UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-KSB
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ANNUAL REPORT UNDER SECTION 13 OR 15(d)
OF THE
SECURITIES EXCHANGE ACT OF 1934 |
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For
the fiscal year ended December 31,
2006
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o
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TRANSITION
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For
the transition period from ________ to
________
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Commission
file number: 0-12627
MEDICAL
DISCOVERIES, INC.
(Exact
name of Small Business Issuer as specified in its charter)
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Utah
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87-0407858
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(State
or other jurisdiction of
incorporation
or organization)
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(I.R.S.
Employer
Identification
Number)
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6033
W. Century Blvd, Suite 1090,
Los
Angeles, California 90045
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(Address
of principal executive offices)
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(310)
670-7911
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Issuer’s
telephone number:
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Securities
registered under Section 12(b) of the Act: None.
Securities
registered under Section 12(g) of the Act: Common Stock, no par
value
Check
whether the issuer is not required to file reports pursuant to Section 13 or
15(d) of the Exchange Act. ¨
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 issuer was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days. Yes
¨ No x
Check
if
there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained,
to the best of the registrant’s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. ¨
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act):
Yes
¨
No
x
The
issuer had $800,000 of revenues for its most recent fiscal year.
The
aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the price at which the common equity
was
sold, as of November 30, 2007, was $8,020,111.
As
of
November 30, 2007, the issuer had 197,643,780 shares of Common Stock
outstanding, which includes 22,837,593 shares of common stock currently held
in
escrow.
Transitional
Small Business Disclosure Format: Yes ¨
No x
TABLE
OF CONTENTS
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PART
I
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ITEM
1.
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DESCRIPTION
OF BUSINESS
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4
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ITEM
2.
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DESCRIPTION
OF PROPERTY
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24
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ITEM
3.
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LEGAL
PROCEEDINGS
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24
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ITEM
4.
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SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
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24
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PART
II
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ITEM
5.
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MARKET
FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS AND SMALL BUSINESS
ISSUER PURCHASES OF EQUITY SECURITIES
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24
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ITEM
6.
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MANAGEMENT’S
DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
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26
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ITEM
7.
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FINANCIAL
STATEMENTS
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28
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ITEM
8.
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CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
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51
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ITEM
8A.
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CONTROLS
AND PROCEDURES
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ITEM
8B.
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OTHER
INFORMATION
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PART
III
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ITEM
9.
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DIRECTORS,
EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH
SECTION
16(a) OF THE EXCHANGE ACT
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ITEM
10.
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EXECUTIVE
COMPENSATION
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ITEM
11.
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SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
SHAREHOLDER MATTERS
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ITEM
12.
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CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
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EXHIBITS
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60
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ITEM
14.
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PRINCIPAL
ACCOUNTANT FEES AND SERVICES
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62
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DISCLOSURE
REGARDING FORWARD-LOOKING STATEMENTS
This
Report, including any documents which may be incorporated by reference into
this
Report, contains “Forward-Looking Statements” within the meaning of Section 27A
of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. All statements other than statements of
historical fact are “Forward-Looking Statements” for purposes of these
provisions, including our plans to cultivate, produce and market non-food based
feedstock for applications in the biofuels market, any projections of revenues
or other financial items, any statements of the plans and objectives of
management for future operations, any statements concerning proposed new
products or services, any statements regarding future economic conditions or
performance, and any statements of assumptions underlying any of the foregoing.
All Forward-Looking Statements included in this document are made as of the
date
hereof and are based on information available to us as of such date. We assume
no obligation to update any Forward-Looking Statement. In some cases,
Forward-Looking Statements can be identified by the use of terminology such
as
“may,” “will,” “expects,” “plans,” “anticipates,” “intends,” “believes,”
“estimates,” “potential,” or “continue,” or the negative thereof or other
comparable terminology. Although we believe that the expectations reflected
in
the Forward-Looking Statements contained herein are reasonable, there can be
no
assurance that such expectations or any of the Forward-Looking Statements will
prove to be correct, and actual results could differ materially from those
projected or assumed in the Forward-Looking Statements. Future financial
condition and results of operations, as well as any Forward-Looking Statements
are subject to inherent risks and uncertainties, including any other factors
referred to in our press releases and reports filed with the Securities and
Exchange Commission. All subsequent Forward-Looking Statements attributable
to
the company or persons acting on its behalf are expressly qualified in their
entirety by these cautionary statements. Additional factors that may have a
direct bearing on our operating results are described under “Risk Factors” and
elsewhere in this report.
Introductory
Comment
Throughout
this Annual Report on Form 10-KSB, the terms “we,” “us,” “our,” and “our
company” refer to Medical Discoveries, Inc., a Utah corporation, and, unless the
context indicates otherwise, also includes our wholly-owned subsidiary, MDI
Oncology, Inc., a Delaware corporation.
PART
I
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ITEM
1.
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DESCRIPTION OF BUSINESS.
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Prior
to
2007, Medical Discoveries, Inc. was a developmental-stage bio-pharmaceutical
company engaged in the research, validation, development and ultimate
commercialization of two drugs. As more fully described in this report, during
2007 the Board of Directors of this company determined that it could no longer
fund the development of its two drug candidates and could not obtain additional
funding for these drug candidates. Accordingly, the Board decided to sell its
two drug candidates and to develop a new business in the rapidly expanding
business of renewable alternative energy sources. As a result, our future
business plan, and our current principal business activities include the
planting, cultivation, harvesting and processing of inedible plant feedstock
to
generate seed oils and biomass for use in the biofuels industry, including
the
production of bio-diesel. Bio-diesel is a diesel-equivalent, processed fuel
derived from biological sources (such as plant oils), which can be used in
diesel engines.
Organizational
History.
Medical
Discoveries, Inc. was incorporated under the laws of the State of Utah on
November 20, 1991. Effective as of August 6, 1992, the company merged with
and
into WPI Pharmaceutical, Inc., a Utah corporation (WPI), pursuant to which
WPI
was the surviving corporation. Pursuant to the MDI-WPI merger, the name of
the
surviving corporation was changed to Medical Discoveries, Inc. WPI was
incorporated under the laws of the State of Utah on February 22, 1984 under
the
name Westport Pharmaceutical, Inc.
On
March
22, 2005, we formed MDI Oncology, Inc., a Delaware corporation, as a wholly
owned subsidiary to acquire certain intellectual property assets from the
liquidation estate of Savetherapeutics, A.G.
In
October 2007, we relocated our principal executive offices from 1338 S. Foothill
Drive, #266, Salt Lake City, Utah 84108 to 6033 W. Century Blvd, Suite 1090,
Los
Angeles, California 90045. We intend to change our name to “Global Clean Energy
Holdings, Inc.” to reflect our new focus on the bio-diesel alternative energy
market. Our telephone number is (310) 670-7911. During our transition to our
new
business, we maintain two websites at www.gceholdings.com and
www.medicaldiscoveries.com. Our annual reports on Form 10-KSB, quarterly reports
on Form 10-QSB, current reports on Form 8-K and amendments to such reports
filed
or furnished pursuant to section 13(a) or 15(d) of the Securities and Exchange
Act of 1934, as amended, and other related information are available, free
of
charge, on our website as soon as we electronically file those documents with,
or otherwise furnish them to, the Securities and Exchange Commission. Our
Internet websites and the information contained therein, or connected thereto,
are not and are not intended to be incorporated into this Annual Report on
Form
10-KSB or any other Securities and Exchange Commission filing.
Transition
to new Business
Until
2007, we were a developmental-stage bio-pharmaceutical company engaged in the
research, validation, development and ultimate commercialization of two drugs:
MDI-P and SaveCream. MDI-P is a drug candidate that we were developing as an
anti-infective treatment for bacterial infections, viral infections and fungal
infections. SaveCream is a drug candidate that we were developing to reduce
breast cancer tumors. Both of these drugs were under development, and had not
been approved by the U.S. Food and Drug Administration (FDA). The total cost
to
develop these two drugs, and to receive the approval from the FDA, would have
cost many millions of dollars and taken many more years. In the past, we
attempted to fund our development costs through the sale of equity securities
and the placement of debt, including the sale of our Series A Convertible
Preferred Stock. To date, we have not generated significant revenues from
operations or realized a profit. Through December 31, 2006, we had incurred
cumulative net losses of more than $22 million since inception.
Early
in
2007, our Board of Directors determined that we could no longer fund the
development of our two drug candidates and that we could not obtain additional
funding for these drug candidates. The Board noted that the commencement of
human clinical trials of the MDI-P drug candidate was on Full Clinical Hold
by
the FDA under 21 CRF 312.42(b) and may not be initiated until deficiencies
in
our IND application are resolved to the FDA’s satisfaction. The FDA has
concluded that our IND application did not contain sufficient toxicology and
genetic toxicology data to support the safety of the proposed clinical trial.
We
considered the uncertainty of the efficacy and safety of the MDI-P compound,
the
costs involved in further developing the compound and the limited market, and
thereafter concluded that we did not have the capability or capacity to take
the
MDI-P compound to commercialization. Our Board also evaluated the value of
the
SaveCream drug candidate that is currently being co-developed with Eucodis
Pharmaceuticals Forschungs - und Entwicklungs GmbH, an Austrian company
(“Eucodis”), and the return we could expect for our shareholders, and determined
that the highest value for this drug candidate could be realized through a
sale
of that drug candidate to Eucodis. Accordingly, our Board sought to maximize
the
return from these assets through their sale.
On
July
6, 2007, we entered into an agreement with Eucodis to sell SaveCream for an
aggregate of €4,007,534
(approximately U.S. $5,906,000 based on the currency conversion rate in effect
as of November 30, 2007), which consideration is payable in cash and by the
assumption of certain of our outstanding liabilities. The consummation of the
sale of the SaveCream to Eucodis is contingent upon the approval of our
shareholders, and we anticipate holding a special meeting of the shareholders
to
approve the Eucodis transaction after our pending proxy statement has been
cleared for use by the SEC.
We
also
entertained various offers to purchase our rights to the MDI-P compound. On
August 9, 2007, we sold the MDI-P compound for $310,000 in cash.
Having
agreed to dispose of the foregoing assets, we considered entering into a number
of other businesses that would enable us to be able to provide our shareholders
with future value. Our Board has decided to develop a business to produce and
sell seed oils, including seeds oils harvested from the planting and cultivation
of Jatropha
curcas
plant,
for the purpose of providing feedstock oil intended for the generation of methyl
ester, otherwise known as bio-diesel (the “Jatropha Business”). Our Board
concluded that there was a significant opportunity to participate in the rapidly
growing biofuels industry, which previously was mainly driven by high priced,
edible oil-based feedstocks. In order to commence our new Jatropha Business,
effective September 7, 2007, we (i) hired Richard Palmer, an energy consultant,
and a member of Global Clean Energy Holdings LLC (“Global”) to act as the our
new President, Chief Operating Officer and future Chief Executive Officer,
(ii)
engaged Mobius Risk Group, LLC, a Texas company engaged in providing energy
risk
advisory services, to provide us with consulting services related to the
development of the Jatropha Business, and (iii) acquired certain trade secrets,
know-how, business plans, term sheets, business relationships, and other
information relating to the cultivation and production of seed oil from the
Jatropha plant for the production of bio-diesel from Global. See, “Item 1.
Description of Business—The Jatropha Business,” below.
Overview
of Legacy Bio-Pharmaceutical Business.
Prior
to
our transition to our new Jatropha Business, we were engaged in the development
of two potential drug candidates that we referred to as “SaveCream” and “MDI-P.”
We purchased our SaveCream technologies from the liquidator of Savetherapeutics
AG i.L., pursuant to an asset purchase agreement dated March 11, 2005. The
SaveCream assets consist primarily of patents, patent applications, pre-clinical
study data and anecdotal clinical trial data concerning SaveCream. We purchased
the SaveCream assets for €2,350,000 payable
as follows: €500,000 at closing, €500,000 upon conclusion of certain
pending transfers of patent and patent application rights from SaveCream’s
inventors to the Company, and €1,350,000 upon successful commercialization
of the Assets.
In
addition to purchasing the SaveCream asset, we were developing MDI-P as an
anti-infective drug for the treatment of bacterial infections, viral infections
and fungal infections. In addition, we considered that MDI-P could be a useful
therapy for the treatment of cystic fibrosis. However, the commencement of
human
clinical trials of MDI-P was on Full Clinical Hold by the FDA because the FDA
concluded that our IND application did not contain sufficient toxicology and
genetic toxicology data to support the safety of the proposed clinical trial.
Our business strategy was to further develop the SaveCream asset, and to
commence human clinical trials of MDI-P for cystic fibrosis following completion
of the required toxicity and genetic toxicity testing.
Prior
to
the sale of the MDI-P asset, we held eight United States Patents, two Japanese
patents and a Mexican patent covering various applications for MDI-P, the
machinery that manufactures it and the method by which it is manufactured.
The
U.S. Patents were as follows:
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Patent
No. 5,334,383: “Electrically Hydrolyzed Salines as In Vivo Microbicides
for the Treatment of Cardiomyopathy and Multiple Sclerosis”
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Patent
No. 5,507,932: “Apparatus for Electrolyzing Fluids”
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Patent
No. 5,560,816: “Method for Electrolyzing Fluids”
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Patent
No. 5,622,848: “Electrically Hydrolyzed Saline Solution as Microbicides
for In Vitro Treatment of Contaminated Fluids Containing Blood”
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Patent
No. 5,674,537: “An Electrolyzed Saline Solution Containing Concentrated
Amount of Ozone and Chlorine Species”
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Patent
No. 5,731,008: “Electrically Hydrolyzed Salines as Microbicides”
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Patent
No. 6,007,686: “System for Electrolyzing Fluids for Use as Antimicrobial
Agents”
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Patent
No. 6,117,285: “System for Carrying Out Sterilization of Equipment”
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The
Japanese and Mexican patents provided coverage in those countries for several
of
the U.S. patents. We also held pending applications with the US Patent and
Trademark Office for patents on MDI-P as a pharmaceutical treatment for cystic
fibrosis, sepsis and asthma, including (i) a patent application for the use
of
MDI-P in the treatment of sepsis, (ii) a provisional patent application for
the
use of MDI-P in the treatment of sepsis, and (iii) a provisional patent
application for the use of MDI-P in the treatment of asthma.
We
also
held intellectual property assets relating to the SaveCream drug, including
the
following four patent families which are the subject of on-going litigation
in
the German Federal Court in Hamburg, Germany:
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“Substances
and Agents for Positively Influencing Collagen.” This included a EU patent
application and a Canadian patent.
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“Topical
Treatment for Mastalgia.” This included U.S. patent application 10/416,096
filed October 30, 2001, and a European Union patent application.
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“Medicament
for Preventing and/or Treating a Mammary Carcinoma Containing a Steroidal
Aromatase Inhibitor.” This included a U.S. patent application, No.
09/646,355, filed November 16, 2000 and divisional and continuation
applications based upon the initial application.
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“Aromatase
Marking.” This included a U.S. Patent application, No. 10/487,953, filed
August 28, 2002, as well as a European Union patent application.
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Competition
for our bio-pharmaceutical drugs
The
biotechnology and pharmaceutical industries are characterized by rapidly
evolving technologies and intense competition. Our competitors in the
bio-pharmaceutical market included many major pharmaceutical, and specialized
biotechnology companies, most of which have financial, technical, and marketing
resources significantly greater than ours. Fully integrated pharmaceutical
companies, due to their expertise in research and development, manufacturing,
testing, obtaining regulatory approvals, and marketing, as well as their
substantially greater financial and other resources, were our most formidable
competitors. In addition, colleges, universities, governmental agencies, and
other public and private research organizations are becoming more active in
seeking patent protection and licensing arrangements to collect royalties for
use of technology that they have developed. These institutions also competed
with us in recruiting and retaining highly qualified scientific personnel.
In
particular, we faced competition from the manufacturers of products that would
have competed with MDI-P and SaveCream in the event we successfully
commercialized both drugs. The products currently available for the treatment
of
targeted by SaveCream and MDI-P included drugs produced by Pfizer, Bristol-Myers
Squibb, Boehringer Ingelheim, GlaxoSmithKline, Gilead Sciences, Hoffman-La
Roche, Merck, Abbott Laboratories, Agouron Pharmaceuticals, Abraxis BioScience,
Inc., AstraZeneca and Trimeris. The significant pressure we faced from
competitors with substantially greater financial and other resources contributed
to our decision to exit the biotechnology and pharmaceutical
industries.
Government
Regulations
Our
prior
intention to use MDI-P and SaveCream as pharmaceuticals made us subject to
extensive regulation by United States and foreign governmental authorities.
In
particular, pharmaceutical treatments are subject to rigorous preclinical and
clinical testing and other approval requirements by the FDA in the United States
under the federal Food, Drug and Cosmetic Act and by comparable agencies in
most
foreign countries. Various federal, state and foreign statutes also govern
or
influence the manufacture, labeling, storage, record keeping, and marketing
of
such products. Pharmaceutical manufacturing facilities are also regulated by
state, local, and other authorities. Obtaining approval from the FDA and other
regulatory authorities for a new drug or treatment may take several years and
involve substantial expenditures. Moreover, ongoing compliance with these
requirements can require the expenditure of substantial resources. The delays
and extensive costs associated with our efforts to commercialize MDI-P and
SaveCream contributed to our decision to exit the biotechnology and
pharmaceutical industries.
Recent
Developments.
Asset
Sale
On
July
6, 2007, we entered into a sale and purchase agreement (as amended, the
“SaveCream Asset Sale Agreement”) with Eucodis Pharmaceuticals Forschungs - und
Entwicklungs GmbH, an Austrian company (“Eucodis”), pursuant to which Eucodis
agreed to acquire our SaveCream assets in consideration for a cash payment
and
the assumption by Eucodis of certain of our current indebtedness (such
transactions, collectively, the “SaveCream Asset Sale”). Pursuant to the
SaveCream Asset Sale Agreement, as amended, the Asset Sale is scheduled to
close
on or before January 31, 2008.
The
assets to be acquired by Eucodis pursuant to the SaveCream Asset Sale Agreement
include all of our right, title and interest in all patents, patent
applications, regulatory
files,
pre-clinical study data and anecdotal clinical trial data concerning our
“SaveCream” drug candidate. We acquired SaveCream and certain other related
intellectual property assets from the liquidator of Savetherapeutics AG i.L.,
a
German company, pursuant to a certain asset purchase agreement dated as of
March
11, 2005. At the closing of the SaveCream Asset Sale, we will also assign to
Eucodis all of our right, title and interest in a certain co-development
agreement with Eucodis, dated as of July 29, 2006, related to the co-development
and licensing of SaveCream, and our rights under certain
other contracts relating to SaveCream.
We also
intend to close our wholly owned subsidiary MDI Oncology, Inc. upon the closing
of the sale of the SaveCream asset to Eucodis.
The
purchase price payable by Eucodis under the SaveCream Asset Sale Agreement
will
be €4,007,534
(approximately $5,906,000 based on the currency conversion rate in effect as
of
November 30, 2007), a portion of which comprised (i) a cash payment of
€1,538,462
(approximately
$2,267,000 based on the currency conversion rate in effect as of November 30,
2007), which is due and payable to us at the closing, less $200,000 already
received from Eucodis in March 2007 upon the signing of the Letter of Intent,
and (ii) Eucodis’ assumption of an aggregate of €2,469,072
(approximately
$3,639,000 based on the currency conversion rate in effect as of November 30,
2007), constituting specific indebtedness currently owed to certain of our
creditors. In addition, at the closing of the SaveCream Asset Sale, Eucodis
will
assume all of our financial and other obligations under certain other contracts
relating to SaveCream, and reimburse us for certain costs we have incurred
since
February 28, 2007 in connection with preserving the assets to be acquired by
Eucodis under the SaveCream Asset Sale Agreement.
In
addition, we have agreed to a non-compete provision for the duration of five
years after the closing of the SaveCream Asset Sale. Specifically, the
non-compete provision will restrict us, and our affiliates, from undertaking
research and development activities with respect to SaveCream, or any other
product that could be used in reasonable substitution of SaveCream, or
commercializing any products based on SaveCream, unless expressly authorized
by
Eucodis.
Global
Clean Energy Holdings, LLC -- Share Exchange Agreement
In
connection with our efforts to commence the Jatropha Business, on September
7,
2007, we entered into a share and exchange agreement (the “Global Agreement”)
pursuant to which we acquired all of the outstanding ownership interests in
Global Clean Energy Holdings, LLC, a Delaware limited liability company
(“Global”). Global is a company that owns certain
trade secrets, know-how, business plans, term sheets, business relationships,
and other information relating to the cultivation and production of seed oil
from the seed of the Jatropha plant, for the purpose of providing feedstock
oil
intended for the production of bio-diesel. Richard
Palmer and Mobius Risk Group, LLC, a Texas limited liability company engaged
in
providing energy risk advisory services (“Mobius”), were the sole owners of the
outstanding equity interests of Global. Richard Palmer was also a member of
Global.
In
exchange for all of the outstanding ownership interests in Global, we issued
63,945,257 shares of our common stock to Richard Palmer and Mobius. The shares
issued to Mr. Palmer and Mobius in the acquisition of Global represented 35%
of
our outstanding shares of common stock immediately after the acquisition
(excluding the shares of Series A Convertible Preferred Stock). Of the
63,945,257 shares issued under the Global Agreement, 36,540,146 shares were
issued and delivered to Mr. Palmer (5,220,021 shares) and Mobius (31,320,125
shares) at the closing of the Global Agreement without any restrictions. The
remaining 27,405,111 shares of common stock were, however, issued as restricted
shares, subject to forfeiture in the event that certain specified performance
milestones are not achieved. The restricted shares are being held by us in
escrow until such shares are either released or cancelled. An aggregate of
23,490,095 restricted shares were issued to Mobius, and 3,915,016 restricted
shares were being issued to Palmer. If and when certain specified milestones
are
achieved, the restricted shares will be released and delivered to Mr. Palmer
and
Mobius in accordance with the terms and conditions of the Global Agreement.
During the time that the restricted shares are restricted and subject to
forfeiture, the restricted shares shall be outstanding shares for all purposes
and shall be entitled to vote and receive dividends, if any are declared. As
of
November 30, 2007, a total of 4,567,518 of Mr. Palmer and Mobius’ restricted
shares were released from the restrictions and delivered on a pro rata basis
per
the terms of the Global Agreement to Mr. Palmer and Mobius.
In
order
to obtain the expertise necessary to exploit the assets we acquired under the
Global Agreement, we also entered into an employment agreement with Richard
Palmer, and a consulting agreement with Mobius.
Mobius
Consulting Agreement
Concurrent
with the execution of the Global Agreement, we entered into a consulting
agreement with Mobius pursuant to which Mobius has agreed to provide consulting
services to us in connection with our new Jatropha Business. We engaged Mobius
as consultant to obtain Mobius’ experience and expertise in the
feedstock/bio-diesel market to assist us in developing our new business
operations. Mobius’ compensation for the services provided under the consulting
agreement is a monthly retainer of $45,000; the term of the Mobius consulting
agreement is twelve months, or such shorter period until the scope of work
under
the agreement has been completed.
Employment
Agreement
On
September 7, 2007, we entered into an employment agreement (effective as of
September 1, 2007) with Richard Palmer pursuant to which we hired Mr. Palmer
to
serve as our President and Chief Operating Officer. Mr. Palmer was also
appointed to serve as director on our Board to serve until the next election
of
directors by our shareholders. Upon the resignation of the current Chief
Executive Officer, Mr. Palmer also will become our Chief Executive Officer.
We
hired Mr. Palmer to take advantage of his experience and expertise in the
feedstock/bio-diesel industry, and in particular, in the Jatropha bio-diesel
and
feedstock business.
Under
Mr.
Palmer’s employment agreement, we granted Mr. Palmer an incentive option to
purchase up to 12,000,000 shares of our common stock at an exercise price of
$0.03 (the trading price on the date the agreement was signed), subject to
our
achievement of certain market capitalization goals. The option expires after
five years. In addition, Mr. Palmer’s compensation package includes a base
salary of $250,000, and a bonus payment contingent on Mr. Palmer’s satisfaction
of certain performance criteria, which will not exceed 100% of Mr. Palmer’s base
salary. The term of employment commenced September 1, 2007 and ends on September
30, 2010, unless terminated earlier in accordance with the terms of that
agreement.
Appointment
of New Directors
At
a
meeting of our Board held on August 30, 2007, the Board appointed three
individuals to the fill three vacancies on the Board. In connection with
covenants we made under the Global Agreement and Mr. Palmer’s employment
agreement, the Board appointed Richard Palmer and Eric J. Melvin to fill two
of
the vacancies on the Board. In addition, the Board appointed Martin Schroeder
to
fill the final vacancy on the Board. Messrs. Palmer, Melvin and Schroeder will
stand for re-election at our next annual meeting of shareholders. All of the
appointments were contingent upon, and became effective as of the consummation
of the Global Share Exchange Agreement and the execution of Mr. Palmer’s
employment agreement.
Mr.
Eric
Melvin currently is the Chief Executive Officer of Mobius and a principal owner
of that energy consulting business.
Mr.
Richard Palmer is our newly appointed President and Chief Operating Officer.
Prior to joining us, Mr. Palmer was a Vice President of Mobius, specializing
in
providing consulting services related to alternative energy sources, including
bio-diesel feedstock production. Mr. Palmer also owns a minority equity interest
in Mobius.
Mr.
Martin Schroeder currently is the Executive Vice President & Managing
Director of The Emmes Group, Inc., a strategic business development, assessment
and planning organization specializing in the support of firms engaged in the
consumer product, technology, internet, medical diagnostic, biotechnology,
and
pharmaceutical industries. He also is the principal of Emmes Group Consulting,
LLC. Mr. Schroeder has been providing consulting services to us since February
2007.
Lodemo
Services Agreement
On
October 15, 2007, we entered into a Service Agreement (the “Lodemo Agreement”)
with Corporativo LODEMO S.A DE CV, a Mexican corporation (the “Lodemo Group”) in
connection with our new Jatropha Business. We have decided to initiate our
Jatropha Business in Mexico, and have already identified parcels of land in
Mexico to plant and cultivate Jatropha. In order to obtain all of the logistical
and other services needed to operate a large-scale farming and transportation
business in Mexico, we entered into the Lodemo Agreement with the Lodemo Group,
a privately held Mexican company with substantial land holdings, significant
experience in fuel distribution and sales, liquids transportation, logistics,
land development and agriculture.
Under
our
supervision, the Lodemo Group will be responsible for the establishment,
development, and day-to-day operations of our Jatropha Business in Mexico,
including the extraction of the oil from the Jatropha seeds, the delivery of
the
Jatropha oil to buyers, the purchase or lease of land in Mexico, the
establishment and operation of one or more Jatropha nurseries, the clearing,
planting and cultivation of the Jatropha fields, the harvesting of the Jatropha
seeds, the operation of the our oil extraction facilities, and the logistics
associated with the foregoing. Although the Lodemo Group will be responsible
for
identifying and acquiring the farmland, ownership of the farmland or any lease
thereto will be held directly by us. The Lodemo Group will be responsible for
hiring and managing all necessary employees. We will bear all direct and
budgeted costs of the Jatropha Business in Mexico.
The
Lodemo Group will provide the foregoing and other necessary services for a
fee
primarily based on the number of hectares of Jatropha under cultivation. We
have
agreed to pay the Lodemo Group a fixed fee per year of $60 per hectare of land
planted and maintained with minimum payments based on 10,000 hectares of
developed land, to follow a planned planting schedule. The agreement has a
20-year term but we may terminate under certain circumstances. The Lodemo Group
also will potentially receive incentive compensation for controlling costs
below
the annual budget established by the parties, production incentives for increase
yield and a sales commission for biomass sales.
Loan
Agreement
In
order
to fund its operations pending the closing of the SaveCream Asset Sale
Agreement, on September 7, 2007, we entered into a loan and security agreement
(“Loan Agreement”) with Mercator Momentum Fund III, L.P., a California limited
partnership, pursuant to which Mercator Momentum Fund III, L.P. made available
to us a secured term credit facility in the aggregate principal amount of
$1,000,000 (the “Loan”). As of November 30, 2007, we have drawn down a total of
$350,000 under the Loan Agreement, and we have issued a secured promissory
note
to Mercator Momentum Fund III, L.P. in the aggregate principal amount of
$350,000 (the “Note”). Interest
is payable on the Loan and the Note at a rate of 12% per annum, payable monthly.
The loan matures and becomes due and payable on December 14, 2007.
The Loan
is secured by a first priority lien on all of our assets. Mercator Momentum
Fund
III, L.P. and its affiliates currently own all of the issued and outstanding
shares of Series A Convertible Preferred Stock. We have used the proceeds of
the
Loan to fund our working capital needs.
Series
B Preferred Stock
In
order
to obtain additional working capital, on November 6, 2007, we entered into
a
Securities Purchase Agreement (the “Securities Purchase Agreement”) with two
accredited investors, pursuant to which we sold a total of 13,000 shares of
our
newly authorized Series B Convertible Preferred Stock (“Series B Shares”) for an
aggregate purchase price of $1,300,000. Each share of the Series B Shares has
a
stated value of $100. The two purchasers of our Series B Shares are parties,
which we expect to be engaged in our Jatropha Business in Mexico.
The
Series B Shares may, at the option of each holder, be converted at any time
or
from time to time into fully paid and non-assessable shares of our common stock
at the conversion price then in effect. The number of shares into which one
Series B Share shall be convertible is determined by dividing $100 per share
by
the conversion price then in effect. The
initial conversion price per share for the Series B Shares is $0.11, which
is
subject to appropriate adjustment for certain events, including stock splits,
stock dividends, combinations, recapitalizations or other recapitalizations
affecting the Series B Shares.
Each
holder of Series B Shares is entitled to the number of votes equal to the number
of shares of our common stock into which the Series B Shares could be converted
on the record date for such vote, and shall have voting rights and powers equal
to the voting rights and powers of the holders of our common stock. In
the
event of our dissolution or winding up, each share of the Series
B
Shares
is entitled to be paid an amount equal to $100 (plus any declared and unpaid
dividends) out of the assets of our company then available for distribution
to
shareholders; subject, however, to the senior rights of the holders of our
Series A Convertible Preferred Stock.
No
dividends are required to be paid to holders of the Series B Shares. However,
we
may not declare, pay or set aside any dividends on shares of any class or series
of our capital stock (other than dividends on shares of our common stock payable
in shares of common stock) unless the holders of the Series B Shares shall
first
receive, or simultaneously receive, an equal dividend on each outstanding share
of Series B Shares.
Employees.
As
of
December 31, 2006, we had one employee, our Chief Executive Officer, Judy M.
Robinett. As of November 30, 2007, we currently have two (2) employees, Ms.
Robinett and Mr. Palmer. Ms. Robinett will resign in the near future, and Mr.
Palmer will assume her responsibilities as the Chief Executive Officer. During
the initial development of our Jatropha Business, most of our Jatropha-related
services are being provided to us by the Mobius Risk Group and the Lodemo Group.
In addition, our accounting and other administrative functions are also
currently being provided to us by consultants. At such time as capital resources
permit, we will hire full-time employees to assume these positions.
The
Jatropha Business.
Business
Strategy
As
of
September 7, 2007, the day on which we entered into the Global Agreement, we
changed the core business of our company to focus on the cultivation of
non-edible feedstock for certain applications in the biofuels market. In
particular,
we
anticipate that our core activities in the future will include the planting,
cultivation, harvesting and processing of Jatropha plant feedstock to generate
seed oils and biomass for use in the biofuels industry, including the production
of bio-diesel and certain other biofuels.
Bio-diesel
is a diesel-equivalent, processed fuel derived from biological sources (such
as
plant oils), which can be used in diesel engines and as a replacement for fuel
oil. The term “biofuels” refers to a range of biological based fuels including
biodiesel, synthetic diesel, ethanol and biomass, most of which have
environmental benefits that are the major driving force for their introduction.
Using biofuels instead of fossil fuels reduces net emissions of carbon dioxide
and other green house gases, which are associated with global climate change.
Biofuels further the concept of energy independence and environmental
responsibility, while generating new jobs in new markets. This creates a social,
environmental and economic gain from the production, distribution and end use
of
biofuels. As the world consumes larger volumes of fossil fuels, and further
depletes the supplies of such fossil fuels, alternate sources of energy need
to
be developed to support growing economies
We
have
identified the Jatropha
curcas
plant
as our primary feedstock for producing bio-diesel and other biofuels. The
Jatropha plant is a perennial plant that produces an inedible fruit with large
seeds containing a high percentage of high quality inedible oil. The entire
fruit, including the seeds, has excellent properties necessary for the
production of biofuels. Our current business plan proposes to utilize the entire
fruit of the Jatropha plant for biofuel production, including the oils produced
from the fruit, as well as the hull, seed cover, seed oil and seed cake.
In
connection with our new feedstock operations, we have identified strategic
locations in North America, the Caribbean, Central America and South America
ideally suited to our proposed planting, cultivation, harvesting and processing
activities, in which we plan to establish cultivation, harvesting and processing
operations. All of the areas identified have been selected for a number of
key
strategic reasons, including proximity to large ports for logistics purposes,
relatively stable democratic governments, favorable trade agreements with the
United States, low-cost land, reasonably priced labor, favorable weather
conditions and acceptable soil conditions.
The
Jatropha plant is indigenous to Mexico, and we have decided to initiate
implementation of our new business plan and related agricultural development
activities in Mexico. Our business plan proposes to establish a nursery in
which
we will initially grow and cultivate Jatropha seedlings prior to transferring
them to the plantation for further growth and cultivation. We are currently
negotiating a lease for approximately 40 hectares of land in the Yucatan
Peninsula, on which we plan to set up our proposed Jatropha nursery. We have
already begun a plant breeding research and development program on this
property.
We
have
identified a wide range of varieties of the Jatropha plant in Mexico, which
we
are currently propagating and studying. Our research and development activities
will focus on plant and soil sciences, plant breeding and other related
activities. We plan to study and identify the proper mix of Jatropha varieties,
as well as optimum growth conditions, in order to maximize our output of the
Jatropha fruit and seed oil. For political as well as legal reasons, we
anticipate organizing a wholly owned Mexican subsidiary for purpose of carrying
out our contemplated activities in Mexico, and plan to locate the corporate
offices of any such Mexican subsidiary on the same property on which our
nursery, plant breeding and research support facilities will be located. We
are
currently in negotiations for the construction of the nursery and research
facilities on an approximately 40-hectare parcel in Mexico.
In
addition, we have identified 2,000 hectares of land in the State of Yucatan
Mexico, which we believe is ideal for establishing and maintaining what we
plan
to be the first of several multi-thousand hectare plantations in which we will
cultivate the Jatropha plant. Our business plan is to acquire the rights to
use
up to 20,000 hectares in Mexico, by the end of our 2008 fiscal year, for
purposes of setting up plantations on which we will cultivate the Jatropha
plant. We anticipate that the 2,000 hectares will yield 1-2 million gallons
of
feedstock oil when fully planted with mature plants.
We
are
also evaluating other locations in the Caribbean, Central America and South
America for purposes of establishing Jatropha plantations, and we plan to have
a
Jatropha plantation and related operations in a location outside of Mexico
by
the end of our 2009 fiscal year.
Our
business plan also proposes the construction of a seed oil extracting facility
in which we would extract the feedstock oil from the Jatropha seed, and collect
the remaining biomass for sale to interested buyers. We have not yet identified
a location for the seed oil extracting facility; however, we plan to locate
the
facility relatively close to the ultimate end user of the biomass in order
to
minimize the costs and logistics of transporting the biomass to prospective
buyers.
We
anticipate that our primary focus will be in the feedstock oil market, and
our
operations will primarily comprise the planting, harvesting and sale of
feedstock oil to end users in the energy industry for production of bio-diesel
and other biofuels. In the short term, while developing Jatropha plantations,
we
expect to generate short-term revenues through our forward sale contracts for
feedstock oil and biomass to be produced at our facilities, and the potential
sale of carbon offset credits.
Depending
on future economic, political and other factors, we may in the future expand
our
operations beyond the feedstock oil market. For example, our business plan
contemplates the possibility of entering into a joint venture for the
constructing a bio-diesel refinery in which we would produce bio-diesel using
the feedstock oil that we produce. In any event, we anticipate we will still
remain a feedstock oil company primarily, and that our bio-diesel production,
if
any, would be derived from only a portion of the feedstock oil we produce.
If
economic and other factors at the time encourage us to invest in bio-diesel
production, we anticipate that we may develop or acquire additional refining
capacity in other strategic locations.
Our
employees, advisors and consultants are senior energy professionals with
extensive experience in the energy and biofuels market, the production of
bio-diesel and in the renewable energy sector in general.
We
are
still a development stage company, and we anticipate that we will require
significant time and capital to develop our new operations into a stable and
profitable business.
Principal
Products
The
production of biofuels feedstock is primarily a logistical agricultural
operation. It needs to be supported with strong plant and soils sciences to
improve productivity, quality and plant stability. The Jatropha
curcas
plant
will be our primary agricultural focus. The Jatropha plant is a perennial,
inedible plant, and all of its by-products can be used for fuel and biomass
energy production. It is a very efficient plant that produces high quality
seed
oil and high-energy content biomass.
Bio-diesel
Oil Feedstock
The
feedstock oil needed for the production of bio-diesel that is currently
available on the market today is primarily supplied from edible plant seed
oils
including soy, canola (rapeseed) and palm. There are other types of feedstock
utilized including animal fats and recycled cooking grease, but they make up
a
small portion of the market supply. Our primary source of bio-diesel feedstock
will be from the oil produced from the Jatropha plant. One advantage of the
Jatropha plant is that it’s oil and meal is inedible, and the cultivation of the
plant, which will primarily be for use in the biofuels industry, does not
compete for resources with other crops grown primarily for food consumption.
Since the Jatropha plant does not compete with land or other resources used
in
food crop development, it is an additional feedstock supply, growing the base
and the market capacity.
Biomass
Feedstock
The
Jatropha plant produces a fruit (about the size of a golf ball) containing
three
large seeds that contain 32%-38% oil content by weight. The non-oil components
of the fruit, which represents 62-68% of the total fruit, contains high energy
biomass (carbon values) that is an excellent source of feedstock for a number
of
energy producing processes including direct combustion, gasification, power
production, and cellulostic ethanol (alcohol) production.
Carbon
Credits
Biofuels
production and use is a very effective means to reduce both local and global
pollution from emissions that cause climate change. Growing trees and plants
which sequesters carbon from the atmosphere and burning biofuels offsets the
production of greenhouse gasses resulting from the consumption of petroleum
or
other fossil-based fuels. Many biofuels produce less pollution, including CO2,
NOx, SOx and PM10. Through the 1997 Kyoto Protocol to the United Nations
Framework Convention on Climate Change (Kyoto Protocol), signatory countries
are
required to reduce their overall greenhouse gas emmissions, or carbon footprint.
As of November 2007, 174 parties are signatories to and have ratified the Kyoto
Protocol. The United States of America is not a signatory to the Kyoto Protocol.
Signatory countries require local industry and other local energy end-users
to
either reduce their greenhouse gas emissions, or purchase greenhouse gas
emission credits (carbon credits). This requirement has created a worldwide
“Carbon Credit Trading Market” where sellers
sell their excess carbon credits and buyers purchase the carbon credits they
need to meet their greenhouse gas reduction requirements. The development of
agricultural-based energy projects may produce carbon credits through the
sequestration (storing) of carbon by the growing of trees and plants, or by
the
offset of other sequestered carbon. Selling carbon credits represents potential
additional revenue that will help to offset capital requirements for our
plantation and other development activities.
In
our
case, Certified Emission Reductions (CERs) may be generated through Clean
Development Mechanism projects in non-Annex 1 nations, which include Mexico,
the
Caribbean, Central and South America. Assuming full capacity at a 20,000-hectare
Jatropha plantation, we estimate that we could generate more than 100,000 metric
tons of sellable carbon credits annually.
Technology
Although
we do not currently possess any patentable technology relating to our operations
in the feedstock and biofuels market, we may develop technology as we design
and
implement our business plan. Any technology we develop will be in three main
categories: (i) plant and science sciences, (ii) agricultural development,
and
(iii) material processing and end use applications. Such technologies developed
are expected to assist in reducing costs, improving efficiency and allowing
us
to move the products higher in value creation. We intend to pursue patentable
technologies, processes and plant varieties.
Market
According
to U.S. Department of Energy estimates, the world demand for crude oil in 2006
was approximately 85 million barrels per day, with approximately 25% of that
demand being diesel and fuel oil (distillate fuel oil). This equates to a global
consumption of distillate fuel oil of approximately 21 million barrels per
day,
or 325 billion gallons per year. At a 5% blend with biodiesel, the world market
for biodiesel exceeds 16 billion gallons per year.
U.S.
distillate fuel oil consumption for 2005 was 4.12 million barrels per
day,
which
equates to over 60 billion gallons of diesel and fuel oil consumed annually.
At
a 5% biodiesel blend, the US biodiesel market is over 3 billion gallons per
year
and growing.
In
2004,
32 U.S. biodiesel refineries produced approximately 30 million gallons of neat
(100%) bio-diesel fuel. In 2005, 50 refineries produced approximately 75 million
gallons and in 2006 approximately 250 million gallons was sold. It is expected
that in 2007 over 300 million gallons of bio-diesel fuel will be produced and
consumed domestically, with an unconfirmed, but announced, biodiesel refinery
construction exceeding a total U.S. domestic refining capacity of 1 billion
gallons.
Direct
Sales
Based
on
our current business plan, our primary market will be in the direct sale of
Jatropha feedstock oil for bio-diesel production and biomass energy production,
and the sale of carbon credits. Our primary customers will be refiners of
bio-diesel. We estimate that there are approximately 165 bio-diesel plants
in
the United States alone, which can utilize up to 100% of our crude or refined
Jatropha oil.
We
will
generate our highest revenues and greatest margins from customers who have
logistical capacity on a water port accessible from the Gulf of Mexico. This
will reduce redundant transportation costs, and allow us to ship large
quantities economical. These customers have historically paid a higher price
for
feedstock oil, since the majority of feedstock oil supplies has been shipped
from the Midwestern United States. We anticipate that our key customer profile
will include well-financed, low-cost bio-diesel refiners.
Distributor
Sales
As
our
business develops, we expect to utilize some distributors for sale of the
Jatropha feedstock oil and the biomass by-products that we will
produce.
Environmental
Impact
Biofuels,
including bio-diesel, have environmental benefits that are a major driving
force
for their introduction. Using biofuels instead of fossil fuels reduces net
emissions of carbon dioxide and other greenhouse gasses, which are associated
with global climate change. Biofuels are produced from renewable plant resources
that “recycle” the carbon dioxide created when biofuels are consumed. Life-cycle
analyses consistently show that using biofuels produced in modern facilities
results in net reductions of greenhouse gas carbon emissions compared to using
fossil fuel-based petroleum equivalents. These life-cycle analyses include
the
total energy requirements for the farming and production of the biomass
resource, as well as harvesting, conversion and utilization. Biofuels help
nations achieve their goals of reducing carbon emissions. Biofuels burn cleanly
in vehicle engines and reduce emissions of unwanted products, particularly
unburned hydrocarbons and carbon monoxide. These characteristics contribute
to
improvements in local air quality. In a life-cycle study published in October
2002, entitled “A Comprehensive Analysis of Bio-diesel Impacts on Exhaust
Emissions, 2002,” the U.S. Environmental Protection Agency (“EPA”) analyzed
bio-diesel produced from virgin soy oil, rapeseed (canola) and animal fats.
The
study concluded that the emission impact of bio-diesel produced slightly
increased NOx emissions while significantly reducing other major
emissions.
Competition
Although
there are a number of producers of biofuels, few are utilizing non-edible oil
feedstock for the production of bio-diesel. The following table lists the
companies we are aware of that are cultivating Jatropha for the production
of
bio-diesel:
|
British
Petroleum (UK)
|
|
Plans
to establish 100,000 hectares of Jatropha plantations in Indonesia
to feed
the 350,000-tonne-per-year biodiesel refinery that it is building
in the
country.
|
| |
|
|
|
Van
Der Horst Corporation (Singapore)
|
|
Building
a 200,000-tpy biodiesel plant in Juron Island in Singapore that will
eventually be supplied with Jatropha from plantations it operates
in
Cambodia and China, and possible new plantations in India, Laos and
Burma.
|
| |
|
|
|
Mission
Biofuels (Australia)
|
|
Hired
Agro Diesel of India to manage a 100,000-heactare Jatropha plantation, and
a contract farming network in India to feed its Malaysian and Chinese
biodiesel refineries. Mission Biofuels has raised in excess of $80
million
to fund its operations.
|
| |
|
|
|
D1
Oils (UK)
|
|
As
of June 2007, together with its partners, D1 Oils has planted or
obtained
rights to offtake from a total approximately 172,000 hectares of
Jatropha
under cultivation worldwide. D1’s Jatropha plantations are located in
Saudi Arabia, Cambodia, Ghana, Indonesia, the Philippines, China,
India,
Zambia, South Africa and Swaziland. In June 2007, D1 Oils and British
Petroleum entered into a 50:50 joint venture to plant up to an additional
1 million hectares of Jatropha worldwide. British Petrolum funded
the
first £31.75 million of the Joint Venture’s working capital requirements
through a purchase of D1 Oils equity, and the total Joint Venture
funding
requirement is anticipated to be £80 million over the next five
years.
|
| |
|
|
|
NRG
Chemical Engineering (UK)
|
|
Signed
a $1.3 billion deal with state-owned Philippine National Oil Co.
in May
2007. NRG Chemical will own a 70% stake in the joint venture which
will
involve the construction of a biodiesel refinery, two ethanol distilleries
and a $600 million investment in Jatropha plantations that will cover
over
1 million hectares, mainly on the islands of Palawan and
Mindanao.
|
| |
|
|
|
1
hectare = 2.47 acres
|
We
believe there is sufficient global demand for alternative non-edible biofuel
feedstock to allow a number of companies to successfully compete worldwide.
In
particular, we note that we are the only US-based producer of non-edible oil
feedstock for the production of bio-diesel which gives us a unique competitive
advantage over many foreign competitors when competing in the USA.
The
price
basis for our non-edible oil and biomass feedstock will be equivalent to other
edible seed oil and biomass feedstocks. We have not found any substantial effort
towards the production of any other non-edible oil worldwide that could compete
with Jatropha. With the growing demand for feedstock, and the high price of
oil
and biofuels, we anticipate that we will be able to sell our Jatropha oil and
biomass feedstock profitability.
RISK
FACTORS
RISKS
RELATING
TO
OUR
BUSINESS
We
have no direct operating history in the feedstock and bio-diesel industries,
which makes it difficult to evaluate our financial position and our business
plan.
To
date,
we have been a development stage bio-pharmaceutical company. Since our inception
through December 31, 2006, we generated only $957,000 of revenues and
accumulated net losses of over $22 million. During 2007, we terminated our
operations as a bio-pharmaceutical company and have commenced developing a
new
business in the biofuels industry. However, since we have only recently
commenced our operations as a biofuels company, we have no operating history
in
that line of business on which a decision to invest in our company can be based.
The future of our company currently is dependent upon our ability to implement
our new business plan in the Jatropha Business. While we believe that our
business plan, if implemented as drafted, will make our company successful,
we
have no operating history against which we can test our plans and assumptions,
and therefore cannot evaluate the likelihood of success.
The
Jatropha Business that we are commencing is a new and highly risky business
that
has not been conducted on a similar scale in North America.
Our
business plan calls for a large scale planting and harvesting of Jatropha
plants, primarily outside of the United States, and for the subsequent
production and sale of Jatropha oil (and other Jatropha byproducts) for use
as a
biofuel primarily in the United States. We are commencing a new business and
will be subject to all of the risks normally associated with new businesses,
including risks related to the large scale production of plants that have not
heretofore been grown in large scale plantations, logistical issues related
to
the oil and biomass produced at such new plantations, market acceptance,
uncertain pricing of our products, developing governmental regulations, and
the
lack of an established market for our products.
Since
we currently have a limited amount of cash available, and are not generating
any
revenues from either our legacy bio-pharmaceutical business or our new Jatropha
Business, we are dependent upon the sales proceeds to be derived from the sale
of SaveCream, the sale of Carbon Credit purchase contracts, future delivery
Jatropha oil purchase contracts, and on our ability to raise additional funds
to
continue our operations and existence.
We
currently only have a limited amount of cash available, which cash is not
sufficient to fund our anticipated future operating needs beyond the first
quarter of 2008. In addition, neither our legacy bio-pharmaceutical business,
nor our new Jatropha Business currently generate any revenues from which we
can
pay our administrative and operating expenses. We currently anticipate that
we
will receive approximately $2,067,000 in cash based on the currency conversion
rate in effect as of November 30, 2007 upon the sale of our SaveCream rights
to
Eucodis (in addition to being relieved of our obligation to pay approximately
$3,639,000 of currently outstanding liabilities). The closing of the SaveCream
sale is currently scheduled to occur at the end of January 2008, and we
currently have sufficient funds to operate until that date. However, in the
event that the closing of the SaveCream assets is delayed or does not occur,
we
will face an immediate cash shortage, and may not be able to fund our
anticipated operating expenses after February 2008. No assurance can be given
that the SaveCream sale will occur, or that it will occur during the time period
we anticipate.
We
will
continue to incur administrative and general operating expenses without revenues
until we begin selling Jatropha oil, or until we complete the sales of carbon
credit purchase contracts. Based on our current monthly operating expenses
and
our projected future operating expenses, even if the SaveCream sale closes
as
planned, we will need to obtain significant additional funding during 2008
to
continue our operations and meet our business plan objectives. Such additional
funds could be obtained from the sale of equity, from forward purchase payments
for our products, or debt financing. There can be no assurance that we will
be
able to obtain the capital we require, or obtain such capital on terms that
are
commercially favorable for us. In the event that we do not obtain additional
funding in the near future, we may not be able to maintain our current
operations and will not be able to implement our business plan.
In
addition, our Jatropha Business will require that we acquire and cultivate
a
large amount of land and otherwise incur significant initial start-up expenses
related to establishing the Jatropha plantations required for our proposed
business. We currently do not have the capital that is necessary to acquire
the
land or to otherwise fund the large up-front expenses, nor has any entity agreed
to provide us with such funds. Accordingly, the success of our new Jatropha
Business is contingent on, among other things, our ability to raise the
necessary capital to fund our planned Jatropha Business expenditures.
Historically, we have raised capital through the issuance of debt and equity
securities. However, given the risks associated with a new, untested biofuels
business, the risks associated with our common stock (as discussed below),
and
our status as a small, unknown public company, we cannot guarantee that we
will
be able to raise capital, or if we are able to raise capital, that such capital
will be in the amounts needed. Our failure to raise capital, when needed and
in
sufficient amounts, will severely impact our ability to develop our Jatropha
Business.
Our
business could be significantly impacted by changes in government regulations
over energy policy.
Our
planned operations and the properties we intend to cultivate are subject to
a
wide variety of federal, provincial and municipal laws and regulations,
including those governing the use of land, type of development, use of water,
use of chemicals for fertilizer, pesticides, export or import of various
materials including plants, oil, use of biomass, handling of materials, labor
laws, storage handling of materials, shipping, and the health and safety of
employees. As such, the nature of our operations exposes us to the risk of
claims with respect to such matters and there can be no assurance that material
costs or liabilities will not be incurred in connection with such claims. In
addition, these governmental regulations, both in the U.S. and in the foreign
countries in which we may conduct our business, may restrict and hinder our
operations and may significantly raise our cost of operations. Any breach by
our
company of such legislation may also result in the suspension or revocation
of
necessary licenses, permits or authorizations, civil liability and the
imposition of fines and penalties, which would adversely affect our ability
to
operate and our financial condition.
Further,
there is no assurance that the laws, regulations, policies or current
administrative practices of any government body, organization or regulatory
agency in the United States or any other jurisdiction, will not be changed,
applied or interpreted in a manner which will fundamentally alter the ability
of
our company to carry on our business. The actions, policies or regulations,
or
changes thereto, of any government body or regulatory agency, or other special
interest groups, may have a detrimental effect on our company. Any or all of
these situations may have a negative impact on our operations.
Our
future growth is dependent upon strategic relationships within the feedstock
and
bio-diesel industries. If we are unable to develop and maintain such
relationships, our future business prospects could be significantly
limited.
Our
future growth will generally be dependent on relationships with third parties,
including alliances with feedstock oil and bio-diesel processors and
distributors. In addition, we will likely rely on third parties to oversee
the
operations and cultivation of the Jatropha plants in our non-U.S. properties.
Accordingly, our success will be significantly dependent upon our ability to
establish successful strategic alliances with third parties and on the
performance of these third parties. These third parties may not regard their
relationship with us as important to their own business and operations, and
there is no assurance that they will commit the time and resources to our joint
projects as is necessary, or that they will not in the future reassess their
commitment to our business. Furthermore, these third parties may not perform
their obligations as agreed. In the event that a strategic relationship is
discontinued for any reason, our business, results of operations and financial
condition may be materially adversely affected.
We
will depend on key service providers for assistance and expertise in beginning
operations and any failure or loss of these relationships could delay our
operations, increase our expenses and hinder our success.
Because
of our limited financial and personnel resources, and because our Jatropha
plantations are expected to be established primarily outside of the United
States, we will have to establish and maintain relationships with several key
service providers for land acquisition, the development and cultivation of
Jatropha plantations, labor management, the transportation of Jatropha oil
and
biomass, and other services. We have already established such a relationship
with the Lodemo Group in Mexico concerning the cultivation and management of
our
Jatropha nurseries and plantations in Mexico and the transportation of our
products. Accordingly, our ability to develop our Jatropha Business in Mexico,
and our success in Mexico, will to a large extent be dependent upon the efforts
and services of the Lodemo Group. While the Lodemo Group has significant
experience in diesel distribution and sales, liquids transportation, logistics,
land development and agriculture, no assurance can be given that our joint
operations with the Lodemo Group will be successful or that we will be able
to
achieve our goals in Mexico.
A
significant decline in the price of oil could have an adverse impact in our
profitability.
Our
success is dependent in part to the current high price of crude oil and on
the
high price of seed oils that are currently used to manufacture bio-diesel.
A
significant decline in the price of either crude oil or the alternative seed
oils will have a direct negative impact on our financial performance
projections.
There
are risks associated with conducting our business operations in foreign
countries, including political and social unrest.
Our
proposed agricultural operations will be primarily located in foreign countries,
beginning in Mexico. Accordingly, we are subject to risks not typically
associated with ownership of U.S. companies and therefore should be considered
more speculative than investments in the U.S.
Mexico
is
a developing country that has experienced a range of political, social and
economic difficulties over the last decade. Our operations could be affected
in
varying degrees by political instability, social unrest and changes in
government regulation relating to foreign investment, the biofuels industry,
and
the import and export of goods and services. Operations may also be affected
in
varying degrees by possible terrorism, military conflict, crime, fluctuations
in
currency rates and high inflation.
In
addition, Mexico has a nationalized oil company, and there can be no assurance
that the government of Mexico will continue to allow our business and our assets
to compete in any way with their interests. Our operations could be adversely
affected by political, social and economic unrest in Mexico and the other
foreign countries we plan for commence agricultural operations.
The
cost of developing and operating our agricultural projects significantly exceeds
our current financial.
Our
preliminary budget contemplates the cultivation of 20,000-hectare of Jatropa
in
Mexico. According to our business plan, this will be the first of several other
large plantations used in our feedstock/biofuel operations. In addition, we
will
have to construct a plant nursery and research facility as well as an seed
oil
extraction facility. We currently do not have the funds necessary to fund our
planned operations. Unless we are able to obtain the necessary funds on
economically viable terms, our Jatropha Business will not succeed, and we will
not be able to meet our business goals. In addition, even if we obtain the
initial funds necessary to establish our plantation and facilities, the costs
to
develop and implement our proposed plantation and support facilities, and our
other operational costs could significantly increase beyond our expectations
due
to economic factors, design modifications, implementation or construction delays
or cost overruns. In such an event, our profitability and ultimately the
financial condition of our company will be adversely affected.
We
plan to grow rapidly and our inability to keep up with such growth may adversely
affect our profitability.
We
plan
to grow rapidly and significantly expand our operations. This growth will place
a significant strain on our management team and other company resources. We
will
not be able to implement our business strategy in a rapidly evolving market
without effective planning and management processes. We have a short operating
history and have not implemented sophisticated managerial, operational and
financial systems and controls. We are required to manage multiple relationships
with various strategic partners, including suppliers, distributors, and other
third parties. To manage the expected growth of our operations and personnel,
we
will have to significantly supplement our existing managerial, financial and
operational staff, systems, procedures and controls. We may be unable to
supplement and complete, in a timely manner, the improvements to our systems,
procedures and controls necessary to support our future operations, our
operations will not function effectively. In addition, our management may be
unable to hire, train, retain, motivate and manage required personnel, or
successfully identify, manage and exploit existing and potential market
opportunities. As a result, our business and financial condition may be
adversely affected.
Our
business will not be diversified because we will be primarily concentrated
in
one industry. As a consequence, we may not be able to adapt to changing market
conditions or endure any decline in the bio-diesel industry.
We
expect
our business to consist primarily of sales of feedstock oil harvested from the
Jatropha plant, and bio-diesel production and sales. We do not have any other
lines of business or other sources of revenue to rely upon if we are unable
to
produce and sell feedstock oil and bio-diesel, or if the markets for such
products decline. Our lack of diversification means that we may not be able
to
adapt to changing market conditions or to withstand any significant decline
in
the bio-diesel industry.
Reductions
in the price of bio-diesel, and decreases in the price of petroleum-based fuels
could affect the price of our feedstock, resulting in reductions in our actual
revenues.
Historically,
bio-diesel prices have been highly correlated to the Ultra Low Sulfur (“ULS”)
diesel prices. Increased volatility in the crude oil market has an effect on
the
stability and long-term predictability of ULS diesel, and hence the biofuels
prices in the domestic and international markets. Crude oil prices are impacted
by wars and other political factors, economic uncertainties, exchange rates
and
natural disasters. A reduction in petroleum-based fuel prices may have an
adverse effect on bio-diesel prices and could apply downward pressure on
feedstock, affecting revenues and profits in the feedstock industry, which
could
adversely affect our financial condition.
There
are several agreements and relationships that remain to be negotiated, executed
and implemented which will have a critical impact on our operations, expenses
and profitability.
We
have
several agreements, documents and relationships that remain to be negotiated,
executed and implemented before we can develop fully commence our new
operations, including agreements relating to the construction of our proposed
seed processing plant and other support facilities for our Jatropha plantation
in Mexico. In some cases, the parties with whom we would need to establish
a
relationship have yet to be identified. Our expectations regarding the likely
terms of these agreements and relationships could vary greatly from the terms
of
any agreement or relationship that may eventually be executed or established.
If
we are unable to enter into these agreements or relationships on satisfactory
terms, or if revisions or amendments to existing terms become necessary, the
construction of our proposed seed processing plant and the commencement of
our
related operations could be delayed, our expenses could be increased and our
profitability could be adversely affected and the value of your investment
could
decline.
Delays
due to, among others, weather, labor or material shortages, permitting or zoning
delays, or opposition from local groups, may hinder our ability to commence
operations in a timely manner.
Our
development schedule assumes the commencement of planting in the first quarter
of 2008, with oil production anticipated 18 months thereafter. We could incur
delays in the implementation of that plan or the construction of support
facilities due to permitting or zoning delays, opposition from local groups,
adverse weather conditions, labor or material shortages, or other causes. In
addition, changes in political administrations at the federal, state or local
level that result in policy changes towards the large scale cultivation of
Jatropha or towards biofuels in general could result in delays in our timetable
for development and commencement of operations. Any such delays could adversely
affect our ability to commence operations and generate revenue.
We
may be unable to locate suitable properties and obtain the development rights
needed to build and expand our business.
Our
business plan focuses on identifying and developing agricultural properties
(plantations, nurseries, etc.) for the production of biofuels feedstock. The
availability of land for this activity is key to our projected revenue and
profitability. Our ability to acquire appropriate land in the future is
uncertain and we may be required to delay planting, which may create
unanticipated costs and delays. In the event that we are not successful in
identifying and obtaining rights on suitable land for our agricultural and
processing facilities, our future prospects for profitability will likely be
affected, and our financial condition and resulting operations may be adversely
affected.
Technological
advances in feedstock oil production methods in the bio-diesel industry could
adversely affect our ability to compete and the value of your investment.
Technological
advances could significantly decrease the cost of producing feedstock oil and
biofuels. There is significant research and capital being invested in
identifying more efficient processes, and lowering the cost of producing
feedstock oil and biofuels. We expect that technological advances in feedstock
oil/biofuel production methods will continue to occur. If improved technologies
become available to our competitors, they may be able to produce feedstock
oil,
and ultimately biofuels, at a lower cost than us. If we are unable to adopt
or
incorporate technological advances into our operations, our ability to compete
effectively in the feedstock/biofuels market may be adversely affected, which
in
turn will affect our profitability.
The
development of alternative fuels and energy sources may reduce the demand for
biofuels, resulting in a reduction in our profitability.
Alternative
fuels, including a variety of energy alternatives to biofuels, are continually
under development. Technological advances in fuel-engines and exhaust system
design and performance could also reduce the use of biofuels, which would reduce
the demand for bio-diesel. Further advances in power generation technologies,
based on cleaner hydrocarbon based fuels, fuel cells and hydrogen are actively
being researched and developed. If these technological advances and alternatives
prove to be economically feasible, environmentally superior and accepted in
the
marketplace, the market for biofuels could be significantly diminished or
replaced, which would adversely affect our financial condition.
Our
ability to hire and retain key personnel and experienced consultants will be
an
important factor in the success of our business and a failure to hire and retain
key personnel may result in our inability to manage and implement our business
plan.
We
are
highly dependent upon our management, and on the consulting services provided
to
us by Mobius Risk Group, LLC, a company we have retained to provide us with
consulting services related to the development of our Jatropha Business. The
loss of the services of one or more of these individuals or of Mobius may impair
management's ability to operate our company. We have not purchased key man
insurance on any of our officers, which insurance would provide us with
insurance proceeds in the event of their death. Without key man insurance,
we
may not have the financial resources to develop or maintain our business until
we could replace such individuals or to replace any business lost by the death
of such individuals. We may not be able to attract and retain the necessary
qualified personnel. If we are unable to retain or to hire qualified personnel
as required, we may not be able to adequately manage and implement our
business.
Our
operating costs could be higher than we expect, and this could reduce our future
profitability.
In
addition to general economic conditions, market fluctuations and international
risks, significant increases in operating, development and implementation costs
could adversely affect our company due to numerous factors, many of which are
beyond our control. These increases could arise for several reasons, such
as:
| |
·
|
Increased
cost for land acquisition;
|
| |
·
|
Increased
unit costs of labor for nursery, field preparation and
planting;
|
| |
·
|
Increased
costs for construction of facilities;
|
| |
·
|
Increased
transportation costs for required nursery and field workers;
|
| |
·
|
Increased
costs of supplies and sub-contacted labor for preparing of land for
planting;
|
| |
·
|
Increase
costs for irrigation, soil conditioning, soil maintenance;
or
|
| |
·
|
Increased
time for planting and plant care and
custody.
|
Upon
completion of our field developments, our operations will also subject us to
ongoing compliance with applicable governmental regulations, including those
governing land use, water use, pollution control, worker safety and health
and
welfare and other matters. We may have difficulty complying with these
regulations and our compliance costs could increase significantly. Increases
in
operating costs would have a negative impact on our operating income, and could
result in substantially decreased earnings or a loss from our operations,
adversely affecting our financial condition.
Fluctuations
in the Mexican peso to U.S. dollar exchange rate may adversely affect our
reported operating results.
The
Mexican peso is the primary operating currency for our initial business
operations while our financial results are reported in U.S. dollars. Because
our
costs will be primarily denominated in pesos, a decline in the value of the
dollar to the peso could negatively affect our actual operating costs in U.S.
dollars, and our reported results of operations. We do not currently engage
in
any currency hedging transactions intended to reduce the effect of fluctuations
in foreign currency exchange rates on our results of operations. We cannot
guarantee that we will enter into any such currency hedging transactions in
the
future or, if we do, that these transactions will successfully protect us
against currency fluctuations.
Risk
of abandoned operations or decommissioning costs are unknown and may be
substantial.
We
may be
responsible for costs associated with abandoning land development and product
processing facilities, which we intend to use for production of biofuels
feedstock. We expect to have long term commitments on land and facilities and
short to medium commitments for labor and other services. Abandonment of these
developments and contracts and the associated decommissioning costs could be
substantial and may have an effect on future profitability.
Our
future profitability is dependent upon many natural factors outside of our
control. If these factors do not produce favorable results our future business
profitability could be significantly affected.
Our
future profitability is
mainly
dependent on the production output from our agricultural operations. There
are
many factors that can effect growth and fruit production of the Jatropha plant
including weather, nutrients, pests and other natural enemies of the plant.
Many
of these are outside of our direct control and could be devastating to our
operations.
Risks
Relating to Our Common Stock
Our
stock is thinly traded, so you may be unable to sell your shares at or near
the
quoted bid prices if you need to sell a significant number of your
shares.
The
shares of our common stock are thinly-traded on the Pink Sheets LLC electronic
trading platform, meaning that the number of persons interested in purchasing
our common shares at or near bid prices at any given time may be relatively
small or non-existent. This situation is attributable to a number of factors,
including the fact that we are a small company which is relatively unknown
to
stock analysts, stock brokers, institutional investors and others in the
investment community that generate or influence sales volume, and that even
if
we came to the attention of such persons, they tend to be risk-averse and would
be reluctant to follow an unproven, early stage company such as ours or purchase
or recommend the purchase of our shares until such time as we became more
seasoned and viable. As a consequence, there may be periods of several days
or
more when trading activity in our shares is minimal or non-existent, as compared
to a seasoned issuer which has a large and steady volume of trading activity
that will generally support continuous sales without an adverse effect on share
price. We cannot give you any assurance that a broader or more active public
trading market for our common shares will develop or be sustained, or that
current trading levels will be sustained. Due to these conditions, we can give
you no assurance that you will be able to sell your shares at or near bid prices
or at all if you need money or otherwise desire to liquidate your shares.
Our
existing directors, officers and key employees hold a substantial amount of
our
common stock and may be able to prevent other shareholders from influencing
significant corporate decisions.
As
of
November 30, 2007, our directors and executive officers beneficially owned
approximately 35.12% of our outstanding common stock. These shareholders, if
they act together, may be able to direct the outcome of matters requiring
approval of the shareholders, including the election of our directors and other
corporate actions such as:
| |
·
|
our
merger with or into another company;
|
| |
·
|
a
sale of substantially all of our assets; and
|
| |
·
|
amendments
to our articles of incorporation.
|
The
decisions of these shareholders may conflict with our interests or those of
our
other shareholders.
The
market price of our stock may be adversely affected by market
volatility.
The
market price of our common stock is likely to be volatile and could fluctuate
widely in response to many factors, including:
| |
·
|
fluctuation
in the world price of crude oil;
|
| |
·
|
market
changes in the biofuels industry;
|
| |
·
|
government
regulations affecting renewable energy businesses and
users;
|
| |
·
|
actual
or anticipated variations in our operating
results;
|
| |
·
|
our
success in meeting our business goals and the general development
of our
proposed operations;
|
| |
·
|
general
economic, political and market conditions in the U.S. and the foreign
countries in which we plan to operate;
and
|
| |
·
|
the
occurrence of any of the risks described in this Quarterly
Report.
|
Obtaining
additional capital though the sale of common stock will result in dilution
of
shareholder interests.
We
plan
to raise additional funds in the future by issuing additional shares of common
stock or other securities, which may include securities such as convertible
debentures, warrants or preferred stock that are convertible into common stock.
Any such sale of common stock or other securities will lead to further dilution
of the equity ownership of existing holders of our common stock. Additionally,
the existing options, warrants and conversion rights may hinder future equity
offerings, and the exercise of those options, warrants and conversion rights
may
have an adverse effect on the value of our stock. If any such options, warrants
or conversion rights are exercised at a price below the then current market
price of our shares, then the market price of our stock could decrease upon
the
sale of such additional securities. Further, if any such options, warrants
or
conversion rights are exercised at a price below the price at which any
particular shareholder purchased shares, then that particular shareholder will
experience dilution in his or her investment.
We
are unlikely to pay dividends on our common stock in the foreseeable
future.
We
have
never declared or paid dividends on our stock. We currently intend to retain
all
available funds and any future earnings for use in the operation and expansion
of our business. We do not anticipate paying any cash dividends in the
foreseeable future, and it is unlikely that investors will derive any current
income from ownership of our stock. This means that your potential for economic
gain from ownership of our stock depends on appreciation of our stock price
and
will only be realized by a sale of the stock at a price higher than your
purchase price.
Trading
of our stock may be restricted by the Securities and Exchange Commission's
penny
stock regulations, which may limit a shareholder's ability to buy and sell
our
stock.
The
Securities and Exchange Commission has adopted regulations which generally
define “penny stock” to be any equity security that has a market price less than
$5.00 per share or an exercise price of less than $5.00 per share, subject
to
certain exceptions. Our securities are covered by the penny stock rules, which
impose additional sales practice requirements on broker-dealers who sell to
persons other than established customers and “accredited investors”. The term
“accredited investor” refers generally to institutions with assets in excess of
$5,000,000 or individuals with a net worth in excess of $1,000,000 or annual
income exceeding $200,000 or $300,000 jointly with their spouse. The penny
stock
rules require a broker-dealer, prior to a transaction in a penny stock not
otherwise exempt from the rules, to deliver a standardized risk disclosure
document in a form prepared by the Securities and Exchange Commission, which
provides information about penny stocks and the nature and level of risks in
the
penny stock market. The broker-dealer also must provide the customer with
current bid and offer quotations for the penny stock, the compensation of the
broker-dealer and its salesperson in the transaction and monthly account
statements showing the market value of each penny stock held in the customer's
account. The bid and offer quotations, and the broker-dealer and salesperson
compensation information, must be given to the customer orally or in writing
prior to effecting the transaction and must be given to the customer in writing
before or with the customer's confirmation. In addition, the penny stock rules
require that prior to a transaction in a penny stock not otherwise exempt from
these rules, the broker-dealer must make a special written determination that
the penny stock is a suitable investment for the purchaser and receive the
purchaser's written agreement to the transaction. These disclosure requirements
may have the effect of reducing the level of trading activity in the secondary
market for the stock that is subject to these penny stock rules. Consequently,
these penny stock rules may affect the ability of broker-dealers to trade our
securities. We believe that the penny stock rules discourage investor interest
in and limit the marketability of our common stock.
|
ITEM
2.
|
DESCRIPTION
OF PROPERTY.
|
Currently,
we operate out of offices located at 6033 W. Century Blvd, Suite 1090, Los
Angeles, California 90045. We recently moved to this location (previously,
our
offices were located in Salt Lake City, Utah) and we have not yet entered
into a lease for these offices. Accordingly, we currently are not subject to
any
lease or rental payments.
|
ITEM
3.
|
LEGAL
PROCEEDINGS.
|
On
August
22, 2006, we initiated legal proceedings in Landgericht Hamburg, a German
Federal Court in Hamburg - Germany, against Dr. Alfred Schmidt to obtain certain
rights concerning “SaveCream”, a developmental topical aromatase inhibitor cream
relevant to our legacy bio-pharmaceutical business. No cross complaints have
been filed against us in this matter. We acquired the “SaveCream” rights and
certain other related intellectual property assets from the liquidator of
Savetherapeutics AG i.L., a German corporation, pursuant to an asset purchase
agreement dated as of March 11, 2005. Pursuant to the Eucodis Agreement, Eucodis
has agreed to assume and become financially responsible for all costs we incur
in connection with the foregoing litigation, subject to the satisfaction of
certain conditions, including that all such
costs are backed up by duly rendered invoices (or receipts).
|
ITEM
4.
|
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS.
|
No
matters were submitted to a vote of security holders during the fourth quarter
of the fiscal year covered by this report.
PART
II
|
ITEM
5.
|
MARKET
FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS AND SMALL BUSINESS
ISSUER PURCHASES OF EQUITY SECURITIES.
|
Until
July 2007, our common stock was traded on the OTC Bulletin Board under the
symbol “MLSC.” Due to our failure to timely file reports with the Securities and
Exchange Commission, in July 2007, we were de-listed from the OTC Bulletin
Board
and are currently listed for trading on the Pink Sheets LLC trading
platform.
The
following table sets forth the range of bid quotations for our common stock
for
the quarters indicated according to data provided by The NASDAQ Stock Market,
Inc. Such quotations reflect inter-dealer prices, without retail mark-ups,
markdowns or commissions, and may not represent actual transactions.
|
Fiscal
Year Ended December 31, 2007
|
|
High
Bid
|
|
Low
Bid
|
|
|
First
Quarter
|
|
$
|
0.049
|
|
$
|
0.022
|
|
|
Second
Quarter
|
|
$
|
0.050
|
|
$
|
0.011
|
|
|
Third
Quarter
|
|
$
|
0.080
|
|
$
|
0.020
|
|
|
Fiscal
Year Ended December 31, 2006
|
|
High
Bid
|
|
Low
Bid
|
|
|
First
Quarter
|
|
$
|
0.190
|
|
$
|
0.090
|
|
|
Second
Quarter
|
|
$
|
0.155
|
|
$
|
0.075
|
|
|
Third
Quarter
|
|
$
|
0.105
|
|
$
|
0.023
|
|
|
Fourth
Quarter
|
|
$
|
0.080
|
|
$
|
0.030
|
|
|
Fiscal
Year Ended December 31, 2005
|
|
High
Bid
|
|
Low
Bid
|
|
|
First
Quarter
|
|
$
|
0.220
|
|
$
|
0.130
|
|
|
Second
Quarter
|
|
|
0.170
|
|
|
0.082
|
|
|
Third
Quarter
|
|
|
0.180
|
|
|
0.080
|
|
|
Fourth
Quarter
|
|
|
0.135
|
|
|
0.090
|
|
Shareholders
As
of
November 30, 2007, we believe that we have approximately 2,950 shareholders
of
our common stock.
Dividends
We
have
never paid any cash dividends on our common stock and do not anticipate paying
dividends in the foreseeable future. We presently intend to retain any future
earnings for financing our growth and expansion.
Securities
Authorized For Issuance Under Equity Compensation Plans
The
following table contains information regarding our equity compensation plans
as
of December 31, 2006.
|
Plan
Category
|
|
Number
of Securities to be Issued upon Exercise of Outstanding Options,
Warrants
and Rights
|
|
Weighted-Average
Exercise Price of Outstanding Options, Warrants and
Rights
|
|
Number
of Securities Remaining Available for Future Issuance under Equity
Compensation Plans (Excluding Securities Reflected in the First
Column)
|
|
|
Equity
compensation plans approved by security holders
|
|
|
|
|
|
|
|
|
1993
Incentive Plan (1)
|
|
|
3,383,000
|
|
$
|
0.13
|
|
|
|
|
|
2002
Stock Incentive Plan
|
|
|
16,500,000
|
|
$
|
0.03
|
|
|
|
|
|
Equity
compensation plans not approved by security holders
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
|
|
|
38,973,861
|
|
$
|
0.19
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
58,856,861 |
|
|
|
|
|
|
|
(1)
The
1993 Incentive Plan has expired and no additional options or awards can be
granted under this plan.
Recent
Issuances Of Unregistered Securities
During
the fourth quarter of the fiscal year ended December 31, 2006, we issued 433,536
shares of our common stock to Dr. Ken Wolkoff. These securities were issued
as
compensation for services provided under a consulting agreement between us
and
Dr. Wolkoff. We believe these shares qualified for the exemption form
registration under Section 4(2) of the Securities Act of 1933 and the safe
harbor provided thereunder pursuant to Rule 506 because the issuance did
not involve a public offering, was made without general solicitation, and was
made to an accredited investor in exchange for services provided to
us.
Repurchase
of Shares
We
did
not repurchase any of its shares during the fourth quarter of the fiscal year
covered by this report.
|
ITEM
6.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
|
Overview
During
the periods covered by this Annual Report, we were a development stage company
that devoted substantially all of its efforts to the research and development
of
its two principal drug candidates. During 2007, we decided to discontinue the
development of our two drug candidates, decided to sell our two drug
technologies, and have commenced a new business as a renewable alternative
energy source company. As a result, the “Results of Operations” section below
describes the results of a business that we no longer intend to pursue, and
not
our new biofuels business that we are currently conducting.
Critical
Accounting Policies
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States require management to make estimates
and
assumptions that affect the reported assets, liabilities, sales and expenses
in
the accompanying financial statements. Critical accounting policies are those
that require the most subjective and complex judgments, often employing the
use
of estimates about the effect of matters that are inherently uncertain. We
are a
development stage company as defined by the Financial Accounting Standards
Board’s (“FASB”) Statement of Financial Accounting Standards (“SFAS”) No. 7,
“Accounting and Reporting by Development Stage Enterprises.” Accordingly, all
losses accumulated since inception have been considered as part of our
development stage activities. Certain other critical accounting policies,
including the assumptions and judgments underlying them, are disclosed in the
Note A to the Consolidated Financial Statements included in this annual report.
However, we do not believe that there are any alternative methods of accounting
for our operations that would have a material affect on our financial
statements.
Results
Of Operations
Revenues
and Gross Profit.
We are
a development stage company that does not sell any products. Accordingly, other
than an $800,000 up-front licensing fee we received during the year ended
December 31, 2006 under our co-licensing and development agreement with Eucodis,
we did not realize any revenues during 2006. We entered into the co-licensing
and development agreement with Eucodis in July 2006. We did not recognize any
revenue for the comparable period in 2005.
Operating
Expenses and Operating Loss.
We
incurred $2,026,907 in research and development expenses for the year ended
December 31, 2006, of which $1,712,745 is related to our acquisition of the
patents and patent rights relating to SaveCream. We incurred $2,172,461 in
research and development expenses for the same period of 2005, of which $665,700
relates to our acquisition of the patents and patent rights relating to
SaveCream. Our general and administrative expenses were $1,986,052 during the
year ended December 31, 2006, as compared to $1,878,027 during the year ended
December 31, 2005. The increase in general and administrative expenses in 2006
was the result of the additional activities related to our SaveCream product
that we acquired during the 2005 fiscal year. While our total expenses for
both
2005 and 2006 were substantially similar, because of the $800,000 licensing
fee
payment we received in 2006, our operating loss decreased to $3,212,959 for
the
year ended December 31, 2006 as compared to the operating loss of $4,050,488
for
the same period of 2005.
Other
Income/ Expense and Net Loss.
We
recorded $2,564,608 as unrealized gain on financial instrument to record the
accounting of warrants resulting from the issuance of the Series A Convertible
Preferred Stock entered into in October 2004 and March 2005, as compared with
an
unrealized gain of $2,300,191 for the comparable period in 2005. This non-cash
income recognition is the result of the periodic revaluation of certain warrants
classified as a liability in the financial statements.
Certain
of our liabilities are denominated in euros. As a result of the decrease in
the
value of the U.S. dollar compared to the euro, during the year ended December
31, 2006 we realized a foreign currency loss of $117,501; in 2005, we realized
a
foreign currency exchange gain of $56,480.
Because
of our limited financial resources and our large unpaid balance of current
liabilities, we periodically have attempted to compromise certain outstanding
liabilities through negotiated settlements with our creditors. In addition,
certain of our liabilities have been extinguished following expiration of the
applicable statute of limitations collection periods. As a result of the
extinguishment of certain of our liabilities at less than the recorded amount
of
those liabilities, as well as our write-off of certain liabilities and
commitments due to expiration of the statute of limitations, we recorded
$607,761 in gain on forgiveness of indebtedness in 2006 and $196,353 of such
gain in 2005.
Despite
our $3,212,959 operating loss, as a result of non-cash income recognized on
the
change in value of financial instruments and the financial statement gain
recognized from the extinguishment of debts, our net loss applicable to common
shareholders for the year ended 2006 was only $183,771 compared to a net loss
applicable to common shareholders of $1,486,781 in fiscal 2005.
Liquidity
And Capital Resources
As
of
December 31, 2006 we had $47,658 in cash and had a working capital deficit
of
$5,526,662. Since our inception, we have financed our operations primarily
through private sales of our securities. As of December 31, 2006, our financial
resources were not sufficient to fund our on-going research and development
activities or to fund our general and operating expenses. Accordingly, early
in
2007 we re-evaluated our future operations thereafter elected to terminate
our
bio-pharmaceutical operations.
In
July
2007, we executed the Asset Sale Agreement with Eucodis pursuant to which we
agreed to sell our SaveCream asset for an aggregate of €4,007,534
(approximately $5,906,000 based on the currency conversion rate in effect as
of
November 30, 2007), a portion of which comprised (i) a cash payment of
€1,538,462
(approximately
$2,267,000 based on the currency conversion rate in effect as of November 30,
2007), which is due and payable to us at the closing, less $200,000 already
received from Eucodis in March 2007 upon the signing of the Letter of Intent,
and (ii) Eucodis’ assumption of an aggregate of €2,469,072
(approximately
$3,639,000 based on the currency conversion rate in effect as of November 30,
2007), constituting specific indebtedness currently owed to certain of our
creditors. The sale is scheduled to close on or before January 31, 2008.
In
August
2007, we sold our second drug candidate, the MDI-P compound, for $310,000 in
cash.
In
order
to fund ongoing operations pending closing of the sale to Eucodis, we entered
into the Loan Agreement with, and issued a promissory note in favor of, with
Mercator Momentum Fund III, L.P. (“Mercator”). Pursuant to the loan agreement,
Mercator made available to us a secured term credit facility in principal amount
of $1,000,000. The promissory note matures and becomes due and payable on
December 14, 2007. As of November 30, 2007, we have drawn down a total of
$350,000 under this facility. The foregoing loan is secured by a lien on all
of
our assets. Although this loan is due and payable on December 14, 2007, Mercator
has informed us that its intends to extend the repayment date for a significant
portion of the $350,000 outstanding balance of this loan. However, as of the
date of this Annual Report, the terms of the foregoing extension have not yet
been formalized.
In
November 2007, we issued 13,000 shares of our newly created Series B Convertible
Preferred Stock to two accredited investors for an aggregate of
$1,300,000.
We
are
currently funding our operations from the Mercator loan and from the proceeds
of
the sale of the Series B Convertible Preferred Stock. Assuming that the sale
of
SaveCream to Eucodis is completed in early 2008, we intend to use the net
proceeds from that sale to fund our operating expenses. However, our business
plan calls for significant infusion of additional capital to establish our
Jatropha plantations in Mexico and other locations. We currently do not have
the
funds necessary to acquire and cultivate those plantations, nor will the
projected proceeds from the Eucodis sale be sufficient for those purposes.
Accordingly, in addition to the proceeds we expect to receive upon the sale
of
SaveCream to Eucodis, we will have to obtain significant additional capital
through the sale of additional equity and/or debt securities, the forward sale
of Jatropha oil and carbon offset credits, and from other financing activities,
such as strategic partnerships. While we have commenced negotiations with third
parties to obtain additional funding from strategic partnerships and for the
sale of carbon credits, no assurance can be given that we will have sufficient
capital available to continue to operate our business in 2008 or that we will
be
able to effect our new business plan in the Jatropha Business.
We
have
no off-balance sheet arrangements as defined in Item 303(c) of Regulation
S-B.
|
ITEM
7.
|
FINANCIAL
STATEMENTS.
|
|
HANSEN,
BARNETT&
MAXWELL,
P.C.
|
|
|
|
A
Professional Corporation
|
|
Registered
with the Public Company
|
|
CERTIFIED
PUBLIC ACCOUNTANTS
|
|
Accounting
Oversight Board
|
|
AND
|
|
|
|
BUSINESS
CONSULTANTS
|
|
|
|
5
Triad Center, Suite 750
|
|
|
|
Salt
Lake City, UT 84180-1128
|
|
|
|
Phone:
(801) 532-2200
|
|
|
|
Fax:
(801) 532-7944
|
|
|
|
www.hbmcpas.com
|
|
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the
Board of Directors and Shareholders
Medical
Discoveries, Inc.
We
have
audited the accompanying consolidated balance sheets of Medical Discoveries,
Inc. and subsidiaries (a development stage company) as of December 31, 2006
and
2005, and the related consolidated statements of operations, changes in
stockholders’ deficit, and cash flows for the years then ended, and for the
period from November 20, 1991 (date of inception of the development stage)
through December 31, 2006. These consolidated financial statements are the
responsibility of the Company’s management. Our responsibility is to express an
opinion on these financial statements based on our audits. We did not audit
the
financial statements of the Company from November 20, 1991 through December
31,
2003, which statements reflect total revenues and deficit accumulated during
the
development stage of $157,044 and $14,930,259, respectively. Those statements
were audited by other auditors whose reports, dated February 18, 2004 (except
Note K, not included herein, as to which the date is November 15, 2004) and
March 20, 2000, included
an explanatory paragraph stating there was substantial doubt regarding the
Company’s ability to continue as a going concern. Our
opinion, insofar as it relates to the consolidated financial statements for
the
period from November 20, 1991 through December 31, 2003, is based solely
on the
report of the other auditors.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that
we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that
our
audits and the report of the other auditors provide a reasonable basis for
our
opinion.
In
our
opinion, based on our audits and the report of the other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Medical Discoveries, Inc. and
subsidiaries as of December 31, 2006 and 2005, and the results of their
operations and their cash flows for the years then ended and for the period
from
November 20, 1991 through December 31, 2006, in conformity with U.S. generally
accepted accounting principles.
The
accompanying consolidated financial statements have been prepared assuming
that
the Company will continue as a going concern. The
Company is a development stage enterprise previously engaged in developing
bio-pharmaceutical research and currently developing bio-diesel fuels. As
discussed in Note B to the financial statements, the stockholders’ deficit and
the operating losses since inception raise substantial doubt about the Company’s
ability to continue as a going concern. Management’s plans concerning these
matters are also described in Note B. The financial statements do not include
any adjustments that might result from the outcome of these
uncertainties.
HANSEN,
BARNETT & MAXWELL, P.C.
Salt
Lake
City, Utah
November
28, 2007
MEDICAL
DISCOVERIES, INC. AND SUBSIDIARIES
(A
Development Stage Company)
Consolidated
Balance Sheets
| |
|
December
31,
|
|
December
31,
|
|
|
|
|
2006
|
|
2005
|
|
|
ASSETS
|
|
CURRENT
ASSETS
|
|
|
|
|
|
| |
|
|
|
|
|
|
Cash
|
|
$
|
47,658
|
|
$
|
654,438
|
|
| |
|
|
|
|
|
|
|
|
Total
Current Assets
|
|
|
47,658
|
|
|
654,438
|
|
| |
|
|
|
|
|
|
|
|
Notes
receivable
|
|
|
-
|
|
|
296,050
|
|
|
Property
and equipment, net
|
|
|
62,249
|
|
|
80,635
|
|
| |
|
|
|
|
|
|
|
|
TOTAL
ASSETS
|
|
$
|
109,907
|
|
$
|
1,031,123
|
|
| |
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' DEFICIT
|
| |
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
1,136,684
|
|
$
|
935,132
|
|
|
Accrued
payroll and payroll taxes
|
|
|
1,184,264
|
|
|
1,673,651
|
|
|
Accrued
interest payable
|
|
|
267,739
|
|
|
237,836
|
|
|
Notes
payable to shareholders
|
|
|
56,000
|
|
|
56,000
|
|
|
Convertible
notes payable
|
|
|
193,200
|
|
|
193,200
|
|
|
Research
and development obligation
|
|
|
2,441,445
|
|
|
592,100
|
|
|
Financial
instrument
|
|
|
294,988
|
|
|
2,859,596
|
|
| |
|
|
|
|
|
|
|
|
Total
Current Liabilities
|
|
|
5,574,320
|
|
|
6,547,515
|
|
| |
|
|
|
|
|
|
|
|
Long-term
liability
|
|
|
90,000
|
|
|
-
|
|
| |
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES
|
|
|
5,664,320
|
|
|
6,547,515
|
|
| |
|
|
|
|
|
|
|
|
STOCKHOLDERS'
DEFICIT
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
Preferred
stock - undesignated, Series A, convertible; no par value; 50,000,000
shares
|
|
|
|
|
|
|
|
|
authorized;
34,420 and 42,000 shares issued and outstanding, respectively;
(aggregate
|
|
|
|
|
|
|
|
|
liquidation
preference of $3,442,000 and $4,200,000, respectively); the Company
also
has
|
|
|
|
|
|
|
|
|
designated
a Series B with no shares issued or outstanding
|
|
|
514,612
|
|
|
523,334
|
|
|
Common
stock, no par value; 250,000,000 shares authorized; 118,357,704
and
107,679,724
|
|
|
|
|
|
|
|
|
shares
issued and outstanding, respectively
|
|
|
15,299,017
|
|
|
15,211,895
|
|
|
Additional
paid-in capital
|
|
|
1,056,020
|
|
|
988,670
|
|
|
Deficit
accumulated prior to the development stage
|
|
|
(1,399,577
|
)
|
|
(1,399,577
|
)
|
|
Deficit
accumulated during the development stage
|
|
|
(21,024,485
|
)
|
|
(20,840,714
|
)
|
|
|
|
|
|
|
|
|
|
|
Total
Stockholders' Deficit
|
|
|
(5,554,413
|
)
|
|
(5,516,392
|
)
|
| |
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS' DEFICIT
|
|
$
|
109,907
|
|
$
|
1,031,123
|
|
See
Notes to Consolidated Financial
Statements
MEDICAL
DISCOVERIES, INC. AND SUBSIDIARIES
(A
Development Stage Company)
Consolidated
Statements of Operations
| |
|
|
|
|
|
From
Inception of
|
|
|
|
|
|
|
|
|
the
Development Stage
|
|
|
|
|
For
the Years Ended
|
|
on
November 20, 1991
|
|
|
|
|
December
31,
|
|
Through
|
|
|
|
|
2006
|
|
2005
|
|
December
31, 2006
|
|
| |
|
|
|
|
|
|
|
|
REVENUES
|
|
$
|
800,000
|
|
$
|
-
|
|
$
|
957,044
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
COST
OF GOODS SOLD
|
|
|
-
|
|
|
-
|
|
|
14,564
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
GROSS
PROFIT
|
|
|
800,000
|
|
|
-
|
|
|
942,480
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
OPERATING
EXPENSES
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
General
and administrative
|
|
|
1,986,052
|
|
|
1,878,027
|
|
|
19,041,049
|
|
|
Research
and development
|
|
|
2,026,907
|
|
|
2,172,461
|
|
|
7,748,106
|
|
|
Inventory
write-down
|
|
|
-
|
|
|
-
|
|
|
96,859
|
|
|
Impairment
loss
|
|
|
-
|
|
|
-
|
|
|
9,709
|
|
|
License
fees
|
|
|
-
|
|
|
-
|
|
|
1,001,500
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Total
Expenses
|
|
|
4,012,959
|
|
|
4,050,488
|
|
|
27,897,223
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
LOSS
FROM OPERATIONS
|
|
|
(3,212,959
|
)
|
|
(4,050,488
|
)
|
|
(26,954,743
|
)
|
| |
|
|
|
|
|
|
|
|
|
|
|
OTHER
INCOME (EXPENSES)
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Unrealized
gain on
|
|
|
|
|
|
|
|
|
|
|
|
financial
instrument
|
|
|
2,564,608
|
|
|
2,300,191
|
|
|
4,864,799
|
|
|
Interest
income
|
|
|
2,866
|
|
|
25,727
|
|
|
58,164
|
|
|
Interest
expense
|
|
|
(29,919
|
)
|
|
(38,264
|
)
|
|
(1,185,620
|
)
|
|
Foreign
currency transaction gain (loss)
|
|
|
(117,501
|
)
|
|
56,480
|
|
|
(61,021
|
)
|
|
Gain
on debt restructuring
|
|
|
607,761
|
|
|
196,353
|
|
|
2,039,650
|
|
|
Other
income
|
|
|
1,373
|
|
|
23,220
|
|
|
906,485
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Total
Other Income (Expenses)
|
|
|
3,029,188
|
|
|
2,563,707
|
|
|
6,622,457
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
NET
LOSS
|
|
|
(183,771
|
)
|
|
(1,486,781
|
)
|
|
(20,332,286
|
)
|
| |
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock dividend from
|
|
|
|
|
|
|
|
|
|
|
|
beneficial
conversion feature
|
|
|
-
|
|
|
-
|
|
|
(692,199
|
)
|
|
NET
INCOME (LOSS) APPLICABLE TO
|
|
|
|
|
|
|
|
|
|
|
|
COMMON
SHAREHOLDERS
|
|
$
|
(183,771
|
)
|
$
|
(1,486,781
|
)
|
$
|
(21,024,485
|
)
|
| |
|
|
|
|
|
|
|
|
|
|
|
BASIC
AND DILUTED INCOME (LOSS)
|
|
|
|
|
|
|
|
|
|
|
|
PER
COMMON SHARE
|
|
$
|
(0.00
|
)
|
$
|
(0.01
|
)
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED
AVERAGE NUMBER OF
|
|
|
|
|
|
|
|
|
|
|
|
SHARES
OUTSTANDING
|
|
|
113,809,546
|
|
|
107,398,164
|
|
|
|
|
See
Notes to Consolidated Financial
Statements
MEDICAL
DISCOVERIES INC. AND SUBSIDIARIES
(A
Development Stage Company)
CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
Period
From November 20, 1991 (Date of Inception of the Development Stage) through
December 31, 2006
| |
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deficit
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
Prior
to
|
|
During
the
|
|
Escrow/
|
|
|
|
|
|
|
Preferred
Stock
|
|
Common
stock
|
|
Paid
in
|
|
Development
|
|
Development
|
|
Subscription
|
|
|
|
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Capital
|
|
Stage
|
|
Stage
|
|
Receivables
|
|
Total
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at October 31, 1991
|
|
|
|
|
|
|
|
|
1,750,000
|
|
$
|
252,997
|
|
$
|
-
|
|
$
|
(1,482,514
|
)
|
$
|
-
|
|
$
|
-
|
|
$
|
(1,229,517
|
)
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restatement
for reverse acquisition of WPI
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pharmaceutical,
Inc. by Medical Discoveries, Inc.
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(252,997
|
)
|
|
-
|
|
|
252,997
|
|
|
-
|
|
|
-
|
|
|
-
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued in merger of WPI Pharmaceutical, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medical
Discoveries, Inc., $0.01 per share
|
|
|
-
|
|
|
-
|
|
|
10,000,000
|
|
|
135,000
|
|
|
-
|
|
|
(170,060
|
)
|
|
-
|
|
|
-
|
|
|
(35,060
|
)
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at November 20, 1991
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Date
of Inception of Development Stage)
|
|
|
-
|
|
|
-
|
|
|
11,750,000
|
|
|
135,000
|
|
|
-
|
|
|
(1,399,577
|
)
|
|
-
|
|
|
-
|
|
|
(1,264,577
|
)
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1992
- $0.50 per share
|
|
|
-
|
|
|
-
|
|
|
200,000
|
|
|
100,000
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
100,000
|
|
|
1992
- $1.50 per share
|
|
|
-
|
|
|
-
|
|
|
40,000
|
|
|
60,000
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
60,000
|
|
|
1993
- $0.97 per share
|
|
|
-
|
|
|
-
|
|
|
542,917
|
|
|
528,500
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
528,500
|
|
|
1994
- $1.20 per share
|
|
|
-
|
|
|
-
|
|
|
617,237
|
|
|
739,500
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
739,500
|
|
|
1995
- $0.67 per share
|
|
|
-
|
|
|
-
|
|
|
424,732
|
|
|
283,200
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
283,200
|
|
|
1996
- $0.66 per share
|
|
|
-
|
|
|
-
|
|
|
962,868
|
|
|
635,000
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(60,000
|
)
|
|
575,000
|
|
|
1997
- $0.43 per share
|
|
|
-
|
|
|
-
|
|
|
311,538
|
|
|
135,000
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
60,000
|
|
|
195,000
|
|
|
1998
- $0.29 per share
|
|
|
-
|
|
|
-
|
|
|
2,236,928
|
|
|
650,000
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
650,000
|
|
|
1999
- $0.15 per share
|
|
|
-
|
|
|
-
|
|
|
13,334
|
|
|
2,000
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
2,000
|
|
|
2001
- $0.15 per share
|
|
|
-
|
|
|
-
|
|
|
660,000
|
|
|
99,000
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
99,000
|
|
|
2003
- $0.04 per share
|
|
|
-
|
|
|
-
|
|
|
20,162,500
|
|
|
790,300
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
790,300
|
|
|
2004
- $0.09 per share
|
|
|
-
|
|
|
-
|
|
|
20,138,024
|
|
|
1,813,186
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1,813,186
|
|
|
Services
and Interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1992
- $0.50 per share
|
|
|
-
|
|
|
-
|
|
|
500,000
|
|
|
250,000
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
250,000
|
|
|
1993
- $0.51 per share
|
|
|
-
|
|
|
-
|
|
|
251,450
|
|
|
127,900
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
127,900
|
|
|
1993
- $0.50 per share
|
|
|
-
|
|
|
-
|
|
|
800,000
|
|
|
400,000
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
400,000
|
|
|
1994
- $1.00 per share
|
|
|
-
|
|
|
-
|
|
|
239,675
|
|
|
239,675
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
239,675
|
|
|
1995
- $0.39 per share
|
|
|
-
|
|
|
-
|
|
|
4,333,547
|
|
|
1,683,846
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(584,860
|
)
|
|
1,098,986
|
|
|
1996
- $0.65 per share
|
|
|
-
|
|
|
-
|
|
|
156,539
|
|
|
101,550
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
101,550
|
|
|
1997
- $0.29 per share
|
|
|
-
|
|
|
-
|
|
|
12,500
|
|
|
3,625
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
3,625
|
|
|
1998
- $0.16 per share
|
|
|
-
|
|
|
-
|
|
|
683,000
|
|
|
110,750
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
110,750
|
|
|
1999
- $0.30 per share
|
|
|
-
|
|
|
-
|
|
|
100,000
|
|
|
30,000
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
30,000
|
|
|
2001
- $0.14 per share
|
|
|
-
|
|
|
-
|
|
|
1,971,496
|
|
|
284,689
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
284,689
|
|
|
2002
- $0.11 per share
|
|
|
-
|
|
|
-
|
|
|
2,956,733
|
|
|
332,236
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
332,236
|
|
|
2003
- $0.04 per share
|
|
|
-
|
|
|
-
|
|
|
694,739
|
|
|
43,395
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
43,395
|
|
|
2004
- $0.06 per share
|
|
|
-
|
|
|
-
|
|
|
1,189,465
|
|
|
66,501
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
66,501
|
|
|
Conversion
of Debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1996
- $0.78 per share
|
|
|
|
|
|
|
|
|
239,458
|
|
|
186,958
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
186,958
|
|
|
1997
- $0.25 per share
|
|
|
-
|
|
|
-
|
|
|
100,000
|
|
|
25,000
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
25,000
|
|
|
1998
- $0.20 per share
|
|
|
-
|
|
|
-
|
|
|
283,400
|
|
|
56,680
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
56,680
|
|
|
2002
- $0.03 per share
|
|
|
-
|
|
|
-
|
|
|
17,935,206
|
|
|
583,500
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
583,500
|
|
|
2004
- $0.07 per share
|
|
|
-
|
|
|
-
|
|
|
9,875,951
|
|
|
650,468
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
650,468
|
|
|
Other
Issuances
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1993
-License - $0.50 share
|
|
|
-
|
|
|
-
|
|
|
2,000,000
|
|
|
1,000,000
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1,000,000
|
|
|
1997
- Settlement of contract
|
|
|
-
|
|
|
-
|
|
|
800,000
|
|
|
200,000
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
200,000
|
|
|
1998
- Issuance of common stock from
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
exercise
of warrants, $0.001 per share
|
|
|
-
|
|
|
-
|
|
|
200,000
|
|
|
200
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
200
|
|
|
2000
- Reversal of shares issued
|
|
|
-
|
|
|
-
|
|
|
(81,538
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
See
Notes to Consolidated Financial
Statements
MEDICAL
DISCOVERIES INC. AND SUBSIDIARIES
(A
Development Stage Company)
CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT -
(Continued)
Period
From November 20, 1991 (Date of Inception of the Development Stage) through
December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deficit
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
Prior
to
|
|
During
the
|
|
Escrow/
|
|
|
|
|
|
|
Preferred
Stock
|
|
Common
stock
|
|
Paid
in
|
|
Development
|
|
Development
|
|
Subscription
|
|
|
|
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Capital
|
|
Stage
|
|
Stage
|
|
Receivables
|
|
Total
|
|
|
|
|
|
-
|
|
|
-
|
|
|
103,301,699
|
|
|
12,347,659
|
|
|
-
|
|
|
(1,399,577
|
)
|
|
-
|
|
|
(584,860
|
)
|
|
10,363,222
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Escrow
and Subscription Receivables
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1996
- Common stock canceled - $.34 per share
|
|
|
-
|
|
|
-
|
|
|
(1,400,000
|
)
|
|
(472,360
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
472,360
|
|
|
-
|
|
|
2000
- Issuance for escrow receivable $0.09 per share
|
|
|
-
|
|
|
-
|
|
|
5,500,000
|
|
|
500,000
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(500,000
|
)
|
|
-
|
|
|
2000
- Write-off of subscription receivable
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
112,500
|
|
|
112,500
|
|
|
2000
- Research and development costs
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
115,400
|
|
|
115,400
|
|
|
2001
- Research and development costs
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
132,300
|
|
|
132,300
|
|
|
2001
- Operating expenses
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
25,000
|
|
|
25,000
|
|
|
2004
- Termination of escrow agreement
|
|
|
-
|
|
|
-
|
|
|
(2,356,200
|
)
|
|
(227,300
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
227,300
|
|
|
-
|
|
|
Exercise
of Options and Warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1997
- $0.25 per share
|
|
|
-
|
|
|
-
|
|
|
87,836
|
|
|
21,959
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
21,959
|
|
|
1999
- Waived option price $0.14 per share
|
|
|
-
|
|
|
-
|
|
|
170,000
|
|
|
24,000
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
24,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value
of Options Issued for Services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1998
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
2,336,303
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
2,336,303
|
|
|
1999
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
196,587
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
196,587
|
|
|
2001
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
159,405
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
159,405
|
|
|
2002
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
124,958
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
124,958
|
|
|
2003
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
295,000
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
295,000
|
|
|
2004
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1,675,000
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1,675,000
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1994
- Cash contributed
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
102,964
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
102,964
|
|
|
1995
- Issuance of common stock option
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
to
satisfy debt restructuring
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
20,000
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
20,000
|
|
|
2004
- Issuance of preferred stock and warrants for cash
|
|
|
12,000
|
|
|
523,334
|
|
|
350,000
|
|
|
68,845
|
|
|
477,821
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1,070,000
|
|
|
2004
- Convertible preferred stock beneficial conversion
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
dividend
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
692,199
|
|
|
-
|
|
|
(692,199
|
)
|
|
-
|
|
|
-
|
|
|
Net
loss from inception through December 31, 2004
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(18,661,734
|
)
|
|
-
|
|
|
(18,661,734
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2004
|
|
|
12,000
|
|
|
523,334
|
|
|
105,653,335
|
|
|
14,918,657
|
|
|
3,424,383
|
|
|
(1,399,577
|
)
|
|
(19,353,933
|
)
|
|
-
|
|
|
(1,887,136
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock for services at $0.18 per share
|
|
|
-
|
|
|
-
|
|
|
104,167
|
|
|
11,312
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
11,312
|
|
|
Issuance
of common stock for cash at $0.18 per share
|
|
|
-
|
|
|
-
|
|
|
1,922,222
|
|
|
281,926
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
281,926
|
|
|
Issuance
of preferred stock and warrants
|
|
|
30,000
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
Reclassification
of warrants to a financial instrument
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(2,435,713
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(2,435,713
|
)
|
|
Net
loss for the year ended December 31, 2005
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(1,486,781
|
)
|
|
-
|
|
|
(1,486,781
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2005
|
|
|
42,000
|
|
|
523,334
|
|
|
107,679,724
|
|
|
15,211,895
|
|
|
988,670
|
|
|
(1,399,577
|
)
|
|
(20,840,714
|
)
|
|
-
|
|
|
(5,516,392
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion
of preferred stock to common stock
|
|
|
(7,580
|
)
|
|
(8,722
|
)
|
|
10,242,424
|
|
|
8,722
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
Issuance
of options for services
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
67,350
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
67,350
|
|
|
Issuance
of common stock for services at $0.18 per share
|
|
|
-
|
|
|
-
|
|
|
435,556
|
|
|
78,400
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
78,400
|
|
|
Net
loss for the year ended December 31, 2006
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(183,771
|
)
|
|
-
|
|
|
(183,771
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2006
|
|
|
34,420
|
|
$
|
514,612
|
|
|
118,357,704
|
|
$
|
15,299,017
|
|
$
|
1,056,020
|
|
$
|
(1,399,577
|
)
|
$
|
(21,024,485
|
)
|
$
|
-
|
|
$
|
(5,554,413
|
)
|
See
Notes to Consolidated Financial
Statements
MEDICAL
DISCOVERIES, INC. AND SUBSIDIARIES
(A
Development Stage Company)
Consolidated
Statements of Cash Flows
|
|
|
For
the Year Ended
December
31,
|
|
From
Inception of the
Development
Stage
|
|
|
|
|
2006
|
|
2005
|
|
on
November 20,
1991
Through
Dec.
31, 2006
|
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
$
|
(183,771
|
)
|
$
|
(1,486,781
|
)
|
$
|
(20,332,286
|
)
|
|
Adjustments
to reconcile net loss to net cash used by operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency transaction (gain) loss
|
|
|
117,501
|
|
|
(56,480
|
)
|
|
61,021
|
|
|
Gain
on debt restructuring
|
|
|
(607,761
|
)
|
|
(196,353
|
)
|
|
(2,039,650
|
)
|
|
Common
stock issued for services, expenses, and litigation
|
|
|
78,400
|
|
|
-
|
|
|
4,346,117
|
|
|
Commitment
for research and development obligation
|
|
|
1,712,745
|
|
|
665,700
|
|
|
2,378,445
|
|
|
Depreciation
|
|
|
18,386
|
|
|
8,515
|
|
|
127,172
|
|
|
Reduction
of escrow receivable from research and development
|
|
|
-
|
|
|
-
|
|
|
272,700
|
|
|
Unrealized
gain on financial instrument
|
|
|
(2,564,608
|
)
|
|
(2,300,191
|
)
|
|
(4,864,799
|
)
|
|
Stock
options and warrants granted for services
|
|
|
67,350
|
|
|
-
|
|
|
4,878,603
|
|
|
Reduction
of legal costs
|
|
|
-
|
|
|
-
|
|
|
(130,000
|
)
|
|
Write-off
of subscriptions receivable
|
|
|
-
|
|
|
-
|
|
|
112,500
|
|
|
Impairment
of loss on assets
|
|
|
-
|
|
|
-
|
|
|
9,709
|
|
|
Loss
on disposal of equipment
|
|
|
-
|
|
|
-
|
|
|
30,364
|
|
|
Write-off
of receivable
|
|
|
317,175
|
|
|
51,100
|
|
|
562,240
|
|
|
Note
payable issued for litigation
|
|
|
-
|
|
|
-
|
|
|
385,000
|
|
|
Changes
in operating assets and liabilities
|
|
|
|
|
|
|
|
|
|
|
|
Increase
in accounts receivable
|
|
|
-
|
|
|
-
|
|
|
(7,529
|
)
|
|
Increase
in accounts payable, accrued payroll and payroll
taxes
|
|
|
407,900
|
|
|
171,641
|
|
|
2,872,086
|
|
|
Increase
in accrued interest
|
|
|
29,903
|
|
|
38,210
|
|
|
667,822
|
|
|
Net
Cash Used in Operating Activities
|
|
|
(606,780
|
)
|
|
(3,104,639
|
)
|
|
(10,670,485
|
)
|
| |
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
Increase
in deposits
|
|
|
-
|
|
|
-
|
|
|
(51,100
|
)
|
|
Purchase
of equipment
|
|
|
-
|
|
|
(89,150
|
)
|
|
(221,334
|
)
|
|
Issuance
of note receivable
|
|
|
-
|
|
|
(313,170
|
)
|
|
(313,170
|
)
|
|
Payments
received on note receivable
|
|
|
-
|
|
|
-
|
|
|
130,000
|
|
|
Net
Cash Used in Investing Activities
|
|
|
-
|
|
|
(402,320
|
)
|
|
(455,604
|
)
|
| |
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock, preferred stock and warrants for
cash
|
|
|
-
|
|
|
3,006,000
|
|
|
10,033,845
|
|
|
Contributed
equity
|
|
|
-
|
|
|
-
|
|
|
131,374
|
|
|
Proceeds
from notes payable
|
|
|
-
|
|
|
-
|
|
|
1,336,613
|
|
|
Payments
on notes payable
|
|
|
-
|
|
|
(300,000
|
)
|
|
(801,287
|
)
|
|
Proceeds
from convertible notes payable
|
|
|
-
|
|
|
-
|
|
|
571,702
|
|
|
Payments
on convertible notes payable
|
|
|
-
|
|
|
-
|
|
|
(98,500
|
)
|
|
Net
Cash Provided by Financing Activities
|
|
|
-
|
|
|
2,706,000
|
|
|
11,173,747
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
NET
INCREASE (DECREASE) IN CASH
|
|
|
(606,780
|
)
|
|
(800,959
|
)
|
|
47,658
|
|
|
CASH
AT BEGINNING OF PERIOD
|
|
|
654,438
|
|
|
1,455,397
|
|
|
-
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
CASH
AT END OF PERIOD
|
|
$
|
47,658
|
|
$
|
654,438
|
|
$
|
47,658
|
|
See
Notes to Consolidated Financial
Statements
MEDICAL
DISCOVERIES, INC. AND SUBSIDIARIES
(A
Development Stage Company)
Consolidated
Statements of Cash Flows (Continued)
| |
|
For
the Year Ended
|
|
|
|
|
December
31,
|
|
|
|
|
2006
|
|
2005
|
|
|
SUPPLEMENTAL
DISCLOSURES OF
|
|
|
|
|
|
|
CASH
FLOW INFORMATION
|
|
|
|
|
|
|
Interest
paid
|
|
$
|
46
|
|
$
|
19,283
|
|
| |
|
|
|
|
|
|
|
|
NONCASH
INVESTING AND FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Conversion
of preferred stock to common stock
|
|
$
|
8,722
|
|
$
|
-
|
|
|
Common
stock and warrants issued to placement agent
|
|
$
|
-
|
|
$
|
11,312
|
|
|
Conversion
of accounts payable to long-term liability
|
|
$
|
90,000
|
|
$
|
-
|
|
See
Notes to Consolidated Financial
Statements
MEDICAL
DISCOVERIES, INC. AND SUBSIDIARIES
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
A — ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Medical
Discoveries, Inc. (“MDI” or the “Company”) was incorporated under the laws of
the State of Utah on November 20, 1991. Effective as of August 6,
1992, the Company merged with and into WPI Pharmaceutical, Inc., a Utah
corporation (“WPI”), pursuant to which WPI was the surviving corporation.
Pursuant to the MDI-WPI merger, the name of the surviving corporation was
changed to Medical Discoveries, Inc.
On
July 6, 1998, the Company incorporated a wholly owned subsidiary, Regenere,
Inc., in the State of Nevada. On October 2, 1998, the Company incorporated
another wholly owned subsidiary, MDI Healthcare Systems, Inc., in the State
of
Nevada. As of December 31, 2003, the Company dissolved those subsidiaries.
On
March 22, 2005, the Company formed MDI Oncology, Inc., a Delaware
corporation, as a wholly-owned subsidiary to acquire and operate the assets
and
business associated with the Savetherapeutics transaction, discussed further
in
Note J.
Principles
of Consolidation
The
consolidated financial statements include the accounts of Medical Discoveries,
Inc. and subsidiaries. All significant intercompany transactions have been
eliminated in consolidation.
Development
Stage Company
The
Company has not yet commenced its planned principal operations and is,
therefore, considered a development stage company as defined in the Financial
Accounting Standards Board (FASB) Statement of Financial Accounting
Standards (SFAS) No. 7. The Company has, at the present time, not paid any
dividends. Any dividends that may be paid in the future will depend upon
the
financial requirements of the Company. The primary purpose of the business
is
the research and development of pharmaceuticals.
Cash
and Cash Equivalents
For
purposes of the statement of cash flows, the Company considers all highly
liquid
debt instruments maturing in three months or less to be cash equivalents.
From
time to time, the Company has cash deposits in excess of federally insured
limits. The Company did not have any uninsured bank balances at
December 31, 2006.
Property
and Equipment
Property
and equipment are stated at cost. Depreciation is computed using the
straight-line method over the estimated lives of the related assets. Estimated
useful lives are 5 years.
Normal
maintenance and repair items are charged to costs and expensed as incurred.
The
cost and accumulated depreciation of property and equipment sold or otherwise
retired are removed from the accounts and gain or loss on disposition is
reflected in net income.
In
accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of
Long-Lived Assets”, the carrying value of intangible assets and other long-lived
assets is reviewed on a regular basis for the existence of facts or
circumstances that may suggest impairment. The Company recognizes impairment
when the sum of the expected undiscounted future cash flows is less than
the
carrying amount of the asset. Impairment losses, if any, are measured as
the
excess of the carrying amount of the asset over its estimated fair
value.
Income
Taxes
The
Company utilizes the liability method of accounting for income taxes. Under
the
liability method, deferred tax assets and liabilities are determined based
on
differences between financial reporting and tax bases of assets and liabilities
and the carryforward of operating losses and tax credits and are measured
using
the enacted tax rates and laws that will be in effect when the differences
are
expected to reverse. An allowance against deferred tax assets is recorded
when
it is more likely than not that such tax benefits will not be realized. Research
tax credits are recognized as utilized.
MEDICAL
DISCOVERIES, INC. AND SUBSIDIARIES
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Revenue
Recognition
We
recognize revenue in accordance with Securities and Exchange Commission Staff
Accounting Bulletin No. 104, “Revenue Recognition in Financial Statements”
(“SAB 104”). We recognize revenue when all of the following criteria are met:
persuasive evidence of an arrangement exists; delivery has occurred or services
have been rendered; the seller’s price to the buyer is fixed or determinable;
collectibility is reasonably assured; and title and the risks and rewards
of
ownership have transferred to the buyer. At the time of the transaction we
also
assess whether or not collection is reasonably assured. If we determine that
collection of a fee is not reasonably assured, we defer recognition of the
fee
as revenue until the time collection becomes reasonably assured, which is
generally upon receipt of cash.
Research
and Development
Research
and development has been the principal function of the Company. Expenses
in the
accompanying financial statements include certain costs which are directly
associated with the Company’s research and development of the Company’s
anti-infective pharmaceutical, MDI-P as well as the purchase of the intellectual
property assets of Savetherapeutics AG (See Note J). These costs, which consist
primarily of pre-clinical testing activities, amounted to $2,026,907 and
$2,172,461 and $7,748,106 for the year ended December 31, 2006 and 2005 and
for the period November 20, 1991 (date of inception of the development
stage) through December 31, 2006, respectively.
Foreign
Currency Translation
The
Company’s functional and reporting currency is the United States dollar.
Monetary assets and liabilities denominated in foreign currencies are translated
using the exchange rate prevailing at the balance sheet date. Gains and losses
arising on translation or settlement of foreign currency denominated
transactions or balances are included in the determination of income. Foreign
currency transactions are primarily undertaken in Euros. The Company has
not
entered into derivative instruments to offset the impact of foreign currency
fluctuations.
Fair
Value of Financial Instruments
The
Company estimates that the fair value of all financial instruments, at
December 31, 2006 do not differ materially from the aggregate carrying
values of its financial instruments recorded in the accompanying balance
sheets.
The estimated fair value amounts have been determined by the Company using
available market information and appropriate valuation methodologies.
Considerable judgment is required in interpreting market data to develop
the
estimates of fair value, and accordingly, the estimates are not necessarily
indicative of the amounts that the Company could realize in a current market
exchange.
Estimates
Management
uses estimates and assumptions in preparing financial statements. Those
estimates and assumptions affect the reported amounts of assets and liabilities,
the disclosure of contingent assets and liabilities, and reported revenues
and
expenses. Significant estimates used in preparing these financial statements
include those assumed in determining the valuation of common stock, warrants,
and stock options. It is at least reasonably possible that the significant
estimates used will change within the next year.
Basic
and Diluted Loss per Share
Basic
loss per share is computed on the basis of the weighted-average number of
common
shares outstanding during the year. Diluted loss per share is computed on
the
basis of the weighted-average number of common shares and all dilutive
potentially issuable common shares outstanding during the year. Common stock
equivalents, stock options and stock warrants have not been included in the
loss
per share for 2006 and 2005 as they are anti-dilutive. The potential common
shares as of December 31, 2006 and 2005 are detailed below:
| |
|
Potential
Common Shares
|
|
|
|
|
as
of December 31,
|
|
|
|
|
2006
|
|
2005
|
|
|
Convertible
notes
|
|
|
128,671
|
|
|
128,671
|
|
|
Convertible
preferred stock
|
|
|
114,080,000
|
|
|
48,000,000
|
|
|
Warrants
|
|
|
38,973,861
|
|
|
40,923,861
|
|
|
Stock
options
|
|
|
19,883,000
|
|
|
19,483,000
|
|
|
Total
potential common shares
|
|
|
173,065,532
|
|
|
108,535,532
|
|
MEDICAL
DISCOVERIES, INC. AND SUBSIDIARIES
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Currently,
the Company does not have enough authorized shares to meet the commitments
it
has entered into. Management is aware of the situation and is currently
considering an appropriate course of action.
Stock
Based Compensation
Effective
January 1, 2006, the Company adopted SFAS No. 123(R), “Share-Based Payment”
(“SFAS 123(R)”) using the modified prospective application. SFAS 123(R) requires
the recognition of the cost of employee services received in exchange for
an
award of equity instruments in the financial statements and is measured based
on
the grant date fair value of the award. SFAS 123(R) also requires the stock
option compensation expense to be recognized over the period during which
an
employee is required to provide service in exchange for the award (the vesting
period). Prior to adopting SFAS 123(R), the Company accounted for stock-based
compensation plans under Accounting Principles Board Opinion ("APB") No.
25,
"Accounting for Stock Issued to Employees" ("APB 25"). Under APB 25, generally
no compensation expense is recorded when the terms of the award are fixed
and
the exercise price of the employee stock option equals or exceeds the fair
value
of the underlying stock on the date of grant. The Company adopted the
disclosure-only provision of SFAS No. 123.
Had
compensation expense for stock option grants been determined based on the
fair
value of the stock options at the grant date, the Company's net loss and
net
loss per share would have been the same for the year ended December 31,
2005.
As
a
result of adopting SFAS 123(R), we recognized compensation expense related
to
options granted during the year ended December 31, 2006 in the amount of
$67,350, which was the fair value of the options issued during the year ended
December 31, 2006.
Reclassifications
Certain
2005 balances have been reclassified to conform to the 2006 presentation.
These
reclassifications had no effect on net loss or stockholders’ deficit for the
year ended December 31, 2005.
Recently
Issued Accounting Statements
In
February 2006, the FASB issued SFAS No. 155, Accounting
for Certain Hybrid Financial Instruments — an amendment of FASB Statements No.
133 and 140
(SFAS
155). SFAS 155 amends SFAS No. 133, Accounting
for Derivative Instruments and Hedging Activities and
SFAS
No. 140, Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities
and
related interpretations. SFAS 155 permits fair value remeasurement for any
hybrid financial instrument that contains an embedded derivative that otherwise
would require bifurcation and clarifies which interest-only strips and
principal-only strips are not subject to recognition as liabilities. SFAS
155
eliminates the prohibition on a qualifying special-purpose entity from holding
a
derivative financial instrument that pertains to a beneficial interest other
than another derivative financial instrument. SFAS 155 is effective for the
Company for all financial instruments acquired or issued beginning January
1,
2007. The Company is in the process of evaluating the application of the
fair
value option and its effect on its financial position and results of
operations.
In
July
2006, the FASB issued FIN 48, Accounting
for Uncertainty in Income Taxes,
which
attempts to set out a consistent framework for preparers to use to determine
the
appropriate level of valuation allowance tax reserves to maintain for deferred
tax assets relating to uncertain tax positions. This interpretation for FASB
Statement No. 109 uses a two-step approach wherein a tax benefit is recognized
if a position is more-than-likely-than-not to be sustained. The amount of
the
benefit is then measured to be the highest tax benefit, which is greater
than
fifty percent likely to be realized. FIN 48 also sets out disclosure
requirements to enhance transparency of an entity’s tax reserves. The Company
will adopt this Interpretation as of January 1, 2007. The Company is in the
process of evaluating the application of the fair value option and its effect
on
its financial position and results of operations.
MEDICAL
DISCOVERIES, INC. AND SUBSIDIARIES
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
In
September 2006, the FASB issued SFAS No. 157, Fair
Value Measurements (SFAS
157). SFAS 157 defines fair value, establishes a framework for measuring
fair
value in generally accepted accounting principles, and expands disclosures
about
fair value measurements. This statement is effective for financial statements
issued for fiscal years beginning after November 15, 2007. Accordingly, the
Company will adopt SFAS 157 in 2008. The Company is currently evaluating
the
impact of SFAS 157 on the financial statements.
In
February 2007, the FASB issued SFAS No. 159, The
Fair Value Option for Financial Assets and Financial
Liabilities
-
including an amendment of FASB Statement No. 115 (SFAS 159). SFAS 159 allows
measurement at fair value of eligible financial assets and liabilities that
are
not otherwise measured at fair value. If the fair value option for an eligible
item is elected, unrealized gains and losses for that item shall be reported
in
current earnings at each subsequent reporting date. SFAS 159 also establishes
presentation and disclosure requirements designed to draw comparison between
the
different measurement attributes the Company elects for similar types of
assets
and liabilities. This statement is effective for fiscal years beginning after
November 15, 2007. Accordingly, the Company will adopt SFAS 159 in 2008.
The
Company is in the process of evaluating the application of the fair value
option
and its effect on its financial position and results of
operations.
NOTE
B — BASIS OF PRESENTATION AND GOING CONCERN
As
shown
in the accompanying financial statements, the Company incurred a net loss
applicable to common shareholders of $183,771 during the year ended
December 31, 2006, and has incurred losses applicable to common
shareholders since inception of the development stage of $21,024,485. The
Company has not had significant revenues and has negative working capital.
The
Company is hopeful, but there is no assurance, that its current business
plan
will be economically viable. Those factors raise substantial doubt about
the
Company’s ability to continue as a going concern.
Management
plans to meet its cash needs through various means including selling
intellectual assets, securing financing, and developing new business plans.
The
Company has entered into an agreement to sell certain intellectual assets
for an
aggregate of €4,007,534
(approximately $5,906,000),
which
consideration is payable in cash and by the assumption of certain of the
Company’s outstanding liabilities. In order to fund its operations pending the
closing of the asset sale, the Company issued a secured promissory note for
$1,000,000. The Company will also develop a business to participate in the
rapidly growing bio-diesel industry. (See Note K for a more detailed description
of these transactions.)
The
ability of the Company to continue as a going concern is dependent on that
plan’s success. The financial statements do not include any adjustments that
might be necessary if the Company is unable to continue as a going concern.
NOTE
C - PROPERTY AND EQUIPMENT
Property
and equipment as of December 31, 2006 and 2005 are detailed below:
| |
|
2006
|
|
2005
|
|
| |
|
|
|
|
|
|
Research
equipment
|
|
$
|
168,468
|
|
$
|
168,468
|
|
|
Accumulated
depreciation
|
|
|
(106,219
|
)
|
|
(87,833
|
)
|
| |
|
$
|
62,249
|
|
$
|
80,635
|
|
Depreciation
expense was $18,386 and $8,513 for the years ended December 31, 2006 and
2005,
respectively.
MEDICAL
DISCOVERIES, INC. AND SUBSIDIARIES
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
D — INCOME TAXES
Income
taxes are provided for temporary differences between financial and tax basis
income. The following is a reconciliation of the amount of benefit that would
result from applying the federal statutory rate to pretax loss with the benefit
from income taxes for the years ended December 31, 2006 and
2005:
| |
|
Years
Ended December 31,
|
|
| |
|
2006
|
|
2005
|
|
|
Federal
income tax benefit at statutory rate (34%)
|
|
$
|
62,000
|
|
$
|
506,000
|
|
|
State
income tax, net of federal benefit
|
|
|
11,000
|
|
|
89,000
|
|
|
Unrealized
gain on financial instrument
|
|
|
1,026,000
|
|
|
920,000
|
|
|
Change
in valuation allowance
|
|
|
(1,099,000
|
)
|
|
(1,515,000
|
)
|
|
Provision
for income taxes
|
|
$
|
-
|
|
$
|
-
|
|
The
components of net deferred taxes are as follows at December 31 using a
combined
deferred tax rate of 40%:
| |
|
December
31,
|
|
| |
|
2006
|
|
2005
|
|
|
Net
operating loss carryforward
|
|
$
|
7,684,000
|
|
$
|
6,663,000
|
|
|
Research
and development credits
|
|
|
80,000
|
|
|
80,000
|
|
|
Stock
options
|
|
|
673,000
|
|
|
646,000
|
|
|
Accrued
compensation
|
|
|
436,000
|
|
|
380,000
|
|
|
Valuation
allowance
|
|
|
(8,873,000
|
)
|
|
(7,769,000
|
)
|
|
Net
deferred tax asset
|
|
$
|
-
|
|
$
|
-
|
|
Inasmuch
as it is not possible to determine when or if the net operating losses will
be
utilized, a valuation allowance has been established to offset the benefit
of
the utilization of the net operating losses.
The
Company has available net operating losses of approximately $19,000,000 which
can be utilized to offset future earnings of the Company. The Company also
has
available approximately $80,000 in research and development credits which
expire
in 2008. The utilization of the net operating losses and research and
development credits are dependent upon the tax
laws
in effect at the time such losses can be utilized. The losses begin to expire
between the years 2007 and 2023. Should the Company experience a significant
change of ownership the utilization of net operating losses could be reduced.
NOTE
E — NOTES PAYABLE
The
Company has the following notes payable at December 31, 2006 and 2005:
| |
|
2006
|
|
2005
|
|
|
Notes
payable to shareholders, which are currently due
|
|
|
|
|
|
|
and
in default. Interest is at 12%.
|
|
$
|
56,000
|
|
$
|
56,000
|
|
On
April
1, 2005, the Company negotiated a settlement regarding notes payable totaling
$280,717 and accrued interest of $215,636, by payment of $300,000 in cash.
The
Company recognized a gain on settlement of debt totaling $196,353.
MEDICAL
DISCOVERIES, INC. AND SUBSIDIARIES
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
F — CONVERTIBLE NOTES PAYABLE
The
Company has the following convertible notes payable at December 31,
2006:
| |
|
2006
|
|
2005
|
|
|
Convertible
notes payable to a trust, which is currently due
|
|
|
|
|
|
|
|
|
and
in default. Interest is at 12%. Each $1,000 note is convertible
|
|
$
|
193,200
|
|
$
|
193,200
|
|
|
into
667 shares of Company's common stock.
|
|
|
|
|
|
|
|
NOTE
G — STOCKHOLDERS’ EQUITY
Common
Stock
Preferred
stock converted to common stock - During
2006, the Company converted 200 shares of Series A Preferred Stock into 242,424
shares of common stock. The conversion price was $.0825 per share. The preferred
stock had an assigned value of $8,722 which was reclassified to common stock
at
the time of conversion. During May 2006, the Company converted 7,380 shares
of
Series A Preferred Stock into 10,000,000 shares of common stock. The conversion
price was $.0738 per share. The preferred stock did not have any assigned
value
due to all the proceeds being assigned to the warrant liability.
Stock
issued for cash - During
the year ended December 31, 2005 the Company issued 1,922,222 shares of common
stock for cash totaling $281,926 at $0.18 per share. In connection with the
sales for cash, the Company also issued warrants to purchase 1,922,222 shares
of
restricted common stock at $0.18 per share, expiring three years from the
date of issuance.
Stock issued for services - During
the year ended December 31, 2006 the Company issued 435,556 shares of restricted
common stock for services totaling $78,400 or $0.18 per share, which was
the
fair value of the services rendered. During the year ended December 31, 2005,
the Company issued 104,167 shares for services totaling $11,312 or $0.18
per
share, which was the fair value of the services rendered.
Preferred
Stock, Warrants and Financial Instrument
During
the year ended December 31, 2005, the Company issued 30,000 shares of Series
A
Convertible Preferred Stock and warrants to purchase 22,877,478 shares of
common
stock for a total offering price of $3.0 million. The Company incurred $340,000
of offering costs and issued to the placement agent warrants to purchase
1,220,132 shares of common stock exercisable at $0.1967 per share which are
exercisable for a period of three years.
Each
share of Preferred Stock entitles the holder to convert the share of Preferred
Stock into the number of shares of common stock resulting from multiplying
$100
by the conversion price. The conversion price is 75% of the average of the
three
lowest intra-day trading prices for the Company’s common stock during the 10
trading days immediately preceding the conversion date. The conversion price
may
not exceed $0.1967 and has a conversion price floor of $0.05. The warrants
are
subject to equitable adjustment in connection with a stock split, stock dividend
or similar transaction. The warrants entitle the holder to purchase up to
22,877,478 shares of common stock of the Company at $0.1967 per share. The
warrants expire three years after the date of issuance.
The
Series A Convertible Preferred Stock has no voting rights. In
the
event of liquidation, the holders are entitled to a liquidating distribution
of
$100 per share. The
Company also entered into a Registration Rights Agreement with
the
investors requiring
the Company to use its “best efforts” to timely file a registration statement
with the Securities and Exchange Commission registering the shares of common
stock issuable upon conversion of the Preferred Stock and exercise of the
warrants. There are no significant liquidation damages in the event the Company
is unable to file its registration statement.
The
conversion feature of the Series A Convertible Preferred Stock has more
of the
attributes of an equity instrument than a liability instrument, and thus
not
considered a derivative. However, the Company is unable to guarantee that
there
will be enough shares of stock to settle other “freestanding instruments.”
Accordingly, the warrants attached to the convertible preferred stock are
measured at their fair value and classified as liability in the financial
statements. The fair value of the warrants was $3,844,116 on the date of
issuance computed using the Black Scholes model with the following assumptions:
volatility of 170%, risk-free interest rate of 3.9%, and an expected life
of
three years. The fair value of the warrants exceeded the proceeds received
by
$1,184,116, which was recorded as an expense on the statement of
operations.
MEDICAL
DISCOVERIES, INC. AND SUBSIDIARIES
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
As
noted
above, all warrants and options outstanding on March 11, 2005 (with the
exception of stock options issued to employees) were measured at their fair
value and reclassified as a liability in the financial statements. There
were
16,215,100 warrants issued prior to March 11, 2005 with a fair value of
$2,435,713. The value of the warrants was computed using the Black Scholes
model
with the following assumptions: volatility of 170%, risk-free interest rate
of
3.9%, and an expected life of three years. As a result of the reclassification,
stockholders’ equity was decreased by the fair value of the
liability.
Subsequent
to March 11, 2005, 611,110 warrants were issued as part of common stock
offerings of 611,110 shares. The warrants have a fair value of $64,074 and
are
classified as a liability on the financial statements. The value of the warrants
was computed using the Black Scholes model with the following assumptions:
volatility of 165%, risk-free interest rate of 3.8%, and an expected life
of
three years. The proceeds received from this issuance exceeded the value
of the
warrants by $45,926, which was attributed to the common stock.
The
Company adjusted to market value the outstanding warrants as of December
31,
2006 and 2005. The fair value of the financial instrument was $294,988 and
$2,859,596, respectively. The Company used the Black-Scholes model in
calculating fair value. At December 31, 2006 the following assumptions were:
volatility of 138%, risk free interest rate of 5.0% and an expected life
of one
year. At December 31, 2005 the assumptions were: volatility of 152%, risk
free
interest rate of 4.41% and an expected life of two years. The changes in
fair
market value have been recorded as adjustments in the line “Unrealized gain on
financial instrument” in the statement of operations of $2,564,608 and
$2,300,191 for the years ended December 31, 2006 and 2005,
respectively.
NOTE
H - STOCK OPTIONS AND WARRANTS
Stock
Options
The
Company has two incentive stock option plans wherein 24,000,000 shares of
the Company’s common stock are reserved for issuance thereunder. During the year
ended December 31, 2006, the Company granted a stock option to a former officer
and director. The option is for 500,000 shares exercisable at $0.25 per
share through December 31, 2010. The option was fully vested on January 1,
2006. The Company did not grant any options during 2005. Share-based
compensation recorded during the years ended December 31, 2006 and 2005 was
$67,350 and zero, respectively. No income tax benefit has been recognized
for
share-based compensation arrangements and no compensation cost has been
capitalized in the balance sheet.
A
summary
of the status of the options granted at December 31, 2006 and 2005, and changes
during the years then ended is presented in the following table:
| |
|
|
|
|
|
Weighted
|
|
|
|
| |
|
|
|
Weighted
|
|
Average
|
|
|
|
| |
|
Shares
|
|
Average
|
|
Remaining
|
|
Aggregate
|
|
| |
|
Under
|
|
Exercise
|
|
Contractual
|
|
Intrinsic
|
|
| |
|
Option
|
|
Price
|
|
Life
|
|
Value
|
|
|
Outstanding
at January 1, 2005
|
|
|
19,483,000
|
|
$
|
0.04
|
|
|
|
|
|
|
|
|
Granted
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
Expired
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
Outstanding
at December 31, 2005
|
|
|
19,483,000
|
|
|
0.04
|
|
|
|
|
|
|
|
|
Granted
|
|
|
500,000
|
|
|
0.25
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(100,000
|
)
|
|
0.50
|
|
|
|
|
|
|
|
|
Outstanding
at December 31, 2006
|
|
|
19,883,000
|
|
$
|
0.05
|
|
|
6.4
years
|
|
$
|
340,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable
at December 31, 2006
|
|
|
19,883,000
|
|
$
|
0.05
|
|
|
6.4
years
|
|
$
|
340,000
|
|
MEDICAL
DISCOVERIES, INC. AND SUBSIDIARIES
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
At
December 31, 2006, 80,000 of the options outstanding have no stated contractual
life. The fair value of each stock option grant is estimated on the date
of
grant using the Black-Scholes option pricing model. The weighted average
fair
value of stock options during the year ended December 31, 2006 was $0.13.
The
weighted-average assumptions used for options granted during the year ended
December 31, 2006 were risk-free rate of 4.3%, volatility of 152%, expected
life
of five years, and dividend yield of zero. The assumptions employed in the
Black-Scholes option pricing model include the following. The expected life
of
stock options represents the period of time that the stock options granted
are
expected to be outstanding based on historical exercise trends. The expected
volatility is based on the historical price volatility of the Company’s common
stock. The risk-free interest rate represents the U.S. Treasury constant
maturities rate for the expected life of the related stock options. The dividend
yield represents our anticipated cash dividend over the expected life of
the
stock options.
As
of
December 31, 2006, there was no unrecognized compensation cost related to
stock
options that will be recognized in the future.
Stock
Warrants
A
summary
of the status of the warrants granted at December 31, 2006 and 2005, and
changes
during the years then ended is presented in the following table:
| |
|
|
|
Weighted
|
|
| |
|
Shares
|
|
Average
|
|
| |
|
Under
|
|
Exercise
|
|
| |
|
Warrant
|
|
Price
|
|
|
Outstanding
at January 1, 2005
|
|
|
14,904,029
|
|
$
|
0.28
|
|
|
Issued
|
|
|
26,019,832
|
|
|
0.20
|
|
|
Expired
|
|
|
-
|
|
|
-
|
|
|
Outstanding
at December 31, 2005
|
|
|
40,923,861
|
|
|
0.23
|
|
|
Issued
|
|
|
-
|
|
|
-
|
|
|
Expired
|
|
|
(1,950,000
|
)
|
|
1.00
|
|
|
Outstanding
at December 31, 2006
|
|
|
38,973,861
|
|
$
|
0.19
|
|
NOTE
I — RELATED PARTY TRANSACTIONS
At
December 31, 2006 and 2005, the Company had accrued payroll and payroll taxes
to
current and former officers, employees, and directors totaling $1,184,264
and
$1,673,651 for services performed and costs incurred in behalf of the Company,
including $836,804 and $877,636, respectively, to the Company’s President and
CEO, and $75,500 and $73,000, respectively, to the Company’s
controller.
NOTE
J — OTHER SIGNIFICANT TRANSACTIONS
Debt
Restructuring
On
June 10, 2006, the Company entered into an agreement with a former vendor
to forgive certain accrued expenses. The balance owed before the agreement
was
$229,066. Per the agreement, $3,975 was paid on the date of the agreement,
another $3,975 was paid on August 13, 2006, and $131,116 was forgiven. The
remaining balance of $90,000 will be due and payable immediately upon MDI’s
receipt of $1 million in cumulative license revenue for MDI’s drug MDI-P in
any human indication and has been recorded as Long-Term Liability in the
accompanying financial statements. Additionally, the company determined $476,645
of previously recorded accrued payroll and payroll taxes had passed their
statute of limitations for collection and are included in gain on debt
restructuring in the accompanying financial statements.
MEDICAL
DISCOVERIES, INC. AND SUBSIDIARIES
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Formestane
Cream (formerly SaveCream) Asset Purchase
On
March 16, 2005, the Company completed the purchase of the intellectual
property assets (the “Assets”) of Savetherapeutics AG, a German corporation in
liquidation in Hamburg, Germany (“SaveT”). The Assets consist primarily of
patents, patent applications, pre-clinical study data and clinical trial
data
concerning formestane cream (formerly called SaveCream), a developmental-stage
topical aromatase inhibitor treatment for breast cancer. Formestane cream
did
not generate revenues for SaveT.
The
purchase price of the Assets was €2,350,000 (approximately $3.1 million
under current exchange rates), payable as follows: €500,000 at closing, €500,000
(approximately $665,700 on the date of transaction, $659,850 using the December
31, 2006 exchange rates) upon conclusion of certain pending transfers of
patent
and patent application rights from formestane cream’s inventors to the Company,
and the remaining €1,350,000 ($1,781,595 at December 31, 2006) upon
successful commercialization of the Assets.
The
pending transfers of patent and patent application rights have not occurred
as
of December 31, 2006. The Company has deemed the transfers are reasonably
likely
to occur due to existing contractual commitments of the inventors and the
reasonably likely success of the Company’s action in German court proceeding to
effect these transfers. Accordingly, the Company has recorded the second
€500,000 payment as a research and development obligation in these financial
statements.
In
July
2006 the Company entered into a co-development and license agreement with
Eucodis Forschungs-und Entwicklungs GmbH (Eucodis), which provides for up-front
licensing fees and milestone payments in excess of the €1,350,000 threshold for
successful commercialization of the Assets. Accordingly, in the year ended
December 31, 2006 the Company recorded the final €1,350,000 purchase price
payment as research and development obligation in the accompanying financial
statements. Consistent with the Company’s conclusion that no business had been
acquired in connection with the purchase of the Assets, the charge has been
reflected as a research and development expense in the accompanying financial
statements. During the year ended December 31, 2006, the Company recognized
revenue of $800,000 from the co-development and license agreement.
Formation
of MDI Oncology, Inc.
On
March 22, 2005, the Company formed MDI Oncology, Inc., a Delaware
Corporation, as a wholly-owned subsidiary for the purpose of acquiring and
operating the assets and associated business ventures associated with the
SaveCream purchase.
Note
receivable and R&D agreement
On
July
15, 2005, the Company entered into an Assignment of Patent, Participation
and
Research and Development Agreement (the "Agreement") with the inventor of
the
Company’s SaveCream lead drug candidate. The terms of the
Agreement included the Company granting a €500,000 non-interest bearing loan to
the inventor. The loan was secured by profits expected to be received by
the inventor resulting from the inventor's 6% ownership interest in MDI
Oncology, Inc., a wholly owned subsidiary of the Company. The Agreement
also included a consulting agreement for the inventor to perform research
and
development work. The consulting fee was €10,000 (approximately $13,197
under current exchange rates) per month, under which the Company paid €60,000
(approximately $79,182 under current exchange rates).
On
October 27, 2006 the Company and the inventor amended the Agreement. In exchange
for certain intellectual property rights, the amended agreement (i)
terminated the balance of the non-interest bearing loan (€250,000) not
already advanced to the inventor under the terms of the earlier July 15,
2005
agreement, (ii) terminated the consulting agreement requiring the inventor
to
perform certain research and development work and the fee-for-service payments
anticipated to be made by the Company, and (iii) cancelled the inventor's
6% ownership interest in MDI Oncology, Inc. The amended agreement further
stipulated that the €250,000 already advanced to the inventor in two
installments of €100,000 and €150,000, respectively, as a non-interest
bearing loan under the July 15, 2005 agreement (the "Loan"), would be secured
by
2,301,000 warrants (the "Warrant") for the Company’s common stock issuable to
the inventor upon conclusion of certain pending transfers of patent and patent
application rights to the Company. The Warrant would have a strike price
of $0.001 per share and a 10 year expiration date. The Warrant would
be issued to the inventor upon transfer of all intellectual property rights
related to the SaveCream lead drug candidate. As of December 31,
2006, these intellectual property rights were not transferred. At December
31, 2006, the subject patents had yet to be transferred, and the principal
amount of the Loan outstanding was €250,000 (approximately $329,925 under
current exchange rates). During the year ended December 31, 2006, the
Company provided in the accompanying financial statements an allowance of
the
full amount related to collectibility of this note receivable.
MEDICAL
DISCOVERIES, INC. AND SUBSIDIARIES
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
K — SUBSEQUENT EVENTS
Introduction
The
Company has been a development stage bio-pharmaceutical company engaged in
the
research and development of two drug candidates. Both of these drug candidates
are still in development and neither has been approved by the U.S. Food and
Drug
Administration (the FDA). The total cost to develop these two drugs and to
receive the approval from the FDA would cost many millions of dollars and
take
many more years. The Company attempted to fund its development costs through
the
sale of its equity securities, including the sale of its Series A Convertible
Preferred Stock. At the end of 2006, the Company had virtually no cash, had
no
source of revenues, had a working capital deficit of $5.6 million and a
stockholders’ deficit of $5.6 million. In addition, the holders of the Series A
Convertible Preferred Stock informed the Company that they were no longer
willing to fund the Company’s then current operations.
The
transactions described in this footnote reflect the Company’s efforts in 2007 to
reorganize its operations and to reposition its business and
operations.
Consulting
Agreement
In
February 2007, the Company engaged a consulting firm to assist it in resolving
its financial issues, to obtain advice regarding any strategic alternatives
that
may be available to it, and to prevent the Company from losing all of its
assets
in bankruptcy. During the past several months, the Company has explored a
number
of transactions that would (i) prevent the Company’s shareholders from losing
their entire investment in the Company and (ii) enable the Company to repay
some
of its currently outstanding debts and liabilities.
The
consulting agreement has a term of one year. As compensation for its services,
the consultant is to receive $15,000 per month plus a warrant to purchase
5,000,000 shares of the Company’s common stock. The
warrant has an exercise price of $0.03 per share, contains
a cash-less exercise
provision, and expires ten years from
date
of issue. The Company is currently evaluating the proper accounting
related to the warrant issuance.
Discontinued
Operations
The
Board
of Directors initially determined that it could no longer fund the development
of its two drug candidates and could not obtain additional funding for these
drug candidates. The Board evaluated the value of both of its developmental
stage drug candidates. In March, 2007, the Board determined that the best
course
of action was to discontinue further development of these two drug candidates
and sell these technologies.
Eucodis
Agreement
On
March
8, 2007, the Company entered into a binding letter of intent with Eucodis
Pharmaceuticals Forschungs - und Entwicklungs GmbH, an Austrian company
(Eucodis),
regarding their intent to proceed with the evaluation, negotiation, and
execution of a sale and purchase agreement related to certain assets of the
Company. On July 6, 2007, the Company entered into a sale and purchase agreement
(the Asset Sale Agreement) with Eucodis, pursuant to which Eucodis agreed
to
acquire certain assets of the Company in consideration for a cash payment
and
the assumption by Eucodis of certain indebtedness of the Company. Pursuant
to
the Second Amendment to the Asset Sale Agreement, the sale is scheduled to
be
consummated on or before January 31, 2008 after the shareholders of the Company
have approved the transaction.
The
assets to be acquired by Eucodis pursuant to the Asset Sale Agreement include
all of the Company’s right, title and interest in all patents, patent
applications, United
States and foreign regulatory files and data,
pre-clinical study data and anecdotal clinical trial data concerning SaveCream.
In addition, at the closing of the sale, the Company will also assign to
Eucodis
all of its right, title and interest in a co-development agreement with Eucodis,
dated as of July 29, 2006, related to the co-development and licensing of
SaveCream (including the intellectual property rights acquired in connection
with that development) and their rights under certain
other contracts relating to SaveCream.
MEDICAL
DISCOVERIES, INC. AND SUBSIDIARIES
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
The
purchase price to be paid by Eucodis for acquiring these assets will be
€4,007,534 (approximately $5,906,000 under exchange rates in effect as of
November 30, 2007), is comprised of (i) a cash payment of €1,538,462
(approximately $2,267,000 under exchange rates in effect as of November 30,
2007) less $200,000 received in March 2007 under the binding letter of intent,
and (ii) Eucodis’ assumption of an aggregate of €2,469,072 (approximately
$3,639,000 under exchange rates in effect as of November 30, 2007), constituting
specific indebtedness currently owed and other commitments to certain creditors
of the Company. In addition, at the closing of the sale, Eucodis will assume
(i)
all financial and other obligations of the Company under certain contracts
to be
assigned to Eucodis, and (ii) certain other costs incurred by the Company
since
February 28, 2007 in connection with preserving the acquired assets for the
benefit of Eucodis until closing of the sale.
The
Company has agreed to a non-compete provision for the duration of five years
after the closing of the sale. Specifically, the non-compete provision will
restrict the Company, or any of its respective affiliates, from undertaking
research and development activities with respect to SaveCream, or any other
product which could be used in reasonable substitution of that product, or
commercializing any products based on SaveCream, unless expressly authorized
by
Eucodis.
The
closing of the sale was scheduled to occur on September 30, 2007. However,
Eucodis and the Company have agreed to extend the date of the closing of
the
sale until on or before January 31, 2008 following the date on which the
shareholders vote to approve the sale. The consummation of the sale is subject
to certain customary conditions, including (i) the delivery of releases from
each creditor whose debt is being assumed by Eucodis, releasing the Company
from
any liability concerning such creditor’s indebtedness, and (ii) the Company
obtaining additional capital or a credit facility in the aggregate amount
of at
least $250,000.
MDI-P
Agreement
The
Company also entertained various offers to purchase the Company’s rights to the
assets related to the MDI-P compound. On August 9, 2007, the Company sold
the
MDI-P related assets for $310,000 in cash. The sale included the patents,
name,
and other intellectual property, research results and test data, production
units and equipment, and other assets related to this technology. No liabilities
were assumed by the purchaser in this transaction. The sale was subject to
certain customary conditions, representations, and warranties. The Company
is
currently evaluating the accounting treatment as it relates to the sale of
MDI-P.
Global
Clean Energy Holdings, LLC
Having
agreed to dispose of its assets, the Board of Directors decided to develop
a
business to produce and sell seed oils, including seeds oils harvested from
the
planting and cultivation of the Jatropha
curcas
plant,
for the purpose of providing feedstock oil intended for the generation of
bio-diesel. In order to commence its new Jatropha based biofuels business,
the
Company (i) hired Richard Palmer, an energy consultant, to act as the Company’s
new President, Chief Operating Officer and future Chief Executive Officer,
(ii)
engaged Mobius Risk Group, LLC, a Texas company engaged in providing energy
risk
advisory services, to provide the Company with consulting services related
to
the development of the Jatropha bio-diesel business, and (iii) acquired certain
trade secrets, know-how, business plans, term sheets, business relationships,
and other information relating to the start-up of a business related to the
cultivation and production of seed oil from the Jatropha plant for the
production of bio-diesel. In order to fund the Company’s operations until cash
is generated from the sale of the Assests to Eucodis and from the new Jatropha
business, the Company entered into a loan and security agreement pursuant
to
which the Company has borrowed $350,000.
Share
Exchange Agreement
The
Company entered into a share and exchange agreement (the Global Agreement)
pursuant to which the Company acquired all of the outstanding ownership
interests in Global Clean Energy Holdings, LLC, a Delaware limited liability
company (Global) on September 7, 2007 from Mobius Risk Group, LLC (Mobius)
and
from Richard Palmer (Mr. Palmer). Global is an entity that has certain trade
secrets, know-how, business plans, term sheets, business relationships, and
other information relating to the start-up of a business related to the
cultivation and production of seed oil from the seed of the Jatropha plant,
for
the purpose of providing feedstock oil intended for the production of
bio-diesel. Under the Global Agreement, the Company issued 63,945,257 shares
of
its common stock for all of the issued and outstanding membership interests
of
Global. Of the 63,945,257 shares issued under the Global Agreement, 36,540,146
shares were issued and delivered at the closing of the Global Agreement without
any restrictions. The remaining 27,405,111 shares of common stock were, however,
held in escrow by the Company, subject to forfeiture in the event that certain
specified performance and market-related milestones are not achieved. Upon
the
satisfaction from time to time of the operational and market capitalization
condition milestones, the restricted shares will be released by the Company
from
escrow and delivered to the buyers in accordance with the terms and conditions
of the Global Agreement. In the event that all of the milestone conditions
are
not achieved, the restricted shares that have not been released from escrow
will
be cancelled by the Company and thereafter cease to be outstanding.
MEDICAL
DISCOVERIES, INC. AND SUBSIDIARIES
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Of
the
restricted shares issued under the Global Agreement, 13,702,556 shares will
be
released from escrow if and when certain land lease agreements suitable for
the
planting and cultivation of Jatropha
curcas are
executed; and certain operation management agreements with a third-party
land
and operations management company with respect to the management, planting
and
cultivation of Jatropha
curcas
are
executed. These restricted shares will be held in escrow subject to the
satisfaction of these milestones, at which time such shares will be released
from escrow and delivered to the sellers.
The
remaining 13,702,555 restricted shares issued under the Global Agreement
will be
released from escrow upon satisfaction of certain market capitalization and
average daily trading volume levels. These restricted shares will be held
in
escrow subject to the satisfaction of these milestones, at which time such
shares will be released from escrow and delivered to the sellers. As of November
30, 2007, a total of 4,567,518 shares had been released from escrow and
delivered to the sellers.
The
restricted shares under the Global Agreement are subject to cancellation
and
termination as follows. The restricted shares held in escrow related to the
operational milestone will be returned to the Company and cancelled if the
related conditions are not satisfied by the end of the first anniversary
of the
effective date of the Global Agreement. The restricted shares related to
the
market capitalization milestones will be returned to the Company and cancelled
to the extent that the market-related conditions are not satisfied by the
end of
the second anniversary of the effective date of the Global
Agreement.
As
part
of the Global Agreement, Mobius has agreed to a non-competition agreement
that
prohibits Mobius from engaging or participating in any business that is in
competition in any manner whatsoever with the Company’s new Jatropha business.
The non-competition prohibition is in effect for a period of five years
following the effective date of the Global Agreement.
The
Company is currently evaluating the accounting effect of the Share Exchange
Agreement.
Mobius
Consulting Agreement
Concurrent
with the execution of the Global Agreement, the Company entered into a
consulting agreement with Mobius pursuant to which Mobius has agreed to provide
consulting services to the Company in connection with the Company’s new Jatropha
bio-diesel feedstock business. The Company engaged Mobius as a consultant
to
obtain Mobius’ experience and expertise in the feedstock/bio-diesel market to
assist the Company and Mr. Palmer in developing this new line of operations
for
the Company. Mobius has agreed to provide the following services to the Company:
(i) manage and supervise a research and development program contracted by
the
Company and conducted by the University of Texas Pan American regarding the
location, characterization, and optimal economic propagation of the
Jatropha plant;
and (ii) manage and supervise the creation, planning, construction, and start-up
of plant nurseries and seed production plantations in two geographical areas
that may include either South Texas, the Yucatan Peninsula of Mexico (Merida),
the Caribbean or Central America.
The
term
of the agreement is twelve (12) months, or until the scope of work under
the
agreement has been completed. Mobius will supervise the hiring of certain
staff
to serve in management and operations roles of the Company, or hire such
persons
to provide similar services as independent contractors. Mobius’ compensation for
the services provided under the agreement is a monthly retainer of $45,000.
The
Company will also reimburse Mobius for reasonable business expenses incurred
in
connection with the services provided. The agreement contains customary
confidentiality provisions with respect to any confidential information
disclosed to Mobius or which Mobius receives while providing services under
the
agreement.
MEDICAL
DISCOVERIES, INC. AND SUBSIDIARIES
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Palmer
Employment Agreement
Effective
September 1, 2007, the Company entered into an employment agreement with
Richard
Palmer pursuant to which the Company hired Mr. Palmer to serve as its President
and Chief Operating Officer. Mr. Palmer was also appointed to serve as director
on the Company’s Board of Directors to serve until the next election of
directors by the Company’s shareholders. Upon the resignation of the current
Chief Executive Officer, Mr. Palmer also will become the Company’s Chief
Executive Officer. The Company hired Mr. Palmer to take advantage of his
experience and expertise in the feedstock/bio-diesel space, and in particular,
in the Jatropha bio-diesel and feedstock business. The term of employment
commenced September 1, 2007 and ends on September 30, 2010, unless terminated
in
accordance with the provisions of the agreement.
Mr.
Palmer’s compensation package includes a base salary of $250,000, subject to
annual increases based on changes in the Consumer Price Index, and a bonus
payment based on Mr. Palmer’s satisfaction of certain performance criteria
established by the compensation committee of the Company’s Board of Directors.
The bonus amount in any fiscal year will not exceed 100% of Mr. Palmer’s base
salary. Mr. Palmer is eligible to participate in the Company’s employee stock
option plan and other welfare plans. The Company granted Mr. Palmer an incentive
option to purchase up to 12,000,000 shares of its common stock at an exercise
price of $0.03 (the trading price on the date the agreement was signed).
The
options vest upon the Company’s achievement of certain market capitalization
goals. When the Company’s market capitalization reaches $75 million, the
incentive option will vest with respect to 6,000,000 shares. When the Company’s
market capitalization reaches $120 million, the incentive option will vest
with
respect to the remaining 6,000,000 shares. The option expires five years
after
grant.
If
Mr.
Palmer’s employment is terminated by the Company without “cause” or by Mr.
Palmer for “good reason”, he will be entitled to severance payments including
100% of his then-current annual base salary, plus 50% of the target bonus
for
the fiscal year in which his employment is terminated, and the incentive
option
to purchase 12,000,000 shares of common stock shall vest following termination
of Mr. Palmer’s employment. The Company is currently evaluating the proper
accounting treatment for this employment agreement and option
issuance.
LODEMO
Agreement
On
October 15, 2007, the Company entered into a service agreement with Corporativo
LODEMO S.A DE CV, a Mexican corporation (the LODEMO Group).
The
Company has decided to initiate its Jatropha Business in Mexico, and has
already
identified parcels of land in Mexico to plant and cultivate Jatropha. In
order
to obtain all of the logistical and other services needed to operate a
large-scale farming and transportation business in Mexico, the Company entered
into the service agreement with the LODEMO Group, a privately held Mexican
company with substantial land holdings, significant experience in diesel
distribution and sales, liquids transportation, logistics, land development
and
agriculture.
Under
the
supervision of the Company’s management, the LODEMO Group will be responsible
for the establishment, development, and day-to-day operations of the Jatropha
Business in Mexico, including the extraction of the oil from the Jatropha
seeds,
the delivery of the Jatropha oil to buyers, the purchase or lease of land
in
Mexico, the establishment and operation of one or more Jatropha nurseries,
the
clearing, planting and cultivation of the Jatropha fields, the harvesting
of the
Jatropha seeds, the operation of the Company’s oil extraction facilities, and
the logistics associated with the foregoing. Although the LODEMO Group will
be
responsible for identifying and acquiring the farmland, ownership of the
farmland or any lease thereto will be held directly by the Company or by
a
Mexican subsidiary of the Company. The LODEMO Group will be responsible for
hiring and managing all necessary employees. All direct and budgeted costs
of
the Jatropha Business in Mexico will be borne by the Company.
The
LODEMO Group will provide the foregoing and other necessary services for
a fee
primarily based on the number of hectares of Jatropha under cultivation.
The
Company has agreed to pay the LODEMO Group a fixed fee per year of $60 per
hectare of land planted and maintained with minimum payments based on 10,000
hectares of developed land, to follow a planned planting schedule. The Agreement
has a 20-year term but may be terminated earlier by the Company under certain
circumstances. The LODEMO Group also will potentially receive incentive
compensation for controlling costs below the annual budget established by
the
parties, production incentives for increase yield and a sales commission
for
biomass sales.
MEDICAL
DISCOVERIES, INC. AND SUBSIDIARIES
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Loan
Agreement
In
order
to fund its operations pending the sale of the Assets to Eucodis, the Company
entered into a loan and security agreement on September 7, 2007, with Mercator
Momentum Fund III, L.P., a California limited partnership. Pursuant to the
loan
agreement, the lender made available to the Company a secured term credit
facility in the aggregate principal amount of $1,000,000. In connection with
the
loan agreement, the Company also issued a secured promissory note to the
lender,
which note is secured by a first priority lien on all of the assets of the
Company. The lender and its affiliates currently own all of the issued and
outstanding shares of Series A Convertible Preferred Stock of the
Company.
Under
the
loan agreement, interest is payable on the loan at a rate of 12% per annum,
payable monthly. The loan matures and becomes due and payable on December
14,
2007. In connection with the closing of the loan, the Company agreed to the
exchange
of the warrants to purchase 27,452,973 shares at a price of $0.1967 per share
previously issued to the lender and certain of its affiliates to (i) lower
the
exercise price of such warrants to $0.01 per share, (ii) permit the cash-less
exercise of the warrants, and (iii) extend the expiration date thereof to
September 30, 2013. The Company is currently evaluating the accounting effect
of
the loan agreement and the exchange of warrants.
Consultant
Agreement
On
September 14, 2007, the Company entered into a one-year agreement with a
consultant for investor relations services. Under the agreement, the Company
agreed to pay total compensation of $105,000 over the one-year term. As
additional compensation, the Company issued 4,357,298 shares of restricted
common stock to the consultant and granted piggyback registration rights
for the
stock to be registered in connection with the Company’s next registration of
securities. The Company is currently evaluating the accounting treatment
for
this consulting agreement.
Conversion
of Series A Preferred Stock
On
September 17, 2007, the preferred stockholders gave notice to the Company
and
converted 5,492 shares of Series A Preferred Stock into 10,983,521 shares
of
common stock. The conversion price was $0.05 per share.
Release
and Settlement Agreement
Mercator
Momentum Fund, LP; Monarch Pointe Fund, Ltd.; and Mercator Momentum Fund
III,
LP, each a private investment entity (collectively, the MAG
Funds) purchased shares of the Company’s Series A
Preferred Convertible Stock in 2004 and in 2005. In connection with the 2005
investment, the Company agreed to eliminate the conversion price floor of
the
Series A Stock. The Company failed to file an amendment to the Series A Stock
Certificate of Designations of Preferences and Rights for the Series A Stock
that would have eliminated the conversion price floor. Accordingly, in
connection with an intended conversion of some of their Series A Stock in
September 2007, the MAG Funds were required to convert Series A Stock at
a
conversion price higher than the price that would have applied if the Amendment
had been filed as agreed.
On
October 22, 2007, the Company executed and entered into a Release and Settlement
Agreement
(the
Release Agreement), with the MAG Funds
to
settle all losses and damages that MAG may have suffered, and may hereafter
suffer, as result of the Company’s failure to file the amendment to the Series A
Stock Certificate of Designations of Preferences and Rights for the Series
A
Stock.
Pursuant
to the Release Agreement, the Company issued to the MAG Funds a ten-year
warrant
to acquire up to 17,000,000 shares of the Company’s
common stock at
an
exercise price of $0.01 per share expiring October 17, 2017. The
initial warrant
price is subject to adjustments in connection with (i) the Company’s issuance of
dividends in shares of Common Stock, or shares of Common Stock or other
securities convertible into shares of Common Stock without consideration,
(ii)
any cash paid or payable to the holders of Common Stock other than as a regular
cash dividend, and (ii) future stock splits, reverse stock splits, mergers
or
reorganizations, and similar changes affecting common stockholders.
The
warrant issued to the MAG Funds contain beneficial ownership limitations,
which
preclude the MAG Funds from exercising its warrant if, as a result of such
conversion or exercise, the MAG Funds would own beneficially more than 9.99%
of
the Company’s outstanding common stock then outstanding.
MEDICAL
DISCOVERIES, INC. AND SUBSIDIARIES
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Pursuant
to the Release Agreement, the MAG Funds released the Company from any and
all
claims, past, present or future, relating to the losses or the Company’s failure
to file the amendment. In addition, MAG has agreed not to sue the Company
in
connection with the losses or the Company’s failure to file the
Amendment.
The
Company is currently evaluating the accounting significance of this release
and
settlement agreement.
Issuance
of Series B Preferred Stock
In
order
to obtain additional working capital, on November 6, 2007, the Company entered
into a Securities Purchase Agreement with two accredited investors, pursuant
to
which the Company sold a total of 13,000 shares of our newly authorized Series
B
Convertible Preferred Stock (“Series B Shares”) for an aggregate purchase price
of $1,300,000. Each share of the Series B Shares has a stated value of $100.
The
Series B Shares may, at the option of each holder, be converted at any time
or
from time to time into shares of our common stock at the conversion price
then
in effect. The number of shares into which one Series B Share shall be
convertible is determined by dividing $100 per share by the conversion price
then in effect. The
initial conversion price per share for the Series B Shares is $0.11, which
is
subject to appropriate adjustment for certain events, including stock splits,
stock dividends, combinations, or other recapitalizations affecting the Series
B
Shares.
Each
holder of Series B Shares is entitled to the number of votes equal to the
number
of shares of our common stock into which the Series B Shares could be converted
on the record date for such vote, and shall have voting rights and powers
equal
to the voting rights and powers of the holders of the Company’s common stock.
In
the
event of our dissolution or winding up, each share of the Series
B
Shares
is entitled to be paid an amount equal to $100 (plus any declared and unpaid
dividends) out of the assets of the Company then available for distribution
to
shareholders; subject, however, to the senior rights of the holders of Series
A
Convertible Preferred Stock.
No
dividends are required to be paid to holders of the Series B Shares. However,
the Company may not declare, pay or set aside any dividends on shares of
any
class or series of our capital stock (other than dividends on shares of our
common stock payable in shares of common stock) unless the holders of the
Series
B Shares shall first receive, or simultaneously receive, an equal dividend
on
each outstanding share of Series B Shares.
Release
and Settlement Agreement with Chief Executive Officer
On
August
31, 2007, the Company entered into a Settlement and Release Agreement with
Judy
Robinett, the Company’s current Chief Executive Officer, pursuant to which Ms.
Robinett agreed to continue to act as the Company’s transitional Chief Executive
Officer. Under the agreement, Ms. Robinett agreed to, among other things,
assist
the Company in the sale of its legacy assets, complete the preparation and
filing of the delinquent reports to the Securities and Exchange Commission
(the
SEC) that related to the periods prior to the appointment of Mr. Palmer,
and
provide certain shareholder and creditor related services. Upon the completion
of the foregoing matters, in particular the filing of the delinquent reports
to
the SEC, Ms. Robinett will resign, and Mr. Palmer will thereafter assume
the
office of Chief Executive Officer. Under the agreement, Ms. Robinett agreed
to
(i) forgive her potential right to receive $1,851,805 in accrued and unpaid
compensation, un-accrued and pro-rata bonuses, and severance pay and (ii)
the
cancellation of stock options to purchase 14,000,000 shares of common stock
at
an exercise price of $0.02 per share. In consideration for her services,
the
forgiveness of the foregoing cash payments, the cancellation of the foregoing
stock options, and settlement of other issues, the Company agreed to (a)
pay Ms.
Robinett $500,000 upon the receipt of the Eucodis cash payment under the
agreement to sell the SaveCream Assets, (b) pay Ms. Robinett a commission
of
fifteen percent of the gross proceeds received by the Company from the sale
of
the MDI-P asset, (c) pay Ms. Robinett $20,833 in monthly salary for serving
as
transitional Chief Executive Officer of the Company during the period from
April
1,
2007 until
the
effective
date of her resignation, and (d) permit
Ms. Robinett to retain some of her previously granted incentive stock options
in
such an amount allowing
her to purchase up to two million shares
of
common stock, which options shall continue to have the same terms and conditions
as currently in
existence, including an option price of $0.01
per
share and expiration date of December 31, 2112.
MEDICAL
DISCOVERIES, INC. AND SUBSIDIARIES
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Consulting
Agreement
In
February 2007, the Company entered into another consulting agreement with
an
individual to assist it in the preparation of financial statements, reporting
to
the SEC, raising capital, disposing of the existing technologies, and otherwise
assisting executive management and the Company’s other consulting firm in the
development and execution of the Company’s business plan. The consulting
agreement had a term of one year. As compensation for its services, the
consultant was to receive $10,000 per month plus a warrant to purchase 5,000,000
shares of the Company’s common stock. The warrant has an exercise price of $0.03
per share, contains
a cash-less exercise provision, and
expires ten years from date of issue. Since
the
consulting agreement
was terminated prior to its expiration date, the Company’s obligations under the
consulting agreement, if any, for the period
after the termination
date
are
unclear. No demand for any additional compensation has been made against
the
Company under the consulting agreement.
The
Company is currently evaluating the accounting effect of this consulting
agreement. This
consulting agreement was terminated in May 2007.
| ITEM
8. |
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
|
None.
| ITEM
8A. |
CONTROLS
AND PROCEDURES.
|
Evaluation
of Disclosure Controls and Procedures.
We
maintain disclosure controls and procedures which are designed to ensure that
the information required to be disclosed in the reports it files or submits
under the Securities Exchange Act of 1934 (as amended, the “Act”) is recorded,
processed, summarized and reported within the time periods specified in the
SEC’s rules and forms, and that such information is accumulated and communicated
to our management, including the Chief Executive Officer and the Chief Financial
Officer (“Certifying Officers”), to allow timely decisions regarding required
financial disclosures.
In
connection with the preparation of this Annual Report, our Certifying Officers
evaluated the effectiveness of management’s disclosure controls and procedures,
as of December 31, 2006, in accordance with Rules 13a-15(b) and 15d-15(b) of
the
Exchange Act. Based on that evaluation, the Certifying Officers concluded that
management’s disclosure controls and procedures were not effective as of
December 31, 2006.
As
a
result of our lack of working capital and insufficient personnel, we were unable
to timely file our Annual Report on Form 10-KSB for the fiscal year ended
December 31, 2006 and also did not timely file our interim quarterly financial
reports for the periods ending March 31, 2007, June 30, 2007 and September
30,
2007 as required under the Act.
Material
Weakness in Internal Control Over Financial Reporting
Subject
to oversight by the Audit Committee, management is responsible for establishing
and maintaining adequate internal control over our financial reporting as
defined in Exchange Act Rule 13a-15(f). The internal control over financial
reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting, and the preparation of financial statements
for external purposes in accordance with generally accepted accounting
principles (“GAAP”) in the United States of America. Because of its inherent
limitations, internal control over financial reporting may not prevent or detect
misstatements.
A
material weakness is a control deficiency, or combination of control
deficiencies, that results in more than a remote likelihood that a material
misstatement of the annual or interim financial statements will not be prevented
or detected. Based
on
the evaluation performed by them, for the reasons set forth below, our Chief
Executive Officer/Chief Financial Officer concluded that our disclosure controls
and procedures were not effective as of December 31, 2006. The material weakness
resulted from our financial condition at the end of fiscal 2006, which caused
us
to have inadequate
staffing of the accounting functions. In addition, as of December 31, 2006,
we
did not have a
Chief
Financial Officer.
During
September 2007, our Audit Committee conducted an investigation into the
foregoing internal control deficiencies. As a result of the investigation,
under
the direction of the Audit Committee, management is in the process of developing
and implementing additional measures designed to ensure that information
required to be disclosed in our periodic reports is recorded, processed,
summarized and reported accurately. These measures include:
| |
·
|
We
have retained Gilderman, Garabedian & Flummerfelt, LLP, an independent
accounting firm, to manage our day-to-day internal accounting
functions;
|
| |
·
|
We
have retained Osborne, Robbins & Buhler, PLLC, an independent
accounting firm, to assist us with the preparation of our financial
reports to be included in our periodic reports required to be filed
under
the Act;
|
| |
·
|
We
have consolidated all or our record keeping and accounting functions
in
our Los Angeles office;
|
| |
·
|
We
have developed and implemented improved accounting and management
financial reporting policies and procedures;
|
| |
·
|
We
have hired ADP, Inc., an outside payroll service, to process all
payrolls
and make the required payroll withholding deductions and deposits;
and,
|
| |
·
|
We
have implemented additional banking procedures and imposed additional
pre-approval authorization
policies.
|
Our
Board
of Directors believes that, with the additional measures we have adopted since
October 1, 2007, our system of internal controls, disclosure controls and
procedures will improve, and be adequate to provide reasonable assurance that
the information required to be disclosed in the our interim and annual reports
is recorded, processed, summarized, and accurately reported within the time
periods specified in the SEC’s rules and forms, and that such information is
accumulated and communicated to our Board of Directors, the Audit Committee,
management, including our certifying officers, as appropriate, to allow for
timely decisions regarding required disclosure based closely on the definition
of “disclosure controls and procedures” in Rule 13a-15(e). The Audit Committee
cannot be certain that its remediation efforts will sufficiently cure
management’s identified material financial reporting weaknesses. Furthermore,
the Audit Committee has not tested the operating effectiveness of the remediated
controls, since the process is not yet complete. However, because of the
inherent limitations in all control systems, no evaluation of controls can
provide absolute assurance that all control issues, if any, within our company
have been detected. These inherent limitations include the realities that
judgments in decision-making can be faulty, and that breakdowns can occur
because of simple errors or mistakes.
ITEM
8B. OTHER INFORMATION
None.
PART III
ITEM
9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS,
CONTROL PERSONS AND CORPORATE GOVERNANCE; COMPLIANCE WITH SECTION 16(a) OF
THE
EXCHANGE ACT.
The
following table sets forth certain information regarding the executive officers
and directors of Medical Discoveries, Inc. as of November 30, 2007.
|
Name
|
|
Age
|
|
Title
|
|
David
R. Walker
|
|
63
|
|
Chairman
of the Board of Directors and Treasurer
|
| |
|
|
|
|
|
Judy
Robinett (1)
|
|
53
|
|
Chief
Executive Officer and interim Chief Financial Officer,
Director
|
| |
|
|
|
|
|
Richard
Palmer
|
|
47
|
|
President
and Chief Operating Officer, Director
|
| |
|
|
|
|
|
Eric
J. Melvin
|
|
44
|
|
Director
and Secretary
|
| |
|
|
|
|
|
Martin
Schroeder
|
|
54
|
|
Director
|
(1)
Pursuant to a Release and Settlement agreement, dated as of August 31, 2007,
between Medical Discoveries, Inc. and Judy Robinett, Ms. Robinett has agreed
resign as a director and as our Chief Executive Officer and interim Chief
Financial Officer after completing certain tasks associated with winding up
our
legacy biopharmaceutical business. Since those tasks will be completed in the
near future, Ms. Robinett is expected to resign in December 2007.
David
R. Walker
David
R. Walker joined the Board of Directors on May 2, 1996, and was appointed
Chairman of the Board of Directors on May 10, 1998. He has served as
Chairman of the Audit Committee since its establishment in 2001. For over
20 years, Mr. Walker has been the General Manager of Sunheaven Farms,
the largest onion growing and packing entity in the State of Washington. In
the
capacity of General Manager, Mr. Walker performs the functions of a
traditional chief financial officer. Mr. Walker holds a Bachelor of Arts
degree in economics from Brigham Young University with minors in accounting
and
finance.
Judy
Robinett
Judy
M. Robinett has held the office of Chief Executive Officer since November,
2000;
she joined our Board of Directors on February 9, 2001. Since 1994, she has
owned and operated an international consulting company focused on strategic
planning, finance, marketing, and distribution for entrepreneurs and established
companies. Ms. Robinett holds a Bachelors of Sciences degree in psychology
and a Masters degree in labor economics from Utah State University.
Richard
Palmer was appointed as our President and Chief Operating Officer in September
2007, and been a member of the Board of Directors since September 2007. Mr.
Palmer has over 25 years of hands-on experience in the energy field, holding
senior level management positions with a number of large engineering,
development, operations and construction companies. He is a co-founder of Mobius
Risk Group, LLC, an energy risk advisory services consulting company, and was
a
principal and Executive Vice President of that consulting company from January,
2002 until September 2007. From 1997 to 2002, Mr. Palmer was a Senior Director
at Enron Energy Services. Prior thereto, from 1995 to 1996 Mr. Palmer was a
Vice
President of Bentley Engineering, and a Senior Vice President of Southland
Industries from 1993 to 1996. Mr. Palmer received his designation as a Certified
Energy Manager in 1999, holds two Business Management Certificates from
University of Southern California’s Business School, and is an active member of
both the American Society of Plant Biologists and the International Tropical
Farmers Association.
Eric
J. Melvin
Eric
Melvin was elected to our Board of Directors in September 2007 and was appointed
as our Secretary in October 2007. Mr. Melvin is a co-founder of Mobius
Risk Group, LLC, and has been its Chief Executive Officer since January
2002. He has extensive commodity trading and marketing experience
including: natural gas (physical and financial), power, crude products, coal,
weather, fixed income and foreign exchange, as well as a strong track record
of
developing and managing profitable energy trading, marketing and origination
groups. Eric has established trading processes and risk guidelines and has
selected and implemented financial and physical trading systems. He
received his BGS (Bachelor of Graduate Studies) from the University of Michigan,
Ann Arbor and a JD from University of Detroit, School of Law.
Martin
Schroeder
Martin
Schroeder has been a member of the Board of Directors since August 2007. He
has
been the Executive Vice-President and Managing Director of The Emmes
Group,
Inc., a
strategic business consulting firm, since August 1998. He has been the principal
of Emmes Group Consulting, LLC since 1998. Mr.
Schroeder holds a Bachelor of Science in Biochemistry from the University of
California at Los Angeles, and a Masters of Science in Biochemistry from
California State University Long Beach.
Compliance
with Section 16(a) of the Exchange Act
Section
16(a) of the Securities Exchange Act of 1934 requires our executive officers
and
directors, and persons who own more than 10% of a registered class of our equity
securities, to file reports of ownership and changes in ownership with the
SEC.
Executive officers, directors and greater than 10% shareholders are required
by
SEC regulations to furnish the Company with copies of all Section 16(a) forms
they file.
Based
solely on information provided to us by our officers and our review of copies
of
reporting forms received by us, we believe that during fiscal year ended
December 31, 2006, our officers and directors complied with the filing
requirements under Section 16(a).
Code
of Ethics
Our
Board
of Directors has adopted a code of ethics that applies to our principal
executive officers, principal financial officer or controller, or persons
performing similar functions (“Code of Ethics”). The
text
of the Code of Ethics is filed as an exhibit to this Annual
Report.
Board
Committees
During
fiscal 2006, the Board of Directors maintained an Audit Committee. The Board
of
Directors does not currently have a Compensation Committee or a Nominating
Committee, but intends to establish these committees in 2008.
The
Audit
Committee meets periodically with management and with our independent registered
public accounting firm to, among other things, review the results of the annual
audit and quarterly reviews and discuss the financial statements. The audit
committee also hires the independent registered public accounting firm, and
receives and considers the accountant’s comments as to controls, adequacy of
staff and management performance and procedures. The Audit Committee is also
authorized to review related party transactions for potential conflicts of
interest. During the fiscal year ended December 31, 2006, Mr. Walker and Mr.
Larry Anderson (a former director who resigned in January 2007) constituted
all
of the members of the Audit Committee. As of the date of this Annual Report,
the
Audit Committee is composed of Mr. Walker and Mr. Schroeder. Mr. Walker is
a
non-employee director and independent as defined under the Nasdaq Stock Market’s
listing standards. Mr. Schroeder is a principal of The Emmes Group, a consulting
firm that has provided consulting services to us since February 2007 and has
earned $150,000 in consulting fees in 2007. Accordingly, Mr. Schroeder is not
an
independent member of the Audit Committee as defined under the Nasdaq Stock
Market’s listing standards. Each of the members of the Audit Committee has
significant knowledge of financial matters to be deemed to be an “audit
committee financial expert” of the Audit Committee. Although Mr. Schroeder is
not independent as defined under the Nasdaq Stock Market’s listing standards,
due to Mr. Schroeder’s experience and because our stock is not listed on the
Nasdaq or the Over-the-Counter (OTCBB) markets, our Board of Directors has
determined that he can competently perform the functions required of him as
a
member of the Audit Committee. The Audit Committee met 4 times during fiscal
2006 and 10 times in 2007 in connection with this Annual Report and our
Quarterly Reports on Form 10-QSB. The Audit Committee operates under a formal
charter that governs its duties and conduct.
ITEM
10. EXECUTIVE COMPENSATION.
Director
Compensation.
Our
Board of Directors has adopted a plan pursuant to which directors who are not
officers of this company are entitled to receive $1,000 per meeting and are
entitled to an annual grant of $50,000 of shares of our common stock. During
fiscal 2006, except for a $1,000 cash payment made to one of our directors,
all
of our directors declined to be compensated for their services as our directors.
Directors are entitled to receive compensation for services unrelated to their
service as a director to the extent that they provide such unrelated services
to
the Company. See “Related Party Transactions” below.
Summary
Compensation Table.
The
following table sets forth certain summary information concerning compensation
paid by this company to our Chief Executive Officer (the “Named Executive
Officer”) for the years ended December 31, 2006, 2005, and 2004. No other
executive officer received a total annual salary and bonus in excess of $100,000
during the year ended December 31, 2006.
|
Name
and Principal Position(s)
|
|
Year
|
|
Salary
($)
|
|
Bonus
($)
|
|
Securities
Underlying
Options
(#)
|
|
|
Judy
M. Robinett
|
|
|
2006
|
|
|
350,000
|
|
|
—
|
|
|
|
|
|
Chief
Executive Officer
|
|
|
2005
|
|
|
322,500
|
|
|
|
|
|
|
|
| |
|
|
2004
|
|
|
220,000
|
|
|
|
|
|
|
|
The
Named
Executive Officer was not granted options during the year ended
December 31, 2006.
The
following table sets forth certain summary information concerning the value
of
options held by the Named Executive Officer at December 31, 2006 measured
in terms of the closing price reported for Common Stock on December 29,
2006 of $0.04. The Named Executive Officer did not exercise any during
2006.
|
Name
|
|
Shares
Acquired on Exercise (#)
|
|
Value
Realized ($)
|
|
Number
of Securities Underlying Unexercised Options at
December
31, 2006 (#) Exercisable/Unexercisable
|
|
Value
of Unexercised
In-the-Money
Options at December 31, 2006 ($)
Exercisable/Unexercisable
|
|
|
Judy
M. Robinett
|
|
|
|
|
|
|
|
|
16,000,000
/ 0
|
|
|
340,000
/ 0
|
|
During
the fiscal year ended December 31, 2006, we did not adjust or amend the exercise
price of stock options awarded to the Named Executive Officer.
Employment
Agreement
On
September 7, 2007, we entered into an employment agreement with Richard Palmer
pursuant to which we hired Richard Palmer to serve as our President and Chief
Operating Officer. Mr. Palmer was also appointed to serve as director on our
Board of Directors to serve until the next election of directors by our
shareholders. Upon the resignation of the current Chief Executive Officer,
Mr.
Palmer also will become our Chief Executive Officer. We hired Richard Palmer
to
take advantage of his experience and expertise in the feedstock/bio-diesel
space, and in particular, in the Jatropha bio-diesel and feedstock business.
Under
our
employment agreement with Mr. Palmer, we granted Mr. Palmer an incentive option
to purchase up to 12,000,000 shares of our common stock at an exercise price
of
$0.03 (the trading price on the date the agreement was signed), subject to
our
achievement of certain market capitalization goals. The option expires after
five years. In addition, Mr. Palmer’s compensation package includes a base
salary of $250,000, and a bonus payment contingent on Mr. Palmer’s satisfaction
of certain performance criteria, which will not exceed 100% of Mr. Palmer’s base
salary. The term of employment commenced September 1, 2007 and ends on September
30, 2010.
Judy
Robinett Resignation Agreement
On
April
1, 2005, we entered into a 3-year employment agreement with Judy Robinett
pursuant to which Ms. Robinett agreed to serve as our Chief Executive Officer
and we agreed to, among other things, pay her an annual salary of $350,000
plus
annual bonus, and did not grant her options to purchase additional shares of
our
common stock. As of the effective date of employment agreement, Ms. Robinett
already held options giving her the right to purchase 16,000,000 shares of
our
common stock.
On
August
31, 2007, we entered into a
release
and settlement
agreement (effective as of September 7, 2007) (“the Release and Settlement
Agreeement”) with Judy Robinett, our current Chief Executive Officer, pursuant
to which Ms. Robinett agreed to continue to act as our transitional Chief
Executive Officer. Ms. Robinett also currently is acting as our interim Chief
Financial Officer. Under the agreement, Ms. Robinett agreed to, among other
things, assist us in the sale of our legacy bio-pharmaceutical assets, complete
the preparation and filing of the delinquent SEC Reports that related to the
periods prior to the date of the agreement, deal with our creditors and handle
our creditor issues, and to assist in maintaining our relations with our
shareholders. Upon the completion of the foregoing matters, Ms. Robinett has
agreed to resign (Mr. Palmer will thereafter assume the office of Chief
Executive Officer). Under the release and settlement agreement, Ms. Robinett
agreed to (i) forgive her right to receive $1,851,805 in accrued and unpaid
compensation, un-accrued and pro-rata bonuses, and severance pay and (ii) the
cancellation of stock options to purchase 14,000,000 shares of common stock
at
an exercise price of $0.02 per share. In consideration for her services, the
forgiveness of the foregoing cash payments, the cancellation of the foregoing
stock options, and settlement of other issues, we agreed to (a) pay Ms. Robinett
$500,000 upon the receipt of the cash payment from Eucodis for the sale of
our
SaveCream rights under the SaveCream Asset Sale Agreement, (b) pay Ms. Robinett
a commission of fifteen percent (15%) of the gross proceed we receive from
the
sale of the MDI-P drug, (c) pay Ms. Robinett $20,833 per month in salary and
benefits for serving as our Chief Executive Officer during the period from
April
1, 2007 until the date of her resignation according to terms of the Release
and
Settlement Agreeement, and (d) permited Ms. Robinett to retain some of her
previously granted incentive stock options in such an amount allowing her to
purchase up to two million (2,000,000) shares of common stock, which options
shall continue to have the same terms and conditions as currently in existence,
including an option price of $0.01 per share and expiration date of December
31,
2112.
ITEM
11. SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER
MATTERS.
The
following table sets forth information regarding persons known by us to
beneficially own, as defined by Rule 13d-3 under the Securities Exchange
Act of 1934, more than 5% of Common Stock as of November 30, 2007, based solely
on information regarding such ownership available in filings by such beneficial
owners with the SEC on Schedules 13D and 13G. The following table also sets
forth information regarding beneficial ownership of Common Stock as of November
30, 2007, by the Directors and the Named Executive Officer and by the Directors
and Named Executive Officer as a group.
|
Name
and Address of Beneficial Owner (1)
|
|
Shares
Beneficially Owned (2)
|
|
Percent
of
Class
|
|
|
Certain
Beneficial Owners:
|
|
|
|
|
|
|
Mercartor
Momentum Fund, LP
555
S. Flower St., Suite 4500
Los
Angeles, CA 90071
|
|
|
42,192,209
|
(3)(13)
|
|
20.19
|
%
|
|
Mercartor
Momentum Fund III, LP
555
S. Flower St., Suite 4500
Los
Angeles, CA 90071
|
|
|
39,898,676
|
(4)(13)
|
|
17.08
|
%
|
|
Monarch
Pointe Fund, Ltd.
555
S. Flower St., Suite 4500
Los
Angeles, CA 90071
|
|
|
34,002,509
|
(5)(13)
|
|
14.92
|
%
|
|
David
Firestone
555
S. Flower St., Suite 4500
Los
Angeles, CA 90071
|
|
|
121,485,494
|
(6)(13)
|
|
40.37
|
%
|
|
Mobius
Risk Group, LLC
Three
Riverway, Suite 1700
Houston,
Texas 77056
|
|
|
54,810,220
|
(7)
|
|
27.73
|
%
|
| |
|
|
|
|
|
|
|
|
Directors/Named
Executive Officers:
|
|
|
|
|
|
|
|
|
Judy
M. Robinett
|
|
|
2,030,000
|
(8)
|
|
1.02
|
%
|
|
Richard
Palmer
|
|
|
9,135,037
|
(9)
|
|
4.62
|
%
|
|
David
R. Walker
|
|
|
1,153,539
|
(10)
|
|
*
|
|
|
Eric
J. Melvin
Three
Riverway, Suite 1700
Houston,
Texas 77056
|
|
|
54,810,220
|
(11)
|
|
|
%
|
|
Martin
Schroeder
92
Natoma Street, Suite 200
San
Francisco, California 94105
|
|
|
5,000,000
|
(12)
|
|
2.47
|
%
|
| |
|
|
|
|
|
|
|
|
All
Named Executive Officers and Directors as a group (5
persons)
|
|
|
72,128,796
|
|
|
35.12
|
%
|
*
Less
than 1%
(1)
Unless otherwise indicated, the business address of each person listed is c/o
Medical Discoveries, Inc., 6033 W. Century Blvd, Suite 1090, Los Angeles,
California.
(2)
For
purposes of this table, shares are considered beneficially owned if the person
directly or indirectly has the sole or shared power to vote or direct the voting
of the securities or the sole or shared power to dispose of or direct the
disposition of the securities. Shares are also considered beneficially owned
if
a person has the right to acquire beneficial ownership of the shares within
60
days of September 30, 2007.
(3)
Includes 18,638,877 shares that may be acquired upon the exercise of currently
exercisable warrants, and 17,430,000 shares of common stock issuable upon
conversion of 8,715 shares of Series A convertible preferred stock based on
an
assumed conversion price of $0.05, which is the minimum price at which such
shares of Series A convertible preferred stock can be converted.
(4)
Includes 15,411,001 shares that may be acquired upon the exercise of currently
exercisable warrants, and 20,590,000 shares of common stock issuable upon
conversion of 10,295 shares of Series A convertible preferred stock based on
an
assumed conversion price of $0.05, which is the minimum price at which such
shares of Series A convertible preferred stock can be converted.
(5)
Includes 10,403,095 shares that may be acquired upon the exercise of currently
exercisable warrants, and 19,834,000 shares of common stock issuable upon
conversion of 9,917 shares of Series A convertible preferred stock based on
an
assumed conversion price of $0.05, which is the minimum price at which such
shares of Series A convertible preferred stock can be converted.
(6)
David
Firestone is the managing member of MAG Capital, LLC, a California limited
liability company (“MAG”). Mercartor Momentum Fund, LP, and Mercartor Momentum
Fund III, LP, are private investment limited partnerships organized under
California law. The general partner of each fund is MAG. Monarch Pointe Fund,
Ltd. is a corporation organized under the laws of the British Virgin Islands.
MAG controls the investment of Monarch Pointe Fund, Ltd.
(7)
Includes 23,490,095 shares subject to forfeiture in the event the company has
not satisfied certain conditions by September 7, 2009.
(8)
Includes 2,000,000 shares that may be acquired upon the exercise of currently
exercisable options.
(9)
Includes 3,262,514 shares subject to forfeiture in the event the company has
not
satisfied certain conditions by September 7, 2009. Mr. Palmer owns 13.33% of
the
outstanding membership interests of Mobius. Mr. Palmer has options to acquire
12,000,000 shares of common stock, which options are not currently exercisable
and will not become exercisable unless certain conditions are met. Neither
the
shares held by Mobius, nor the foregoing options to purchase 12,000,000 shares
have not been included in the table.
(10)
Includes 750,000 shares that may be acquired upon the exercise of currently
exercisable options.
(11)
Includes 54,810,220 shares held in the name of Mobius Risk Group, LLC, a Texas
limited liability company (“Mobius”). Mr. Melvin is the Chief Executive Officer
and a director of Mobius.
(12)
Includes 5,000,000 shares that may be acquired upon the exercise of currently
exercisable warrants held by Emmes Consulting Group, LLC, a California limited
liability company. Mr. Schroeder is the Executive Vice President and Managing
Director of Emmes Consulting Group, LLC.
(13)
Notwithstanding the foregoing percentages, each person identified herein,
individually or in the aggregate is limited by the terms of our Series A
convertible preferred stock and by applicable warrants to owning no more than
9.99% of our outstanding common stock at any given time.
ITEM
12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS,
AND DIRECTOR INDEPENDENCE.
Emmes
Consulting Agreement
On
February 1, 2007, we entered into a consulting agreement (the “Emmes Agreement”)
with Emmes Group Consulting LLC (“Emmes”) pursuant to which we engaged Emmes to
assist with developing an overall strategic business plan and recapitalization
strategy for our company. The term of the engagement is for one year. As
compensation for its services, Emmes is entitled to receive a consulting fee
of
$15,000 per month plus a warrant to purchase 5,000,000 shares of our common
stock. The warrant vested as of February 1, 2007, has an exercise price of
$0.03
per share, contains a cashless exercise provision, and expires ten years from
date of issue.
Martin
Schroeder, one of our directors, is currently
the Executive Vice-President and Managing Director of Emmes.
Loan
Agreement
In
order
to fund its operations pending the closing of the SafeCream Asset Sale
Agreement, on September 7, 2007, we entered into a loan and security agreement
(“Loan Agreement”) with Mercator Momentum Fund III, L.P., a California limited
partnership. The lender and its affiliates currently own all of the issued
and
outstanding shares of our Series A Convertible Preferred Stock.
Pursuant
to the Loan Agreement, Mercator Momentum Fund III, L.P. agreed to make available
to us a secured term credit facility in the aggregate principal amount of
$1,000,000 (the “Loan”). In connection with the Loan Agreement, we issued a
secured promissory note to Mercator Momentum Fund III, L.P. that bears interest
at a rate of 12% per annum, payable monthly. The Loan matures and becomes due
and payable on December 14, 2007. The Loan is secured by a first priority lien
on all of our assets. To date, Mercator Momentum Fund III, L.P. has advanced
a
total of $350,000 to us under the Loan.
Share
Exchange Agreement
On
September 7, 2007, we entered into a share and exchange agreement (the “Global
Agreement”) pursuant to which we acquired all of the outstanding ownership
interests in Global Clean Energy Holdings, LLC, a Delaware limited liability
company (“Global”). Richard Palmer and Mobius Risk Group, LLC (“Mobius”), a
Texas limited liability company, were the sole owners of the outstanding equity
interests of Global. In exchange for all of the outstanding ownership interests
in Global, we issued 63,945,257 shares of our common stock to Richard Palmer
and
Mobius. For additional details about the Global Agreement, please see “Item 1 -
Description of Business - Recent Developments.”
Mobius
Consulting Agreement
Concurrent
with the execution of the Global Agreement, we also entered into a consulting
agreement with Mobius (the “Mobius Agreement”) pursuant to which Mobius has
agreed to provide consulting services to us in connection with our new Jatropha
Business. Richard Palmer, our President and Chief Operating Officer, owns 13.33%
of the outstanding equity interests of Mobius. In addition, Eric J. Melvin,
one
of our directors is a principal and Chief Executive Officer of Mobius. We have
agreed to pay Mobius a monthly retainer of $45,000 for the services provided
under the consulting agreement. The consulting agreement has a the term of
twelve months, or such shorter period until the scope of work under the
agreement has been completed.
Judy
Robinett Resignation Agreement
On
August
31, 2007, we entered into a
release
and settlement
agreement (effective as of September 7, 2007) with Judy Robinett, our current
Chief Executive Officer, pursuant to which Ms. Robinett agreed to continue
to
act as our transitional Chief Executive Officer. For additional details about
the resignation agreement, please see “Item 10 - Executive
Compensation.”
Release
Agreement
On
October 22, 2007, we executed and entered into a release and settlement
agreement, dated as of October 19, 2007, with holders of our Series A Preferred
Convertible Stock pursuant to which we issued to such shareholders warrants
to
purchase 17,000,000 shares of our common stock. Mercator Momentum Fund, LP,
Monarch Pointe Fund, Ltd., and Mercator Momentum Fund III, LP, each a private
investment entity (the foregoing three investment funds, collectively, the
“MAG
Funds”) purchased shares of our Series A
Preferred Convertible Stock (the “Series A Stock”) in 2004 and in 2005. The
Series A Stock is exercisable at a conversion price based on the market price
of
our Common Stock, which conversion price however, will not be less than $0.05
per share. In connection with the 2005 investment, we agreed to eliminate the
$0.05 conversion price floor of the Series A Stock. However, we recently
determined that we failed to file an amendment to the Certificate of
Designations of Preferences and Rights for the Series A Stock, which would
have
eliminated the conversion price floor. Accordingly, the Series A Stock still
is
subject to the $0.05 per share conversion floor limitation, and the MAG Funds
were recently required to convert Series A Stock at a conversion price higher
than the price that would have applied if the amendment had been filed as
agreed.
In
order
to release us from liability related to our failure to remove the $0.05
conversion price floor of the Series A Stock , we executed and entered into
a
Release and Settlement Agreement, dated as of October 19, 2007
(the
“Release Agreement”), with the MAG Funds
to
settle all losses and damages that MAG may have suffered, and may hereafter
suffer, as result of our failure to file the foregoing amendment.
Pursuant
to the Release Agreement, we issued to the MAG Funds a ten-year
warrant
to acquire up to 17,000,000 shares of our
common
stock at
an
exercise price of $0.01 per share expiring October 17, 2017. Pursuant to the
Release Agreement, the MAG Funds agreed not to sue us in connection with, and
released us from all past, present and future claims relating to, our failure
to
file the amendment.
ITEM
13. EXHIBITS.
The
following documents are furnished as exhibits to this Form 10-KSB. Exhibits
marked with an asterisk are filed herewith. The remainder of the exhibits
previously have been filed with the Commission and are incorporated herein
by
reference.
|
Number
|
|
Exhibit
|
|
2.1
|
|
Sale
and Purchase Agreement between Attorney Hinnerk-Joachim Müller as
liquidator of Savetherapeutics AG i.L. and Medical Discoveries, Inc.
regarding the purchase of the essential assets of Savetherapeutics
AG i.L.
(filed as Exhibit 2.1 to the Company’s Annual Report on Form 10-KSB for
the fiscal year ended December 31, 2004, and incorporated herein
by
reference).
|
| |
|
|
|
2.2
|
|
Asset
Sale Agreement dated July 6, 2007 among Medical Discoveries, Inc.,
MDI
Oncology, Inc. and Eucodis Pharmaceuticals Forschungs - und Entwicklungs
GmbH (filed as Exhibit 2.1 to the Company’s Current Report on Form 8-K
filed September 17, 2007, and incorporated herein by
reference)
|
| |
|
|
|
2.3
|
|
Amendment
to Asset Sale Agreement dated September 30, 2007 among Medical
Discoveries, Inc., MDI Oncology, Inc. and Eucodis Pharmaceuticals
Forschungs - und Entwicklungs GmbH (filed as Exhibit 2.1 to the Company’s
Current Report on Form 8-K filed October 4, 2007, and incorporated
herein
by reference)
|
| |
|
|
|
2.4
|
|
Second
Amendment to Asset Sale Agreement dated October 30, 2007 among Medical
Discoveries, Inc., MDI Oncology, Inc. and Eucodis Pharmaceuticals
Forschungs - und Entwicklungs GmbH (filed as Exhibit 2.1 to the Company’s
Current Report on Form 8-K filed November 2, 2007, and incorporated
herein
by reference)
|
| |
|
|
|
2.5
|
|
Share
Exchange Agreement dated September 7, 2007 among Medical Discoveries,
Inc., Richard Palmer, and Mobius Risk Group, LLC (filed as Exhibit
2.2 to
the Company’s Current Report on Form 8-K filed September 17, 2007, and
incorporated herein by reference)
|
| |
|
|
|
3.1
|
|
Amended
and Restated Articles of Incorporation of the Company (filed as Exhibit
3.1 to the Company’s Annual Report on Form 10-KSB for the fiscal year
ended December 31, 1994, and incorporated herein by
reference).
|
| |
|
|
|
3.2
|
|
Amended
Bylaws of the Company (filed as Exhibit 3.2 to the Company’s Annual Report
on Form 10-KSB for the fiscal year ended December 31, 1994, and
incorporated herein by reference).
|
| |
|
|
|
4.1
|
|
Registration
Rights Agreement dated October 18, 2004 among Monarch Pointe Fund,
Ltd.,
Mercator Advisory Group, LLC and Medical Discoveries, Inc. (filed
as
Exhibit 4.1 to the Company’s Annual Report on Form 10-KSB for the fiscal
year ended December 31, 2004, and incorporated herein by
reference).
|
|
4.2
|
|
Registration
Rights Agreement dated December 3, 2004 among Mercator Momentum Fund,
LP,
Mercator Momentum Fund III, LP, Mercator Advisory Group, LLC and
Medical
Discoveries, Inc. (filed as Exhibit 4.2 to the Company’s Annual Report on
Form 10-KSB for the fiscal year ended December 31, 2004, and incorporated
herein by reference).
|
| |
|
|
|
4.3
|
|
Certificate
of Designations of Preferences and Rights of Series A Convertible
Preferred Stock of Medical Discoveries, Inc. (filed as Exhibit 4.1
to
Registration Statement No. 333-121635 filed on Form SB-2 on December
23, 2004, and incorporated herein by reference).
|
| |
|
|
|
4.4
|
|
Amendment
to Certificate of Designations of Preferences and Rights of Series
A
Convertible Preferred Stock of Medical Discoveries, Inc. (filed as
Exhibit
4.2 to Registration Statement No. 333-121635 filed on Form SB-2 on
December 23, 2004, and incorporated herein by
reference).
|
| |
|
|
|
4.5
|
|
Certificate
Of Designation of Preferences and Rights Series B Convertible Preferred
Stock of Medical Discoveries, Inc. (filed as Exhibit 4.1 to the Company’s
Current Report on Form 8-K filed November 13, 2007, and incorporated
herein by reference)
|
| |
|
|
|
10.1
|
|
2002
Stock Incentive Plan adopted by the Board of Directors as of July
11, 2002
(filed as Exhibit 10.5 to the Company’s Quarterly Report on Form 10-QSB
for the quarter ended June 30, 2002, and incorporated herein by
reference).
|
| |
|
|
|
10.2
|
|
Subscription
Agreement dated October 18, 2004 among Monarch Pointe Fund, Ltd.,
Mercator
Advisory Group, LLC, and Medical Discoveries, Inc. (filed as Exhibit
10.2
to Amendment No. 2 to Registration Statement No. 333-121635 filed
on form
SB-2 on June 2, 2005, and incorporated herein by
reference).
|
| |
|
|
|
10.3
|
|
Subscription
Agreement dated December 3, 2004 among Mercator Momentum Fund, LP,
Mercator Momentum Fund III, LP, Mercator Advisory Group, LLC, and
Medical
Discoveries, Inc. (filed as Exhibit 10.3 to Amendment No. 2 to
Registration Statement No. 333-121635 filed on form SB-2 on June
2, 2005,
and incorporated herein by reference).
|
| |
|
|
|
10.4
|
|
Employment
Agreement dated March 1, 2005 between Medical Discoveries, Inc. and
Judy M. Robinett. (filed as Exhibit 10.4 to Amendment No. 3 to
Registration Statement No. 333-121635 filed on Form SB-2 on October
13,
2005, and incorporated herein by reference).
|
| |
|
|
|
10.5
|
|
Definitive
Master Agreement dated as of July 29, 2006, by and between MDI Oncology,
Inc. and Eucodis Forschungs und Entwicklungs GmbH (filed as Exhibit
10.1
to the Company’s Current Report on Form 8-K filed August 3, 2006, and
incorporated herein by reference).
|
| |
|
|
|
10.6
|
|
Loan
and Security Agreement, dated September 7, 2007, between Medical
Discoveries, Inc. and Mercator Momentum Fund III, L.P. (filed as
Exhibit
10.1 to the Company’s Current Report on Form 8-K filed September 17, 2007,
and incorporated herein by reference)
|
| |
|
|
|
10.7
|
|
Consulting
Agreement dated September 7, 2007 between Medical Discoveries, Inc.
and
Mobius Risk Group, LLC (filed as Exhibit 10.2 to the Company’s Current
Report on Form 8-K filed September 17, 2007, and incorporated herein
by
reference)
|
| |
|
|
|
10.8
|
|
Employment
Agreement dated September 7, 2007 between Medical Discoveries, Inc.
and
Richard Palmer (filed as Exhibit 10.3 to the Company’s Current Report on
Form 8-K filed September 17, 2007, and incorporated herein by
reference)
|
| |
|
|
|
10.9
|
|
Release
and Settlement Agreement dated August 31, 2007 between Medical
Discoveries, Inc. and Judy Robinett (filed as Exhibit 10.4 to the
Company’s Current Report on Form 8-K filed September 17, 2007, and
incorporated herein by reference)
|
| |
|
|
|
10.10
|
|
Release
and Settlement Agreement, dated as of October 19, 2007,
by and among the Company, on the one hand, and Mercator
Momentum Fund, LP, Monarch Pointe Fund, Ltd., and Mercator Momentum
Fund
III, LP, on the other hand. (filed as Exhibit 10.1 to the Company’s
Current Report on Form 8-K filed October 26, 2007, and incorporated
herein
by reference)
|
|
10.11
|
|
Form
of Warrant (filed as Exhibit 10.2 to the Company’s Current Report on Form
8-K filed October 26, 2007, and incorporated herein by
reference)
|
| |
|
|
|
10.12
|
|
Securities
Purchase Agreement, dated as of November 6, 2007, by and among Medical
Discoveries, Inc. and the Purchasers (as defined therein) (filed
as
Exhibit 10.1 to the Company’s Current Report on Form 8-K filed November
13, 2007, and incorporated herein by reference)
|
| |
|
|
|
14.1
|
|
Medical
Discoveries, Inc. Code of Conduct*
|
| |
|
|
|
23
|
|
Consent
of Hansen, Barnett & Maxwell. P.C.*
|
| |
|
|
|
31
|
|
Rule
13a-14(a) Certification, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 *
|
| |
|
|
|
32
|
|
Certification
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of
the Sarbanes-Oxley Act of 2002.*
|
ITEM
14. PRINCIPAL
ACCOUNTANT FEES AND SERVICES.
Audit
Fees
The
aggregate fees we paid Hansen, Barnett & Maxwell. P.C. during the fiscal
year ended December 31, 2006 and 2005 for professional services for the audit
of
our financial statements and the review of financial statements included in
our
Forms 10-QSB and SEC filings were $54,199 and $49,831 respectively.
Audit-Related
Fees
Hansen,
Barnett & Maxwell. P.C. did not provide and did not bill and it was not paid
any fees for, audit-related services in the fiscal years ended December 31,
2006
and 2005.
Tax
Fees
Hansen,
Barnett & Maxwell. P.C. did not provide, and did not bill and was not paid
any fees for, tax compliance, tax advice, and tax planning services for the
fiscal years ended December 31, 2006 and December 31, 2005.
All
Other Fees
Hansen,
Barnett & Maxwell. P.C. did not provide, and did not bill and were not paid
any fees for, any other services in the fiscal years ended December 31, 2006
and
2005.
Audit Committee Pre-Approval Policies and Procedures
Consistent
with SEC policies, the Audit Committee charter provides that the Audit Committee
shall pre-approve all audit engagement fees and terms and pre-approve any other
significant compensation to be paid to the independent registered public
accounting firm. No other significant compensation services were performed
for
us by Hansen, Barnett & Maxwell. P.C. during 2006 and 2005.
SIGNATURES
In
accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
| |
|
|
| |
MEDICAL
DISCOVERIES, INC.
|
|
|
|
|
|
By: |
/s/ JUDY
ROBINETT |
| |
Judy
Robinett |
| |
Chief
Executive Officer
|
In
accordance with the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the registrant in the capacities
and
on the dates indicated.
|
Signature
|
|
Title
|
|
Date
|
| |
|
|
|
|
|
/s/
JUDY ROBINETT
|
|
Chief
Executive Officer and interim Chief Financial Officer
|
|
December
6, 2007
|
|
Judy
Robinett
|
|
(Principal
Executive Officer and interim Principal Financial Officer) and
Director
|
|
|
| |
|
|
|
|
| |
|
|
|
|
|
/s/
RICHARD PALMER
|
|
President,
Chief Operating Officer and Director
|
|
December
11, 2007
|
|
Richard
Palmer
|
|
|
|
|
| |
|
|
|
|
| |
|
|
|
|
|
/s/
DAVID WALKER
|
|
Treasurer,
Chairman, the Board of Directors
|
|
December
5, 2007
|
|
David
Walker
|
|
|
|
|
| |
|
|
|
|
| |
|
|
|
|
|
/s/
ERIC MELVIN
|
|
Director
and Secretary
|
|
December
6, 2007
|
|
Eric
Melvin
|
|
|
|
|
| |
|
|
|
|
| |
|
|
|
|
|
/s/
MARTIN SCHROEDER
|
|
Director
|
|
December
11, 2007
|
|
Martin
Schroeder
|
|
|
|
|
