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, 1999
----------------
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
=== ===
<PAGE>
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: 26,473,625
-----------
as of April 30, 1999
---------------
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 Sheet as of March 31, 1999 (unaudited) and December 31, 1998
(unaudited)
Statements of Operations for the Three-Month Periods ended March 31, 1999
(unaudited) and March 31, 1998 (unaudited) and since inception through
March 31, 1999 (unaudited)
Statements of Cash Flows for the Three-Month Periods ended March 31, 1999
(unaudited) and March 31, 1998 (unaudited) and since inception through
March 31, 1999 (unaudited)
Notes to Unaudited Financial Statements
<PAGE>
MEDICAL DISCOVERIES, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1999 AND MARCH 31, 1998
(UNAUDITED)
March 31, 1999 December 31, 1998
------------- -------------
CURRENT ASSETS
Cash $ 32,702 $ 84,847
Accounts receivable 2,921 2,716
Inventory 165,698 158,225
Prepaid expenses 6,862 10,973
------------- -------------
Total Current Assets 208,183 256,761
PROPERTY AND EQUIPMENT
Equipment 108,521 108,521
Less: Accumulated depreciation (43,222) (39,610)
------------- -------------
Net Property and Equipment 65,299 68,911
OTHER ASSETS 900 1,409
------------- -------------
Total Assets $ 274,382 $ 327,081
============= =============
CURRENT LIABILITIES
Accounts payable $ 1,454,165 $ 1,399,414
Accrued interest 58,361 44,129
Current maturities of:
Notes payable 296,717 191,717
Convertible notes payable 200,983 250,983
------------- -------------
Total Current Liabilities 2,010,226 1,886,246
STOCKHOLDERS' EQUITY
Common Stock, no par value,
authorized 100,000,000 9,761,250 9,661,250
shares; 26,473,625 shares
and 26,373,625 shares
issued and outstanding at
March 31, 1999 and December
31, 1998, respectively
Retained deficit (11,314,594) (11,107,915)
Subscription receivables (112,500) 112,500
------------- -------------
Total Stockholders' Equity (1,735,844) (1,559,165)
------------- -------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 274,382 $ 327,081
============= =============
<PAGE>
MEDICAL DISCOVERIES, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE PERIODS ENDED MARCH 31, 1999 AND MARCH 31, 1998
(UNAUDITED)
Cumulative
For the three months Amounts since
ended March 31, November 20,
-------------------------- 1991 (date of
1999 1998 inception)
---------- --------- -------------
REVENUE
Revenue and fees $ 0 $ 2,273 $ 126,609
Interest 0 726 23,406
---------- ---------- -------------
Total Revenue 0 2,999 150,015
EXPENSES
Cost of Sales $ 0 $ 1,250 $ 7,750
License 0 0 1,001,500
Research and development 58,637 73 825 2,330,928
General and administrative 103,647 112,923 7,721,167
Interest 44,394 14,168 239,222
---------- ---------- -------------
Total Expenses 206,678 202,166 11,300,567
---------- ---------- -------------
LOSS BEFORE INCOME TAXES (206,678) (199,167) (11,150,552)
AND EXTRAORDINARY ITEM
INCOME TAXES 0 0 0
---------- ---------- -------------
LOSS BEFORE EXTRAORDINARY (206,678) (199,167) (11,150,552)
ITEM
FORGIVENESS OF DEBT 0 0 1,235,536
---------- ---------- -------------
NET INCOME $(206,678) $(199,167) $ (9,915,016)
========== ========== =============
INCOME / (LOSS) PER SHARE
Loss from continuing
operations $ (0.01) $ (0.01) $ (0.60)
Gain from debt
forgiveness 0.00 0.00 0.07
---------- ----------- -------------
Income / (loss) per
share $ (0.01) $ (0.01) $ (0.53)
=========== =========== =============
WEIGHTED AVERAGE NUMBER
OF SHARES 26,395,847 23,192,519 18,734,836
============ ============= =============
<PAGE>
MEDICAL DISCOVERIES, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIODS ENDED MARCH 31, 1999 AND MARCH 31, 1998
(UNAUDITED)
Cumulative
For the three months Amounts since
ended March 31, November 20,
-------------------- 1991 (date of
1999 1998 inception)
----------- ----------- -------------
OPERATING ACTIVITIES
Net income (loss) for the
period $ (206,679) $ (199,167) $ (9,915,017)
Add non-cash items
Common stock options issued
for services 2,336,303
Common stock issued for
services and license 30,000 0 3,559,986
Reduction of legal costs 0 0 (130,000)
Depreciation 3,612 3,726 44,681
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 (205) 11,289 10,450
Inventory (7,473) (10,500) (165,698)
Prepaid Expenses 4,111 4,077 (6,862)
Other assets 509 940 (900)
Increase (decrease) in:
Accounts payable 85,773 (131,030) 1,298,256
Accrued expenses (16,793) 11,546 79,842
----------- ----------- -------------
Net Cash from Operations (107,145) (46,949) (3,921,066)
INVESTING ACTIVITIES
Purchases of equipment 0 0 (132,184)
Payments received on note
receivable 0 0 130,000
----------- ----------- -------------
Net Cash from Investing Activities 0 0 (2,184)
FINANCING ACTIVITIES
Increase in notes payable 105,000 0 351,806
Payment of notes payable 50,000 (782) (97,287)
Increase in notes payable 0 0 316,700
Equity contributed 0 0 131,374
Proceeds from issuance of
common stock 0 50,000 3,253,359
----------- ----------- -------------
Net Cash from Financing
Activities 55,000 49,218 3,955,952
----------- ----------- -------------
NET INCREASE / (DECREASE) IN CASH (52,145) 2,269 32,702
CASH, BEGINNING PERIOD 84,847 764 0
----------- ----------- -------------
CASH ENDING PERIOD $ 32,702 $ 3,033 $ 32,702
=========== =========== =============
<PAGE>
MEDICAL DISCOVERIES, INC.
NOTES TO FINANCIAL STATEMENTS
March 31, 1999
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, 1999 and the
results of operations and changes in financial position for the three-month
period ended March 31, 1999. The results of operations for the three months
ended March 31, 1999 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 has no revenue for the period from January 1, 1999 to March 31, 1999
compared to $2,278 in revenue for the same period in 1998. The revenue in 1Q
1998 results from initial sales of imported functional water machines, which
product line was subsequently discontinued by the Company. MDI spent $ 58,637 in
research and development costs during the first three months of 1999 compared to
$73,825 for the same period in last year. The decreased spending reflects the
reduced level of testing the Company is conducting while awaiting additional
funds. MDI reduced its General and Administrative expense by 8 percent to
$103,647 from $112,923. Funding for on-going operations is discussed in the
"Additional Funding is Required" section below.
PHARMACEUTICAL DRUG DISCOVERY AND DEVELOPMENT ACTIVITIES
MDI has completed a series of validation testing at the Dana-Faber Cancer
Institute, a Harvard Medical School teaching Affiliate and National Institute of
Health (NIH) approved HIV/AIDS Testing Laboratory.
These tests confirmed and extended previous research and testing which
demonstrated that MDI-P is shown to be capable of killing HIV in cell cultures
without mortality to the cells.
A six-month Research Grant with the Dana-Farber Cancer Institute to further
extend and confirm the anti -HIV/AIDS activity of MDI-P is in progress. In this
Research, MDI-P is being analyzed for effectiveness in killing laboratory
strains of HIV-1; clinical specimens of HIV; and resistant strains of HIV-1.
These test results continue to support the effectiveness or MDI-P in killing the
HIV Virus.
During its current research testing, the Company has become aware of the need to
address certain technical issues regarding the electrolysis equipment used to
produce MDI-P during initial manufacture.
MDI has temporarily suspended validation testing at the Dana-Farber Cancer
Institute of its novel drug "MDI-P" targeted at the HIV/AIDS disease due to
certain technical issues. Although the testing performed during the last
quarter, which demonstrated MDI-P to be capable of killing HIV in cell cultures
without mortality to the cells, remains valid, the Company has decided to
temporarily suspend further investigation until such time as these technical
issues are resolved. Work is already in progress to develop a permanent solution
to these minor technical issues.
<PAGE>
Toxicology studies initiated in October of 1998 were completed during the first
quarter. A final report will be available upon completion by the Company of
final payments to the testing Laboratory. MDI has also initiated microbiology
studies during the first quarter; however, these studies have been suspended
pending availability of appropriate levels of funding.
Progress of the Company's plan for submission to the FDA of an IND Application
has been delayed, and continuation depends on the ability of the Company to
successfully address certain technical issues, and the ability of the Company to
obtain sufficient funding enabling the completion of the toxicity, microbiology,
and chemical characterization studies in various stages of progress. See
"Additional Funding is Required" section below. While results to date continue
to show promise, the Company can provide no assurance the technology will
eventually be proven.
MDI HEALTHCARE SYSTEMS, INC. CONSUMER PRODUCTS SUBSIDIARY
MDI's operating division, MDI HealthCare Systems, Inc., (MDI-HCS) is focused on
the identification, exploration, validation, development, and commercialization
of innovative solutions for scar therapy, wound healing, and skin care and
repair.
InvisiScar(TM), an innovative topical silicone gel, and AquaCleanse (TM), an
electrolysis technology based disinfecting cleansing pad, have enabled the
Company to enter the worldwide $3.5 billion skin care market. In addition, a
third product, the Beautification Facemask (TM), enables the Company to enter
the anti-aging, facial beautification market. These products are proprietary to
the Company, utilize a variety of its core technologies and position the Company
for strong revenue potential in 1999 and the next millennium.
During the first quarter, MDI-HCS launched its innovative scar treatment
products InvisiScar and AquaCleanse, into the very large and potentially
lucrative Brazilian market. The Company has entered into an exclusive
distribution agreement. This exclusive distribution agreement calls for minimum
purchases of the MDI-HCS in the range of $1 million.
The success of MDT-HCS depends on the Company's ability to properly finance the
product launch and the response of competitive products. See "Additional Funding
is Required" section below.
RESEARCH AND DEVELOPMENT ACTIVITIES, JAPAN
In addition to its novel drug, MDI-P, and Cosmeceuticals product development and
commercialization accomplishments, the Company continues its discovery and
development activities for electrolysis technologies in its Tokyo, Japan based
Research and Development Group. MDI's Team Japan is to identity additional
applications for the Company's electrolysis based technologies, and develop
appropriate technological innovations for rapid market entry. Currently, the
Company is investigating several resultant product development activities which,
if proven, may lead to additional revenue producing opportunities.
LIQUIDITY AND FINANCIAL RESOURCES
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
MDl-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>
YEAR 2000 ISSUE. The Company is aware of the issues associated with programming
codes in existing computer systems as the millennium (year 2000) approaches. The
Company has completed the upgrading of its design engineering software and
believes, but can give no assurance, that this software is year 2000 compliant.
However, the accounting and material management system is not compliant. The
Company has conducted preliminary research into replacement accounting and
material management system. The Company plans to acquire and implement a new
system in the third quarter 1999. If the new accounting and material management
system is not implemented as planned, the Company could be adversely affected
beginning in the year 2000 since many computer applications could fail.
FORWARD-LOOKING STATEMENTS. Certain matters discussed in this Report are
"forward-looking statements" intended to qualify for the safe harbors from
liability established by Section 27A of the Securities Act and Section 21E of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"). These
forward-looking statements can generally be identified as such because the
context of the statement will include words such as the Company "believes,"
"anticipates," "expects" or words of similar import. Similarly, statements that
describe the Company's future plans, objectives or goals are also
forward-looking statements. Such statements may address future events and
conditions concerning, among other things, the Company's results of operations
and financial condition; the consummation of acquisition and financing
transactions and the effect thereof on the Company's business; capital
expenditures; litigation; regulatory matters; and the Company's plans and
objectives for future operations and expansion. Any such forward-looking
statements would be subject to the risks and uncertainties that could cause
actual results of operations, financial condition, acquisitions, financing
transactions, operations, expenditures, expansion and other events to differ
materially from those expressed or implied in such forward-looking statements.
Any such forward-looking statements would be subject to a number of assumptions
regarding, among other things, future economic, competitive and market
conditions generally. Such assumptions would be based on facts and conditions as
they exist at the time such statements are made as well as predictions as to
future facts and conditions, the accurate prediction of which may be difficult
and involve the assessment of events beyond the Company's control. Further, the
Company's business is subject to a number of risks that would affect any such
forward-looking statements. These risks and uncertainties include, but are not
limited to, the ability of the Company to commercialize its technology; product
demand and industry pricing; the ability of the Company to obtain patent
protection for its technology; developments in environmental legislation and
regulation; the ability of the company to obtain future financing on favorable
terms; and other circumstances affecting anticipated revenues and costs. These
risks and uncertainties could cause actual results of the Company to differ
materially from those projected or implied by such forward-looking statements.
<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, 1998.
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, 1999 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-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 32,702
<SECURITIES> 0
<RECEIVABLES> 2,921
<ALLOWANCES> 0
<INVENTORY> 165,698
<CURRENT-ASSETS> 208,183
<PP&E> 108,521
<DEPRECIATION> (43,222)
<TOTAL-ASSETS> 274,382
<CURRENT-LIABILITIES> 2,010,226
<BONDS> 0
0
0
<COMMON> 9,691,250
<OTHER-SE> (11,427,094)
<TOTAL-LIABILITY-AND-EQUITY> 274,382
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 206,678
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 44,394
<INCOME-PRETAX> (206,678)
<INCOME-TAX> 0
<INCOME-CONTINUING> (206,678)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (206,678)
<EPS-PRIMARY> (0.01)
<EPS-DILUTED> (0.01)
</TABLE>
