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, 1997 ---------------- 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) 2040 East Murray-Holladay Road, Suite 116, Salt Lake City, UT 84117 - ----------------------------------------------------------------------- (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: 22,050,150 ----------- as of July 31, 1997 --------------- Transitional Small Business Disclosure Format (check one) Yes X No === === PART I FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS The following financial statements are filed with this report: Balance Sheets as of June 30, 1997 (unaudited) and June 30, 1996 (unaudited) Statements of Operations for the Three-Month Periods ended June 30, 1997 (unaudited) and June 30, 1996 (unaudited) and the Six-Month Periods ended June 30, 1997 (unaudited) and June 30, 1996 and since inception through June 30, 1997 (unaudited). Statements of Cash Flows for the Six-Month Periods ended June 30, 1997 (unaudited) and June 30, 1996 (unaudited) Notes to Unaudited Financial Statements MEDICAL DISCOVERIES, INC. (A DEVELOPMENT STAGE COMPANY) BALANCE SHEET AS OF JUNE 30, 1997 AND JUNE 30, 1996 (UNAUDITED) June 30, 1997 June 30, 1996 -------------- -------------- CURRENT ASSETS Cash $ 20,515 $ 25,307 Accounts receivable 49,033 46,784 Prepaid expenses 2,692 10,780 --------- ---------- Total Current Assets 72,240 82,871 PROPERTY AND EQUIPMENT Equipment 79,313 74,231 Less: Accumulated depreciation (23,809) (16,181) --------- ---------- Net Property and Equipment 55,504 58,050 OTHER ASSETS Deposits 2,260 1,170 Note receivable 5,493 30,586 --------- ---------- Total Other Assets 7,753 31,756 Total Assets $ 135,497 $ 172,677 =========== ============= CURRENT LIABILITIES Accounts payable $ 731,552 $ 670,166 Accrued interest 9,973 26,039 Short term notes payable 51,000 0 Current maturities of notes payable 2,924 2,795 ----------- ----------- Total Current Liabilities 795,449 699,000 LONG TERM LIABILITIES Notes payable 317,194 318,708 ----------- ----------- Total Long Term Liabilities 317,194 318,708 ----------- ----------- TOTAL LIABILITIES 1,112,643 1,017,708 ----------- ----------- STOCKHOLDERS' EQUITY Common Stock, no par value, authorized 100,000,000 6,269,233 6,121,733 shares; 22,050,150 shares issued and outstanding at June 30, 1997 Retained deficit (7,073,879) (6,794,264) Subscription receivables (172,500) 172,500 ----------- ----------- Total Stockholders' Equity (977,146) (845,031) ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 135,497 $ 172,677 =========== ============ MEDICAL DISCOVERIES, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENT OF OPERATIONS FOR THE PERIODS ENDED JUNE 30, 1997 AND JUNE 30, 1996 (UNAUDITED) Cumulative For the three months For the six months Amounts since ended June 30, ended June 30, November 20, -------------------------- -------------------------- 1991 (date of 1997 1996 1997 1996 inception) ---------- -------- ---------- -------- ----------- REVENUE Clinical fees $ 0 $ 0 $ 0 $ 0 $ 108,200 ---------- ---------- ---------- ---------- ------------ Total Revenue 0 0 0 0 108,200 EXPENSES License 0 0 0 0 1,001,500 Research and development 29,363 89,517 29,664 150,248 1,736,720 General and administrative 57,037 403,007 218,721 579,525 4,188,507 ---------- ---------- ---------- ---------- ------------ Total Expenses 86,400 492,524 248,385 729,773 6,926,727 ---------- ---------- ---------- ---------- ------------ NET LOSS FROM OPERATIONS (86,400) (492,524) (248,385) (729,773) (6,818,527) OTHER INCOME / (EXPENSE) (19,703) (6,285) (31,230) (12,066) (91,311) ---------- ---------- ---------- ---------- ------------ LOSS BEFORE INCOME TAXES (106,103) (498,809) (279,615) (741,839) (6,909,838) AND EXTRAORDINARY ITEM INCOME TAXES 0 0 0 0 0 ---------- ---------- ---------- ---------- ------------ LOSS BEFORE EXTRAORDINARY (106,103) (498,809) (279,615) (741,839) (6,909,838) ITEM FORGIVENESS OF DEBT 0 0 0 673,486 1,235,536 ---------- ---------- ---------- ---------- ------------ NET INCOME $(106,103) $ 498,809 $(279,615) $(68,353) $(5,674,302) ========== ========== ========== ========== ============ INCOME / (LOSS) PER SHARE Loss from continuing operations $ (0.00) $ (0.02) $ (0.01) $ (0.03) $ (0.36) Gain from debt forgiveness 0.00 0.00 0.00 0.03 0.06 ----------- ----------- ------------ ----------- ------------ Income / (loss) per share $ (0.00) $ (0.02) $ (0.01) $ 0.00 $ (0.29) =========== ============ ============ =========== ============ WEIGHTED AVERAGE NUMBER OF SHARES 21,879,944 22,603,903 21,778,359 22,308,461 19,267,551 =========== ============ ============ =========== ============
MEDICAL DISCOVERIES, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENT OF CASH FLOWS FOR THE PERIODS ENDED JUNE 30, 1997 AND JUNE 30, 1996 (UNAUDITED) Cumulative For the six months Amounts since ended June 30, November 20, -------------------- 1991 (date of 1997 1996 inception) ---------- ---------- ------------- OPERATING ACTIVITIES Net income (loss) for the period $ (279,615) $ (68,353) $ (5,674,302) Add non-cash items Common stock issued for services and license 0 199,050 3,215,611 Reduction of legal costs 0 0 (130,000) Depreciation 7,628 5,915 25,269 Loss on disposal of equipment 0 0 6,330 Gain on debt restructuring 0 (673,486) (1,235,536) Write-off receivables 0 0 193,965 Decrease (increase) in: Receivables 22,485 20,796 15,316 Prepaid Expenses 8,088 65,860 (2,692) Other assets (1,090) 0 (2,260) Increase (decrease) in: Accounts payable 61,386 (28,060) 575,642 Accrued expenses (16,066) 2,365 31,454 Short term notes payable 51,000 0 51,000 ---------- ---------- ----------- Net Cash from Operations (145,824) (475,913) (2,930,203) INVESTING ACTIVITIES Purchases of equipment (5,082) (10,685) $ (78,942) Payments received on note receivable 0 0 52,629 ---------- ----------- ------------ Net Cash from Investing Activities (5,082) (10,685) (26,313) FINANCING ACTIVITIES Payment of notes payable (1,385) 0 (4,743) Increase in notes payable 0 13,989 316,700 Equity contributed 0 0 131,374 Proceeds from issuance of common stock 147,500 574,485 2,533,700 ---------- ---------- ------------ Net Cash from Financing Activities 146,115 588,474 2,977,031 ---------- ---------- ------------ NET INCREASE / (DECREASE) IN CASH (4,791) 101,876 20,515 CASH, BEGINNING PERIOD 25,306 37,833 0 CASH ENDING PERIOD $ 20,515 $ 139,709 $ 20,515 ========== ========== =========== MEDICAL DISCOVERIES, INC. NOTES TO FINANCIAL STATEMENTS June 30, 1997 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, 1997 and the results of operations and changes in financial position for the six-month period ended June 30, 1997. The results of operations for the six months ended June 30, 1997 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. DIRECTOR OF APPLICATIONS RESEARCH. As MDI moves into the pre-clinical, pre-commercialization phase of its product development, it is an absolute necessity that the company establishes a well organized, thoroughly documented approach to investigating research applications, identifying research sites, and effectively monitoring progress. This requires that the company hire a proven scientist with a strong background in biochemical and bacteriological research; someone who is adept in the clinical research setting, as well as possessing an astute scientific mind. MDI is pleased to announce that John Griesgraber has accepted the newly created position of Director of Applications Research. Mr. Griesgraber brings experience in the fields of scientific research, product development and biochemical research as related to metabolic disease states. He was formerly President, Founder and co-owner of Terra Marine Bio-chemical. Bio- organics and chemical processes for international distribution. Previously, he held positions as a Research Associate at the University of California, San Diego, the Salk Institute, La Jolla, California, and was an Applications Engineer at IVAC Corporation during its early stages of development and growth. Mr. Griesgraber's knowledge,experience and familiarity with wound planning, organization and implementation brings renewed vigor to Dr. Novick's USA Scientific Research Team. SCIENTIFIC RESEARCH AND DEVELOPMENT PROGRAM IN JAPAN. "Electrically hydrolyzed saline" ("Function Water" as it is known in Japan) has received rapid and intense attention in Japan. In support of this technology, the Japanese government has established a special organization to study the applications for this technology. The name for this organization is the Function Water Foundation. Japan currently has as many as 35 separate companies developing products to make the benefits of "Function Water" available for a wide variety of applications. The activity in Japan is an excellent opportunity to develop key relationships that will enhance the company's understanding and development of these technologies as MDI prepares to enter worldwide markets in the future. MDI must be aware, active and involved with respect to this technological development. The company has therefore appointed Shouji Kubota, Ph.D., to head up MDI's Scientific Research and Development program in Japan. Dr. Kubota's reputation is well established and widely respected. He is a specialist in the understanding and development of electrically hydrolyzed saline solutions (Function Water"), and has published an authoritative text on this subject. Dr. Kubota is currently the president of The Society for the Study of water Design. This Society was established in 1987, for the purpose of investigating and developing the potential and future applications of Function Water. Dr. Kubota has been president of this Society since 1995. Previously, Dr. Kubota was with the Hitachi Institute of Hitachi Seisakusyo where he had a distinguished 25 year career. He is also Adjunct Professor in the Engineering Department at Ibaragi University, and serves as vice-president of the Society of Subtle Energy Institute. ADDITION TO MDI'S MEDICAL SCIENTIFIC ADVISORY BOARD. MDI has added Dr. Dennis E. Winson, DDS to MDI's Medical Scientific Advisory Board. Dr. Winson is Associate Professor in the Department of Periodontics at the University of Maryland, and maintains his clinical practice in Bethesda. Dr. Winson is an Officer in the American Academy of Periodontology, and has been on its Board of Trustees since 1990. Dr. Winson's Expertise in the field of periodontal disease and dentistry is a valuable addition to our scientific and research efforts as MDI investigates potential applications of its technologies in the dental area of medicine. APPOINTMENT OF REGULATORY AFFAIRS CONSULTANT. The strength of MDI will, undoubtedly, be based not only on its abilities to further develop and refine its core technologies, but also to produce revenue generating opportunities for the company. In order to achieve revenues, MDI must chart a timely and an effective course in order to obtain FDA approval for the sales of its products in the United States. To this end, the company has engaged the services of Dr. Jur Strobos, MD, Esquire, of the law firm of Greenberg and Traurig, Washington, DC, to assist MDI as its Regulatory Affairs consult. Dr. Strobos received his medical degree from the University of Chicago, and has over twenty years experience in Medicine at both Georgetown University and George Washington University School of Medicine. In 1987, Dr. Strobos received his Juris Doctorate from the University of Pennsylvania and insurance litigation, and Food And Drug Administrative Law. From 1992 to 1995 Dr. Strobos was Director, Policy Research Staff, Office of Policy for the US Food and Drug Administration. At Greenberg and Traurig, Dr. Strobos' expertise is in the area of regulatory approvals as it pertains to biotechnology and pharmaceutical applications. These new appointment s and changes in MDI'S science and technology group will strengthen and advance the company's core technologies with a strong, effective and focused professional program under the overall leadership and guidance of Dr. Novick and his USA and Japanese teams. PATENT ACTIVITY. Recently MDI received notification from the United States Patent Office that yet another patent is pending on the company's core technologies. The latest Continuation In Part (CIP) is entitled: "System and Method For Electrolyzing Fluids for Use as Anti-Microbial Agents". This latest news brings a total of 3 patents to the company, adding strength on which MDI can build and protect its business. ADDITIONAL FUNDING IS REQUIRED. It is clear that MDI will need to raise additional capital to fund our 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. 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 10QSB for the period ended June 30, 1996. 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 14, 1997 /s/ Lee F. Kulas --------------------------- President and Chief Executive Officer