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 ---------------- 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) 1800 South West Temple, Suite 304, Salt Lake City, Utah 84115 - ------------------------------------------------------------------------- (Address of principal executive offices) (801) 463-9311 - ------------------------------------------------------------------------- (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: 26,656,959 ----------- as of July 31, 2000. ------------------ Transitional Small Business Disclosure Format (check one) Yes X No === === 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 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 -------------- ------------------ CURRENT ASSETS Cash $ 209 $ 10,152 Inventory 96,859 99,370 ---------- ---------- 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 ---------- ---------- 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 ---------- ---------- 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) ----------- ----------- Total Stockholders' Equity (2,455,618) (2,338,140) ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 120,605 $ 139,615 ============ ===========
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) ----------- ----------- ----------- ----------- ------------- 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 =========== =========== =========== =========== =============
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 ---------- ----------- ------------ NET INCREASE / (DECREASE) IN CASH ( 9,943) (84,128) 209 CASH, BEGINNING PERIOD 10,152 84,847 0 ---------- ----------- ------------ CASH ENDING PERIOD $ 209 $ 719 $ 209 ========== =========== ============ 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 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 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 - -------------- ----------- 27 Financial Data Schedule. (b) Reports on Form 8-K N/A 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 --------------------------- Chairman of the Board Officer