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 March 31, 1997
----------------
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.
- ------------------------------------------------------------------------
(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)
(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: 21,796,259
-----------
as of April 30, 1997
---------------
Transitional Small Business Disclosure Format (check one)
Yes X No
=== ===
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The following financial statements are filed with this report:
Balance Sheets as of March 31, 1997 (unaudited) and March 31, 1996
(unaudited)
Statements of Operations for the Three-Month Periods ended
March 31, 1997 (unaudited) and March 31, 1996 (unaudited)
and since inception through March 31, 1997 (unaudited)
Statements of Cash Flows for the Three-Month Periods ended
March 31, 1997 (unaudited) and March 31, 1996 (unaudited)
Notes to Unaudited Financial Statements
<PAGE>
MEDICAL DISCOVERIES, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
AS OF MARCH 31, 1997 AND MARCH 31, 1996
(UNAUDITED)
March 31, 1997 March 31, 1996
-------------- --------------
CURRENT ASSETS
Cash $ 23,911 $ 329,742
Accounts receivable 47,896 43,604
Prepaid expenses 6,736 0
---------- ----------
Total Current Assets 78,543 373,346
PROPERTY AND EQUIPMENT
Equipment 75,217 54,262
Less: Accumulated depreciation (19,913) (6,023)
---------- ----------
Net Property and Equipment 55,304 48,239
OTHER ASSETS
Deposits 1,170 1,170
Note receivable 18,186 66,083
---------- ----------
Total Other Assets 19,356 67,253
Total Assets $ 153,203 $ 488,838
========== ==========
CURRENT LIABILITIES
Accounts payable $ 692,496 $ 531,133
Accrued interest 17,288 16,373
Short term notes payable 61,000 0
Current maturities of
notes payable 2,859 2,520
---------- ----------
Total Current Liabilities 773,643 550,006
LONG TERM LIABILITIES
Notes payable 317,969 320,590
---------- ----------
Total Long Term Liabilities 317,969 320,590
---------- ----------
TOTAL LIABILITIES 1,091,612 870,596
---------- ----------
STOCKHOLDERS' EQUITY
Common Stock, no par value,
authorized 100,000,000 6,166,867 5,638,085
shares; 21,796,259 shares
issued and outstanding at
March 31, 1997
Retained deficit (6,967,776) (5,907,343)
Subscription receivables (137,500) 112,500
----------- -----------
Total Stockholders' Equity (938,409) (381,618)
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 153,203 $ 488,838
=========== ===========
<PAGE>
MEDICAL DISCOVERIES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS
FOR THE PERIODS ENDED MARCH 31, 1997 AND MARCH 31, 1996
(UNAUDITED)
Cumulative
For the three months Amounts since
ended March 31, November 20,
-------------------------- 1991 (date of
1997 1996 inception)
---------- --------- -------------
REVENUE
Clinical fees $ 0 $ 0 $ 108,200
---------- ---------- -------------
Total Revenue 0 0 108,200
EXPENSES
License 0 0 1,001,500
Research and development 301 60,730 2,707,357
General and administrative 161,684 173,729 4,131,470
---------- ---------- -------------
Total Expenses 161,985 237,249 6,840,327
---------- ---------- -------------
NET LOSS FROM OPERATION (161,985) (237,249) (6,732,127)
OTHER INCOME / (EXPENSE) (11,527) (5,781) (71,608)
---------- ---------- -------------
LOSS BEFORE INCOME TAXES (173,512) (243,030) (6,803,735)
AND EXTRAORDINARY ITEM
INCOME TAXES 0 0 0
---------- ---------- -------------
LOSS BEFORE EXTRAORDINARY (173,512) (243,030) (5,743,301)
ITEM
FORGIVENESS OF DEBT 0 673,486 1,235,536
---------- ---------- -------------
NET INCOME $(173,512) $ 430,456 $ (5,568,199)
========== ========== =============
INCOME / (LOSS) PER SHARE
Loss from continuing
operations $ (0.01) $ (0.01) $ (0.42)
Gain from debt
forgiveness 0.00 0.03 0.08
---------- ----------- -------------
Income / (loss) per
share $ (0.01) $ 0.02 $ (0.35)
=========== ============ =============
WEIGHTED AVERAGE NUMBER
OF SHARES 21,675,645 20,388,823 16,050,971
============ ============== =============
<PAGE>
MEDICAL DISCOVERIES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
FOR THE PERIODS ENDED MARCH 31, 1997 AND MARCH 31, 1996
(UNAUDITED)
Cumulative
For the three months Amounts since
ended March 31, November 20,
-------------------- 1991 (date of
1997 1996 inception)
----------- ----------- -------------
OPERATING ACTIVITIES
Net income (loss) for the
period $ (173,512) $ 430,456 $ (5,568,199)
Add non-cash items
Common stock issued for
services and license 0 40,000 3,215,611
Reduction of legal costs 0 0 (130,000)
Depreciation 3,372 2,790 21,373
Loss on disposal of equipment 0 0 6,330
Gain on debt restructuring 0 (673,486) (1,235,536)
Write-off receivables 0 0 193,965
Decrease (increase) in:
Receivables 11,289 10,275 3,760
Prepaid Expenses 4,044 65,860 (6,736)
Other assets 0 0 (1,170)
Increase (decrease) in:
Accounts payable (22,329) (5,521) 536,586
Accrued expenses (8,751) 23,326 38,769
Short term notes payable 61,000 0 61,000
---------- ----------- ------------
Net Cash from Operations (79,869) (106,300) (2,864,247)
INVESTING ACTIVITIES
Purchases of equipment (986) (1,791) $ (74,846)
Payments received on note
receivable 0 0 52,629
---------- ----------- ------------
Net Cash from Investing Activities (986) (1,791) (22,217)
FINANCING ACTIVITIES
Payment of notes payable (675) 0 (4,033)
Increase in notes payable 0 0 316,700
Equity contributed 0 0 131,374
Proceeds from issuance of
common stock 80,134 400,000 2,466,334
---------- ----------- ------------
Net Cash from Financing
Activities 79,459 400,000 2,910,375
---------- ----------- ------------
NET INCREASE / (DECREASE) IN CASH (1,396) 291,909 23,911
CASH, BEGINNING PERIOD 25,307 37,833 0
---------- ----------- ------------
CASH ENDING PERIOD $ 23,911 $ 329,742 $ 23,911
========== =========== ============
<PAGE>
MEDICAL DISCOVERIES, INC.
NOTES TO FINANCIAL STATEMENTS
March 31, 1997
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
March 31, 1997 and the results of operations and changes in financial
position for the three-month period ended March 31, 1997. The results
of operations for the three months ended March 31, 1997 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.
MANAGEMENT AND DIRECTOR CHANGES. MDI announced the appointment of Lee F.
Kulas as President, Chief Executive Officer and Director. Mr. Kulas has
over 20 years' of broad-based experience in management, marketing, sales
and international business development, and has served as chief executive
of two medical device start-up companies. He was most recently associated
with K. K. Adachi (Osaka, Japan) as president and chief executive officer
of Adachi's U.S. operations. Founder and former CEO of Applied Vascular
Engineering, Inc. (Nasdaq: AVEI), Kulas has also held marketing and sales
positions with the Cordis Corporation (now a division of Johnson &
Johnson), Mallinckrodt Interventional Cardiology, the Puritan Bennett Corp.
and C.R. Bard.
As an international business development consultant with special emphasis
on Europe and Japan, Kulas spearheaded the establishment of United States
operations for two foreign medical products companies. The driving force
behind 23 major product introductions, Kulas piloted the "user design team"
concept and has supervised clinical research, regulatory submissions and
product development activities domestically and in Canada, Europe and
Japan. He is named on one patent and two patents pending.
Concurrent with the appointment of Mr. Kulas as Presdient and CEO, Mr.
Alvin Zidell, who had been serving as Interim President during the
company's search for a President and CEO, resigned his position as Interim
President. Mr. Zidell remains as a member of the Board of Directors.
MDI also announced the appointment of David Walker, also a director, to the
position of Chairman of the board.
Dr. William J. Novick, Ph.D. has accepted the appointment of the company as
Chairman of the Scientific Advisory Board. Dr. Novick brings over 30 years
experience in technology and product development in the pharmaceutical
industry, most recently as Senior Director of International Product
Development for Hoechst-Roussel Pharmaceuticals, Inc. In this latter
position, Dr. Novick has been responsible for the development and FDA
approval of over 20 chemotherapeutic agents including antibiotics and anti-
HIV drugs. Dr. Novick is currently a member of several national and
federal committees which determine guidelines for use and testing (clinical
and in-vitro) of anti-microbial agents.
<PAGE>
The Board of Directors announced the resignation of William Welch, Ph.D.
Now that the MDI technology (MDI-P) has progressed from basic research and
development into the pre-clinical and commercialization phase, Dr. Welch
has decided to pursue other interests more closely aligned with his
expertise.
Mr. Paul Griesgraber has been appointed Director of Licensing and
Development, and as a member of the Board. Mr. Griesgraber brings to the
company experience in development and negotiating sponsorship agreements in
Japan, Europe and the United States.
JAPANESE CHAPTER OF THE SCIENTIFIC ADVISORY BOARD. MDI announced the
establishment of a Japanese Chapter on the Scientific Advisory Board. The
following internationally renowned physicians and scientists have accepted
appointments: Dr. Akito Ohmura, M.D., Professor of Anesthesiology, Teikyo
University of Medicine, Tokyo, Japan, and Professor Kitamoto, Ph.D.,
Chairman, Tokyo Industrial University, Tokyo, Japan. The Japanese Chapter
of MDI'S Scientific Advisory Board will assist the company in an advisory
capacity as the company prepares necessary regulatory and scientific
applications in preparation for entering Japanese markets.
PATENTS AND PATENT APPLICATIONS. MDI announced the issuance of a receipt
of a Notice of Allowance, ("NOA"), from the U.S. Patent and Trademark
Office regarding the patent titled "Electrically Hydrolyzed Salines as
Microbicides." This patent is a follow-on to previously issued patents
covering the instrument that manufactures the company's proprietary
antimicrobial agent called MDI-P. The aforementioned NOA refers to patent
protection for the solution itself. As provided by the patent, not only
must all future producers of MDI-P utilize the MDI electyrolyzer machine,
but the solution produced from that machine and any application for that
solution is also protected by this latest patent.
CORPORATE HEADQUARTERS RELOCATION. MDI announced the relocation of its
corporate headquarters to larger, more cost efficient space, wherein a
research laboratory can be fully equipped. The move is part of a necessary
plan as the company prepares for pre-clinical and pre-commercialization
phases of its technologies.
ADDITIONAL FUNDING IS REQUIRED. Management intends to raise substantial
additional funds in private stock offerings in the near future in order to
meet its near-term funding requirements with a special emphasis in Japan.
In the future, management anticipates the need to raise substantial
additional funds in publicstock offerings as well. As additional funds are
raised, the Company intends to commence paying salaries to its officers.
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.
SUBSEQUENT EVENTS, ADDITIONAL FUNDING. In May 1997, The Company raised
$100,000 in exchange for 200,000 shares of common stock at $0.50 per share
and warrants to purchase 200,000 shares of stock at $1.00 per share.
<PAGE>
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not currently involved in any litigation and there has been
no change in any with regard to any potential legal dispute since the
filing of the Company's 10KSB for the year ended December 31, 1996.
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
N/A
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
<PAGE>
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: May 15, 1997 /s/ Lee F. Kulas
---------------------------
President and Chief Executive
Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MEDICAL
DISCOVERIES, INC. MARCH 31, 1997 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 23,911
<SECURITIES> 0
<RECEIVABLES> 47,986
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 78,543
<PP&E> 75,217
<DEPRECIATION> (19,913)
<TOTAL-ASSETS> 153,203
<CURRENT-LIABILITIES> 773,643
<BONDS> 0
0
0
<COMMON> 6,166,867
<OTHER-SE> (7,105,276)
<TOTAL-LIABILITY-AND-EQUITY> 153,203
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 161,985
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,527
<INCOME-PRETAX> (173,512)
<INCOME-TAX> 0
<INCOME-CONTINUING> (173,512)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (173,512)
<EPS-PRIMARY> (0.01)
<EPS-DILUTED> (0.01)
</TABLE>
