U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF
1934
For the quarterly period ended August 31, 2002.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 000-12561
MEDITECH PHARMACEUTICALS, INC.
------------------------------
(Exact name of small business issuer as specified in its charter)
Nevada 95-3819300
------ ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
PMB 382, 10105 E. Via Linda, #103, Scottsdale, AZ 85258
- ------------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (480) 614-2874
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes x No
--- ---
On August 31, 2002, there were 153,085,487 shares of the issuer's Common
Stock outstanding.
Transitional Small Business Disclosure Format (check one): Yes No x
--- ---
MEDITECH PHARMACEUTICALS, INC. AND SUBSIDIARY
(Development Stage Companies)
INDEX
Page
----
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at
August 31, 2002 (Unaudited) and May 31, 2002 F-1
Condensed Consolidated Statements of
Operations for the three months ended August 31,
2002 and 2001 (Unaudited) F-2
Condensed Consolidated Statements of Cash Flows
for the three months ended August 31, 2002 and
2001 (Unaudited) F-3
Notes to Condensed Consolidated Financial Statements F-4 - F-10
Item 2. Management's Discussion and Analysis or Plan of Operation 3 - 5
Item 3. Controls and Procedures 5
Part II. Other Information 6
PART I - FINANCIAL INFORMATION
Item 1. Financial Information
MEDITECH PHARMACEUTICALS, INC. AND SUBSIDIARY
(Development Stage Companies)
CONDENSED CONSOLIDATED BALANCE SHEETS
August 31,
2002 May 31, 2002
------------ ------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 25,115 $ 31,777
------------ ------------
Total current assets 25,115 31,777
------------ ------------
Property and equipment, net 1,141 1,413
Other assets, net 8,639 8,230
------------ ------------
$ 34,895 $ 41,420
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued expenses $ 261,609 $ 260,537
Accrued compensation 3,107,103 3,025,353
Advances from affiliates 4,409,389 4,311,648
------------ ------------
Total current liabilities 7,778,101 7,597,538
------------ ------------
Minority interest in consolidated subsidiary 191,300 191,300
------------ ------------
Commitments and contingencies
Stockholders' deficit:
Preferred stock, $0.001 par value; 25,000,000 shares
authorized; no shares issued and outstanding -- --
Common stock, $0.001 par value; 400,000,000
shares authorized; 153,085,487 and 152,725,487
shares issued and outstanding at August 31, 2002
and May 31, 2002, respectively 153,072 152,712
Subscriptions receivable (165,000) (165,000)
Additional paid-in capital 8,734,488 8,725,848
Deficit accumulated during the development stage (16,657,066) (16,460,978)
------------ ------------
Total stockholders' deficit (7,934,506) (7,747,418)
------------ ------------
$ 34,895 $ 41,420
============ ============
The accompanying notes are an integral part
of these financial statements
F-1
MEDITECH PHARMACEUTICALS, INC. AND SUBSIDIARY
(Development Stage Companies)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For The Period
May 4, 1982
(Date of
For The Three For The Three Inception) to
Months Ended Months Ended August 31,
August 31, 2002 August 31, 2001 2002
--------------- --------------- -------------
Revenue $ -- $ -- $ 125,000
------------- ------------- -------------
Operating expenses:
Research and development -- 1,800 1,869,450
General and administrative 98,667 162,300 13,370,253
Aborted stock offering costs -- -- 325,400
------------- ------------- -------------
Total operating expenses 98,667 164,100 15,565,103
------------- ------------- -------------
Loss before other income (expense) (98,667) (164,100) (15,440,103)
------------- ------------- -------------
Other income (expense):
Interest expense (97,741) (89,400) (3,339,416)
Interest income 108 1,600 305,597
Other income, net 212 -- 81,824
Gain on write-down of accounts payable -- -- 1,405,232
------------- ------------- -------------
Total other income (expense) (97,421) (87,800) (1,546,763)
------------- ------------- -------------
Loss before minority interest (196,088) (251,900) (16,986,866)
Minority interest -- -- 329,800
------------- ------------- -------------
Net loss $ (196,088) $ (251,900) $ (16,657,066)
============= ============= =============
Net loss available to common stockholders
per common share $ (0.00) $ (0.00)
============= =============
Basic and diluted weighted average shares
outstanding 153,018,234 $ 149,657,630
============= =============
The accompanying notes are an integral part
of these financial statements
F-2
MEDITECH PHARMACEUTICALS, INC. AND SUBSIDIARY
(Development Stage Companies)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For The Period
May 4, 1982
For The Three For The Three (Date of
Months Ended Months Ended Inception) to
August 31, August 31, August 31,
2002 2001 2002
-------------- ------------- ------------
Cash flows from operating activities:
Net loss $ (196,088) $ (251,900) $(16,657,066)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 337 200 139,027
Warrants and options issued to employees,
vendors and consultants -- -- 851,000
Minority interest in losses of subsidiary -- -- (329,800)
Stock issued to employees, vendors and
consultants -- -- 1,667,300
Contributed services -- -- 463,050
Accrued interest on advances from affiliates 97,741 89,300 3,339,389
Gain on write-down of accounts payable -- -- (1,405,232)
Changes in operating assets and liabilities:
Other assets (474) (38,500) (9,614)
Accounts payable and accrued expenses 1,072 26,700 1,595,841
Accrued compensation 81,750 81,800 3,107,103
------------ ------------ ------------
Net cash used in operating activities (15,662) (92,400) (7,239,002)
------------ ------------ ------------
Cash flows used in investing activities:
Purchases of property and equipment -- -- (139,193)
------------ ------------ ------------
Cash flows from financing activities:
Proceeds from advances from affiliates, net -- -- 2,250,800
Proceeds from loan payable -- -- 71,000
Proceeds from sale of stock and exercise of -
options, net 9,000 48,400 5,187,346
Costs incurred to register securities -- 14,700 (62,336)
Principal payments on advances from stockholder -- -- (43,500)
------------ ------------ ------------
Net cash provided by financing activities 9,000 63,100 7,403,310
------------ ------------ ------------
Net change in cash and cash equivalents (6,662) (29,300) 25,115
Cash and cash equivalents, beginning of period 31,777 161,600 --
------------ ------------ ------------
Cash and cash equivalents, end of period $ 25,115 $ 132,300 $ 25,115
============ ============ ============
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ -- $ -- $ --
============ ============ ============
Income taxes $ -- $ -- $ --
============ ============ ============
The accompanying notes are an integral part
of these financial statements
F-3
MEDITECH PHARMACEUTICALS, INC. AND SUBSIDIARY
(Development Stage Companies)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
August 31, 2002 (Unaudited)
NOTE 1 - DESCRIPTION OF BUSINESS
- --------------------------------
Meditech Pharmaceuticals, Inc. ("Meditech") is a drug development company, which
is focused in the areas of research, development and marketing in the biomedical
industry, with an emphasis on anti-infective drugs. Meditech was incorporated in
Nevada on March 21, 1983. Since then, it has been engaged in research and
development activities associated with bringing its products to market.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ---------------------------------------------------
Basis of Presentation
- ---------------------
The accompanying condensed consolidated financial statements have been prepared
by Meditech pursuant to the rules and regulations of the Securities and Exchange
Commission. The information furnished herein reflects all adjustments
(consisting of normal recurring accruals and adjustments) which are, in the
opinion of management, necessary to fairly represent the operating results for
the respective periods. Certain information and footnote disclosures normally
present in the annual consolidated financial statements prepared in accordance
with accounting principles generally accepted in the United States of America
have been omitted pursuant to such rules and regulations. The results of the
three months ended August 31, 2002 are not necessarily indicative of the results
to be expected for the full year ending May 31, 2003.
Principles of Consolidation
- ---------------------------
The condensed consolidated financial statements include the accounts of Meditech
and its 37% owned and controlled subsidiary Viral Research Technologies, Inc.
("Viral") (collectively, the "Company"). All significant intercompany
transactions and balances have been eliminated in consolidation.
Development Stage Enterprise
- ----------------------------
The Company is a development stage company as defined in Statement of Financial
Accounting Standards ("SFAS") No. 7, "Accounting and Reporting by Development
Stage Enterprises." The Company is devoting substantially all of its present
efforts to establish a new business, and its planned principal operations have
not yet commenced.
F-4
MEDITECH PHARMACEUTICALS, INC. AND SUBSIDIARY
(Development Stage Companies)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
August 31, 2002 (Unaudited)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ---------------------------------------------------
The Company has not generated significant revenues from operations and has no
assurance of any future revenues. All losses accumulated since inception have
been considered as part of the Company's development stage activities. The
Company will require substantial additional funding for continuing research and
development, obtaining regulatory approval and for the commercialization of its
products. There is no assurance that the Company will be able to obtain
sufficient additional funds when needed, or that such funds will be obtainable
on terms satisfactory to the Company. The Company's products, to the extent they
may be deemed medical devices or biologics, are governed by the Federal Food,
Drug and Cosmetics Act and by the regulations of state agencies and various
foreign government agencies. There can be no assurance that the Company will
maintain or obtain the regulatory approvals required to market its products.
Going Concern
- -------------
The accompanying condensed consolidated financial statements have been prepared
in conformity with accounting principles generally accepted in the United States
of America, which contemplate continuation of the Company as a going concern.
The Company incurred a net loss of $196,088 during the three months ended August
31, 2002 and $972,073 during the year ended May 31, 2002. In addition, at August
31, 2002, the Company had an accumulated deficit of $16,657,066, and had
negative working capital of $7,752,986. Management recognizes that the Company
must generate additional resources for the eventual achievement of sustained
profitable operations. Management's plans include obtaining additional capital
through equity financing and the extension of existing debt. However, no
assurance can be given that additional capital, if needed, will be available
when required or upon terms acceptable to the Company or that the Company will
be successful in its efforts to negotiate the extension of its existing debt.
The accompanying condensed consolidated financial statements do not include any
adjustments relating to the recoverability and classification of asset carrying
amounts or the amount and classification of liabilities that might result from
the outcome of this uncertainty that might be necessary if the Company is unable
to continue as a going concern.
Estimates
- ---------
The preparation of the financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosures of contingent assets and liabilities at
the date of the financial statements, as well as the reported amounts of
revenues and expenses during the reporting period. Significant estimates made by
management include, among others, the realizability of deferred tax assets.
Actual results could differ from those estimates.
F-5
MEDITECH PHARMACEUTICALS, INC. AND SUBSIDIARY
(Development Stage Companies)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
August 31, 2002 (Unaudited)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
- --------------------------------------------------------------
Cash and Cash Equivalents
- -------------------------
The Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents.
Impairment of Long-Lived Assets
- -------------------------------
The Company reviews its long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying value of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of the assets to future net cash flows
expected to be generated by the assets. If the assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which the
carrying amount exceeds the fair value of the assets. Based on its analysis, the
Company believes that no impairment of the carrying value on its long-lived
assets exists at August 31, 2002. There can be no assurance, however, that
market conditions will not change or demands for the Company's products will
continue which could result in impairment on long-lived assets in the future.
Minority Interest in Consolidated Subsidiary
- --------------------------------------------
Viral, a Nevada corporation and an inactive public shell, is a consolidated
subsidiary as it is effectively controlled by the Company and is economically
dependent on the Company to fund its continuing operations. Amounts recorded in
the minority interest on the accompanying condensed consolidated balance sheet
represent the pro rata portion of Viral's equity attributable to minority
stockholders.
Stock-Based Compensation
- ------------------------
The Company accounts for non-employee stock-based compensation under SFAS No.
123, "Accounting for Stock-Based Compensation." SFAS No. 123 defines a fair
value based method of accounting for stock-based compensation. However, SFAS No.
123 allows an entity to continue to measure compensation cost related to stock
and stock options issued to employees using the intrinsic method of accounting
prescribed by Accounting Principles Board Opinion No. 25 ("APB 25"), "Accounting
for Stock Issued to Employees," as amended. Under APB 25, compensation cost, if
any, is recognized over the respective vesting period based on the difference,
on the date of grant, between the fair value of the Company's common stock and
the grant price. Entities electing to remain with the accounting method of APB
25 must make pro forma annual disclosures of net income (loss) and earnings per
share, as if the fair value method of accounting defined in SFAS No. 123 had
been applied. The Company has elected to account for its stock-based
compensation to employees under APB 25.
F-6
MEDITECH PHARMACEUTICALS, INC. AND SUBSIDIARY
(Development Stage Companies)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
August 31, 2002 (Unaudited)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
- --------------------------------------------------------------
Revenue
- -------
Revenue represents license fees that were recognized when earned over the period
of the applicable license agreement.
Income Taxes
- ------------
The Company recognizes deferred tax assets and liabilities for the tax
consequences in future years of differences between the tax bases of assets and
liabilities and their financial statement carrying amounts at each period end
based on enacted tax laws and statutory tax rates applicable to the periods in
which the temporary differences are expected to affect taxable income. A
valuation allowance is provided for significant deferred tax assets when it is
more likely than not that such assets will not be recovered.
Loss Per Share
- --------------
Basic loss per share is computed by dividing loss available to common
stockholders by the weighted-average number of common shares outstanding.
Diluted loss per share is computed similar to basic loss per share except that
the denominator is increased to include the number of additional common shares
that would have been outstanding if the potential common shares had been issued
and if the additional common shares were dilutive. 346,152 and 1,147,166 shares
were considered additional common stock equivalents at August 31, 2002 and 2001,
respectively. For the three months ended August 31, 2002 and 2001, the Company
incurred net losses; therefore, potential common shares are ignored as their
effect would be anti-dilutive.
Segments of an Enterprise and Related Information
- -------------------------------------------------
As the Company operates in one segment, the Company has not made segment
disclosures in the accompanying condensed consolidated financial statements.
Reclassifications
- -----------------
Certain reclassifications have been made to prior period amounts in the
consolidated financial statements in order for them to conform to the current
period presentation.
F-7
MEDITECH PHARMACEUTICALS, INC. AND SUBSIDIARY
(Development Stage Companies)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
August 31, 2002 (Unaudited)
NOTE 3 - COMMITMENTS AND CONTINGENCIES
- --------------------------------------
Leases
- ------
Currently, the Company uses its operating facilities, which are provided by its
Chief Executive Officer, without a lease agreement. During the three months
ended August 31, 2002, and the year ended May 31, 2002, the Company incurred
approximately $3,000 and $12,000, respectively, of rent expense related to this
lease. There is no guarantee the officer will be willing to provide these
facilities in the future.
Employment Agreements
- ---------------------
The Company entered into employment agreements dated February 3, 2000 (amended
on May 3, 2001) with two of its officers. The agreements are for a three-year
term terminating on March 15, 2003 and provide for a combined base salary of
$270,000 per annum for the first year with an increase at least equal to the
consumer price index over each succeeding year. The agreements also provide for
annual bonuses based on certain performance goals and a severance payment based
on two years of base salary and bonus, as defined, upon termination without
cause or change of control of the Company. Additionally, on August 9, 2001, the
Company granted to its officers options to purchase a total of 44,900,000 shares
of common stock exercisable at $0.056 per share and vesting immediately on the
date of grant. No compensation expense was recognized for the granting of these
options as the exercise price was equal to the market price on the date of
grant.
Litigation
- ----------
The Company may become involved in various legal proceedings and claims which
arise in the ordinary course of its business. Management does not believe that
these matters will have a material adverse effect on the Company's consolidated
position or results of operations.
License Agreement
- -----------------
On February 3, 2000, the Company received $25,000 from Immune Network Research,
Ltd. ("INR"), a Canadian pharmaceutical development company, under a letter of
intent. The payment was made for a one-year irrevocable option granting the
right to negotiate for an exclusive license for pharmaceutical applications
worldwide outside of the United States. The Company then received an additional
$100,000 from INR in anticipation of a definitive agreement. Under the terms of
the letter, if an agreement was reached, the Company would issue an option to
INR for up to 10,000,000 shares of common stock, exercisable at $0.03 per share.
In return, the Company would receive royalties equal to 7% of net sales for all
MTCH-24(TM) products sold and 4% of net sales for all Viraplex(R) products sold
by INR. The option was valued at $400,000 using the Black-Scholes option-pricing
model, and was recorded as an operating expense on the date granted.
F-8
MEDITECH PHARMACEUTICALS, INC. AND SUBSIDIARY
(Development Stage Companies)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
August 31, 2002 (Unaudited)
NOTE 3 - COMMITMENTS AND CONTINGENCIES, continued
- -------------------------------------------------
On May 25, 2001, the Company and INR entered into a definitive licensing
agreement, which terminated the letter of intent. Under this licensing agreement
the Company assigned its rights and interests in two applications of its
proprietary products. In consideration for the assignment, INR agreed to pay a
royalty equal to 2% of the gross worldwide sales of each of the products. The
term of the royalty is the longer of 10 years or the life of any patent based on
the products. The Company has not yet recognized any licensing revenue related
to this agreement.
NOTE 4 - STOCKHOLDERS' DEFICIT
- ------------------------------
During the three months ended August 31, 2002, the Company issued 360,000 shares
of restricted common stock to a third party for cash proceeds of $9,000.
NOTE 5 - INVESTMENT AGREEMENT
- -----------------------------
On June 30, 2000, and subsequently amended on February 15, 2001, the Company
entered into an investment agreement with Swartz Private Equity, LLC ("Swartz").
The investment agreement entitles the Company to issue and sell common stock to
Swartz in the form of put rights for up to an aggregate of $30,000,000 from time
to time during a three-year period beginning on the date of an effective
registration statement which was May 3, 2001.
Under the agreement, in order to invoke a put right, the Company must provide
Swartz with at least 10 but not more than 20 business days advance notice of the
date on which the Company intends to exercise a put right and must indicate the
number of shares of common stock the Company intends to sell to Swartz. The
Company may also designate a maximum dollar amount of common stock (not to
exceed $2,000,000), which the Company will sell to Swartz during the put and/or
a minimum purchase price per common share at which Swartz may purchase shares
during the put. The number of shares of common stock sold to Swartz in a put may
not exceed the lesser of (i) 1,500,000 shares; (ii) 15% of the aggregate daily
reported trading volume of the Company's common shares, excluding certain block
trades, during the 20 business days after the date of a put notice, with certain
restrictions; (iii) 15% of the aggregate daily reported trading volume of the
Company's common shares during the 20 business days before the put date,
excluding certain block trades; or (iv) a number of shares that, when added to
the number of shares acquired by Swartz under the investment agreement during
the 31 days preceding the put date, would exceed 9.99% of the total number of
shares of common stock outstanding.
F-9
MEDITECH PHARMACEUTICALS, INC. AND SUBSIDIARY
(Development Stage Companies)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
August 31, 2002 (Unaudited)
NOTE 5 - INVESTMENT AGREEMENT, continued
- ----------------------------------------
For each common share, Swartz will pay the Company the lesser of (i) the market
price for such put, minus $0.075 or (ii) 91% of the market price for the put.
Further, under the provisions of the agreement, during the term of the
investment agreement and for a period of one year thereafter, the Company is
prohibited from engaging in certain financing transactions involving the
Company's equity securities.
During the year ended May 31, 2002, the Company exercised a put option
pursuant to the investment agreement for 1,157,000 shares of its common stock
for total cash proceeds of $70,542. The Company had originally put (and
transferred) 5,000,000 shares of its common stock to the investor. The Company
is to receive back 3,843,000 shares which were not sold due to certain volume
restrictions of the investment. The Company has presented these shares as
treasury shares with no cost.
NOTE 6 - RELATED PARTY TRANSACTIONS
- -----------------------------------
During the three months ended August 31, 2002, the Company accrued $3,000 of
rent payable to the Chief Executive Officer in accounts payable and accrued
expenses in the accompanying condensed consolidated balance sheet.
Since inception, the Company has received advances from Petro-Med, Inc., an
affiliate, to fund its working capital requirements. At August 31, 2002, the
Company maintained short-term advances from affiliates of $4,409,389 which are
due on demand. Accrued interest is attributed to and included in the outstanding
balance as incurred. The advances bear interest at 9% per annum on any
outstanding balance. Interest expense on the advances was $97,741 and $89,400
for the three months ended August 31, 2002 and 2001, respectively.
NOTE 7 - SUBSEQUENT EVENT
- -------------------------
On September 12, 2002, the Company entered into Memorandum of Understanding
("MOU") under which the Company formed a new company, P&P Research, Inc.
("Newco"). Pursuant to the terms of MOU, Newco will issue 1,157,890 shares of
common stock to the Company (representing a 5% interest in Newco) and 22,000,000
shares of common stock to acquire the assets of P&P Research, Inc., a Korean
company ("P&P"). The Company will set up a dividend trust for purposes of
distributing such shares to the Company's shareholders. All fees incurred in
connection with the filing and formation of Newco were paid by P&P. The Company
and Newco also entered into a business consulting agreement pursuant to which
the Company will provide consulting services to Newco for a fee of $25,000 per
month for a term of not less than three months.
F-10
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
You should read the following discussion of our financial condition and
operations in conjunction with the condensed consolidated financial statements
and the related notes included elsewhere in this filing. This discussion
contains forward-looking statements that involve risks and uncertainties. Our
actual results may differ materially from those anticipated in these
forward-looking statements as a result of many factors.
OVERVIEW
We are a drug development company, founded in 1982, focused in the areas of
research, development, and marketing in the biomedical industry, with an
emphasis on anti-infective drugs. The Company has completed various stages of
planning and developing products containing its proprietary drugs Viraplex(R)
and MTCH-24(TM).
Our development activities since inception (May 4, 1982) have included efforts
to secure financing, create a management and business structure, and develop and
test Viraplex(R) and MTCH-24(TM) for release as both over-the-counter ("OTC")
and ethical products. These activities have produced very little in operating
revenues.
Since we became a public company, our operations have related primarily to
research and development, securing our patents, initiating and continuing
clinical tests, recruiting personnel and raising capital. In 1987, we halted
testing of our products and significantly reduced our research and development
efforts due to a lack of funding. From 1987 through late-1999, we had very
limited operations, and conducted minimal research and development in order to
keep our existing projects active. During our period of inactivity, most of the
costs incurred by the Company related to general and administrative expenses,
primarily executive compensation which was accrued but not paid and stock-based
compensation, and other minimal operating costs to keep the Company and its
products afloat pending a financing. In late-1999, in anticipation of our
financing arrangement with Swartz Private Equity, LLC "Swartz"), we gradually
restarted research and development efforts and minimal testing of our products.
Through August 31, 2002, we have derived our revenues from the sale of a license
option to Immune Network Research, Ltd. ("INR") to develop and market our
patented products.
GOING CONCERN
Our condensed consolidated financial statements for the three months ended
August 31, 2002 and the fiscal year ended May 31, 2002 were prepared on a going
concern basis, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. As shown in our condensed
consolidated financial statements, we experienced a loss of $196,088 during the
three months ended August 31, 2002, had a cash balance of $25,115, and an
accumulated deficit of $16,657,066 as of August 31, 2002. These factors, among
others, raise substantial doubt about our ability to continue as a going
concern.
3
We must raise additional funds in order to actively reinstate our research and
development efforts, to complete existing product testing, which was suspended
in 1987, or commence new testing on such product, and to conduct additional
testing on our products. We intend to obtain the necessary financing through our
Investment Agreement with Swartz. There can be no assurance that we will be
successful in raising from Swartz sufficient additional capital in order to
continue and complete our research and development and testing. Our future
success is dependent upon raising additional money to provide for the necessary
operations of the Company. If we are unable to obtain such additional financing,
there would be a material adverse effect on our business, financial position,
and results of operations. Our continuation as a going concern is dependent on
our ability to generate sufficient capital to meet our obligations on a timely
basis, and to continue and complete our research and development and testing
efforts. However, no assurance can be given that additional capital, if needed,
will be available when required or upon terms acceptable to the Company.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED AUGUST 31, 2002 AND 2001
Revenues
- --------
There were no revenues for the three months ended August 31, 2002 and 2001.
Operating Expenses
- ------------------
Our expenses include research and development and general and administrative.
Research and development consists of laboratory expenses, consulting expenses,
test expenses, clinical and research salaries, and other costs associated with
the development of products not yet being marketed. General and administrative
expenses include the salaries and benefit costs of management and other
non-manufacturing employees, sales and marketing expenses, rent, accounting,
legal and operational costs. Personnel compensation, professional fees, and
facilities costs represent a higher percentage of our operating expenses and are
relatively fixed in advance of each quarter.
Research and Development Costs
- ------------------------------
We incurred research and development costs of $0 for the three months ended
August 31, 2002 as compared with $1,800 for the three months ended August 31,
2001.
General and Administrative Expenses
- -----------------------------------
Direct costs were $98,667 for the three months ended August 31, 2002, as
compared with $162,300 for the three months ended August 31, 2001. The decrease
was primarily due to additional legal and accounting expenses recognized during
the three months ended August 31, 2001.
Interest Expense
- ----------------
Interest expense was $97,741 for the three months ended August 31, 2002 as
compared to $89,400 for the three months ended August 31, 2001. This increase
was due to the additional interest on accrued debt. This interest is accrued at
a rate of 9% simple interest per annum on funds advanced to the Company by
Petro-Med Inc. The Company's Chief Executive Officer, Gerald N. Kern, also
serves as Chairman of Petro-Med Inc.
4
Net Loss
- --------
Net loss was $196,088 for the three months ended August 31, 2002 as compared to
$251,900 for the three months ended August 31, 2001. The decrease in net loss
was due to the decrease in legal and accounting expenses during the three months
ended August 31, 2002.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have funded our operations and investments in property and
equipment through cash from equity financings and cash from licensing fees.
Our cash and cash equivalents were $25,115 at August 31, 2002 (down from $31,777
at May 31, 2002). This decrease was due to a lack of cash in flow from
contributed capital.
Net cash used in operations in the fiscal 2003 period was $15,662 compared to
$92,400 in the fiscal 2002 period. More cash was used in operations in the 2002
fiscal period for payment of legal and accounting expenses.
There was no cash used or provided by investing activities in the fiscal 2003
and 2002 period.
Net cash provided by financing activities in the fiscal 2003 period was $9,000
compared to $63,100 in the fiscal 2002 period. The decrease of $54,100 is due to
cash received on collection of subscriptions receivable (sale of common stock)
of $48,400 and $14,700 of reimbursed securities registration fees in the fiscal
2002 period, partially offset by proceeds of $9,000 from sale of common stock in
the fiscal 2003 period.
On June 30, 2000, we entered into an investment agreement with Swartz Private
Equity, LLC which was amended and restated on February 15, 2001. The investment
agreement entitles us to issue and sell our common shares to Swartz for up to an
aggregate of $30 million from time to time during a three-year period beginning
on the date that this registration statement became effective, which was May 4,
2001. This is also referred to as a put right. The trading volume limits the
dollar amount of each sale and a minimum period of time must occur between
sales. In order to sell shares to Swartz, there must be an effective
registration statement on file with the SEC covering the resale of the shares by
Swartz and we must meet certain other conditions. The agreement is for a
three-year period ending June 30, 2003. Through August 31, 2002, we have
received $118,946 from Swartz under this agreement.
We have incurred recurring operating losses and negative cash flows from
operating activities and have negative working capital. We believe that our
available equity financing arrangement with Swartz will be sufficient to meet
our working capital and capital expenditure requirements for at least the next
two years. However, there can be no assurance that we will receive financing
from Swartz, that we will not require additional financing within this time
frame or that such additional financing, if needed, will be available on terms
acceptable to us, if at all.
Item 3. Controls and Procedures
As of October 1, 2002, an evaluation was performed under the supervision and
with the participation of the Company's management, including the CEO and CFO,
of the effectiveness of the design and operation of the Company's disclosure
controls and procedures. Based on the that evaluation, the Company's management,
including the CEO and CFO, concluded that the Company's disclosure controls and
procedures were effective as of October 1, 2002. There have been no significant
changes in the Company's internal controls or in other factors that could
significantly affect internal controls subsequent to October 1, 2002.
5
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable.
Item 2. Change in Securities
During the three months ended August 31, 2002, we issued 360,000 shares of
restricted common stock to an outside individual for cash proceeds of
$9,000.
No underwriter was involved in the above issuance of securities. The above
securities were issued in reliance upon the exemptions set forth in Section
4(2) of the Securities Act of 1933 on the basis that they were issued under
circumstances not involving a public offering.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
The following exhibits are included herein:
99.1 Certification of Chief Executive Officer.
99.2 Certification of Chief Financial Officer.
Form 8-Ks filed under Item 5 - Other Events
On September 16, 2002, Meditech Pharmaceuticals, Inc., ("Meditech") filed a
report on Form 8-K relating to a press release it issued to announce that it
entered into a binding memorandum of understanding with P&P Research of Seoul,
South Korea, ("P&P Research") under which Agreement Meditech will, amongst other
matters, assist P&P Research with the formation of a new corporation in the
state of California and act as a consultant to this new corporation.
Signature(s)
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Meditech Pharmaceuticals, Inc.
(Registrant)
By: /s/ Steven Kern October 10, 2002
- ------------------- ----------------------
Steven Kern, Chief Financial Officer
6
CERTIFICATION BY CHIEF EXECUTIVE OFFICER UNDER SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Meditech Pharmaceuticals, Inc.
on Form 10-QSB for the quarter ending August 31, 2002, as filed with the
Securities and Exchange Commission on the date hereof, I, Gerald N. Kern, Chief
Executive Officer of the Company, certify, pursuant to and for purposes of 18
U.S.C Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002, that:
1. I have reviewed this quarterly report on Form 10-QSB of Meditech
Pharmaceuticals, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
7
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: October 15, 2002
/s/ Gerald N. Kern
--------------------------------------
Gerald N. Kern
Chief Executive Officer
8
CERTIFICATION BY CHIEF FINANCIAL OFFICER UNDER SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Meditech Pharmaceuticals, Inc.
on Form 10-QSB for the quarter ending August 31, 2002, as filed with the
Securities and Exchange Commission on the date hereof, I, Steven Kern, Chief
Financial Officer of the Company, certify, pursuant to and for purposes of 18
U.S.C Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002, that:
1. I have reviewed this quarterly report on Form 10-QSB of Meditech
Pharmaceuticals, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
9
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: October 15, 2002
/s/ Steven Kern
---------------------------
Steven Kern
Chief Financial Officer
10