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 November 30, 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 November 30, 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
November 30, 2002 (Unaudited) and May 31, 2002 F-1
Condensed Consolidated Statements of
Operations for the three and six months ended
November 30, 2002 and 2001 (Unaudited) F-2
Condensed Consolidated Statements of Cash Flows
for the six months ended November 30,
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 - 6
Item 3. Controls and Procedures 6
Part II. Other Information 7
PART I - FINANCIAL INFORMATION
Item 1. Financial Information
MEDITECH PHARMACEUTICALS, INC. AND SUBSIDIARY
(Development Stage Companies)
CONDENSED CONSOLIDATED BALANCE SHEETS
November 30,
2002 May 31, 2002
------------- ------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 12,684 $ 31,777
------------ ------------
Total current assets 12,684 31.777
------------ ------------
Property and equipment, net 868 1,413
Other assets, net 10,276 8,230
------------ ------------
$ 23,828 $ 41,420
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued expenses $ 261,390 $ 260,537
Accrued compensation 3,158,853 3,025,353
Advances from affiliates 4,509,346 4,311,648
------------ ------------
Total current liabilities 7,929,589 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 November 30, 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 (16,819,621) (16,460,978)
------------ ------------
Total stockholders' deficit (8,097,061) (7,747,418)
------------ ------------
$ 23,828 $ 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
For The For The For The For The Period May 4,
Three Months Three Months Six Months Six Months 1982 (Date of
Ended Ended Ended Ended Inception) to
November 30, November 30, November 30, November 30, November 30,
2002 2001 2002 2001 2002
-------------- ------------- ------------- ------------- -------------
Revenue $ -- $ -- $ -- $ -- $ 125,000
------------- ------------- ------------- ------------- -------------
Operating expenses:
Research and development -- 21,600 -- 23,400 1,869,450
General and administrative 89,487 125,467 188,154 287,767 13,459,740
Aborted stock offering costs -- -- -- -- 325,400
------------- ------------- ------------- ------------- -------------
89,487 147,067 188,154 311,167 15,654,590
------------- ------------- ------------- ------------- -------------
Loss before other income (expense) (89,487) (147,067) (188,154) (311,167) (15,529,590)
------------- ------------- ------------- ------------- -------------
Other income (expense):
Interest expense (99,957) (91,344) (197,698) (180,744) (3,439,374)
Interest income 58 883 166 2,483 305,656
Other income, net 26,831 5,742 27,043 5,742 108,655
Gain on write-down of accounts payable -- -- -- -- 1,405,232
------------- ------------- ------------- ------------- -------------
Total other income (expense) (73,068) (84,719) (170,489) (172,519) (1,619,831)
------------- ------------- ------------- ------------- -------------
Loss before minority interest (162,555) (231,786) (358,643) (483,686) (17,149,421)
Minority interest -- -- -- -- 329,800
------------- ------------- ------------- ------------- -------------
Net loss $ (162,555) $ (231,786) $ (358,643) $ (483,686) $ (16,819,621)
============= ============= ============= ============= =============
Net loss available to common stockholders
per common share $ (0.00) $ (0.00) $ (0.00) $ (0.00)
============= ============= ============= =============
Basic and diluted weighted average
shares outstanding 153,085,487 150,019,931 153,051,861 149,843,936
============= ============= ============= =============
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 Six For The Six (Date of
Months Ended Months Ended Inception) to
November 30, November 31, November 30,
2002 2001 2002
------------ ------------- -------------
Cash flows from operating activities:
Net loss $ (358,643) $ (483,686) $(16,819,621)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 673 534 139,363
Warrants and options issued to employees,
vendors and consultants -- 6,400 851,000
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 197,698 180,716 3,439,346
Gain on write-down of accounts payable -- -- (1,405,232)
Changes in operating assets and liabilities:
Other assets (2,174) (60,563) (11,314)
Accounts payable and accrued expenses 853 (9,732) 1,595,622
Accrued compensation 133,500 163,503 3,158,853
------------ ------------ ------------
Net cash used in operating activities (28,093) (202,828) (7,251,433)
------------ ------------ ------------
Cash flows used in investing activities:
Purchases of property and equipment -- (393) (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 9,000 118,946 5,187,346
Costs incurred to register securities -- 14,637 (62,336)
Principal payments on advances from stockholder -- -- (43,500)
------------ ------------ ------------
Net cash provided by financing activities 9,000 133,583 7,403,310
------------ ------------ ------------
Net change in cash and cash equivalents (19,093) (69,638) 12,684
Cash and cash equivalents, beginning of period 31,777 161,600 --
------------ ------------ ------------
Cash and cash equivalents, end of period $ 12,684 $ 91,962 $ 12,684
============ ============ ============
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
November 30, 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 and six months ended November 30, 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.
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.
F-4
MEDITECH PHARMACEUTICALS, INC. AND SUBSIDIARY
(Development Stage Companies)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
November 30, 2002 (Unaudited)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ---------------------------------------------------
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 $358,643 during the six months ended November
30, 2002 and $972,073 during the year ended May 31, 2002. In addition, at
November 30, 2002, the Company's deficit accumulated during the development
stage was $16,819,621, and the Company had negative working capital of
$7,916,905. 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.
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.
F-5
MEDITECH PHARMACEUTICALS, INC. AND SUBSIDIARY
(Development Stage Companies)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
November 30, 2002 (Unaudited)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
- --------------------------------------------------------------
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 November 30, 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.
Revenue
- -------
Revenue represents license fees that were recognized when earned over the period
of the applicable license agreement.
F-6
MEDITECH PHARMACEUTICALS, INC. AND SUBSIDIARY
(Development Stage Companies)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
November 30, 2002 (Unaudited)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
- --------------------------------------------------------------
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. 292,000 and 7,853,995 shares
were considered additional common stock equivalents at November 30, 2002 and
2001, respectively. For the three and six months ended November 30, 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
condensed consolidated financial statements in order for them to conform to the
current period presentation. These reclassifications have no effect on
previously reported net loss or stockholders' deficit.
Leases
- ------
Currently, the Company uses its operating facilities, which are provided by its
Chief Executive Officer, without a lease agreement. During the six months ended
November 30, 2002, and the year ended May 31, 2002, the Company incurred
approximately $6,000 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.
F-7
MEDITECH PHARMACEUTICALS, INC. AND SUBSIDIARY
(Development Stage Companies)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
November 30, 2002 (Unaudited)
NOTE 3 - COMMITMENTS AND CONTINGENCIES
- --------------------------------------
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.
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.
F-8
MEDITECH PHARMACEUTICALS, INC. AND SUBSIDIARY
(Development Stage Companies)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
November 30, 2002 (Unaudited)
NOTE 4 - STOCKHOLDERS' DEFICIT
- ------------------------------
During the six months ended November 30, 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.
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. For the six months ended November 30, 2002, no activity has occurred
under this agreement.
F-9
MEDITECH PHARMACEUTICALS, INC. AND SUBSIDIARY
(Development Stage Companies)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
November 30, 2002 (Unaudited)
NOTE 6 - RELATED PARTY TRANSACTIONS
- -----------------------------------
During the six months ended November 30, 2002, the Company paid $6,000 of rent
expense to the Chief Executive Officer.
Since inception, the Company has received advances from Petro-Med, Inc., an
affiliate, to fund its working capital requirements. At November 30, 2002, the
Company maintained short-term advances from affiliates of $4,509,346 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 $197,699 and $180,744
for the six months ended November 30, 2002 and 2001, respectively.
On September 12, 2002, the Company entered into a Memorandum of Understanding
("MOU") under which the Company formed a new company, P&P Research, Inc.
("Newco"). Pursuant to the terms of the 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. As of November 30, 2002, the
Company recorded other income of $25,000 for the consulting services payment
received; however, no shares have yet been issued by Newco.
As of November 30, 2002, P&P was in default in the amount of $50,000.00 on their
payments to Meditech. Further, they had not filed the SB-2 by the dates required
for the issuance of shares to Meditech shareholders. P&P has notified Meditech
that they do not wish to move forward with the terms of the agreement.
Meditech's counsel is in communication with P&P's counsel in an effort to
collect the monies due Meditech under the agreement. The original agreement
provided that if the SB-2 was not filed on time by P&P that the issuance of
shares to the Meditech shareholders would not occur.
As the collection of the remaining consulting fees from Newco is not certain and
P&P is in default of other provisions of the agreement, the Company has not
recorded any receivables in the accompanying condensed consolidated financial
statements nor reflected any transaction related to the formation of Newco or
receipt/issuance of Newco shares.
NOTE 7 - SUBSEQUENT EVENT
- -------------------------
In December 2002, the Company issued options to purchase 2,250,000 shares of its
common stock to employees and stockholders, and 1,250,000 shares to consultants
of the Company, vesting immediately. The exercise price for each option is the
closing price of the Company's common stock the date of grant and will expire in
December 2007. Pursuant to SFAS No. 123, the Company will record consulting
expense of approximately $13,000 for the options issued to consultants.
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 November 30, 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 six months ended
November 30, 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 $358,643
during the six months ended November 30, 2002, had a cash balance of $12,684,
and a deficit accumulated during the development stage of $16,819,621 as of
November 30, 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 NOVEMBER 30, 2002 AND 2001
Revenues
- --------
There were no revenues for the three months ended November 30, 2002 and 2001.
Research and Development Costs
- ------------------------------
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.
We incurred research and development costs of $0 for the three months ended
November 30, 2002 as compared with $21,600 for the three months ended November
30, 2001. The costs incurred during the three months ended November 30, 2001
were due to additional testing done on potential product offerings.
General and Administrative Expenses
- -----------------------------------
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 substantial portion of our
operating expenses and are relatively fixed in advance of each quarter.
Total general and administrative expenses were $89,487 for the three months
ended November 30, 2002, as compared with $125,467 for the three months ended
November 30, 2001. The decrease was primarily due to additional salaries, legal,
travel and consulting expenses recognized during the three months ended November
30, 2001.
Interest Expense
- ----------------
Interest expense was $99,958 for the three months ended November 30, 2002, as
compared to $91,344 for the three months ended November 30, 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.
Other Income
- ------------
Other income was $26,831 for the three months ended November 30, 2002, as
compared to $5,742 for the three months ended November 30, 2001. This increase
was mainly due to $25,000 of consulting services payment received during the
three months ended November 30, 2002.
4
Net Loss
- --------
As a result of the above, net loss was $162,555 for the three months ended
November 30, 2002, as compared to $231,786 for the three months ended November
30, 2001.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED NOVEMBER 30, 2002 AND 2001
Revenues
- --------
There were no revenues for the six months ended November 30, 2002 nor were there
any for the six months ended November 30, 2001.
Research and Development
- ------------------------
Research and development consists of laboratory expenses, consulting expenses,
tests expenses, clinical and research salaries, and other costs associated with
the development of products not yet being marketed.
We incurred research and development costs of $0 for the six months ended
November 30, 2002 as compared with $23,400 for the six months ended November 30,
2001. The costs incurred during the six months ended November 30, 2001 were due
to additional testing done on potential product offerings.
General and Administrative Expenses
- -----------------------------------
General and administrative expenses include the salaries and benefits 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 substantial portion of our
operating expenses and are relatively fixed in advance of each quarter.
General and administrative expenses were $188,154 for the six months ended
November 30, 2002, as compared with $287,767 for the six months ended November
30, 2001. The decrease was primarily due to additional salaries, legal, travel
and consulting expenses recognized during the six months ended November 30,
2001.
Interest Expense
- ----------------
Interest expense was $197,699 for the six months ended November 30, 2002, as
compared to $180,744 for the six months ended November 30, 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.
Other Income
- ------------
Other income was $27,043 for the six months ended November 30, 2002, as compared
to $5,742 for the six months ended November 30, 2001. This increase was mainly
due to $25,000 of consulting services payment received during the six months
ended November 30, 2002.
Net Loss
- --------
As a result of the above, net loss was $358,643 for the six months ended
November 30, 2002, as compared to $483,686 for the six months ended November 30,
2001.
5
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 $12,684 at November 30, 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 $28,093 as compared to
$202,828 in the fiscal 2002 period, mainly due to a reduction in net loss as
described above.
There was no cash used or provided by investing activities in the fiscal 2003 as
compared to $393 in the 2002 fiscal period.
Net cash provided by financing activities in the fiscal 2003 period was $9,000
compared to $133,583 in the fiscal 2002 period. The decrease of $124,583 is due
to cash received on collection of subscriptions receivable (sale of common
stock) of $118,946 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 November 30, 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 Proceedings
As of November 15, 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 that evaluation, the Company's management,
including the CEO and CFO, concluded that the Company's disclosure controls and
procedures were effective as of that date. There have been no significant
changes in the Company's internal controls or in other factors that could
significantly affect internal controls subsequent to November 15, 2002.
6
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable.
Item 2. Change in Securities
During the six months ended November 30, 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/ Gerald Kern January 14, 2003
- ------------------- ----------------
Gerald Kern, Chief Executive Officer
7
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 ended November 30, 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 received 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 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 other 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
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: January 14, 2003
/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 ended November 30, 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 received 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 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 other 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
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: January 14, 2003
/s/ Steven Kern
- ----------------------------------
Steven Kern
Chief Financial Officer
9