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, 1998
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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)
2985 North 935 East, Suite 9, Layton, UT 84041
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(Address of principal executive offices)
(801) 771-0523
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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: 23,240,567
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as of April 30, 1998
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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, 1998 (unaudited) and March 31, 1997
(unaudited)
Statements of Operations for the Three-Month Periods ended March 31, 1998
(unaudited) and March 31, 1997 (unaudited) and since inception through
March 31, 1998 (unaudited)
Statements of Cash Flows for the Three-Month Periods ended March 31, 1998
(unaudited) and March 31, 1997 (unaudited)
Notes to Unaudited Financial Statements
<PAGE>
MEDICAL DISCOVERIES, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
AS OF MARCH 31, 1998 AND DECEMBER 31, 1997
(UNAUDITED)
March 31, 1998 December 31, 1997
-------------- --------------
CURRENT ASSETS
Cash $ 3,033 $ 764
Accounts receivable 19,187 30,585
Inventory 10,500 0
Prepaid expenses 6,792 10,869
---------- ----------
Total Current Assets 39,511 42,219
PROPERTY AND EQUIPMENT
Equipment 72,304 72,304
Less: Accumulated depreciation (27,233) (23,507)
---------- ----------
Net Property and Equipment 45,071 48,797
OTHER ASSETS 2,220 3,160
Total Assets $ 86,803 $ 94,176
========== ==========
CURRENT LIABILITIES
Accounts payable $1,047,764 $ 916,734
Accrued interest 25,906 14,360
Current maturities of:
Notes payable 101,809 102,591
Convertible notes payable 291,700 291,700
---------- ----------
Total Current Liabilities 1,467,179 1,325,385
STOCKHOLDERS' EQUITY
Common Stock, no par value,
authorized 100,000,000 6,557,317 6,507,317
shares; 23,240,567 shares
issued and outstanding at
March 31, 1998
Retained deficit (7,825,193) (7,626,026)
Subscription receivables (112,500) 112,500
----------- -----------
Total Stockholders' Equity (1,380,376) (1,231,209)
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 86,803 $ 94,176
=========== ===========
<PAGE>
MEDICAL DISCOVERIES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS
FOR THE PERIODS ENDED MARCH 31, 1998 AND MARCH 31, 1997
(UNAUDITED)
Cumulative
For the three months Amounts since
ended March 31, November 20,
-------------------------- 1991 (date of
1998 1997 inception)
---------- --------- -------------
REVENUE
Revenue and fees $ 2,273 $ 0 $ 110,473
Interest 726 0 21,617
---------- ---------- -------------
Total Revenue 2,999 0 132,090
COST OF GOODS SOLD 1,250 0 1,250
---------- ---------- -------------
MARGIN 1,749 0 130,840
EXPENSES
License 0 0 1,001,500
Research and development 73,825 301 1,930,701
General and administrative 112,923 161,684 4,702,380
Interest 14,168 0 (1) 157,411
---------- ---------- -------------
Total Expenses 200,916 161,985 7,791,992
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NET LOSS FROM OPERATIONS (199,167) (161,985) (7,661,152)
OTHER INCOME / (EXPENSE) 0 (11,527) 0
---------- ---------- -------------
LOSS BEFORE INCOME TAXES (199,167) (173,512) (7,661,152)
AND EXTRAORDINARY ITEM
INCOME TAXES 0 0 0
---------- ---------- -------------
LOSS BEFORE EXTRAORDINARY (199,167) (175,512) (7,661,152)
ITEM
FORGIVENESS OF DEBT 0 0 1,235,536
---------- ---------- -------------
NET INCOME $(199,167) $(173,512) $ (6,425,616)
========== ========== =============
INCOME / (LOSS) PER SHARE
Loss from continuing
operations $ (0.01) $ (0.01) $ (0.43)
Gain from debt
forgiveness 0.00 0.00 0.07
---------- ----------- -------------
Income / (loss) per
share $ (0.01) $ (0.01) $ (0.36)
=========== =========== =============
WEIGHTED AVERAGE NUMBER
OF SHARES 23,192,519 21,675,645 17,735,587
============ ============== =============
(1) Interest expense is included as Other Income / (Expense) in 1Q97.
<PAGE>
MEDICAL DISCOVERIES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
FOR THE PERIODS ENDED MARCH 31, 1998 AND MARCH 31, 1997
(UNAUDITED)
Cumulative
For the three months Amounts since
ended March 31, November 20,
-------------------- 1991 (date of
1998 1997 inception)
----------- ----------- -------------
OPERATING ACTIVITIES
Net income (loss) for the
period $ (199,167) $ (173,512) $ (6,425,616)
Add non-cash items
Common stock issued for
services and license 0 0 3,419,236
Reduction of legal costs 0 0 (130,000)
Depreciation 3,726 3,372 28,692
Loss on disposal of equipment 0 0 30,364
Gain on debt restructuring 0 0 (1,235,536)
Write-off receivables 0 0 193,965
Decrease (increase) in:
Receivables 11,399 11,289 3,870
Inventory (10,500) 0 (10,500)
Prepaid Expenses 4,077 4,044 (6,792)
Other assets 940 0 (2,220)
Increase (decrease) in:
Accounts payable 131,030 (22,329) 891,855
Accrued expenses 11,546 (8,751) 47,387
---------- ----------- ------------
Net Cash from Operations (46,949) (140,869) (3,195,295)
INVESTING ACTIVITIES
Purchases of equipment 0 (986) (95,967)
Payments received on note
receivable 0 0 99,414
---------- ----------- ------------
Net Cash from Investing Activities (986) (986) 3,447
FINANCING ACTIVITIES
Increase in notes payable 0 61,000 101,000
Payment of notes payable (782) (675) (6,570)
Increase in notes payable 0 0 316,700
Equity contributed 0 0 131,374
Proceeds from issuance of
common stock 50,000 80,134 2,603,159
---------- ----------- ------------
Net Cash from Financing
Activities 49,218 140,459 3,145,663
---------- ----------- ------------
NET INCREASE / (DECREASE) IN CASH 2,269 (1,396) 764
CASH, BEGINNING PERIOD 764 25,307 0
---------- ----------- ------------
CASH ENDING PERIOD $ 3,033 $ 23,911 $ 764
========== =========== ============
<PAGE>
MEDICAL DISCOVERIES, INC.
NOTES TO FINANCIAL STATEMENTS
March 31, 1998
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, 1998 and the
results of operations and changes in financial position for the three-month
period ended March 31, 1998. The results of operations for the three months
ended March 31, 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.
The Company is in the process of establishing a "consumer products" division
(MDI Healthcare Systems) as part of its strategy of developing certain aspects
of its core technologies for commercialization. MDI recorded its first revenues
from its consumer products division for the period from April 1, 1998 to May 15,
1998. MDI reduced its year-to-date general and administrative expense to
$112,923 from $161,684 in 1Q1998 compared to 1Q1997 by increased efficiencies in
its operations. Funding for on-going operations is discussed in the "Additional
Funding is Required" section below.
DEVELOPMENT OF NEW/IMPROVED TECHNOLOGY. During the last quarter, the Company has
continued to focus its research and development activities to further enhancing
its core technologies. Chief among these efforts (which are in the process of
patent applications) is the capability of developing a new generation of
consumer products utilizing its "electrolyzed saline waters". These variations
of the Company's patented core technologies, and resultant commercially viable
products, better enable the Company to aggressively pursue new markets outside
of its traditional "pharmaceutical research and development operations" with a
wide variety of applications. Included among these new target markets are
applications in the newly evolving skin care "cosmeceutical" industry, home
water purification, and "bottled waters".
These new markets represent significant revenue generating opportunities for the
Company in the near term, and the Company is presently developing the
appropriate infrastructure to aggressively pursue these markets.
The Company remains committed to the pursuit of establishing MDI-P as an
effective liquid chemical sterilant for the sterilization of surgical
instruments, and developing MDI-P as an effective anti-bacterial, anti-viral and
anti-fungal pharmaceutical.
PLANS TO FORM A NEW CONSUMER PRODUCTS DIVISION. MDI is in the final stages of
establislihig a new operating division focused on the commercialization of
products targeted at the health and wellness, cosmetic, home water purification
systems and "bottled waters" markets. The products to be marketed by this new
division will be a combination of proprietary products internally developed as
well as unique products sourced from strategic partners located in the United
States and certain international markets.
<PAGE>
STRATEGIC ALLIANCE. MDI has initiated discussions with a privately held company
specializing in the research, development, and commercialization of proprietary
products in the health care industry. It is anticipated that these discussions
will conclude in the establishment of "joint venture" health care company
focused on the identification, exploration, validation, development and
commercialization of new innovative solutions to existing and newly emerging
health care problems and opportunities.
MANAGENIENT AND SCIENTIFIC BOARD ADDITIONS. William J. Novick, Jr., Ph.D., Chief
Technical Officer was promoted to the position of Vice President, and will serve
as an Officer of the Corporation.
Osao Sumita, Ph.D., has joined the Company as Sr. Director, Engineering and
Technology Development. Dr. Sumita has spent nearly 20 years in research and
development in the field of electrolysis and related technologies. Since 1992 he
has been president and founder of Coherent Technologies (Tokyo, Japan) a
research and development firm specializing in the development of proprietary
electrolysis technology systems. Dr. Sumita received his Doctorate from the
Tokyo Institute of Technology, Tokyo, Japan, and is the holder of several
patents in the field of electrolysis. In this newly created position, Dr. Sumita
will be responsible for technology development and related research activities.
Mr. Neal G. Ofiesh has recently joined the company as National Sales Director,
Consumer Products. Mr. Ofiesh has been actively engaged in the sales,
distribution and management of sales activities for a number of companies in the
field of water purification systems, cosmetics and related consumer products. In
this newly created position, Mr. Ofiesh will provide the Company with proven
expertise in establishing a national distribution network for the Company's
consumer products. Prior to joining the Company, Mr. Ofiesh was affiliated with
the MeLaLeuca, Natural World and NSA corporations.
PATENT ACTIVITY. The Company was notified by the US Patent Office that another
patent for its MDI-P technology was issued. The patent number is titled
"Electrically Hydrolyzed Salines as Microbicides" and is for a microbiocidal
solution for in vivo and in vitro treatment of microbial infections. This brings
to six the current number of patents issued for the Company's core technologies.
Additionally, the Company received notice of allowance of another patent from
the US Patent Office for the use of MDI-P "Electrically Hydrolyzed Salines as
Microbicides".
JAPANESE MARKET OPPORTUNITIES AND ANALYSIS. MDI is continuing discussions
regarding licensing and other business development relationships with several
Japanese companies. There is strong interest in the medical pharmaceutical
market applications of the Company's proprietary compound, MDT-P. MDI is
actively discussing potential alliances with several Japanese companies to
jointly collaborate in this area using the Company's patented technologies and
drawing on its experience in the medical area with its Scientific Advisory
Board.
In December of 1997, MDI was invited to present an update of its research
activities at the annual Functional Water Society Foundation in Tokyo, Japan.
Dr. Novick, the Company's Chief Technical Officer, presented the results of the
research work of Aldonna Baltch, MD and her colleagues at the Stratton VA
Medical Center, Albany, New York. Dr. Baltch's in-vitro research activities have
confirmed the effectiveness of MDI-P as an efficient anti-fungal compound
through the complete destruction of the fungus Candida Albicans.
ADDITIONAL FUNDING IS REQUIRED. MDI needs to raise additional capital to fund
its FDA and international regulatory approvals process. Additionally, each of
the research and testing programs in progress continues to show promise and
generate valuable scientific data, and therefore, requires appropriate levels of
funding. 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 public stock
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.
FUNDING. In January 1998, the Company raied $50,000 in exchage for 270,270
shares of common stock at $0.1875 per share and warrants to purchase 540,540
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, 1997.
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, 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. MARCH 31, 1998 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-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 3,033
<SECURITIES> 0
<RECEIVABLES> 19,187
<ALLOWANCES> 0
<INVENTORY> 10,500
<CURRENT-ASSETS> 39,511
<PP&E> 72,304
<DEPRECIATION> 27,233
<TOTAL-ASSETS> 86,803
<CURRENT-LIABILITIES> 1,467,179
<BONDS> 0
0
0
<COMMON> 6,557,317
<OTHER-SE> (7,937,193)
<TOTAL-LIABILITY-AND-EQUITY> 86,803
<SALES> 2,273
<TOTAL-REVENUES> 2,999
<CGS> 1,250
<TOTAL-COSTS> 200,916
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,168
<INCOME-PRETAX> (199,167)
<INCOME-TAX> 0
<INCOME-CONTINUING> (199,167)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (199,167)
<EPS-PRIMARY> (0.01)
<EPS-DILUTED> (0.01)
</TABLE>
