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 Sept. 30, 1998
--------------------
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
-------
MEDICAL DISCOVERIES, INC.
- -------------------------------------------------------------------------
(Exact Name of Small Business Issuer as Specified in Its Charter)
Utah 87-0407858
- -------------------------------------------------------------------------
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
2985 North 935 East, Suite 9, Layton, UT 84041
- ------------------------------------------------------------------------
(Address of principal executive offices)
(801) 771-0523
- ------------------------------------------------------------------------
(Issuer's Telephone Number)
N/A
- ------------------------------------------------------------------------
(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: 24,240,634
-----------
as of October 31, 1998
----------------
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 Sept. 30, 1998 (unaudited) and December 31, 1997
(unaudited).
Statements of Operations for the Three-Month Periods ended
Sept. 30, 1998 (unaudited) and Sept. 30, 1997 (unaudited)
and the Nine-Month Periods ended Sept. 30, 1998 (unaudited)
and Sept. 30, 1997 and since inception through Sept. 30, 1997
(unaudited).
Statements of Cash Flows for the Nine-Month Periods ended
Sept. 30, 1998 (unaudited) and Sept. 30, 1997 (unaudited).
Notes to Unaudited Financial Statements.
<PAGE>
MEDICAL DISCOVERIES, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEET
AS OF SEPT. 30, 1998 AND DECEMBER 31, 1997
(UNAUDITED)
Sept. 30, 1998 December 31, 1997
-------------- ------------------
CURRENT ASSETS
Cash $ 151,858 $ 765
Accounts receivable 3,761 30,585
Inventory 134,500 0
Prepaid expenses 15,089 10,869
---------- ----------
Total Current Assets 305,208 42,219
PROPERTY AND EQUIPMENT
Equipment 105,248 72,304
Less: Accumulated depreciation (34,492) (23,507)
---------- ----------
Net Property and Equipment 70,756 48,797
OTHER ASSETS
Deposits 900 3,160
Total Assets $ 376,864 $ 94,176
========== ==========
CURRENT LIABILITIES
Accounts payable $1,302,858 $ 916,734
Accrued interest 32,072 14,360
Current maturities of:
Notes payable 106,000 102,591
Convertible notes payable 291,700 291,700
---------- ----------
Total Current Liabilities 1,732,630 1,325,385
STOCKHOLDERS' EQUITY
Common Stock, no par value,
authorized 100,000,000 7,138,997 6,507,317
shares; 24,240,634 shares
issued and outstanding at
Sept. 30, 1998
Retained deficit (8,382,263) (7,626,026)
Subscription receivables (112,500) (112,500)
----------- -----------
Total Stockholders' Equity (1,355,766) (1,231,209)
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 376,864 $ 94,176
=========== ===========
<PAGE>
<TABLE>
<CAPTION>
MEDICAL DISCOVERIES, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE PERIODS ENDED SEPT. 30, 1998 AND SEPT. 30, 1997
(UNAUDITED)
Cumulative
For the three months For the nine month Amounts since
ended Sept. 30, ended Sept. 30, November 20,
---------------------------- ---------------------------- 1991 (date of
1998 1997 1998 1997 inception)
---------- -------- ---------- ---------- -----------
REVENUE
<S> <C> <C> <C> <C> <C>
Product sales $ 4,837 $ 0 $ 17,684 $ 0 $ 17,684
Clinical fees 0 0 0 0 108,200
Interest 1,357 0 2,515 0 23,406
---------- ---------- ---------- ---------- ------------
Total Revenue 6,194 0 20,199 0 149,290
COST OF GOODS SOLD 2,250 0 7,250 0 7,250
---------- ---------- ---------- ---------- ------------
GROSS MARGIN 3,944 0 12,949 0 142,040
EXPENSES
License 0 0 0 0 1,001,500
Research and development 131,530 50,407 277,017 30,071 2,133,893
General and administrative 243,679 79,577 452,711 298,298 5,042,168
---------- ---------- ---------- ---------- ------------
Total Expenses 375,209 129,984 729,728 328,369 8,177,561
---------- ---------- ---------- ---------- ------------
NET LOSS FROM OPERATIONS (371,265) (129,984) (716,779) (328,369) (8,035,521)
OTHER INCOME / (EXPENSE) ( 13,237) (10,775) (39,459) (42,005) 103,787
---------- ---------- ---------- ---------- ------------
LOSS BEFORE INCOME TAXES (384,502) (140,759) (756,238) (370,374) (7,931,734)
AND EXTRAORDINARY ITEM
INCOME TAXES 0 0 0 0 0
---------- ---------- ---------- ---------- ------------
LOSS BEFORE EXTRAORDINARY (384,502) (140,759) (756,235) (370,374) (7,931,734)
ITEM
FORGIVENESS OF DEBT 0 0 0 0 1,235,536
---------- ---------- ---------- ---------- ------------
NET INCOME $(384,502) $(140,759) $(756,235) $(370,374) $(6,696,198)
========== ========== ========== ========== ============
INCOME / (LOSS) PER SHARE
Loss from continuing
operations $ (0.02) $ (0.01) $ (0.03) $ (0.01) $ (0.44)
Gain from debt
forgiveness 0.00 0.00 0.00 0.00 0.07
----------- ----------- ------------ ----------- ------------
Income / (loss) per
share $ (0.02) $ (0.01) $ (0.03) $ (0.01) $ (0.37)
=========== ============ ============ =========== ===========
WEIGHTED AVERAGE NUMBER
OF SHARES 23,997,410 22,060,975 23,897,943 21,873,600 18,184,851
=========== ============ ============ =========== ===========
</TABLE>
<PAGE>
MEDICAL DISCOVERIES, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIODS ENDED SEPT. 30, 1998 AND SEPT. 30, 1997
(UNAUDITED)
Cumulative
For the nine months amounts since
ended June 30, November 20,
------------------------- 1991 (date of
1998 1997 inception)
----------- ----------- -------------
OPERATING ACTIVITIES
Net income (loss) for the
period $ (756,237) $ (266,067) $ (6,982,686)
Add non-cash items
Common stock issued for
services and license 0 313,508 3,419,236
Reduction of legal costs 0 0 (130,000)
Depreciation 10,985 9,311 35,951
Loss on disposal of equipment 0 0 30,364
Gain on debt restructuring 0 (673,486) (1,235,536)
Write-off receivables 0 0 193,965
Decrease (increase) in:
Receivables 26,825 31,566 19,296
Inventory (134,500) 0 (134,500)
Prepaid Expenses (4,220) 51,035 (15,089)
Other assets 2,260 0 (900)
Increase (decrease) in:
Accounts payable 386,124 52,227 1,146,949
Accrued expenses 17,712 9,678 53,553
---------- ----------- ------------
Net Cash from Operations (222,172) (472,228) (3,599,397)
INVESTING ACTIVITIES
Purchases of equipment (32,944) (19,611) (128,911)
Payments received on note
receivable 0 0 99,414
---------- ----------- ------------
Net Cash from Investing Activities (32,944) (19,611) (29,497)
FINANCING ACTIVITIES
Increase in notes payable 0 12,545 101,000
Payment of notes payable (3,409) 0 (3,161)
Increase in notes payable 0 0 316,700
Equity contributed 0 0 131,374
Proceeds from issuance of
common stock 631,680 485,000 3,234,839
---------- ----------- ------------
Net Cash from Financing
Activities 635,089 497,545 3,780,752
---------- ----------- ------------
NET INCREASE / (DECREASE) IN CASH 151,094 5,706) 151,858
CASH, BEGINNING PERIOD 764 37,833 0
---------- ----------- ------------
CASH ENDING PERIOD $ 151,858 $ 43,539 $ 151,858
========== =========== ============
<PAGE>
MEDICAL DISCOVERIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Sept. 30, 1998
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The unaudited financial statements include the accounts of Medical
Discoveries, Inc. and its subsidiary, MDI HealthCare Systems, Inc.
and include all adjustments which are, in the opinion of management,
necessary to present fairly the financial position as of
Sept. 30, 1998 and the results of operations and changes in financial
position for the three-month period ended Sept. 30, 1998. The results
of operations for the three months ended Sept. 30, 1998 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.
OPERATIONS AND LIQUIDITY.
MDI had booked revenue of $17,684 for the period from January 1, 1998 to Sept.
30, 1998 compared to no revenue for the same period in 1997. The revenue results
from preliminary market preference testing of Electrolyzed Ionizer Water
purification devices targeted at the home health care markets. The company spent
$277,017 in research and development costs during the first nine months of 1998
compared to $30,071 for the same period in last year. The increased spending
reflects the final stage testing of the Company's novel drug "MDI-P" targeted at
the HIV/AIDS disease in preparation for filing an Investigational New Drug
Application ("IND") with the Food and Drug Administration ("FDA"). MDI increased
its General and Administrative expense by 52 percent to $452,711 from $298,298.
This increase is mainly a result of the launch of the MDI HealthCare Systems,
Inc. subsidiary. In addition to the start-up expenses, the company has purchased
inventory valued at $130,000 and production equipment for $24,855 for the new
company. The company is currently in negotiations related to convertible notes
payables totaling $291,700 which mature at various dates from October 12, 1998
to February 12, 1998. MDI seeks to extend payment terms on these notes. Funding
for on-going operations and current maturities of notes payable is discussed in
the "Additional Funding is Required" section below.
TECHNOLOGY UPDATE
MDI continues validation testing of its novel drug "MDI-P" targeted at the
HIV/AIDS disease. In testing during the last quarter, MDI-P was shown to be
capable of killing HIV in cell cultures without mortality to the cells. In
addition, toxicity studies have been initiated and a final report will be
available by the second quarter 1999. As a pre-cursor to an IND application at
the FDA, MDI has also initiated microbiology studies. These studies should be
completed by February 1999. Before an IND can be progressed, the Company will
need to complete more in-vitro HIV studies and chemical characterization
studies. The Company anticipates these studies will completed and that an IND
can be filed during the second quarter of 1999. If the FDA accepts the IND, MDI
will be able to begin clinical trials in the third quarter of 1999. Progress of
the Company's plan for submission to the FDA of an IND Application depends on
the continued success of the toxicity, microbiology, studies and the completion
of the chemical characterization work and sufficient funding to complete
testing. See "Additional Funding Required" section below. While results to date
continue to show promise, the Company can provide no assurance the technology
will eventually be proven.
<PAGE>
JOINT VENTURE ACTIVITIES
MDI entered into a Joint Venture Agreement in July 1998 with Advanced
Bio-Technologies, Inc. ("ABT"). MDI and ABT formed a joint venture company named
Regenere, Inc. to pursue certain targeted markets in the skin care
cosmeceuticals area.
Regenere, Inc., a subsidiary of Medical Discoveries, Inc. has retained Nevada
counsel to enforce its rights under the Joint Venture Agreement with Advanced
BioTechnologies, Inc. to account for proceeds delivered to former officers and
directors and for a declaration from the courts to its rights in the matter.
Existing management of Regenere Inc. does not believe that the lawsuit will
affect the Company's ability to achieve its Business Plan, and that this lawsuit
will not affect the ongoing activities of Medical Discoveries, Inc., which is
not a party to the action.
NEW CONSUMER PRODUCTS SUBSIDIARY
MDI's new operating division, MDI HealthCare Systems, has been established as a
separate corporation named MDI HealthCare Systems, Inc. ("MDI-HCS"). MDI-HCS is
a wholly owned subsidiary of MDI. The establishment of MDI-HCS as a separate
corporation allows MDI-HCS to develop a separate corporate identity consistent
with the needs of the cosmeceuticals health care industry focused on the
identification, exploration, validation, development and commercialization of
innovative solutions for scar therapy, wound healing, and skin care and repair.
This strategy is consistent with the Company's intention to utilize certain of
its proprietary technologies, intellectual property and key personnel resources
to enter less restrictive consumer markets which offer rapid revenue producing
opportunities. MDI-HCS anticipates a first quarter 1999 product launch of its
InvisiScar (tm), Aqua-Cleanse (tm), and Beautification Face Mask (tm) product
lines.
Jack Kushner has joined MDI-HCS as Vice-President, Research & Development. Mr.
Kushner is responsible for the development of a number of wound care products
and provides a new dimension to the Company's consumer products subsidiary.
MDI-HCS is negotiating various distribution agreements for its products that
should be completed during the fourth quarter of 1998 and the first quarter of
1999. The Company is developing production capacity and a distribution channel.
The success of MDI-HCS depends on the Company's ability to properly finance the
product launch and the response of competitive products. See "Additional Funding
Required" section below.
PATENT ACTIVITY
The Company has filed an additional patent with the US Patent and Trademark
Office on newly developed electrolysis technology that has been developed by the
Japan-based research and development team.
FUNDING
In September 1998, the Company raised $200,000 in exchange for 266,667 shares of
common stock at a price of $0.75 per share, warrants to purchase 533,334 shares
<PAGE>
of stock at prices ranging from $0.75 to $1.50 per share, and certain exclusive
limited distribution rights for the Company's own products as well as products
from MDI-HCS. A private financial group consisting of USA-based medical doctors
representing a variety of specialties provided the funding. In connection with
this funding, MDI will receive additional investment consulting services from an
investment banking concern in exchange for 80,000 warrants to purchase the
Company's common stock at $0.001 per share, and 333,333 warrants to purchase the
Company's common stock at prices ranging from $0.50 to $0.75 per share. The bulk
of this funding will be spent on validation testing required for submission to
the FDA of an IND application for MDI-P targeted against the HIV/AIDS virus and
to meet the cash requirements of MDI-HCS.
MDI TRUST FUND NOTES. The company has various notes totaling $289,200 with due
dates ranging from October 11, 1998 to February 11, 1999due to the MDI
Investment Trust. At the request of the beneficiaries of the Trust, MDI has
arranged for extended payment terms of the notes to be paid directly to the
beneficiaries of the Trust. MDI will need to raise an additional $289,200 to
repay the beneficiaries over the next three months.
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. In the future, management anticipates the
need to raise substantial additional funds in public stock offerings as well.
The funds to be raised will be used in the following areas: 1) submission of an
IND Application with the FDA for it novel Anti-HIV/AIDS drug, 2) the launch of
MDI-HCS, 3) payment of the MDI Trust Fund obligations, 4) commencement of
payment of salaries to Company personnel, and 5) at such time as funds become
available, the prior debts of the company.
<PAGE>
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Regenere, Inc., a subsidiary of Medical Discoveries, Inc. has commenced legal
action against Advanced Bio-Technologies, Inc. its former Joint Venture partner
in order to enforce its rights under the Joint Venture Agreement with Advanced
Bio-Technologies, Inc. to account for proceeds delivered to former officers and
directors and for a declaration from the courts to its rights in the matter.
Medical Discoveries, Inc, is not a party to the action.
The company anticipates no other litigation and no other litigation is pending.
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: November 13, 1998 /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. SEPTEMBER 30, 1998 FINANCIAL STATEMENTS AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 151,858
<SECURITIES> 0
<RECEIVABLES> 3,761
<ALLOWANCES> 0
<INVENTORY> 134,500
<CURRENT-ASSETS> 305,208
<PP&E> 105,248
<DEPRECIATION> 34,492
<TOTAL-ASSETS> 376,864
<CURRENT-LIABILITIES> 1,302,858
<BONDS> 0
0
0
<COMMON> 7,138,997
<OTHER-SE> (8,494,763)
<TOTAL-LIABILITY-AND-EQUITY> 376,864
<SALES> 17,684
<TOTAL-REVENUES> 20,199
<CGS> 7,250
<TOTAL-COSTS> 729,728
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 39,456
<INCOME-PRETAX> (756,235)
<INCOME-TAX> 0
<INCOME-CONTINUING> (756,235)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (756,235)
<EPS-PRIMARY> (0.03)
<EPS-DILUTED> (0.03)
</TABLE>
