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
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For the quarterly period ended September 30, 1996
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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
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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)
2040 East Murray-Holladay Road, Suite 116, Salt Lake City, UT 84117
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(Address of principal executive offices)
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(801) 273-7388
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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
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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
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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: 21,431,324
as of October 31, 1996
Transitional Small Business Disclosure Format (check one)
Yes X No
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PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The following financial statements are filed with this report:
Balance Sheets as of September 30, 1996 (unaudited) and September
30, 1995
(unaudited)
Statements of Operations for the Three-Month and Nine-Month
Periods ended September 30, 1996 (unaudited) and September 30,
1995 (unaudited) and since inception through September 30, 1996
(unaudited).
Statements of Cash Flows for the Nine-Month Periods ended
September 30, 1996 (unaudited) and September 30, 1995 (unaudited)
and since inception through September 30, 1996 (unaudited).
Notes to Unaudited Financial Statements
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Medical Discoveries, Inc.
(A Development Stage Company)
Balance Sheet
As of September 30 , 1996 and September 30, 1995
(UNAUDITED)
Sept. 30, 1996 Sept. 30, 1995
Current Assets
Cash 43,539 13,454
Accounts Receivable 45,700 130,350
Prepaid Expenses 14,825 0
Total Current Assets 104,064 143,804
Property, Plant, and Equipment
Equipment 72,082 65,989
Less: Accumulated Depreciation (12,544) (19,895)
Net PP&E 59,538 46,094
Other Assets
Deposits 1,170 1,170
Note receivable 42,697 0
Deferred Federal R&D Tax Credits 0 118,561
License Agreement and Mkt Rights 0 10,000
Total Other Assets 43,867 129,731
Total Assets 207,469 319,629
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Current Liabilities
Accounts Payable 588,721 233,137
Medical care deposits 0 1,367
Accrued interest 16,536 0
Current maturities of Notes Payable 2,795 0
Total Current Liabilities 608,052 234,504
Long Term Liabilities
Notes payable 319,048 750,000
Total Long Term Liabilities 319,048 750,000
Total Liabilities 927,101 984,504
Stockholders' Equity
Common Stock, no par value,
authorized 1,00,000,000 shares;
issued and outstanding
21,431,324 shares at
September 30, 1996 5,971,733 4,685,022
Stock subscriptions receivable (87,500) (472,360)
Retained Deficit (6,603,865) (4,877,537)
Total Equity (719,632) (664,875)
Total Liabilities and Equity 207,469 319,629
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Medical Discoveries, Inc.
(A Development Stage Company)
Statement of Operations
For the periods ended September 30, 1996 and September 30, 1995
(UNAUDITED)
Cumulative
Amts. since
for the quarter Nov. 20, for the nine months
ended Sept. 30, 91 (date ended Sept. 30,
1996 1995 inception) 1996 1995
Revenue
Clinical Fees 0 5,466 108,200 0 6,833
Total Revenue 0 5,466 0 0 6,833
Expenses
License Agreement 0 0 1,000,000 0 0
R&D 49,794 28,966 2,303,601 200,042 71,443
G&A 134,298 728,972 3,182,332 707,909 874,464
Depreciation 3,396 2,575 14,311 9,311 6,618
Total Expenses 187,488 760,513 6,500,244 917,262 952,525
Net Oper. Loss (187,488) (755,047) (6,392,044) (917,262) (945,692)
Other Income
or Exp. (10,225) 0 (47,781) (22,292) 0
Loss before income
tax and
extraordinary
item (197,713) (755,047) (6,439,824) (939,553) (945,692)
Income taxes 0 0 0 0 0
Loss before
extraordinary
item (197,713) (755,047) (6,439,824) (939,533) (945,692)
Forgiveness of debt 0 0 1,235,536 673,486 0
Net income (197,713) (755,047) (5,204,288) (266,067) (945,692)
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Income / (loss)
per share
Loss from Operations (0.01) (0.04) (0.42) (0.04) (0.05)
Gain from debt
forgiveness 0.00 0.00 0.08 0.03 0.00
Income/(loss) per
share (0.01) (0.04) (0.34) (0.01) (0.05)
Weighted
average number
of shares 1,598,715 21,524,329 15,488,098 22,066,709 18,516,831
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Medical Discoveries, Inc.
(A Development Stage Company)
Statement of Cash Flows
For the periods ended September 30, 1996 and September 30, 1995
(UNAUDITED)
Cumulative
Amounts since
For the 9 months November 20,
ended Sept. 30, 1991 (date of
1996 1995 inception)
Operating Activities
Net Income (Loss) for
the period (266,067) (945,692) (5,204,288)
Add non-cash items
Depreciation 9,311 6,618 14,004
Common stock for services & 313,508 708,540 3,330,069
royalty repurchase
Disposal of equipment 0 0 6,330
Gain on Debt Restructure (673,486) 0 (1,235,536)
Net Cash from Operations (616,734) (230,534) (3,089,421)
Working Capital Changes
Decreases (increases) in:
Accounts Receivable 31,566 (130,350) 98,040
Prepaid Expenses 51,035 0 (14,825)
Other Assets 0 0 (1,170)
Increases (decreases) in:
Accounts Payable 52,227 100,278 343,354
Accrued Interest 9,678 0 9,678
Accrued Expenses 0 1,367 28,577
Net Cash -
Working Capital Changes 144,506 (28,705) 463,654
Investing Activities
Purchases of Equipment (19,611) (26,897) (71,711)
Net Cash -
Investing Activities (19,611) (26,897) (71,711)
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Financing Activities
Payment of Notes Payable 0 0 (802)
Increase in Notes Payable 12,545 0 314,245
Equity contributed 0 0 131,374
Proceeds from issuance
of common stock 485,000 283,200 2,296,200
Net Cash -
Financing Activities 497,545 283,200 2,741,017
Net Increase / (Decrease)
in Cash 5,706 (2,936) 43,539
Cash, Beginning Period 37,833 16,040 0
Cash Ending Period 43,539 13,104 43,539
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MEDICAL DISCOVERIES, INC.
September 30, 1996
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, 1996 and the results of
operations and changes in financial position for the three-month
and nine-month periods ended September 30, 1996. The results of
operations for the nine months ended September 30, 1996 are not
necessarily indicative of the results to be expected for the
entire year. Certain balance sheet items have been reclassified
to properly and consistently present account balances.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION.
CONTINUING RESEARCH. The Company is continuing its research and
development of MDI-P. The Company's current focus is to seek
commercialization of MDI-P as a sterilizing agent. Beyond that,
the Company will continue its research into the use of MDI-P as
an anti-microbial agent. At the same time, the Company will
continue its joint research into removing or inactivating
infectious agents in blood-derived products. These objectives
are discussed separately below.
MDI-P AS A STERILIZING AGENT. Management of the Company intends
to seek commercialization of MDI-P as a sterilizing agent. The
reason for this priority is that such use can be approved by the
FDA relatively quickly. The Company will likely seek an alliance
with a large pharmaceutical /biotech company in this regard to
assist MDI in the manufacturing and marketing of these
sterilizers. Steril*Med, an affiliate of Cooley & Cooley and the
company who originally financed the initial research into the use
of MDI-P as a sterilizing agent, has a first right of refusal to
negotiate in this regard. How these sterilizers will be marketed
is still undecided, but will be determined once a marketing
partner is identified. Management believes that this use can be
commercialized in the near future, but given that the FDA must
approve the application, there is no guarantee that such approval
will be obtained soon, if at all.
MDI-P AS AN ANTI-MICROBIAL AGENT. The Company has conducted
preliminary tests on the use of MDI as a potential broad spectrum
anti-bacterial agent. The Company's management will likely seek
an alliance with a major pharmaceutical/biotech company in this
regard to market and distribute MDI-P for this purpose. That
partner would also assist the Company in obtaining FDA approval
for such use.
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PATENT APPLICATIONS. Recently, the Company filed a patent
application for a method of treating blood and blood products in
vitro to inactivate bacteria and viruses. On August 27, 1996,
the Company received a Notice of Allowance from the U.S. Patent
office. During the next twelve months, the Company will continue
to seek expanded patent protection for the use of MDI-P on a
variety of diseases and ailments. The Company intends to seek
patent protection both in the United States and abroad.
SCIENTIFIC ADVISORY BOARD. Ned Weinshanker, Ph.D. was named to
the Company's Scientific Advisory Board. Dr. Weinshanker is
currently president, chief executive officer and a director of
IOMED, Inc. (Salt Lake City, Utah). IOMED designs, manufactures,
and distributes iontophoretic drug delivery systems, a method of
transdermal delivery using electrical current to enhance drug
transport. He received his doctorate in organic chemistry from
the Massachusetts Institute of Technology (MIT) and pursed
postdoctoral research at Harvard University. His background includes
tenure with NYSE-listed ALZA Corporation (Palo Alto, California) and
ALZA-spinoff, Dynapol (Palo Alto, California).
Thomas Asher, Ph.D., founder and former chairman of HemaCare
Corporation (Sherman Oaks, California) was also named to the
Company's Scientific Advisory Board. Dr. Asher received his
doctorate from the University of London's Imperial College of
Science and Technology in "mechanisms of antibiosis," which
involves the eradication of microbes in general. Following a
distinguished career with the Centers for Disease Control, Dr.
Asher served on the executive management teams of Hyland
Laboratories, which was then the largest manufacturer of
fractionated blood products in the United States, and Immuno-
Science, a manufacturer of blood-related biological and
diagnostic products.
During his seventeen year tenure with HemaCare, Asher
successfully led efforts to provide specialized blood components,
such as concentrated platelets and immunoglobulins, to the health
care industry. In addition, he has served on the board of
directors for a number of national and regional biotechnology
organizations, including Alpha Therapeutics Corporation, Souther
California Hemophilia Foundation, Steri-Kem Corporation,
Association of Personal Blood Services, and the American Blood
Resources Association.
ADDITIONAL FUNDING IS REQUIRED. The Company's planned research
and testing will require substantial additional funds. At this
time, the Company does not have sufficient cash to support all
the required testing for the projects described above. MDI has
retained two investment banking firms to seek additional capital.
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Management intends to raise substantial additional funds in both
private and possibly public stock offerings in the future to meet
its future funding requirements. The company is technically in
default in the payment of interest related to certain notes payable.
However, the note holder has not taken any action in this regard.
Additionally, MDI will seek licensing and research funds from the
companies with whom MDI may establish a relationship. As additional
funds are raised or revenues received, the Company intends to
commence paying salaries to its officers and to lease appropriate
office space. 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.
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PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There has been no change any legal proceedings since the Form
10-QSB filed by the Company for the quarter 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
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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.
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November 13, 1996
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MARLIN TOOMBS
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Vice President (Principal Financial Officer)
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