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, 1998
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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)
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: as of July 31, 1998
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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, 1998 (unaudited) and December 31, 1997
(unaudited)
Statements of Operations for the Three-Month Periods ended June 30, 1998
(unaudited) and June 30, 1997 (unaudited) and the Six-Month Periods ended
June 30, 1998 (unaudited) and June 30, 1997 and since inception through
June 30, 1997 (unaudited).
Statements of Cash Flows for the Six-Month Periods ended June 30, 1998
(unaudited) and June 30, 1997 (unaudited) Notes to Unaudited Financial
Statements
MEDICAL DISCOVERIES, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
AS OF JUNE 30, 1998 AND DECEMBER 31, 1997
(UNAUDITED)
June 30, 1998 December 31, 1997
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CURRENT ASSETS
Cash $ 205,949 $ 765
Accounts receivable 11,477 30,585
Inventory 6,750 0
Prepaid expenses 2,715 10,869
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Total Current Assets 226,891 42,219
PROPERTY AND EQUIPMENT
Equipment 76,304 72,304
Less: Accumulated depreciation (31,027) (23,507)
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Net Property and Equipment 45,277 48,797
OTHER ASSETS
Investment in Regenere, Inc. 75,000 0
Deposits 2,220 3,160
Total Assets $ 349,388 $ 94,176
=========== ===========
CURRENT LIABILITIES
Accounts payable $1,107,679 $ 916,734
Accrued interest 20,271 14,360
Current maturities of:
Notes payable 101,000 102,591
Convertible notes payable 291,700 291,700
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Total Current Liabilities 1,520,650 1,325,385
STOCKHOLDERS' EQUITY
Common Stock, no par value,
authorized 100,000,000 6,938,997 6,507,317
shares; 23,240,567 shares
issued and outstanding at
June 30, 1998
Retained deficit (7,997,759) (7,626,026)
Subscription receivables (112,500) (112,500)
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Total Stockholders' Equity (1,171,262) (1,231,209)
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TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 349,388 $ 94,176
=========== ===========
MEDICAL DISCOVERIES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS
FOR THE PERIODS ENDED JUNE 30, 1998 AND JUNE 30, 1997
(UNAUDITED)
Cumulative
For the three months For the six months Amounts since
ended June 30, ended June 30, November 20,
------------------------------ ----------------------------- 1991 (date of
1998 1997 1998 1997 inception)
----------- ----------- ----------- ----------- -------------
REVENUE
Product sales $ 10,574 $ 0 $ 12,847 $ 0 $ 12,847
Clinical fees 0 0 0 0 108,200
Interest 432 0 1,158 0 22,049
----------- ----------- ----------- ----------- -------------
Total Revenue 11,006 0 14,005 0 143,096
COST OF GOODS SOLD 3,750 0 5,000 0 5,000
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GROSS MARGIN 7,256 0 9,005 0 138,096
EXPENSES
License 0 0 0 0 1,001,500
Research and development 71,662 29,363 145,487 29,664 2,002,363
General and administrative 96,109 57,037 209,032 218,721 4,798,489
----------- ----------- ----------- ----------- -------------
Total Expenses 167,771 86,400 354,519 248,385 7,802,352
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NET LOSS FROM OPERATIONS (160,515) (187,488) (345,514) (248,385) (7,664,256)
OTHER INCOME / (EXPENSE) 12,051 (19,703) 26,219 (31,230) 117,024
----------- ----------- ----------- ----------- -------------
LOSS BEFORE INCOME TAXES (172,566) (106,103) (371,733) (279,615) (7,547,232)
AND EXTRAORDINARY ITEM
INCOME TAXES 0 0 0 0 0
----------- ----------- ----------- ----------- -------------
LOSS BEFORE EXTRAORDINARY (172,566) (106,103) (371,733) (279,615) (7,547,232)
ITEM
FORGIVENESS OF DEBT 0 0 0 0 1,235,536
----------- ----------- ----------- ----------- -------------
NET INCOME $ (172,566) $ (106,103) $ (371,733) $ (279,615) $ (6,311,696)
=========== =========== =========== =========== =============
INCOME / (LOSS) PER SHARE
Loss from continuing
operations $ (0.01) $ (0.00) $ (0.02) $ (0.01) $ (0.42)
Gain from debt
forgiveness 0.00 0.00 0.00 0.00 0.07
----------- ----------- ----------- ----------- -------------
Income / (loss) per
share $ (0.01) $ (0.00) $ (0.02) $ (0.01) $ (0.35)
=========== =========== =========== =========== =============
WEIGHTED AVERAGE NUMBER
OF SHARES 23,577,472 21,879,944 23,376,004 21,778,359 17,963,338
=========== =========== =========== =========== =============
MEDICAL DISCOVERIES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
FOR THE PERIODS ENDED JUNE 30, 1998 AND JUNE 30, 1997
(UNAUDITED)
Cumulative
For the three months Amounts since
ended June 30, November 20,
-------------------------- 1991 (date of
1998 1997 inception)
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OPERATING ACTIVITIES
Net income (loss) for the
period $ (371,733) $ (279,615) $ (6,598,182)
Add non-cash items
Common stock issued for
services and license 0 0 3,419,236
Reduction of legal costs 0 0 (130,000)
Depreciation 7,520 7,628 32,489
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 19,109 22,485 11,580
Inventory (6,750) 0 (6,750)
Prepaid Expenses 8,154 8,088 (2,715)
Other assets 940 (1,090) (2,220)
Increase (decrease) in:
Accounts payable 190,945 112,386 951,770
Accrued expenses 5,911 (16,066) 41,752
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Net Cash from Operations (145,904) (145,824) (3,294,250)
INVESTING ACTIVITIES
Purchases of equipment (4,000) (5,082) (99,967)
Payments received on note
receivable 0 0 99,414
Investment in Regenere (75,000) 0 75,000
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Net Cash from Investing Activities (79,000) (5,082) (75,553)
FINANCING ACTIVITIES
Increase in notes payable 0 0 101,000
Payment of notes payable (1,591) (1,385) (8,161)
Increase in notes payable 0 0 316,700
Equity contributed 0 0 131,374
Proceeds from issuance of
common stock 431,680 147,500 3,034,839
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Net Cash from Financing
Activities 430,089 146,115 3,575,752
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NET INCREASE / (DECREASE) IN CASH 205,185 (4,791) 205,949
CASH, BEGINNING PERIOD 764 25,306 0
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CASH ENDING PERIOD $ 205,949 $ 20,515 $ 205,949
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MEDICAL DISCOVERIES, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 1998
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, 1998 and the
results of operations and changes in financial position for the three-month
period ended June 30, 1998. The results of operations for the three months ended
June 30, 1998 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 had booked revenue of $12,847 for the period from January 1, 1998 to June
30, 1998 compared to no revenue for the same period in 1997. The revenue results
from initial sales of imported functional water machines. The company spent
$145,487 in research and development costs during the first six months of 1998
compared to $29,664 for the same period in last year. The increased spending
reflects the additional testing the Company is conducting on MDI-P to progress
the FDA application process. MDI reduced its General and Administrative expense
by 4 percent to $209,032 from $218,721. Funding for on-going operations is
discussed in the "Additional Funding is Required" section below. The company has
established a "consumer products" division (MDI HealthCare Systems) as part of
its strategy of developing certain aspects of its core technologies for
commercialization.
DEVELOPMENT OF NEW/IMPROVED TECHNOLOGY
During the last quarter, the Company has continued to focus its research and
development activities to further enhancing its core technologies. Chief among
these efforts (which are in the process of patent applications) is the
capability of developing a new generation of consumer products utilizing its
"e1ectrclyzed saline water". These variations of the Company's patented core
technologies and resultant commercially viable products better enable the
Company to aggressively pursue markets outside of its traditional pharmaceutical
research and development operations. Included among these new target markets are
applications; in the newly evolving skin care "Cosmeceuticals (tm)" industry,
home water purification, and bottled waters.
These markets represent significant revenue opportunities in the near term, and
the Company is presently developing the appropriate infrastructure to
aggressively pursue this business.
The Company remains committed to its pursuit of establishing MDI-P as an
effective compound targeted against the HIV/AIDS virus, developing MDI-P as an
effective anti-bacterial, and anti-fungal pharmaceutical, and other applications
such as the sterilization of surgical and dental instruments.
FORMATION OF A NEW CONSUMER PRODUCTS DIVISION
MDI has established a new operating division: MDI HealthCare Systems, focused on
the commercialization of products targeted at the health and wellness, cosmetic,
home water-purification systems and bottled water markets. The products being
marketed by this new division will be a combination of proprietary products
internally developed as well as unique products sourced from strategic partners
located in the United States and certain international markets. The focus of MDI
HealthCare Systems will be the marketing and sales of water purification systems
targeted at the home, food industry and industrial applications. The
electrolysis based Ionizer systems are sourced under agreements with various
manufacturers in Japan and Korea.
This is a first stage in a plan to eventually establish an
assembly/manufacturing operation within the United States in the area of product
development, manufacturing, and after sales service.
JOINT VENTURE.
MDI has completed a joint venture agreement with Advanced Bio-Technologies,
Inc., a privately held company specializing in the research, development, and
commercialization of proprietary products in the wound treatment, scar therapy
and skin care industry. The new company, Regenere, Inc. ("Regenere"), was
established on July 6, 1998 as a Cosmeceuticals health care company focused on
the identification, exploration, validation, development and commercialization
of innovative solutions for scar therapy, wound healing, and skin care and
repair.
Medical Discoveries, Inc. owns a 50% interest in Regenere. Lee F. Kulas, MDI
President and CEO has been named a Director and Chairman of the Board of
Regenere. Mr. Alvin Zidell, also a Director of MDI, has also been named a
Director of Regenere.
EXCLUSIVE DISTRIBUTION AGREEMENT AWARDED TO MDI
On July 31, 1998, Medical Discoveries, Inc. entered into an exclusive
distribution agreement with Hattori Seshi Company for distribution of its
products in the following markets: United States, Europe, South America, India,
and Canada.
Hattori Seshi Company, located in Japan, is a proprietary manufacturer of
certain cosmetic and skin care products targeted at the scar therapy and wound
healing markets. These products will play an integral role in the new joint
venture, Regenere, as well as MDI HealthCare System division.
In addition, both MDI and Hatori Seshi have initiated joint development
activities using the combined proprietary technologies of each company in
developing a new generation of products aimed at the Cosmeceuticals markets.
MANAGEMENT ADDITIONS
Scott Wood was named to the position of Chief Financial Officer and will serve
as an Officer of the Corporation. Mr. Wood has extensive experience in emerging
companies and has a background in distribution, manufacturing, and technology
development.
PATENT ACTIVITY
The Company has announced the filing of a new patent in Japan covering a broad
range of claims for its core technologies. The Company will file similar patents
in the USA in the near future.
JAPANESE MARKET OPPORTUNITES AND ANALYSIS.
MDI is continuing discussions regarding licensing and other business development
relationships with several Japanese and Korean companies.
There continues to be strong interest in the medical pharmaceutical market
applications of the Company's proprietary compound, MDI-P for applications in
Japanese and other foreign markets. MDI is actively discussing potential
alliances with several of these companies to jointly collaborate in this area
using the Company's patented technologies and drawing on its experience in thc
medical area with its Scientific Advisory Board
FUNDING
In June 1998, the Company raised $300,000 in exchange for 400,000 shares of
common stock at a price of $0.75 per share, warrants to purchase 800,000 shares
of stock at prices ranging from $0.75 to $1.50 per share, and certain exclusive
limited distribution rights for the Company's own products as well as products
from Regenere. A private financial group consisting of USA-based medical doctors
representing a variety of specialties provided the funding. Upon completion of
the entire funding package contemplated by the funding arrangement, MDI would
raise up to $3.5 million from the private financial group. In connection with
this funding, MDI will receive additional investment consulting services from an
investment banking concern in exchange for 120,000 warrants to purchase the
Company's common stock at $0.001 per share, and 500,000 warrants to purchase the
Company's common stock at prices ranging from $0.50 to $0.75 per share. The bulk
of this funding will be spent on validation testing required for submission to
the FDA of an Investigational New Drug application (IND) for MDI-P targeted
against the HIV/AIDS virus.
Additionally, the Company is continuing a rigorous approach in each of its
research and testing programs that continue to show promise and generate
valuable scientific data for eventual FDA approvals submission.
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 with a special emphasis in Japan. In the
future, management anticipates the need to raise substantial additional bands 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.
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, 1997.
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
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 13, 1998 /s/ Lee F. Kulas
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President and Chief Executive Officer