TO ANTI-BACTERIAL AGENTS. There is a
large and intense effort in the pharmaceutical industry to develop anti
bacterial agents which have activity against the many different kinds of
bacteria. These agents are commonly referred to as "broad spectrum
anti-bacterial agents." Some of these agents are particularly active
against multiple drug-resistant bacteria. The drug of first choice for
multiply resistant gram positive bacteria is vancomycin, manufactured by
Eli Lilly & Co. Certain bacteria have become resistant to vancomycin,
such as vancomycin-resistant ENTEROCOCCUS FAECALIS. There is no
currently acceptable alternative to treat such infections caused by this
resistant organism. Other available anti-bacterial agents most often
have particular areas of efficacy, for example those that are used
against certain genera of gram negative bacteria, including urinary
tract isolates. Other pharmaceutical companies that are marketing and
developing new anti-bacterial agents include Miles Pharmaceuticals
(Ciprofloxacin), and Hoffman-LaRoche (Rocephin). The intense research
with respect to anti-bacterial agents could lead to the development of
additional products that could compete directly with MDI-P.
COMPETITION GENERALLY. The biotechnology and pharmaceutical
industries are characterized by rapidly evolving technology and intense
competition. The Company's competitors include major pharmaceutical,
chemical, and specialized biotechnology companies, many of which have
financial, technical, and marketing resources significantly greater than
those of the Company. Fully integrated pharmaceutical companies, due to
their expertise in research and development, manufacturing, testing,
obtaining regulatory approvals, and marketing, as well as their
substantially greater financial and other resources, may be the
Company's most formidable competitors. In addition, acquisitions by
such pharmaceutical companies could enhance the financial and marketing
resources of smaller competitors. Furthermore, colleges, universities,
governmental agencies, and other public and private research
organizations will continue to conduct research and possibly market
competitive commercial products on their own or through joint ventures.
These institutions are becoming more active in seeking patent protection
and licensing arrangements to collect royalties for use of technology
that they have developed. These institutions also will compete with the
Company in recruiting and retaining highly qualified scientific
personnel. If and when MDI obtains regulatory approval for any of the
uses of MDI-P, it must then compete for acceptance in the marketplace.
Given that such regulatory approval, especially in the United States,
may take a number of years, the timing of the introduction of MDI-P and
other products to the market is critical. Other safe and effective
drugs and treatments may be introduced into the market prior to the time
that the Company is able to obtain approval for the commercialization of
MDI-P. In addition, even after such regulatory approval is obtained,
competition among products approved for sale may be affected by, among
other things, product efficacy, safety, reliability, availability,
price, and patent position. There can be no assurance that MDI-P will
Page 12
<PAGE>
<PAGE>
be competitive if and when introduced into the marketplace for any of
its possible uses.
GOVERNMENT REGULATIONS
REGULATIONS GENERALLY. The Company's use of the MDI-P solution in
the treatment of HIV and for other human or IN VITRO uses is subject to
extensive regulation by United States and foreign governmental
authorities. These regulations apply not only to the use of MDI-P
itself, but also to the manufacture of the electrolyzer used to create
MDI-P. In particular, pharmaceutical treatments are subject to rigorous
preclinical and clinical testing and other approval requirements by the
FDA in the United States under the federal Food, Drug and Cosmetic Act
and by comparable agencies in most foreign countries. Various federal,
state and foreign statutes also govern or influence the manufacture,
labeling, storage, record keeping, and marketing of such products.
Pharmaceutical manufacturing facilities are also regulated by state,
local, and other authorities. Obtaining approval from the FDA and other
regulatory authorities for a new drug or treatment may take several
years and involve substantial expenditures. Moreover, ongoing
compliance with these requirements can require the expenditure of
substantial resources. Difficulties or unanticipated costs may be
encountered by the Company or marketing partners in their respective
efforts to secure necessary governmental approvals, which could delay or
preclude the Company or its marketing partners from marketing MDI-P.
IND APPLICATION TO FDA FOR THE USE OF MDI-P AGAINST HIV OR AS AN
ANTI-BACTERIAL AGENT. As an initial step in the FDA regulatory approval
process for MDI-P as a treatment of HIV-positive patients or as an anti
bacterial agent, preclinical studies are typically conducted in animals
to identify potential safety problems. For certain diseases, animal
models exist which are believed to be predictive of human efficacy. For
such diseases, a drug candidate is tested in such an animal model. The
results of the studies are submitted to the FDA as part of an
"investigational new drug" application ("IND Application"), which is
filed to comply with FDA regulations prior to beginning human clinical
testing. As funding is available, the Company will continue the animal
studies and other tests required to file IND Applications with the FDA
for the use of MDI-P on HIV or as an anti-bacterial agent. If the FDA
accepts these IND Applications, the Company would be allowed to commence
clinical trials. The Company has filed a pre-IND Application with
respect to the use of MDI-P against HIV. The Company has not yet filed
a pre-IND Application with respect to the use of MDI-P as an anti
bacterial agent, but may do so in the future. There is no assurance
that the FDA will approve the Company's future IND Applications for the
use of MDI-P against HIV or with respect to the use of MDI-P as an anti
bacterial agent.
FDA CLINICAL TRIALS OF MDI-P AGAINST HIV OR AS AN ANTI-BACTERIAL
AGENT. Once FDA approval has been received for the Company's possible
future IND Application for the use of MDI-P on HIV-positive patients or
as an anti-bacterial agent, human clinical trials may be commenced.
Page 13
<PAGE>
<PAGE>
Clinical trials are typically conducted in three sequential phases,
although the phases may overlap. In Phase I, which frequently begins
with the initial introduction of the drug into healthy human subjects
prior to introduction into patients, MDI-P will be tested for safety and
dosage tolerance. Phase II typically involves studies in a somewhat
larger patient population to identify possible adverse side effects and
safety risks, to begin gathering preliminary efficacy data, and to
investigate potential dose sizes and schedules. Phase III trials are
undertaken to further evaluate clinical efficacy and to further test for
safety within an expanded patient population. Each trial is conducted
in accordance with certain standards under protocols that detail the
objectives of the study, the parameters to be used to monitor safety,
and the efficacy criteria to be evaluated. Each clinical study must be
evaluated by an independent institutional review board ("IRB") at the
institution at which the study will be conducted. The IRB will
consider, among other things, ethical factors, the safety of human
subjects, and the possible liability of the institution. The FDA has
recently published guidelines regarding the accelerated approval of
drugs and treatments for life-threatening diseases. Given that MDI-P
may be used against HIV and that AIDS is a life-threatening disease, the
Company will seek accelerated handling of the FDA review process with
respect to its use of MDI-P against HIV. There can be no assurance that
the FDA will handle this review on an expedited basis.
NEW DRUG APPLICATION TO FDA FOR THE USE OF MDI-P AGAINST HIV OR AS
AN ANTI-BACTERIAL AGENT. Data from preclinical testing and clinical
trials of MDI-P against HIV or as an anti-bacterial agent may eventually
be submitted to the FDA in a "New Drug Application" ("NDA") for
marketing approval. Preparing an NDA involves considerable data
collection, verification, analysis, and expense, and there can be no
assurance that any approval will be granted on a timely basis, if at
all. The approval process is affected by a number of factors, including
the severity of the disease, the ability of alternative treatments, and
the risks and benefits demonstrated in clinical trials. The FDA may
deny an NDA if applicable regulatory criteria are not satisfied, require
additional testing or information, or require post-marketing testing and
surveillance to monitor the safety of the new drug. Quality control and
manufacturing procedures conforming to the FDA's "Good Manufacturing
Practices" ("GMP") are conditions for clinical studies and NDA approval.
In complying with standards set forth in these regulations,
manufacturers must continue to expend time, money and effort in the area
of production and quality control to insure full technical compliance.
After FDA approval of use of MDI-P with respect to HIV or as an anti
bacterial agent, further clinical trials would be necessary to gain
approval for the use of MDI-P for any additional diseases or uses.
Approvals may be withdrawn if compliance with labeling and GMP
regulatory standards are not maintained or if unexpected safety problems
occur following initial marketing.
FDA APPROVAL PROCESS FOR USE OF MDI-P AS A STERILIZATION AGENT.
Compared to the FDA approval process described above with respect to the
approval of a "new drug," the FDA process for the approval of the use of
Page 14
<PAGE>
<PAGE>
MDI-P as a sterilizing agent is significantly less complicated and time
consuming. Because the use of MDI-P as a sterilizing agent does not
require the injection of this "new drug" in a human patient, MDI is
required by the FDA regulations only to demonstrate in laboratory tests
that MDI-P is an effective sterilizing agent. This data is required to
be filed with the FDA by MDI in the form of a "510(k) Application."
This 510(k) Application is subject to FDA approval, but the time
required for such approval is considerably less than the time required
for the approval of a "new drug" because extensive clinical data is not
required. Given appropriate funding, MDI's management believes that MDI
will be able to obtain approval from the FDA for the use of MDI-P as a
sterilizing agent sometime before June, 1997, although there is no
guarantee that such approval can be obtained within that time. In
addition to this FDA approval process, MDI will be subject to the GMP
regulations noted above in the production of these sterilizers. Again,
the FDA's approval may be withdrawn if these GMP regulatory standards
are not maintained.
OTHER GOVERNMENTAL REGULATIONS. In addition to regulations
enforced by the FDA, the Company is also subject in the United States to
regulation under the Occupational Safety and Health Act, the
Environmental Protection Act, the Toxic Substances Control Act, the
Resource Conservation and Recovery Act, and other present and potential
federal, state and local regulations. Because the Company does not
currently produce, use, or otherwise handle hazardous chemicals or
produce pollutants in regulated amounts, it is not subject to
significant costs of compliance with these environmental laws.
RESEARCH, LICENSING, DISTRIBUTION AND MANUFACTURING
CONTINUING RESEARCH. MDI has not yet commenced any operations
other than research and development with respect to MDI-P. Initially,
the Company intends to focus its continuing research on commercializing
the use of MDI-P as a sterilizing agent for medical, dental, and
veterinary instruments. At the same time, the Company will continue its
research with respect to treating HIV-positive patients and with respect
to the use of MDI-P as an anti-bacterial agent. In time, the Company
intends to conduct research on the use of MDI-P with respect to other
diseases and ailments as well, particularly those covered by the
Company's patents. Additionally, the Company will continue its joint
research efforts into the use of MDI-P to remove or inactivate
infectious agents in human and animal blood-derived products, such as
plasma and gamma globulin. All these research efforts are contingent
upon the availability of funds.
LICENSING, DISTRIBUTION, AND MANUFACTURING. Given the preliminary
nature of the Company's research, and given the uncertainty of
regulatory approvals and market viability, management of the Company has
not yet determined the best course for commercialization of MDI-P in its
various potential applications. MDI may seek to commercialize the
Page 15
<PAGE>
<PAGE>
potential applications of MDI-P either directly or indirectly in
contracts with third parties, including larger, established
pharmaceutical companies.
CORPORATE HISTORY
MDI was incorporated as "Medical Discoveries, Inc." in the State of
Utah on November 20, 1991 by Dr. Robert E. Morrow, the inventor of the
product now known as MDI-P. The Company was organized for the purpose
of developing MDI-P. Dr. Morrow thereafter licensed the exclusive use
of MDI-P to the Company in exchange for royalties, which have since been
terminated. On August 6, 1992, the Company merged with and into WPI
Pharmaceutical, Inc., a Utah corporation that had no significant
business operations. Upon the merger, WPI Pharmaceutical, Inc. changed
its name to "Medical Discoveries, Inc." At the time it ceased
operations, WPI Pharmaceutical, Inc. did have a number of shareholders
and was a reporting company with the U.S. Securities and Exchange
Commission ("SEC").
EMPLOYEES AND OFFICERS
MDI is currently a development stage company that conducts research
primarily through third parties. It currently has one full-time, paid
employee who is not an officer. The officers of the Company are Mr.
Alvin Zidell, Interim President, Dr. William Welch, Vice President of
Research and Development, and Mr. Marlin Toombs, Vice President of
Corporate Affairs and Secretary. Dr. Welch and Mr. Toombs each devote
their full time to MDI's affairs. Mr. Zidell currently works on a part
time basis. Generally, the officers of the Company have not drawn any
regular salaries or bonuses, although the Company occasionally has
authorized compensation to certain officers for services rendered and
expenses personally incurred on the Company's behalf. This compensation
has generally taken the form of a waiver of the cash exercise price for
outstanding stock options to these individuals (see "Executive
Compensation" below). It is anticipated that in 1996, given an
appropriate level of funding, the Company will begin to pay appropriate
salaries to its officers.
NEW MEMBER OF THE BOARD OF DIRECTORS
The Company has appointed David Walker as a director of the
Company. He represents a group of investors who recently invested in
the Company in a private stock offering. He has been general manager of
Sunheaven Farms in Heaven Hills, Washington (a twenty thousand acre
agricultural operation) for twenty years. Mr. Walker has a degree in
economics from Brigham Young University.
ADVISOR TO THE BOARD
On April 8, 1996, the Company engaged Mr. Gerald T. Simmons to
serve as an Advisor to the Board of Directors. Mr. Simmons is a
seasoned pharmaceutical and biotechnology executive with over twenty
Page 16
<PAGE>
<PAGE>
years of marketing and senior management experience. He began his
career managing new product development and introduction for Pharmacraft
Consumer Products, a subsidiary of Ciba-Geigy, and then for Schering
Plough Consumer Products. He later served as Vice President of
Marketing and Sales for NPI Biotechnology Corporation (now Agridyne
Corp.) and for Escagenetics Biotechnology Corporation. Most recently,
he was President and CEO of Cellegy Pharmaceuticals, Inc., a
pharmaceutical company, and he remains a director of that company. He
is currently providing consulting services to development stage
companies. Mr. Simmons has an MBA degree. Mr. Simmons has also
received advanced marketing and acquisition training from Harvard
Business School and Northwestern University.
SCIENTIFIC ADVISORY BOARD
The Company has recently formed a Scientific Advisory Board for the
purpose of obtaining expert advice and guidance with respect to the
Company's research, FDA submissions, and the commercialization of MDI-P.
The members of this Scientific Advisory Board are as follows: Dr. Bruce
J. Dezube, M.D., who is an Assistant Professor of Medicine at the
Harvard Medical School, Director of AIDS Oncology at Beth Israel
Hospital in Boston, and a member of the AIDS Clinical Trial Group; Dr.
Peter R. Kerndt, M.D., who is the Director of HIV Epidemiology for the
Los Angeles County Department of Health Services; and Dr. William J.
Novick, Ph.D., who held various senior positions at Smith Kline and
French, Rorer and Hoechst-Roussel, where he was Vice President for
International Drug Development for ten years.
ITEM 2. PROPERTIES
The Company's principal place of business is located in a small
commercial office space at 2040 East Murray-Holladay Road, Suite 116,
Salt Lake City, Utah 84117. The Company currently leases such space
pursuant to a three-year lease, with a total rental obligation of
$33,840. This space is currently used primarily by Marlin Toombs and
the Company's one staff employee. This space is currently adequate for
the Company's needs, but the Company will likely need to acquire
additional space in the near future.
ITEM 3. LEGAL PROCEEDINGS
NO LEGAL PROCEEDINGS. The Company is not currently involved in any
legal proceedings.
SETTLEMENT OF ALI LAWSUIT. On March 29, 1996, Mark Del Rocco, a
former director of the Company, paid to ALI, Inc. $290,000 in complete
settlement of all of MDI's claims against Mr. Del Rocco and MDI and its
predecessor, WPI Pharmaceutical, Inc. This settlement will allow the
Company to write off a debt and accrued interest of approximately $321,000
from its balance sheet beginning March 31, 1996. The claims by ALI
against MDI have been previously reported in the Company's Form 10-QSB/A
Page 17
<PAGE>
<PAGE>
(No. 1), for the quarter ended June 30, 1996.
SETTLEMENT OF DEL ROCCO LAWSUIT. In connection with the ALI
lawsuit described above, a former director of the Company, Mark Del
Rocco, had filed a cross-claim against MDI. Mr. Del Rocco had
personally guaranteed MDI's debt to ALI. Effective December 31, 1995,
MDI and Mr. Del Rocco entered into a settlement agreement pursuant to
which MDI granted Mr. Del Rocco a two-year option to purchase 100,000
shares of MDI stock at $0.25 per share in exchange for a complete
settlement and withdrawal of Mr. Del Rocco's claims. In addition, Mr.
Del Rocco agreed to forgive the Company for approximately $284,000 that
he claimed was due to him by MDI.
SETTLEMENT OF DR. MORROW LAWSUIT. On October 12, 1995, the Company
settled its lawsuit against Dr. Robert E. Morrow, founder of MDI. The
terms of this settlement have been previously reported by the Company in
its Form 8-K, dated October 12, 1995. Beyond that settlement, on March
26, 1996, Dr. Morrow entered into a settlement agreement with the
Company in which Dr. Morrow relinquished all further royalties with
respect to MDI-P in exchange for $1,500.
SETTLEMENT OF ANTI-VIRAL LAWSUIT. In January 1996, the Company
entered into a Settlement Agreement with Anti-Viral of America, Inc.,
the company with which MDI had previously signed a Letter of Intent for
the use of MDI-P in Mexico. The Company's claims against Anti-Viral
have been previously reported in the Company's Form 10-QSB for the
quarter ended June 30, 1995. In connection with the Settlement
Agreement, a Permanent Injunction was entered against Anti-Viral of
America, Inc., its principals, and others permanently enjoining them
from using the MDI-P treatment or the technology concerning the MDI-P
treatment in any manner, from disclosing the technology or any other
trade secrets of the Company, from providing the MDI-P treatment to
patients or others, and from having possession or control, directly or
indirectly, of any machines which produce the treatment. The claims
against the Company were also dismissed with prejudice.
POTENTIAL DISPUTE. On June 15, 1995, MDI engaged Spira and
Associates, of which Robert A. Spira is the managing partner, to assist
the Company in raising money. Spira and Associates did assist the
Company in raising $332,000 through the MDI Investors Trust (the
"Trust"), of which Jonathan D. Deily, an attorney, is Trustee. To date,
of this $332,000, MDI has received $281,000 pursuant to a budget for
disbursement of Trust funds. Pursuant to the Engagement Agreement,
Spira and Associates nominated Mr. Spira to be its director on the MDI
Board of Directors, and Mr. Spira was duly appointed to that position.
Mr. Spira also nominated Mr. John J. Carella to be MDI's Chief Financial
Officer, and he too was duly appointed to that position. Subsequently,
however, due to disagreements with management, Mr. Spira resigned as a
director on March 7, 1996 and he and Spira and Associates resigned from
providing any further services to MDI since that date. The day after,
on March 8, 1996, Mr. Carella also resigned as Chief Financial Officer,
Page 18
<PAGE>
<PAGE>
also citing disagreements with management. Among numerous allegations,
Messrs. Spira and Carella alleged that MDI had expended funds from the
MDI Investors Trust outside the bounds of the Trust budget.
Subsequently, Mr. Deily too, as Trustee of the MDI Investors Trust, has
requested that the Trust funds disbursed to MDI by the Trust be placed
in escrow pending a review of MDI's expenditures. The Board of
Directors of MDI commissioned an independent review of the Company's
expenditures which were approved by Mr. Carella. The results of this
review show that the funds were expended in accordance with the budget,
and the Company has provided the results of its review to Mr. Deily.
Furthermore, the Engagement Agreement with Spira and Associates provided
for the issuance of 3,100,000 shares of MDI stock to Spira and
Associates for its services. These shares were issued in two
installments, one for 1,860,000 shares upon execution, and the second
for 1,240,000 shares. The second installment has been held in escrow by
the Company and is subject to forfeiture. MDI has terminated the
Engagement Agreement with Spira. Mr. Spira, on behalf of Spira and
Associates, is now claiming rights to the additional 1,240,000 shares.
MDI is currently consulting with its legal counsel concerning MDI's
rights and obligations under the terminated Engagement Agreement. On
May 9, 1996, Mr. Carella accepted the Company's offer for him to become
a director of the Company, subject to certain conditions. The Company
anticipates formally appointing him to fill an existing vacancy on the
board of directors in the near future.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
Page 19
<PAGE>
<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
("OTC") system under the symbol "MLSC". The following table sets forth,
for the periods indicated, the closing high and low bid prices for the
Common Stock. The prices represent inter-dealer prices, without
adjustment for retail markups, markdowns, or commissions and may not
represent actual transactions. The information has been provided by the
National Quotation Bureau, Inc.
BID PRICE
---------
HIGH LOW
---- ---
Fiscal Year Ended December 31, 1995
- -----------------------------------
First quarter 1 3/4 1/4
Second quarter 1 3/4 1/8
Third quarter 2 -- 1/8
Fourth quarter 1 11/16 1/8
Fiscal Year Ended December 31, 1994
- -----------------------------------
First quarter 6 3/4 1 1/2
Second quarter 5 -- 2 --
Third quarter 3 7/8 - 1/2
Fourth quarter 1 3/4 - 5/8
On March 29, 1996, there were approximately 846 record owners of
the Company's Common Stock. The Company estimates that the number of
beneficial holders is in excess of 2,000.
The Company has never paid a cash dividend and does not anticipate
the payment of cash dividends in the foreseeable future. Earnings are
expected to be retained to finance the Company's growth. Declaration of
dividends in the future will remain within the discretion of the
Company's Board of Directors, which will review its dividend policy from
time to time.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
CONTINUING RESEARCH. The Company is continuing its research and
development of MDI-P. The Company's focus in the next twelve months
will be to seek commercialization of MDI-P as a sterilizing agent.
Page 20
<PAGE>
<PAGE>
Beyond that, the Company will continue its research into the use of MDI
P against HIV and as an anti-bacterial agent. At the same time, the
Company will continue its joint research into removing or inactivating
infectious agents in blood-derived products and in treating livestock
diseases. Each of these objectives is discussed separately below.
MDI-P AS A STERILIZING AGENT. Management of the Company intends to
seek commercialization of MDI-P as a sterilizing agent. The reason for
this priority, as discussed above under "BUSINESS--GOVERNMENTAL
REGULATIONS," is that such use can be approved by the FDA relatively
quickly. The Company will likely seek an alliance with a large
pharmaceutical company in this regard to assist MDI in the manufacturing
and marketing of these sterilizers. Steril*Med, an affiliate of Cooley
& Cooley and the company who originally financed the initial research
into the use of MDI-P as a sterilizing agent, has a first right of
negotiation in this regard. How these sterilizers will be marketed is
still undecided, but will be determined once a marketing partner is
identified. Management believes that this use can be commercialized in
the near future, but given that the FDA must approve the application,
there is no guarantee that such approval will be obtained soon, if at
all.
MDI-P AGAINST HIV. The Company is in the early stages of seeking
FDA approval for the use of MDI-P on patients with HIV and AIDS. The
Company is currently in the process of completing its IND Application
with the FDA for such use. The Company submitted a pre-IND information
package to the FDA, to which the FDA responded by letter, dated August
30, 1994, indicating that certain additional information and testing
data should be included in the IND Application. The letter also
suggests items to assist the Company in designing the proposed initial
clinical development plan for a Phase I trial. The Company intends to
pursue the recommendations of the FDA in making its IND Application.
Once the IND Application is approved, the Company plans to seek
acceleration of these clinical trials under the recently published FDA
guidelines for drugs and treatments for life-threatening diseases. The
Company expects such acceleration will be allowed by the FDA, but there
is no assurance that this will occur. In any event, the Company expects
the clinical trials for the use of MDI-P on patients with HIV and AIDS
to take a substantial amount of time to complete. The Company expects
that a New Drug Application ("NDA") to the FDA will be approved, if at
all, in a number of years.
MDI-P AS AN ANTI-BACTERIAL AGENT. The Company has conducted
preliminary tests on the use of MDI as a potential broad spectrum anti
bacterial agent. The Company's management will likely seek an alliance
with a major pharmaceutical company in this regard to market and
distribute MDI-P for this purpose. That partner would also assist the
Company in obtaining FDA approval for such use. The Company expects
that an NDA to the FDA will be approved, if at all, in a number of
years.
Page 21
<PAGE>
<PAGE>
OTHER RESEARCH EFFORTS. The Company intends to pursue its
cooperative research efforts with two major United Stated based
pharmaceutical/biotechnology companies to evaluate the use of MDI-P in
treating certain livestock diseases and removing or inactivating
infectious agents in blood-derived products. While preliminary research
has been sufficiently positive to encourage continued joint research
efforts in this area, the Company does not know whether such research
will lead to commercialization of such uses. If the joint research
efforts are ultimately successful in establishing that such uses of
MDI-P are commercially viable, MDI intends to fully cooperate with the
pharmaceutical companies' efforts at commercialization and derive
revenues from the sale of MDI-P to these companies. Beside the
objectives described above, the Company intends to conduct further
research and to seek regulatory approval in the United States and abroad
for the testing and commercial use of MDI-P on other human diseases and
ailments.
PATENT APPLICATIONS. During the next twelve months, the Company
will continue to seek expanded patent protection for the use of MDI-P on
a variety of diseases and ailments. The Company intends to seek patent
protection both in the United States and abroad.
PRIVATE PLACEMENT CLOSED. On March 20, 1996, the Company closed a
private placement of the Company's common stock. Pursuant to this
offering to sophisticated investors, the Company sold 730,770 shares of
stock for $475,000 or $0.65 per share. Each investor in this offering
also received a warrant to acquire three shares in the future for every
one share acquired currently. Accordingly, the Company issued warrants
to these investors, allowing them to acquire an aggregate of 2,192,310
shares at $3.00 per share over the next three years. Also, in
connection with this investment, the investors as a group were granted
the right to appoint one director to the Company's board of directors
for two years.
ADDITIONAL FUNDING IS REQUIRED. The Company's planned research and
testing will require substantial additional funds. At this time, the
Company does not have sufficient cash to support all the required
testing for the project described above. Management intends to raise
substantial additional funds in both private and possibly public stock
offerings in the future in order to meet its future funding
requirements. Additionally, MDI will seek licensing and research funds
from the companies with whom MDI may establish a relationship. As
additional funds are raised or revenues received, the Company intends to
commence paying salaries to its officers and to lease appropriate office
space. The Company also intends at that time to hire additional
technical and administrative personnel. The bulk of any additional
funding will likely be spent on continued research, testing, and patent
protection with respect to MDI-P.
Page 22
<PAGE>
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
The financial statements are filed at the end of this report and
are incorporated herein by reference.
ITEM 8. CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Effective July 27, 1995, the Company's accountant, Duane V.
Midgely, was dismissed by the Company. The accountant's report on the
financial statements for either of the past two years of the Company did
not contain an adverse opinion or disclaimer of opinion, and was not
modified as to uncertainty, audit scope, or accounting principles. The
decision to change the accountant has been approved by the Board of
Directors. There were no disagreements with the former accountant on
any matters of accounting principals or practices, financial statement
disclosure, or auditing scope or procedure which, if not resolved to the
former accountant's satisfaction, would have caused him to make
reference to the subject matter of such disagreements in connection with
his report.
On November 10, 1995, the Company engaged Tanner + Co. as the
Company's accountant to audit the Company's financial statements.
Tanner & Co. is located in Salt Lake City, Utah.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
ADVISOR TO THE BOARD OF DIRECTORS
On April 8, 1996, the Company engaged Mr. Gerald T. Simmons to
serve as an Advisor to the Board of Directors. Mr. Simmons is a
seasoned pharmaceutical and biotechnology executive with over twenty
years of marketing and senior management experience. He began his
career managing new product development and introduction for Pharmacraft
Consumer Products, a subsidiary of Ciba-Geigy, and then for Schering
Plough Consumer Products. He later served as Vice President of
Marketing and Sales for NPI Biotechnology Corporation (now Agridyne
Corp.) and for Escagenetics Biotechnology Corporation. Most recently,
he was President and CEO of Cellegy Pharmaceuticals, Inc., a
pharmaceutical company, and he remains a director of that company. He
is currently providing consulting services to development stage
companies. Mr. Simmons has an MBA degree. Mr. Simmons has also
received advanced marketing and acquisition training from Harvard
Business School and Northwestern University.
Page 23
<PAGE>
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS
The following table identifies the name, ages, and positions of all
directors, officers, and persons nominated by management to become a
director.
NAME AGE POSITION
Alvin Zidell 67 Director and Interim President
William D. Welch 45 Director and Vice President of
Research and Development
Marlin N. Toombs 65 Director, Vice President of
Corporate Affairs, and Secretary
David Walker 49 Director
All current directors are serving one-year terms and are subject to
re-election at the annual meeting of shareholders. Officers are elected
to serve, subject to the discretion of the Board, until their successors
are appointed.
Alvin Zidell has been a Director of the Company since December 1,
1993. On February 1, 1996, Mr. Zidell accepted the position as Interim
President of the Company and will serve in such capacity until a
suitable candidate is found to replace him. Since April 1, 1989, Mr.
Zidell has acted a President of AZ Healthcare Group, a company which
develops and sells laser machines. Since April 1, 1992, Mr. Zidell has
also acted as a vice president of Dal-Tex Recycling, a paper recycling
company which employs approximately 48 people.
William Welch has been a Director and the Vice President of
Research for the Company since December 2, 1993. He was appointed as
Interim President on March 7, 1995, but relinquished this position on
February 1, 1996 so that he can focus on his duties as Vice President of
Research and Development. Since 1987, Dr. Welch has been the sole owner
and President of WMCL, Inc., a California corporation that provides
biotechnology consulting services. Dr. Welch has also served as a
consultant for Kaiser Permanente Regional Laboratory in Southern
California from 1990 to April 1996. From 1987 to 1990, Dr. Welch served
as the Chief of Microbiology of the Kaiser Laboratory. Dr. Welch earned
his Bachelor of Science degree in biology in 1973 and his Masters of
Arts degree in Immunology in 1974, both from California State
University, Fullerton. Dr. Welch earned his Ph.D in Microbiology and
Immunology in 1978 from the University of California, Los Angeles.
Marlin Toombs has been a Director and the Secretary for the Company
since August 6, 1992. He has served as Vice President for Corporate
Affairs since February 21, 1994. Mr. Toombs has also served as
marketing director for International Marketing, Inc. from 1985 to 1989.
He managed personal real estate from 1990 until 1992.
David Walker was appointed to the board of directors on May 2,
Page 24
<PAGE>
<PAGE>
1996. He represents a group of investors who recently invested in the
Company in a private stock offering. He has been general manager of
Sunheaven Farms in Heaven Hills, Washington (a twenty thousand acre
agricultural operation) for twenty years. Mr. Walker has a degree in
economics from Brigham Young University.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Securities and Exchange Act of 1934 requires
the Company's executive officers and directors, and persons who
beneficially own more than ten percent of the Company's stock, to file
initial reports of ownership and reports of changes in ownership with
the Securities and Exchange Commission. Officers, directors and greater
than ten-percent owners are required by applicable regulations to
furnish the Company with copies of all Section 16(a) forms that they
file.
Based solely on a review of the copies of such forms furnished to
the Company or written representations from certain persons, the Company
believes that during the 1995 fiscal year all filing requirements
applicable to its current officers and directors were complied with
except as described below. Messrs. Zidell, Welch, and Waters each filed
one form late. Mr. Toombs filed three forms late.
Additionally, based solely on the lack of any copies of the Section
16(a) forms or other written representations being furnished to the
Company, the Company believes that, during the 1995 fiscal year, certain
beneficial holders of more than 10% of the Company's stock, failed fully
to comply with the applicable requirements.
Page 25
<PAGE>
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION
The following table sets forth the annual compensation for services
rendered by certain officers for the fiscal years indicated.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
Name and Position Year Salary Bonus Other Annual
Compensation
William Welch* Fiscal 95 -0- -0- -0-
Interim President and
Vice President of R&D Fiscal 94 -0- -0- $75,000**
Fiscal 93 -0- -0- -0-
Marlin Toombs Fiscal 95 -0- -0- $60,000***
Vice President of
Corporate Affairs Fiscal 94 -0- -0- $135,000****
and Secretary
Fiscal 93 -0- -0- -0-
John J. Carella***** Fiscal 95 -0- -0- $4,687******
CFO (resigned)
Fiscal 94 N/A N/A N/A
Fiscal 93 N/A N/A N/A
Ken Brennen******* Fiscal 95 -0- -0- -0-
Vice President of
Financial Affairs Fiscal 94 N/A N/A N/A
(resigned)
* Interim President from March 7, 1995 to February 1, 1996.
** On February 17, 1995, Dr. Welch was allowed to exercise a stock
option for 75,000 shares at $1.00 per share, without the payment
of the $75,000 exercise price. This compensation was for
services rendered in 1994.
Page 26
<PAGE>
<PAGE>
*** During 1995, Mr. Toombs was given the right to exercise stock
options for 60,000 shares (accruing at 5,000 shares per month)
at $1.00 per share, without the payment of the $60,000 exercise
price. To date, Mr. Toombs has only exercised stock options for
30,000 shares, although he has the right to acquire an
additional 30,000 shares.
**** During 1995, Mr. Carella earned 1,500 shares per month for five
months ended December 31, 1995 for an aggregate of 7,500 shares.
Assuming that these shares are issued as of December 31, 1995 at
an the fair market value at that date of $0.625 per share, Mr.
Carella's total compensation is $4,687.
***** On February 17, 1995, Mr. Toombs was allowed to exercise a stock
option for 75,000 shares at $1.00 per share, without the payment
of the $75,000 exercise price. During 1994, Mr. Toombs was given
the right to exercise stock options for 60,000 shares (accruing at
5,000 shares per month) at $1.00 per share, without the payment of
the $60,000 exercise price.
****** CFO from June 1995 to March 9, 1996.
******* V.P. of Financial Affairs from June 1995 to March 20, 1996.
Page 27
<PAGE>
<PAGE>
The following table sets forth all long-term compensation and all
other compensation for the above-named executive officers for the fiscal
years indicated.
SUMMARY COMPENSATION TABLE CONTINUED
LONG-TERM (OPTIONS/SARS) AND ALL OTHER COMPENSATION
Name and Position Year Options/SARS All Other
Compensation
William Welch* Fiscal 95 None None
Interim President and
Vice President of R&D Fiscal 94 None None
Fiscal 93 400,000 None
Marlin Toombs Fiscal 95 None None
Vice President of
Corporate Affairs Fiscal 94 None None
and Secretary
Fiscal 93 500,000 None
John J. Carella** Fiscal 95 None None
CFO (resigned)
Fiscal 94 N/A N/A
Ken Brennen*** Fiscal 95 None None
Vice President of
Financial Affairs Fiscal 94 N/A N/A
(resigned)
* Interim President from March 7, 1995 to February 1, 1996.
** CFO from June 1995 to March 9, 1996.
*** V.P. of Financial Affairs from June 1995 to March 20, 1996.
Page 28
<PAGE>
<PAGE>
The Company granted no stock options/SARs to its officers or
directors during fiscal year 1995.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION/SAR VALUES
NUMBER OF
SECURITIES VALUE
UNDERLYING UNEXERCISED
UNEXCERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS AT
FY-END
SHARES VALUE FY-END
ACQUIRED REALIZED EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE ($) UNERERCISABLE UNEXERCISABLE
- ---- ----------- -------- ------------- -------------
William Welch*
Interim Presi- 75,000 $7,500 275,000/0 $0/$0
dent and Vice
President of R&D
Marlin Toombs
Vice President 105,000 $7,500 335,000/0 $0/$0
of Corporate
Affairs and
Secretary
John J. Carella**
CFO None -- None --
Ken Brennen***
Vice President None -- None --
of Financial
Affairs
* Interim President from March 7, 1995 to February 1, 1996.
** CFO from June 1995 to March 9, 1996.
*** Vice President of Financial Affairs from June 1995 to March 20,
1996.
COMPENSATION OF DIRECTORS
The Company has no standard arrangements to compensate directors of
the Company.
The compensation previously described for William Welch and Marlin
Toombs in the section captioned "Executive Compensation" includes
compensation for their services as directors of the Company.
On February 17, 1995, Alvin Zidell exercised options to purchase
75,000 shares of the Company's common stock at $1.00 per share.
Page 29
<PAGE>
<PAGE>
As previously described above, in footnote 2 to the Summary
Compensation Table in the section "Executive Compensation," the Company
has granted to Mr. Toombs the right to exercise Company stock options
that were previously granted to him at the rate of 5,000 shares per
month without the payment of the $1.00 exercise price in consideration
for services rendered and expenses he personally incurred as an officer
on behalf of the Company. Pursuant to this arrangement, Mr. Toombs
acquired 60,000 shares in 1994 and 30,000 shares in 1995. Mr. Toombs
has the right to acquire an additional 30,000 shares for 1995.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
PRINCIPAL SHAREHOLDERS
The following table sets forth the holdings of Common Stock (the
Company's sole class of stock) as of March 29, 1996 by (i) each person
who held of record, or was known by the Company to own beneficially,
more than five percent of the outstanding Common Stock of the Company,
(ii) each director, (iii) each director nominee, and (iv) all directors
and officers as a group. Unless otherwise indicated, all shares are
owned directly. Common Stock that is "beneficially owned" includes all
the Common Stock that the person has the right to acquire within 60 days
of March 29, 1996, and stock for which the person has voting rights
alone. The percentage ownership for any person assumes that all the
stock that could be acquired by that person, by option exercise or
otherwise, is in fact outstanding and that no other stockholder has
exercised a similar right to acquire additional shares. The number of
shares representing 100% of the outstanding stock in this table is
20,329,558, the number outstanding on March 29, 1996.
Page 30
<PAGE>
<PAGE>
BENEFICIAL OWNERS OF COMMON STOCK
Names and Addresses Amount of Percentage
of Certain Beneficial Owners Beneficial Ownership of Class
- ---------------------------- -------------------- -----------
Marlin Toombs
Director/Vice President
c/o Medical Discoveries, Inc. 1,782,630*# 8.7%
Dr. William Welch
Director/Vice President
6010 Sadring Avenue
Woodland Hills, CA 91367 985,000**# 4.8%
Alvin Zidell
Director/Interim President
10501 N. Central
Expressway, Suite 316-13
Dallas, TX 75231 963,000***# 4.7%
David Walker
Director
30103 West Gwinn Road
Prosser, WA 99350 160,000 .8%
Directors and Executive Officers
as a Group (4 persons) 3,890,630*,**,***# 18.9%
# Includes shares to which the shareholder has voting rights under a
Stock Purchase Agreement ("SPA") with a former director of the
Company. The SPA is for 2,800,000 shares purchased in 40 quarterly
installments by buyers (including a fourth individual not on
table). Each buyer receives 1/4 of shares. Shares are held by an
escrow agent. Shares are released in groups of 70,000 on payment
of each installment. Voting proxy for balance of shares held by
escrow agent has been granted to the buyers. If buyers default any
shares with the escrow agent revert to the seller and proxy for
those shares is cancelled.
* Includes: 305,130 shares owned directly; 600,000 shares owned in a
family partnership in which Mr. Toombs is a general partner;
542,500 shares for which Mr. Toombs has voting rights under the SPA
referred to in footnote # above; and options to purchase 335,000
shares that are currently exercisable. Excludes: all shares owned
by Mr. Toombs' children (other than through the family partnership
noted above), for which Mr. Toombs disclaims beneficial ownership.
Page 31
<PAGE>
<PAGE>
** Includes: 167,000 shares owned directly; 542,500 shares for which
Mr. Welch has voting rights under the SPA referred to in footnote #
above; and options to purchase 275,000 shares that are currently
exercisable.
*** Includes: 247,000 shares owned directly; 542,500 shares for which
Mr. Zidell has voting rights under the SPA referred to in footnote
# above; and options to purchase 173,000 shares that are currently
exercisable. Excludes: all shares held by children and other
relatives of Mr. Zidell, for which Mr. Zidell disclaims beneficial
ownership.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Dr. William Welch, who is a director and Vice President of Research
and Development of the Company, is the sole owner and the President of
WMCL, Inc., a business that performs certain IN VITRO and IN VIVO
testing services for the Company. The Company paid to WMCL, Inc.
$79,877 for such services in 1995 and $612,075 for such services in
1994. Additionally, during 1995, the Company made a prepaid advance to
WMCL, Inc. of $65,860 relating to testing services.
Mr. David Walker, a director of the Company received 61,538 shares
of the Company's stock in April 1996, valued in the aggregate at $40,000
or $0.65 per share. These shares were paid to Mr. Walker as
compensation for his services in assisting the Company in raising money
in connection with a recent private stock offering.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits Required by Item 601 of Regulation S-B.
The following are exhibits to this Form 10-KSB
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
3.1 Articles of Incorporation, as amended June 14, 1994.*
3.2 Bylaws, as amended June 14, 1994.*
10.1 1993 Incentive Plan, effective April 1, 1993.*#
10.2 Form of Stock Option Grant under 1993 Incentive Plan.*#
10.3 Settlement Agreement, dated October 12, 1995, between Dr.
Robert E. Morrow and the Company re settlement of lawsuit.**
Page 32
<PAGE>
<PAGE>
10.4 Agreement, dated March 26, 1996, between Dr. Robert E. Morrow
and the Company re termination of royalties.***
10.5 Engagement Agreement, dated June 15, 1995, between Robert
A. Spira and the Company re financial advisory services.***
* These exhibits are incorporated by reference to the Company's
Form 10-KSB for the fiscal year ended December 31, 1994, to which
these exhibits were filed as exhibits with the same exhibit
numbers as shown above.
** This exhibit is incorporated by reference to the Company's Form
8-K, dated October 12, 1995, to which it was originally filed as
"Exhibit 10.1."
# These exhibits are management or compensatory plans, contracts or
arrangements required to be filed as exhibits.
(b) Reports on Form 8-K
The Company filed one report on Form 8-K during the latest
fiscal quarter of the last fiscal year, ended December 31, 1995. The
report, dated October 12, 1995, discussed under Item 5, "Other Events,"
the entering of a Settlement Agreement with Dr. Robert E. Morrow, the
founder of the Company, for the settlement of MDI's lawsuit against Dr.
Morrow.
*** These exhibits are incorporated by reference to the Company's
original filing of Form 10-KSB for the Fiscal Year ended December 31,
1995, to which these exhibits were filed as exhibits with the same
exhibit numbers shown above.
Page 33
<PAGE>
<PAGE>
MEDICAL
DISCOVERIES, INC.
December 31, 1995 and 1994
Financial Statements
Page 34
<PAGE>
<PAGE>
MEDICAL DISCOVERIES, INC.
(A Development Stage Company)
Index to Financial Statements
Independent Auditors' Report 36
Balance Sheet 37
Statement of Operations 38
Statement of Stockholders (Deficit) 39-42
Statement of Cash Flows 43-45
Notes to Financial Statements 46-53
Page 35
<PAGE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
THE BOARD OF DIRECTORS AND
STOCKHOLDERS OF MEDICAL DISCOVERIES, INC.
We have audited the accompanying balance sheet of Medical
Discoveries, Inc., (a development stage company) as of December 31,
1995, and the related statements of operations, stockholders' (deficit)
and cash flows for the two years ended December 31, 1995 and cumulative
amounts since inception. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Medical
Discoveries, Inc., (a development stage company) as of December 31,
1995, and the results of its operations and its cash flows for the two
years then ended and cumulative amounts since inception in conformity
with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in note
2, the Company's significant losses, lack of significant revenue and a
stockholders' deficit raise substantial doubt about its ability to
continue as a going concern. Management's plans in regard to these
matters are also described in note 2. The financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
Salt Lake City, Utah
May 10, 1996
Page 36
<PAGE>
<PAGE>
MEDICAL DISCOVERIES, INC.
(A Development Stage Company)
Balance Sheet
December 31, 1995
ASSETS 1995
- ------ ----
Current assets
Cash $ 37,833
Current portion of note receivable - related party 20,796
Prepaid expenses 65,860
----------
Total current assets 124,489
----------
Note receivable - related party 99,166
Furniture and equipment 52,471
Less accumulated depreciation (3,233)
---------
Net furniture and equipment 49,238
Other assets 1,170
---------
Total assets $ 274,063
==========
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
- ---------------------------------------
Current liabilities
Accounts payable $ 536,494
Accrued interest 30,583
Current maturities of notes payable 652,556
---------
Total current liabilities 1,219,633
---------
Notes payable 4,803
Convertible notes payable 301,700
Commitments and contingencies -
Stockholders' (deficit)
Common stock - no par value,
authorized 100,000,000 shares,
21,699,558 shares issued and outstanding 5,670,585
Accumulated (deficit) (6,337,798)
Subscription receivables (584,860)
----------
Total stockholders' (deficit) (1,252,073)
----------
$ 274,063
==========
See accompanying notes to financial statements.
Page 37
<PAGE>
<PAGE>
MEDICAL DISCOVERIES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS
CUMULATIVE
AMOUNTS SINCE
YEAR ENDED NOVEMBER 20,
DECEMBER 31, 1991
------------ 1991 (DATE
1995 1994 OF INCEPTION)
---- ---- -------------
Revenues
Medical care and fees $ 38,200 70,000 108,200
Interest 3,088 - 3,088
-------- ------ -------
Total revenue 41,288 70,000 111,288
-------- ------ -------
Expenses
License - - 1,000,000
Research and
development 140,481 850,343 1,420,198
General and
administrative 1,463,282 442,819 3,162,784
Interest 7,097 - 28,577
--------- --------- ----------
Total expenses 1,610,860 1,293,162 5,611,559
--------- --------- ----------
Loss before income taxes and
extraordinary item (1,569,572) (1,223,162) (5,500,271)
Income taxes - - -
Forgiveness of debt net of
income taxes 562,050 - 562,050
-------- --------- ---------
Net loss $(1,007,522) (1,223,162) (4,938,221)
============ ========== ==========
Gain (loss) per share
Continuing operations $(.08) (.07) (.36)
Extraordinary item .03 - .04
----------- ----------- ----------
Net (loss) per share $(.05) (.07) (.32)
Weighted average number
of shares 19,064,000 16,578,000 15,504,000
=========== =========== ==========
See accompanying notes to financial statements.
Page 38
<PAGE>
<PAGE>
MEDICAL DISCOVERIES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS (DEFICIT)
COMMON STOCK
--------------- ACCUMULATED SUBSCRIPTION
SHARES AMOUNT (DEFICIT) RECEIVABLES TOTAL
------ ------ ----------- ----------- -----
Balance,
October 31, 1991 3,500,000 $252,997 (1,482,514) - (1,229,517)
Reverse stock
split (1 for 2) (1,750,000) - - - -
Restatement
for reverse
acquisition
of WPI
Pharmaceutical,
Inc. by Medical
Discoveries, Inc. - (252,997) 252,997 - -
Shares issued in
merger of WPI
Pharmaceutical
and Medical
Discoveries,
Inc. 10,000,000 135,000 (170,060) - (35,060)
Balance at
November 20,
1991 (Date of
Inception) 11,750,000 135,000 (1,399,577) - (1,264,577)
Common stock
issued for cash 200,000 100,000 - - 100,000
Common stock
issued for
services 500,000 250,000 - - 250,000
Common stock
issued for
cash 40,000 60,000 - - 60,000
Page 39
<PAGE>
<PAGE>
Net loss
October 31,
1992 - - (370,398) - (370,398)
---------- --------- --------- --------- ----------
Balance,
October 31,
1992 12,490,000 545,000 (1,769,975) - (1,224,975)
Net loss two
months ended
December 31,
1992 - - (65,140) - (65,140)
--------- --------- ---------- -------- ---------
Balance,
December 31,
1992 12,490,000 545,000 (1,835,115) - (1,290,115)
Common stock
issued for
license 2,000,000 1,000,000 - - 1,000,000
Common stock
issued for
cash at
prices of
$.50 to
$2.00 per
share 542,917 528,500 - - 528,500
Page 40
<PAGE>
<PAGE>
MEDICAL DISCOVERIES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS (DEFICIT) - CONTINUED
COMMON STOCK
--------------- ACCUMULATED SUBSCRIPTION
SHARES AMOUNT (DEFICIT) RECEIVABLES TOTAL
------ ------ ----------- ----------- -----
Common stock
issued for
services 251,450 127,900 - - 127,900
Common stock
issued for
$100,000
cash plus
services 800,000 400,000 - - 400,000
Net loss
year ended
December 31,
1993 - - (2,271,999) - (2,271,999)
Balance,
December 31,
1993 16,084,367 2,601,400 (4,107,114) - (1,505,714)
Common stock
issued for
cash at
prices of
$.75 to
$2.00 per
share 617,237 739,500 - - 739,500
Common stock
issued for
services 239,675 239,675 - - 239,675
Cash contributed - 102,964 - - 102,964
Net loss
year ended
December 31,
1994 - - (1,223,162) - (1,223,162)
Balance,
December 31,
1994 16,941,279 3,683,539 (5,330,276) - (1,646,737)
---------- --------- ---------- -------- ---------
Page 41
<PAGE>
<PAGE>
Common stock
issued for
cash at
prices of
$.45 to
$1.00 per
share 424,732 283,200 - - 283,200
Common stock
issued for
services at
prices of
$.33 to
$1.00 per
share 4,333,547 1,683,846 - (584,860) 1,098,986
Common stock
option issued
below market
value to
satisfy debt
restructuring - 20,000 - - 20,000
Net loss - - (1,007,522) - (1,007,522)
---------- -------- ---------- --------- ---------
Balance,
December 31,
1995 21,699,558 $5,670,585 (6,337,798) (584,860) (1,252,073)
========== ========= ========= ======= =========
See accompanying notes to financial statements.
Page 42
<PAGE>
<PAGE>
MEDICAL DISCOVERIES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
CUMULATIVE
YEAR ENDED AMOUNTS SINCE
DECEMBER 31, NOVEMBER 20,
---------------------------- 1991 (DATE
1995 1994 OF INCEPTION)
----------- --------- ---------------
CASH FLOWS FROM
OPERATING
ACTIVITIES:
Net loss $(1,007,522) (1,223,162) (4,938,221)
Adjustments to
reconcile net
loss to net
cash used in
operating
activities:
Common stock
issued for
services
and license 1,098,986 239,675 3,016,561
Reduction of
legal costs (130,000) - (130,000)
Depreciation 3,233 - 4,693
Loss on
disposal of
property and
equipment - - 6,330
Gain on debt
restructuring (562,050) - (562,050)
Write-off of
receivables - - 193,965
Increase in
receivables - - (7,529)
Increase in
prepaid expenses (65,860) - (65,860)
Increase in
other assets (1,170) - (1,170)
Increase (decrease)
in:
Advance to
shareholders' (2,660) - -
Accounts payable 131,913 123,860 291,127
Accrued expenses 7,097 - 28,577
--------- -------- --------
Page 43
<PAGE>
<PAGE>
Net cash used in
operating
activities (528,033) (859,627) (2,163,577)
CASH FLOWS FROM
INVESTING
ACTIVITIES:
Purchase of property
and equipment (44,310) - (52,100)
Payments received
on note receivable 10,038 - 10,038
--------- ----------- ---------
Net cash used in
investing activities (34,272) - (42,062)
--------- ----------- ---------
CASH FLOWS FROM
FINANCING
ACTIVITIES:
Payment of notes
payable (802) - (802)
Increase in convertible
note payable 301,700 - 301,700
Equity contributed - 102,964 131,374
Common stock issued
for cash 283,200 739,500 1,811,200
-------- --------- ----------
Net cash provided by
financing activities 584,098 842,464 2,243,472
-------- --------- -----------
Net (decrease)
increase in cash 21,793 (17,163) 37,833
Cash, beginning
of period 16,040 33,203 -
-------- --------- ----------
Cash, end of period $ 37,833 16,040 37,833
========== ========= ==========
Page 44
<PAGE>
<PAGE>
MEDICAL DISCOVERIES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS - CONTINUED
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
In 1995, the Company acquired furniture and equipment with a cost
of $8,161 for notes payable.
On August 6, 1992 the Company and WPI Pharmaceutical, Inc. (WPI)
entered into an agreement which has been accounted for as if the Company
acquired WPI. At the time of the acquisition WPI had the following
balance sheet:
Receivables $ 186,436
Accounts payable (245,367)
Accrued interest (49,826)
Advances shareholders (284,230)
Notes Payable (900,000)
------------
Stockholders' (Deficit) $(1,292,987)
============
CUMULATIVE
AMOUNTS SINCE
NOVEMBER 20,
1991 (DATE
1995 1994 OF INCEPTION)
---------- ---------- --------------
ACTUAL AMOUNTS
PAID FOR
INTEREST AND
INCOME TAXES
ARE AS FOLLOWS:
Interest $236 - 236
====== ===== ======
Income taxes $ - - -
====== ===== ======
See accompanying notes to financial statements.
Page 45
<PAGE>
<PAGE>
MEDICAL DISCOVERIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
ORGANIZATION
Medical Discoveries, Inc. (the Company) was organized under
the laws of the state of Utah on November 20, 1991, date of inception.
On August 6, 1992, the Company entered into an agreement whereby the
shareholders of the Company exchanged 100 percent of their common stock
for 10,000,000 shares of common stock of WPI Pharmaceutical, Inc. (WPI).
The WPI shareholders had 1,750,000 shares following a reverse stock
split of one share for two shares. At the time of the transaction the
name of WPI was changed to Medical Discoveries, Inc. (MDI). Inasmuch as
the 10,000,000 shares of common stock are in excess of 80 percent of the
total outstanding common stock of WPI, the transaction is accounted for
as a reverse acquisition. The Company is, therefore, deemed to have
acquired WPI. At the time of the merger the entity previously known as
Medical Discoveries, Inc., ceased. The development stage commenced on
November 20, 1991 which is the date of the inception of MDI.
The Company has not generated any significant revenue and is,
therefore, considered a development stage company as defined in SFAS No.
7. The Company has, at the present time, not paid any dividends and any
dividends that may be paid in the future will depend upon the financial
requirements of the Company and other relevant factors.
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company
considers all highly liquid debt instruments with a maturity of three
months or less to be cash equivalents.
FURNITURE AND EQUIPMENT
Furniture and equipment are carried at cost. Depreciation is
computed using the straight-line method over 3 to 7 years. When assets
are retired or otherwise disposed of, the cost and related accumulated
depreciation are removed from the accounts, and any resulting gain or
loss is recognized in income for the period. The cost of maintenance
and repairs is charged to income as incurred; significant renewals and
betterments are capitalized. Deduction is made for retirements
resulting from renewals or betterments.
INCOME (LOSS) PER COMMON SHARE
Income (loss) per share of common stock is calculated based on
the weighted average number of shares outstanding during the periods.
Page 46
<PAGE>
<PAGE>
Common stock equivalents and stock options have not been included as
they are antidilutive.
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
- --------------------------------------------------------------
CONCENTRATION OF CREDIT
The primary purpose of the business is the research and
development of an anti-viral treatment for infectious diseases and the
sterilization of medical equipment. The Company has no significant
revenues and, therefore, no trade receivables or extensions of credit.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of financial instruments is determined by
reference to various market data and other valuation techniques as
appropriate. Financial instruments subject to possible material market
variations from the recorded book value are notes payable to related
parties and advances from related parties. There are no material
differences in these financial instruments from the recorded book value
as of December 31, 1995.
USE OF ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
RECLASSIFICATIONS
Certain amounts in the prior period financial statements have
been reclassified in order to conform to the 1995 presentation.
(2) GOING CONCERN
- ---------------------
The accompanying financial statements have been prepared
assuming that the Company will continue as a going concern. The Company
has not had significant revenues and is still in the process of
developing anti-viral treatments for infectious diseases and the
sterilization of medical equipment. The Company is hopeful but there is
no assurance that the current product development and research will be
economically viable. The Company has incurred substantial operating
losses in the development of the product.
The Company is dependent upon the sale of its common stock to
Page 47
<PAGE>
<PAGE>
satisfy its current cash operating needs. The Company is also looking
into the possibility of licensing its technology to an outside unrelated
party. Although, management has been successful thus far in raising the
needed capital there can be no assurance that the Company and its
management will be able to continue to sell sufficient amounts of common
stock or enter into license agreements to bring the current product
development to a point where it is economically viable. Management
intends to meet its cash needs through the issuance of additional shares
of common stock and licensing its technology.
(3) NOTE RECEIVABLE RELATED PARTY
- -------------------------------------
In 1995, the Company entered into an agreement to recover
costs which had been expended in a dispute with a former officer. The
Company received a 0% interest rate note in the amount of $150,000. The
note was discounted to $130,000 to realize a 9.5% return for financial
statements. The note requires quarterly payments of $13,125.
(4) LICENSE AGREEMENT
- -------------------------
In July 1992, the Company entered into an agreement to acquire
the license for the exclusive rights to certain technology and patents.
The agreement was amended in January 1993 and October 1995. The amended
agreement called for the Company to make royalty payments of 1% for all
sales made by the Company using the technology, and should the Company
sublicense the technology, the Company will make royalty payments of 3%
for all sublicense sales. The term of the licensing agreement was ten
years. The Company issued 2,000,000 shares of its restricted common
stock as consideration for the exclusive world wide licensing agreement.
The Company has not had any revenues which are applicable to the license
agreement. In March 1996, the Company entered into an agreement which
terminated the licensing agreement. The Company has paid cash of $1,500
for the termination of the licensing agreement.
(5) ADVANCES PAYABLE TO SHAREHOLDERS
- ----------------------------------------
The Company had advances payable to two shareholders totaling
$286,890 at December 31, 1994. The advances were non interest bearing.
Effective December 31, 1995, the Company entered into an agreement which
Page 48
<PAGE>
<PAGE>
resolved litigation relating to the advances and other matters. As part
of the settlement agreement the shareholder forgave $284,230 of the
advances payable from the Company and received an option to purchase
100,000 shares of the Company's common stock for $.25 per share.
(6) NOTES PAYABLE
- ---------------------
The Company has the following notes payable at December 31, 1995:
Note payable to a financial institution
which is in default and currently due.
At the time of the merger with WPI, the
Company was unaware of the debt. Subsequent
to December 31, 1995, the Company resolved
litigation relating to the note payable
where in the Company was forgiven of the note
payable and related accrued interest. The
Company did not accrue interest in 1995
and 1994 as the contention of the Company
was that it did not owe the amount. $650,000
Note payable to a company requiring monthly
payments of $260 including interest at an
implied rate of 9% secured by equipment 7,359
--------
657,359
Less current maturity 652,556
--------
Total long-term $ 4,803
=========
Current maturities are as follows:
YEAR AMOUNT
---------- --------
1996 $652,556
1997 2,795
1998 2,008
--------
$657,359
=========
Page 49
<PAGE>
<PAGE>
(7) CONVERTIBLE NOTES PAYABLE
- ---------------------------------
The Company has $301,700 of notes payable to a trust. The
notes have an interest rate of 12%, and have a term of three years.
Each $1,000 note is convertible into 667 shares of the Company's common
stock.
(8) RELATED PARTY TRANSACTIONS
- -----------------------------------
During 1995, the Company settled litigation relating to a
former officer of the Company where in the officer forgave the Company
of advances payable of $284,230 and assumed the liability for notes
payable of $250,000 plus related accrued interest in exchange for an
option to purchase 100,000 shares of the Company's common stock for $.25
per share. The Company incurred a $20,000 expense from the option as it
was issued for less than the market value of the stock. The expense was
offset against the gain on the forgiveness of debt.
The Company has at December 31, 1995 made a prepaid advance of
$65,860 to an officer shareholder and his entity relating to development
of the technology and at December 31, 1994, has an account payable to
the officer shareholder and his entity of $63,718. During 1995 and
1994, the Company incurred costs relating primarily to the development
of the technology of $79,877 and $612,075, respectively, from the
officer shareholder and his related entity.
The Company has agreed to make the payments on a vehicle lease
for an officer of the Company. The annual payments totalled $4,320
during 1995 and 1994, and future payments total $2,680.
(9) INCOME TAXES
- -----------------------------------
The provision for income taxes for the year ended December 31,
1995 and 1994, is different than amounts which would be provided by
applying the statutory federal income tax rate to income before
provision for income taxes for the following reasons:
YEAR ENDED
DECEMBER 31,
1995 1994
------- -------
Federal income tax
benefit (provision) at statutory rate $ 342,000 416,000
Change in valuation allowance (342,000) (416,000)
--------- -------
$ - -
========= =======
Page 50
<PAGE>
<PAGE>
The net timing differences for deferred income tax assets are
as follows:
Net operating loss carry forward $1,645,000
Valuation allowance (1,645,000)
Net deferred tax asset $ -
===========
(9) INCOME TAXES - CONTINUED
- ---------------------------------
Inasmuch as it is not possible to determine when or if the net
operating losses will be utilized, a valuation allowance has been
established to offset the benefit of the utilization of the net
operating losses.
The Company has available net operating losses of
approximately $4,938,000 which can be utilized to offset future earnings
of the Company. The Company also has available approximately $43,000 in
research and development credits which expire in 2008. The utilization
of the net operating losses and research and development credits are
dependent upon the tax laws in effect at the time such losses can be
utilized. The losses expire between the years 2007 and 2010.
(10) GAIN ON DEBT FORGIVENESS
- ---------------------------------
At December 31, 1994, the Company was involved in litigation
regarding notes payable of $900,000 and corresponding related accrued
interest. In 1995, the litigation was partially resolved and the
Company was relieved of $250,000 principal portion of its obligation on
the notes payable and accrued interest. In March, 1996, the Company was
notified that it had been released from all obligations relating to the
debt and related accrued interest. To resolve the litigation including
repayment of the advances payable of $284,230, the Company agreed to
issue options to a former officer to purchase 100,000 shares of Company
stock at $.25 per share. The Company did not accrue interest for the
notes payable in 1995 and 1994 as its contention that it was not liable
was up held and the $900,000 of notes payable and accrued interest of
$71,306 were written off as an extraordinary gain on debt forgiveness in
1995 and 1996. The gain on the debt forgiveness in 1995 was $562,050
and approximately $673,000 in 1996.
Page 51
<PAGE>
<PAGE>
(11) STOCK OPTIONS
- ----------------------
The Company has an incentive stock option plan wherein
4,000,000 shares of the Company's common stock can be issued. The
Company has granted stock options to certain officers and shareholders
of the Company to purchase shares of the Company's restricted common
stock. A schedule of the options at December 31, 1995 is as follows:
NUMBER OF OPTION YEARS NUMBER OF NUMBER OF
DATE OPTIONS OPTION EXPIRATION OPTION OPTIONS OPTIONS
GRANTED GRANTED PRICE DATE EXERCISED EXERCISED AVAILABLE
- ------- -------- ------ --------- --------- --------- ---------
1-1-93 2,301,000 $1.00 12-31-96 1994 657,000
1995 655,000 989,000
9-1-94 100,000 1.00 12-31-96 1995 25,000 75,000
12-31-95 100,000 .25 12-31-97 - - 100,000
-------- -------- -------
2,501,000 1,337,000 1,164,000
========= ========= =========
(12) COMMITMENTS
- --------------------
The Company leases its office facility under an operating
lease. The lease requires monthly payments of $895 through the year
1998. Approximate future commitments under this lease are as follows:
YEAR AMOUNT
------ --------
1996 $11,000
1997 11,600
1998 6,900
------ -------
$29,500
=======
Annual rent expense totaled approximately $10,000 for the
years ended December 31, 1995 and 1994.
Page 52
<PAGE>
<PAGE>
(13) RECENT ACCOUNTING PRONOUNCEMENTS
- ------------------------------------------
The Financial Accounting Standards Board has issued Statements
of Financial Accounting Standard Statement No. 121, "Accounting for Long
Lived Assets" and No. 123, "Accounting and Disclosure of Stock-Based
Compensation." Statement No. 121 is effective for years beginning after
December 15, 1995. The effect of adoption of Statement No. 121 will not
have a material effect on the Company's financial statements. Statement
No. 123 is effective for awards granted after December 31, 1994, and has
required financial presentation for the years beginning after December
15, 1995. The effect of adoption of Statement No. 123 is not expected
to have a material effect on the Company's financial statements.
(14) SUBSEQUENT EVENTS
- --------------------------
Litigation
The Company resolved its litigation relating to the
liabilities of its note payable, accrued interest, and
advances payable. The Company in 1996, realized an
aggregate extraordinary gain of approximately $673,000.
Potential Dispute
The Company in 1995, engaged an entity to raise capital.
As part of the agreement the Company issued shares of its
stock to the entity, placed an officer of the other
entity on the Company's Board of Directors and appointed
another individual related to the entity to be the
Company's Chief Financial Officer. In 1996, both
individuals resigned from their positions with the
Company and have made numerous allegations. The Company
is in discussion with the entity and these individuals to
determine the extent and validity of these allegations.
The Company is unable at this time to determine the
validity, extent or financial importance these items may
or will have on the financial condition of the Company,
no adjustment has been made in these financial statements
for this item.
Issuance of Stock
The Company has continued to issue its restricted common
stock to generate working capital. Subsequent to
December 31, 1995, the Company has issued 830,770 shares
of its restricted common stock.
Licensing Agreement
In March 1996, the Company entered into an agreement
which terminated the licensing agreement by paying
$1,500.
Page 53
<PAGE>
<PAGE>
SIGNATURES
----------
In accordance with Section 13 or 15(d) of the Exchange Act, the
Company caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
MEDICAL DISCOVERIES, INC.
May 31, 1996 By:/s/ Alvin Zidell
-----------------------------------------
Alvin Zidell
Interim President (principal executive and
financial officer)
In accordance with the Exchange Act, this report has been signed
below by the following persons on behalf of the Company and in the
capacities and on the dates indicated.
POWER OF ATTORNEY
-----------------
Know all men by these presents, that each person whose signature
appears below constitutes and appoints each of Alvin Zidell and Marlin
Toombs, jointly and severally, his true and lawful attorney in fact and
agent, with full power of substitution for him and in his name, place
and stead, in any and all capacities, to sign any or all amendments to
this report on Form 10-KSB and to file the same, with all exhibits
thereto and other documents in connection therewith with the Securities
and Exchange Commission, hereby ratifying and confirming all that each
said attorney in fact or his substitute or substitutes may do or cause
to be done by virtue hereof.
Page 54
<PAGE>
<PAGE>
Signature Title Date
_________ _____ ____
/s/ Alvin Zidell
- ----------------------------- Director and Interim May 31, 1996
Alvin Zidell President
/s/ Marlin Toombs
- ----------------------------- Director, Vice Presi- May 31, 1996
Marlin Toombs dent of Corporate Affairs,
and Secretary
/s/ David Walker
- ----------------------------- Director May 31, 1996
David Walker
Page 55
<PAGE>
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 37,833
<SECURITIES> 0
<RECEIVABLES> 119,962
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 124,489
<PP&E> 52,471
<DEPRECIATION> 3,233
<TOTAL-ASSETS> 274,063
<CURRENT-LIABILITIES> 1,219,633
<BONDS> 0
0
0
<COMMON> 5,670,585
<OTHER-SE> (6,922,658)
<TOTAL-LIABILITY-AND-EQUITY> 274,063
<SALES> 38,200
<TOTAL-REVENUES> 41,288
<CGS> 0
<TOTAL-COSTS> 1,610,860
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,097
<INCOME-PRETAX> (1,569,572)
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,007,522
<DISCONTINUED> 0
<EXTRAORDINARY> 562,050
<CHANGES> 0
<NET-INCOME> 1,007,522
<EPS-PRIMARY> (.05)
<EPS-DILUTED> (.05)
</TABLE>
