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 September 30, 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
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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: 26,656,959 as of November 16,
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 Sheets as of September 30, 1999 (unaudited) and December 31, 1998
(unaudited)
Statements of Operations for the three-month and nine-month Periods ended
September 30, 1999 (unaudited) and September 30, 1998 (unaudited) and since
inception through September 30, 1999 (unaudited)
Statements of Cash Flows for the nine-month Periods ended September 30,
1999 (unaudited) and September 30, 1998 (unaudited)
Notes to Unaudited Financial Statements
<PAGE>
MEDICAL DISCOVERIES, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1999 AND DECEMBER 31, 1998
(UNAUDITED)
September 30, 1999 December 31, 1998
------------------ ------------------
CURRENT ASSETS
Cash $ 50 $ 84,847
Accounts receivable 2,718 2,716
Inventory 159,426 158,225
Prepaid expenses 0 10,973
------------- -------------
Total Current Assets 162,194 256,761
PROPERTY AND EQUIPMENT
Equipment 108,521 108,521
Less: Accumulated depreciation (49,426) (39,610)
------------- -------------
Net Property and Equipment 59,095 68,911
OTHER ASSETS 900 1,409
Total Assets $ 222,189 $ 327,081
============= =============
CURRENT LIABILITIES
Accounts payable $ 1,778,442 $ 1,399,414
Accrued interest 92,132 44,129
Current maturities of:
Notes payable 354,418 191,717
Convertible notes payable 200,983 250,983
------------- -------------
Total Current Liabilities 2,425,975 1,886,246
STOCKHOLDERS' EQUITY
Common Stock, no par value,
authorized 100,000,000 9,717,250 9,661,250
shares; 26,656,959 shares
issued and outstanding at
September 30, 1999
Retained deficit (11,808,536) (11,107,915)
Subscription receivables (112,500) 112,500
------------- -------------
Total Stockholders' Equity (2,203,786) (1,559,165)
------------- -------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 222,189 $ 327,081
============= =============
<PAGE>
MEDICAL DISCOVERIES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS
FOR THE PERIODS ENDED SEPTEMBER 30, 1999 AND SEPTEMBER 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Cumulative
For the three months For the nine months Amounts since
ended September 30, ended September 30, November 20,
------------------------------ ----------------------------- 1991 (date of
1999 1998 1999 1998 inception)
----------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
REVENUE
Revenue and fees $ 0 $ 4,837 $ 0 $ 17,684 $ 126 609
Interest 0 0 0 2,515 23,406
----------- ----------- ----------- ----------- -------------
Total Revenue 0 11,006 0 20,199 150,015
COST OF GOODS SOLD 0 2,250 0 7,250 7,750
----------- ----------- ----------- ----------- -------------
GROSS MARGIN 0 3,944 0 12,949 142,265
EXPENSES
License 0 0 0 0 1,001,500
Research and development 10,633 131,530 376,006 277,017 2,648,297
General and administrative 63,490 243,679 246,281 452,711 7,863,801
----------- ----------- ----------- ----------- -------------
Total Expenses 74,123 375,209 622,287 729,728 11,513,598
----------- ----------- ----------- ----------- -------------
NET LOSS FROM OPERATIONS ( 74,123) (371,265) (622,287) (716,779) (11,297,210)
OTHER INCOME / (EXPENSE) (19,576) (13,237) (78,334) (39,459) (273,162)
----------- ----------- ----------- ----------- -------------
LOSS BEFORE INCOME TAXES ( 93,699) (384,502) (700,621) (756,235) (11,644,495)
AND EXTRAORDINARY ITEM
INCOME TAXES 0 0 0 0 0
----------- ----------- ----------- ----------- -------------
LOSS BEFORE EXTRAORDINARY ( 93,699) (384,502) (700,621) (756,235) (11,644,495)
ITEM
FORGIVENESS OF DEBT 0 0 0 0 1,235,536
----------- ----------- ----------- ----------- -------------
NET INCOME $ ( 93,699) $ (384,502) $ (700,621) $ (756,235) $(10,408,959)
=========== =========== =========== =========== =============
INCOME / (LOSS) PER SHARE
Loss from continuing
operations $ (0.00) $ (0.02) $ (0.03) $ (0.03) $ (0.61)
Gain from debt
forgiveness 0.00 0.00 0.00 0.00 0.07
----------- ----------- ----------- ----------- -------------
Income / (loss) per
share $ (0.00) $ (0.02) $ (0.03) $ (0.03) $ (0.54)
=========== =========== =========== =========== =============
WEIGHTED AVERAGE NUMBER
OF SHARES 26,602,539 23,997,410 26,493,405 23,897,943 19,232,432
=========== =========== =========== =========== =============
</TABLE>
<PAGE>
MEDICAL DISCOVERIES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
FOR THE PERIODS ENDED SEPTEMBER 30, 1999 AND SEPTEMBER 30, 1998
(UNAUDITED)
Cumulative
For the nine months Amounts since
ended September 30, November 20,
------------------------- 1991 (date of
1999 1998 inception)
----------- ----------- -------------
OPERATING ACTIVITIES
Net income (loss) for the
period $ (700,621) $ (756,237) $(10,408,959)
Add non-cash items
Common stock options issued
for services 2,336,303
Common stock issued for
services and license 54,000 0 3,583,986
Reduction of legal costs 0 0 (130,000)
Depreciation 9,816 10,931 50,885
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 (2) 26,825 10,247
Inventory (1,201) (134,500) (159,426)
Prepaid Expenses 10,973 (4,220) 0
Other assets 509 2,260 (1,409)
Increase (decrease) in:
Accounts payable 410,050 386,124 1,622,533
Accrued expenses 16,978 17,712 113,613
---------- ----------- ------------
Net Cash from Operations (199,498) (222,172) (4,013,419)
INVESTING ACTIVITIES
Purchases of equipment 0 (32,944) (132,184)
Payments received on note
receivable 0 0 130,000
---------- ----------- ------------
Net Cash from Investing Activities 0 (79,000) (2,184)
FINANCING ACTIVITIES
Increase in notes payable 162,701 0 409,507
Payment of notes payable (50,000) (3,409) (97,287)
Increase in notes payable 0 0 316,700
Equity contributed 0 0 131,374
Proceeds from issuance of
common stock 2,000 631,680 3,255,359
---------- ----------- ------------
Net Cash from Financing
Activities 114,701 635,089 4,015,653
---------- ----------- ------------
NET INCREASE / (DECREASE) IN CASH (84,797) 151,094 50
CASH, BEGINNING PERIOD 84,847 764 0
---------- ----------- ------------
CASH ENDING PERIOD $ 50 $ 151,858 $ 50
========== =========== ============
<PAGE>
MEDICAL DISCOVERIES, INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 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 September 30, 1999 and
the results of operations and changes in financial position for the three-month
and nine-month periods ended September 30, 1999. The results of operations for
the three-month and nine-month periods ended September 30, 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 booked no revenue for the period from January 1, 1999 to September 30, 1999
compared to $17,684 in revenue for the same period in 1998. The Company
discontinued sales of imported functional water machines in 1998 which resulted
in the absence of revenue. MDI spent $376,006 in research and development costs
during the first nine months of 1999 compared to $277,017 for the same period in
last year. The increased spending reflects the accrual of $218,000 for expenses
previously incurred at Harvard and an outside research lab for MDI-P and MDI-HCS
product testing. General and administrative costs decreased to $246,281 during
the nine-month period ended September 1999 from $452,711 for the same period in
1998. This reduction in spending was mainly due to the Company's scaled back
operations due to cash shortages. In May 1999, the Company depleted its
remaining cash accounts and temporarily suspended payments to creditors.
Funding for on-going operations is discussed in the "Additional Funding is
Required" section below. In an attempt to find additional funding, members of
the board made short-term loans to MDI to allow the Company to continue to
present its plans to potential investors. As discussed below, the Company signed
a letter of intent in October 1999 with a funding group to provide additional
funding for operations. As part of the due diligence efforts discussed below,
the Company borrowed $20,000 to maintain operations from the funding group. If
these funds are exhausted before due diligence investigations are completed, the
Company will seek additional debt from the funding group.
PHARMACEUTICAL DRUG DISCOVERY AND DEVELOPMENT ACTIVITIES
Due to the absence of available funding, the Company suspended its testing and
development program efforts. Based on work previously completed, Dr. Aldona
Baltch, Albany , New York, has submitted a manuscript describing the
antimicrobial activity of MDI-P against several species of bacteria. Significant
killing was observed at dilutions of up to 1:10,000 for Candida Albacans. This
will be the first full paper to be published on MDI-P.
MDI HEALTHCARE SYSTEMS, INC. CONSUMER PRODUCTS SUBSIDIARY
MDI's consumer product subsidiary, MDI HealthCare Systems, Inc., (MDI-HCS) has
been unable to record any sales due to the absence of funds. MDI-HCS continues
to maintain contact with the groups where it has previously executed sales
agreements and the potential for sales in the future remains.
The success of MDT-HCS depends on the Company's ability to raise additional
funds to properly launch its products and the response of competitive products.
See "Additional Funding is Required" section below.
<PAGE>
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. It is
anticipated that shareholders may experience substantial dilution due to the
current financial position of the Company. The funds to be raised will be used
in the following areas: 1) the launch of MDl-HCS, 2) continued research for
MDI-P, 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,
payment of prior debts of the Company.
SUBSEQUENT EVENTS
As of November 16, 1999, had experienced at least two events significant events:
1) the termination Mr. Lee Kulas as President and CEO, and 2) the execution of a
letter of intent outlining terms of additional funding.
As of May 31, 1999, the Company stopped accruing salary for Mr. Kulas as well as
for other principals in the Company. On September 15, 1999, the Board of
Directors officially terminated the employment contract of Mr. Lee Kulas, to
allow Mr. Kulas to pursue other interests. Mr. Kulas remains a director of the
Company.
In October 1999, the Company signed a letter of intent with an outside
investment group. The letter provides for a due diligence investigation. If MDI
completes due diligence investigations successfully, MDI and the investment
group will form a joint venture to sell MDI-HCS products. The Company plans for
the joint venture to generate cash for further development of MDI-P. MDI has
also initiated discussions with the investment group for a direct investment in
MDI.
Under the terms of the joint venture, the investment group will provide funds of
$750,000 to the joint venture and will extend a $150,000 line of credit to MDI.
MDI will assign all rights it owns in HCS products to the joint venture. MDI
will own 42 percent of the joint venture. In exchange for the $750,000
contributed to the joint venture and the line of credit extended to MDI, the
investment group will receive 25,000,000 shares of MDI stock, which would
represent an ownership interest of approximately 48 percent of the Company.
In early December 1999, the investment group notified MDI that its due diligence
investigations would require up to an additional 120 days. As a temporary
measure to provide funds to MDI, the investment group has made two short-term
loans totaling $32,000 to the Company. These short-term loans will be converted
to draws against the $150,000 line of credit contemplated by the letter of
intent. MDI plans to request additional funds as required during the due
diligence period. In addition, the Company has signed an agreement with a term
of 120 days granting a company controlled by the investment group to sell MDI
HealthCare Systems products. The purpose of the agreement is to allow the
Company to begin to market its products immediately pending the completion of
the due diligence and subsequent joint venture and funding issues contemplated
in the letter of intent.
With the exception of the actual reported financial results and other historical
information, the statements made in the Management's Discussion and Analysis of
Financial Condition and Results of Operations and elsewhere in this report are
forward looking statements that involve risks and uncertainties that could
affect actual future results. Such risks and uncertainties include, but are not
limited to: the regulatory environment, the technical and engineering risks
associated with new product development, the availability of funding, the
cooperation of the Company's creditors, the ability of the Company to attract
and retain competent personnel, consumer acceptance of HCS products, favorable
negotiations with partners in the proposed joint venture, the presence of
possible competitors, and competing technologies.
<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 10Q for the quarter ended March 31, 1999.
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 19, 1999 /s/ David Walker
---------------------------
Chairman of the Board
Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MEDICAL
DISCOVERIES, INC. SEPTEMBER 30, 1999 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-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 50
<SECURITIES> 0
<RECEIVABLES> 2,718
<ALLOWANCES> 0
<INVENTORY> 159,426
<CURRENT-ASSETS> 162,194
<PP&E> 108,521
<DEPRECIATION> 49,426
<TOTAL-ASSETS> 222,189
<CURRENT-LIABILITIES> 2,425,975
<BONDS> 0
0
0
<COMMON> 9,717,250
<OTHER-SE> (11,921,036)
<TOTAL-LIABILITY-AND-EQUITY> 222,189
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 622,287
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 78,334
<INCOME-PRETAX> (700,621)
<INCOME-TAX> 0
<INCOME-CONTINUING> (700,621)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (700,621)
<EPS-BASIC> (0.03)
<EPS-DILUTED> (0.03)
</TABLE>
