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 June 30, 2000
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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)
1800 South West Temple, Suite 304, Salt Lake City, Utah 84115
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(Address of principal executive offices)
(801) 463-9311
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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
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as of July 31, 2000.
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Transitional Small Business Disclosure Format (check one)
Yes X No
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<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The following consolidated financial statements are filed with this report:
Balance Sheet as of June 30, 2000 (unaudited) and December 31, 1999
(unaudited)
Statements of Operations for the three-month and six-month periods
ended June 30, 2000 (unaudited) and June 30, 1999 (unaudited) and
cumulative amounts since inception through June 30, 2000 (unaudited)
Statements of Cash Flows for the six-month periods ended
June 30, 2000 (unaudited) and June 30, 1999 (unaudited) and
cumulative amounts since inception through June 30, 2000 (unaudited)
Notes to Unaudited Consolidated Financial Statements
<PAGE>
MEDICAL DISCOVERIES, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 2000 AND DECEMBER 31, 1999
(UNAUDITED)
June 30, 2000 December 31, 1999
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CURRENT ASSETS
Cash $ 209 $ 10,152
Inventory 96,859 99,370
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Total Current Assets 97,068 109,522
PROPERTY AND EQUIPMENT
Equipment 108,521 108,521
Less: Accumulated depreciation (84,984) (79,328)
---------- ----------
Net Property and Equipment 23,537 29,193
OTHER ASSETS 0 900
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Total Assets $ 120,605 $ 139,615
=========== ==========
CURRENT LIABILITIES
Accounts payable $1,782,279 $1,780,811
Accrued interest 137,154 108,154
Current maturities of:
Notes payable 455,807 387,807
Convertible notes payable 200,983 200,983
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Total Current Liabilities 2,576,223 2,477,755
STOCKHOLDERS' EQUITY
Common Stock, no par value,
authorized 100,000,000 9,913,837 9,913,837
shares; 26,656,959 shares
issued and outstanding at
June 30, 2000
Retained deficit (12,256,955) (12,139,477)
Subscription receivables (112,500) (112,500)
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Total Stockholders' Equity (2,455,618) (2,338,140)
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TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 120,605 $ 139,615
============ ===========
<PAGE>
<TABLE>
<CAPTION>
MEDICAL DISCOVERIES, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE PERIODS ENDED JUNE 30, 2000 AND JUNE 30, 1999 AND CUMULATIVE AMOUNTS
(UNAUDITED)
Cumulative
For the three months For the six months Amounts since
ended June 30, ended June 30, November 20,
------------------------------ ----------------------------- 1991 (date of
2000 1999 2000 1999 inception)
----------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
REVENUE
Revenue and fees $ 0 $ 0 $ 7,620 $ 0 $ 134 229
Interest 0 0 0 0 23,406
----------- ----------- ----------- ----------- -------------
Total Revenue 0 0 7,620 0 150,015
COST OF GOODS SOLD 0 0 2,511 0 10,261
----------- ----------- ----------- ----------- -------------
GROSS MARGIN 0 0 5,109 0 147,374
EXPENSES
License 0 0 0 0 1,001,500
Research and development 0 306,736 0 365,373 2,272,535
General and administrative 43,132 79,144 92,691 182,791 7,953,033
----------- ----------- ----------- ----------- -------------
Total Expenses 43,132 385,880 92,691 548,164 11,227,068
----------- ----------- ----------- ----------- -------------
NET LOSS FROM OPERATIONS ( 43,132) (385,880) ( 87,582) (548,164) (11,079,694)
OTHER INCOME / (EXPENSE) (15,265) (14,364) (29,897) (58,758) (224,725)
----------- ----------- ----------- ----------- -------------
LOSS BEFORE INCOME TAXES ( 58,397) (400,244) (117,479) (606,922) (11,304,419)
AND EXTRAORDINARY ITEM
INCOME TAXES 0 0 0 0 0
----------- ----------- ----------- ----------- -------------
LOSS BEFORE EXTRAORDINARY ( 58,397) (400,244) (117,479) (606,922) (11,550,796)
ITEM
FORGIVENESS OF DEBT 0 0 0 0 1,235,536
----------- ----------- ----------- ----------- -------------
NET LOSS $ ( 58,397) $ (400,244) $ (117,479) $ (606,922) $(10,068,883)
=========== =========== =========== =========== =============
INCOME / (LOSS) PER SHARE
Loss from continuing
operations $ (0.00) $ (0.02) $ (0.00) $ (0.02) $ (0.57)
Gain from debt
forgiveness 0.00 0.00 0.00 0.00 0.06
----------- ----------- ----------- ----------- -------------
Income / (loss) per
share $ (0.00) $ (0.02) $ (0.00) $ (0.02) $ (0.51)
=========== =========== =========== =========== =============
WEIGHTED AVERAGE NUMBER
OF SHARES 26,657,000 26,480,000 26,657,000 26,477,000 19,879,000
=========== =========== =========== =========== =============
</TABLE>
<PAGE>
MEDICAL DISCOVERIES, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIODS ENDED JUNE 30, 2000 AND JUNE 30, 1999 AND CUMULATIVE AMOUNTS
(UNAUDITED)
Cumulative
For the six months Amounts since
ended June 30, November 20,
------------------------- 1991 (date of
2000 1999 inception)
----------- ----------- -------------
OPERATING ACTIVITIES
Net income (loss) for the
period $ (117,478) $ (606,922) $(10,857,378)
Add non-cash items
Common stock options issued
for services 2,556,890
Common stock issued for
services and license 0 30,000 3,559,986
Reduction of legal costs 0 0 (130,000)
Depreciation 5,656 5,981 86,443
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 0 (106) 7,529
Inventory 2,511 (2,595) ( 96,859)
Prepaid Expenses 0 8,232 0
Other assets 900 509 0
Increase (decrease) in:
Accounts payable 1,468 373,334 1,626,370
Accrued expenses 29,000 (2,561) 158,635
---------- ----------- ------------
Net Cash from Operations (77,943) (194,128) (4,114,649)
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 68,000 160,000 601,613
Payment of notes payable 0 (50,000) (188,004)
Increase in notes payable 0 0 316,700
Equity contributed 0 0 131,374
Proceeds from issuance of
common stock 0 0 3,255,359
---------- ----------- ------------
Net Cash from Financing
Activities 68,000 110,000 4,117,042
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NET INCREASE / (DECREASE) IN CASH ( 9,943) (84,128) 209
CASH, BEGINNING PERIOD 10,152 84,847 0
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CASH ENDING PERIOD $ 209 $ 719 $ 209
========== =========== ============
<PAGE>
MEDICAL DISCOVERIES, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 2000
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
June 30, 2000 and the results of operations and changes in financial
position for the three-month and six-month periods ended June 30, 2000.
The results of operations for the three-month and six-month periods ended
June 30, 2000 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 $7,620 revenue for the three-month period from January 1, 2000 to
March 31, 2000 and $0 revenue for the three-month period ended June 30, 2000
compared to $ 0 revenue for the three month period from January 1, 1999 to March
31, 1999 and $0 revenue for the three-month period ended June 30, 1999. The
revenue resulted from sales of MDI HealthCare Systems (MDI-HCS) inventory to
Advanced Sales Corporation ("ASC"). ASC has initiated sales of MDI-HCS products
as described in "Related Events" below.
MDI spent $0 in research and development costs during the first six months of
2000 compared to $365,373 for the same period in last year. The absence of
research and development work during the first six months of 2000 is a result of
the unavailability of funds to conduct research. MDI reduced its General and
Administrative expense to $92,691 from $182,791. Funds to support operations
came from loans from MDI's investment partner described in "Subsequent Events"
below.
The Funding for on-going operations is discussed in the "Additional Funding is
Required" section below.
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
<PAGE>
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 and payment arrangements for the Company's 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
On June 16, 2000, the Board of MDI approved a resolution to accept the
investment proposal from an outside investment group based on a letter of intent
signed in October 1999 and disclosed in the Company's previous 10KSB for the
1999 fiscal year. The agreement between MDI and the outside investment group was
executed in July 2000. The letter of intent provides for a joint venture between
MDI and the outside investment group to sell MDI-HCS products. The entity to be
created by the joint venture is Advanced Sales Corporation or ASC as noted above
in the Operations and Liquidity section. The outside investment group has formed
Advanced Sales Corporation and in anticipation of the joint venture agreement,
MDI and ASC executed an agreement in the fourth quarter of 1999 that allows ASC
to market MDI-HCS products. The term of this agreement was for 120 days and was
renewable on a monthly basis. The agreement was an interim step pending
completion of joint venture agreement between MDI and the outside investm ent
group.
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 agreement, the investment group
will provide funds of $750,000 to the joint venture and will extend a $150,000
line of credit to MDI (of which the Company has drawn $100,000). MDI will assign
all rights it owns in HCS products to the joint venture. MDI will own 42 percent
of the joint venture. The investment group will receive 25,000,000 shares of MDI
stock. The investment group signed the joint venture agreement in July 2000.
Scott Wood, the Company's chief financial officer and acting president, resigned
effective July 31, 2000. Mr. Wood remains available to the Company on an "as
needed" basis.
RELATED EVENTS
ASC (the JV company of which MDI holds a 42 percent ownership) has launched
sales of MDI-HCS products. ASC introduced several HCS products at a trade show
in Las Vegas in June 2000. Reception for the MDI-HCS products was positive. ASC
recorded sales of a little more than $3,000 during the three-day show and was
able to sign many distributors.
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
<PAGE>
substantial additional funds in public stock offerings as well. The funds to be
raised will be used in the following areas: 1) additional testing of MDI-P, 2)
submission of an IND Application with the FDA for it novel Anti-HIV/AIDS drug,
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.
FORWARD LOOKING STATEMENTS
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, market acceptance of MDI products, favorable
negotiations with partners in the proposed joint venture, the presence of
possible competitors, and competing technologies.
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, 2000.
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
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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:August 30, 2000 /s/ David Walker
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Chairman of the Board
Officer
