UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
X Quarterly report under Section 13 or 15(d) of the Securities
=== Exchange Act of 1934
For the quarterly period ended June 30, 1996
----------------
Transition report under Section 13 or 15(d) of the Securities
=== Exchange Act of 1934
For the transition period from to
------------ ------------
Commission File Number: 0-12627
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MEDICAL DISCOVERIES, INC.
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(Exact Name of Small Business Issuer as Specified in Its Charter)
Utah 87-0407858
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(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
2040 East Murray-Holladay Road, Suite 116, Salt Lake City, UT 84117
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(Address of principal executive offices)
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(801) 273-7388
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(Issuer's Telephone Number)
N/A
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(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
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. X Yes No
=== ===
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant has filed all documents and reports
required to be filed by Sections 12, 13, or 15(d) of the Exchange Act
after the distribution of securities under a plan confirmed by a court.
Yes No
=== ===
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practicable date: 21,361,786
as of July 26, 1996. ----------
-------------
Transitional Small Business Disclosure Format (check one)
Yes X No
=== ===
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PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The following financial statements are filed with this report:
Balance Sheets as of June 30, 1996 (unaudited) and June 30, 1995
(unaudited)
Statements of Operations for the Three-Month and Six-Month Periods ended
June 30, 1996 (unaudited) and June 30, 1995 (unaudited)
and since inception through June 30, 1996 (unaudited)
Statements of Cash Flows for the Six-Month Periods ended
June 30, 1996 (unaudited) and June 30, 1995 (unaudited)
Notes to Unaudited Financial Statements
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<TABLE> MEDICAL DISCOVERIES, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
AS OF JUNE 30, 1996 AND JUNE 30, 1995
(UNAUDITED)
June 30, 1996 June 30, 1995
------------- -------------
<S> <C> <C>
CURRENT ASSETS
Cash $ 139,709 $ 75,363
Accounts Receivable 44,639 12,500
---------- ----------
Total Current Assets 184,348 87,863
PROPERTY AND EQUIPMENT
Equipment 63,129 42,092
Less: Accumulated Depreciation (9,148) (17,320)
---------- ----------
Net Property and Equipment 53,981 24,772
OTHER ASSETS
Deposits 1,170 0
Note receivable 54,527 0
Deferred Federal R&D Tax Credits 0 118,561
License Agreement and
Marketing Rights 0 10,000
---------- ----------
Total Other Assets 55,697 128,561
Total Assets $ 294,026 $ 241,196
========== ==========
</TABLE>
<TABLE>
<S> <C> <C>
CURRENT LIABILITIES
Accounts Payable $ 508,434 $ 103,081
Medical care deposits 0 6,833
Accrued interest 9,400 0
Current maturities of
notes payable 2,618 0
----------- -----------
Total Current Liabilities 520,452 109,941
LONG TERM LIABILITIES
Notes payable 320,492 750,000
----------- -----------
Total Long Term Liabilities 320,492 750,000
----------- -----------
TOTAL LIABILITIES 840,944 859,914
----------- -----------
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STOCKHOLDERS' EQUITY
Common Stock, no par value,
authorized 100,000,000 6,444,093 3,503,772
shares; issued and
outstanding
22,831,324 at
June 30, 1996
Retained Deficit (6,406,151) (4,122,490)
Subscription receivables (584,860) 0
----------- -----------
Total Stockholders' Equity (546,918) (618,718)
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 294,026 $ 214,196
=========== ===========
</TABLE>
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<TABLE> MEDICAL DISCOVERIES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS
FOR THE PERIODS ENDED JUNE 30, 1996 AND JUNE 30, 1995
(UNAUDITED)
Cumulative
For the three months For the six months Amounts since
ended June 30, ended June 30, November 20,
--------------------- ------------------ 1991 (date of
1996 1995 1996 1995 inception)
------ ------ ------ ------ ------------
<S> <C> <C> <C> <C> <C>
REVENUE
Clinical Fees $ - $ 1,367 $ - $ 1,367 $ 108,200
------------ ------------ ------------ ------------ ------------
Total Revenue 0 1,367 0 1,367
EXPENSES
License 0 0 0 0 1,000,000
Research and
Development 89,517 15,668 150,248 42,477 2,253,807
General and
Administrative 399,881 74,101 573,610 145,492 3,048,033
Depreciation 3,125 2,161 5,915 4,043 10,915
------------ ------------ ------------ ------------ ------------
Total
Expenses 492,523 91,930 729,773 192,012 6,312,755
------------ ------------ ------------ ------------ ------------
NET LOSS FROM
OPERATION (492,523) (90,563) (729,773) (190,645) (6,204,555)
OTHER INCOME/
(EXPENSE) (6,285) 0 (12,066) 0 (37,555)
------------ ------------ ------------ ------------ ------------
LOSS BEFORE
INCOME TAXES (498,809) (90,563) (741,839) (190,645) (6,242,110)
AND EXTRAOR-
DINARY ITEM
INCOME TAXES - - 0 0 0
------------ ------------ ------------ ------------ ------------
LOSS BEFORE
EXTRAORDI- (498,809) (90,563) (741,839) (190,645) (6,242,110)
NARY ITEM
FORGIVENESS
OF DEBT - - 673,486 - 1,235,536
------------ ------------ ------------ ------------ ------------
NET INCOME $ (498,809) $ (90,563) $ (68,353) $ (190,645) $(5,006,574)
============ ============ ============ ============ ============
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INCOME/(LOSS)
PER SHARE
Loss from
continuing
operation $ (0.02) $ (0.01) $ (0.03) $ (0.01) $ (0.37)
Gain from
debt for- - - 0.03 - 0.07
giveness
------------ ------------ ------------ ------------ ------------
Income/(loss)
per share $ (0.02) $ (0.01) $ (0.00) $ (0.01) $ (0.30)
============ ============ ============ ============ ============
WEIGHTED
AVERAGE
NUMBER OF
SHARES $22,603,903 $17,092,498 $22,308,461 $17,414,418 $16,746,028
============ ============ ============ ============ ============
</TABLE>
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<TABLE>
MEDICAL DISCOVERIES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
FOR THE PERIODS ENDED JUNE 30, 1996 AND JUNE 30, 1995
(UNAUDITED)
Cumulative
For the six months Amounts since
ended June 30, November 20,
------------------------ 1991 (date of
1996 1995 inception)
---------- ---------- --------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net Income (Loss) for the
period $ (68,353) $ (190,645) $ (5,006,574)
Add non-cash items
Depreciation 5,915 4,043 10,608
Common stock issued for
services and royalty repurchase 199,050 3,215,611
Loss on disposal of equipment 6,330
Gain on Debt Restructuring (673,486) (1,235,536)
----------- ----------- -------------
Net Cash from Operations (536,874) (186,602) (3,009,561)
WORKING CAPITAL CHANGES
Decrease (increase) in Accounts
Receivable 20,796 (12,500) 87,270
Decrease (increase) in
Prepaid Expenses 65,860 0
Decrease (increase) in Other Assets (1,170)
Increase (decrease) in: 0
Advances to shareholders' 0
Accounts payable (28,060) (28,607) 263,067
Accrued Interest 2,365 2,365
Accrued Expenses 6,832 28,577
----------- ----------- -------------
Net Cash from Working
Capital Changes 60,961 (34,275) 380,109
</TABLE>
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<S> <C> <C> <C>
INVESTING ACTIVITIES
Purchases of Equipment $ (10,685) (3,000) $ (62,758)
----------- ----------- -------------
Net Cash from Investing
Activities (10,685) (3,000) (62,758)
FINANCING ACTIVITIES
Payment of notes payable (802)
Increase in notes payable 13,989 315,689
Equity contributed 131,374
Proceeds from issuance of
common stock 574,458 283,200 2,385,658
----------- ----------- -------------
Net Cash from Financing
Activities 588,447 283,200 2,831,919
----------- ----------- -------------
NET INCREASE / (DECREASE) IN CASH 101,876 59,323 139,709
CASH, BEGINNING PERIOD 37,833 16,040 0
CASH ENDING PERIOD $ 139,709 $ 75,363 $ 139,709
========== =========== ============
</TABLE>
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MEDICAL DISCOVERIES, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 1996
NOTES TO UNAUDITED FINANCIAL STATEMENTS
The unaudited financial statements include the accounts of Medical
Discoveries, Inc. and include all adjustments which are, in the opinion
of management, necessary to present fairly the financial position as of
June 30, 1996 and the results of operations and changes in financial
position for the three-month and six-month periods ended June 30, 1996.
The results of operations for the six months ended June 30, 1996 are not
necessarily indicative of the results to be expected for the entire year.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
NON-CASH TRANSACTIONS. The Company had several significant non-cash
transactions which were recorded in the second quarter. These events were
developed to allow the Company to resolve certain outstanding issues for
little or no cash disbursements. A long-standing legal dispute was settled by
issuance of stock valued at $97,500 in lieu of cash. The obligation for
commissions due on equity raised was paid by issuance of stock valued at
$8,000 in lieu of cash. Payment for the organization of and services rendered
by the Scientific Advisory Board and others were paid by issuance of stock
valued at $87,000 in lieu of cash. Previously existing debt obligations
totalling $89,458 were settled by issuance of stock valued in lieu of cash.
Of the loss of $498,809 reported in the second quarter, $192,500 was a result
of stock issuances for 245,000 shares of stock (1.07 percent of the
outstanding shares) and represents no cash disbursements by the company.
CONTINUING RESEARCH. The Company is continuing its research and
development of MDI-P. The Company's current focus is to seek
commercialization of MDI-P as a sterilizing agent. 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 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
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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
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 an IND Application. If and
when the IND Application is approved, the Company plans to seek acceleration
of these clinical trials under the 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
submitted 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 submitted in
a number of years.
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.
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PATENT APPLICATIONS. Recently, the Company filed a patent application
for a method of treating blood and blood products in vitro to inactivate
bacteria and viruses. The Company has received informal indication from the
U.S. Patent office that the application is in condition for allowance. Thus,
the Company anticipates that a patent will be issued on its application in the
next six months. 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.
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
projects 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.
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PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In the Company's 10-KSB filed April 13, 1996, the Company reported a potential
dispute involving Robert A. Spira, John J. Carella, and other parties. The
Company has had discussions with and has provided extensive information to
Jonathan D. Deily, the trustee of the MDI Investors Trust, in response to his
allegations that MDI had used the proceeds of the Trust outside the bounds of
the Trust budget. The Company's analysis of its use of these proceeds
demonstrates that the Trust funds were properly applied. Mr. Deily currently
is reviewing the documentation that MDI sent to him. The Company's management
is otherwise attempting to cooperate with Mssrs. Spira, Carella, and Deily to
resolve any outstanding disputes.
ITEM 2. CHANGES IN SECURITIES
N/A
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
N/A
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
N/A
ITEM 5. OTHER INFORMATION
ITEM 6. 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-QSB.
EXHIBIT NUMBER DESCRIPTION
- -------------- -----------
27 Financial Data Schedule.
(b) Reports on Form 8-K
N/A
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
MEDICAL DISCOVERIES, INC.
Date: August 14, 1996 MARLIN TOOMBS
---------------------------
Vice President
(Principal Financial Officer)
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<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> $139,709
<SECURITIES> 0
<RECEIVABLES> 44,639
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 184,348
<PP&E> 63,129
<DEPRECIATION> 9,148
<TOTAL-ASSETS> 294,026
<CURRENT-LIABILITIES> 520,452
<BONDS> 0
0
0
<COMMON> 6,044,093
<OTHER-SE> (6,406,151)
<TOTAL-LIABILITY-AND-EQUITY> 294,026
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 492,523
<TOTAL-COSTS> 492,523
<OTHER-EXPENSES> 6,285
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 498,809
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (498,809)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> (.02)
</TABLE>
