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, 2004.
[ ] 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 REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEVADA 95-3819300
- --------------- -------------------
(STATE OR OTHER (I.R.S.EMPLOYER
JURISDICTION OF IDENTIFICATION NO.)
ORGANIZATION)
10105 E. VIA LINDA, #103, PMB-382
SCOTTSDALE, AZ 85258
-------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(480) 614-2874
--------------------------------------------------
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, $ .001 PAR VALUE
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 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, 2004, THERE WERE 352,185,487 SHARES OF THE ISSUER'S COMMON STOCK
OUTSTANDING.
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE): YES NO X
----- -----
DOCUMENTS INCORPORATED BY REFERENCE
NONE.
INDEX
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at
November 30, 2004 (Unaudited) and May 31, 2004 F-1
Condensed Consolidated Statements of Operations
for the three months ended November 30, 2004 and
2003 (Unaudited) F-2
Condensed Consolidated Statements of Cash Flows
for the three months ended November 30, 2004 and
2003 (Unaudited) F-3
Notes to Condensed Consolidated Financial Statements F-4-F-9
Item 2. Management's Discussion and Analysis or Plan of Operation
Item 3. Control and Procedures
Item 4. Other Information
MEDITECH PHARMACEUTICALS, INC. AND SUBSIDIARY
(Development Stage Companies)
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
=====================================================================================
November 30, May 31,
2004 2004
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $ 17,723 $ 58,964
Other current assets 3,166 --
------------ ------------
Total current assets 20,889 58,964
------------ ------------
Property and equipment
Property and equipment 5,366 5,366
Less: accumulated depreciation (4,803) (4,508)
------------ ------------
Total property and equipment, net 563 858
------------ ------------
Other assets 7,320 7,448
------------ ------------
Total assets $ 28,773 $ 67,270
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued expenses 246,047 257,893
Accrued compensation 3,551,103 3,493,187
Note Payable 10,000 --
Advances from affiliates -- 4,509,346
------------ ------------
Total current liabilities 3,807,149 8,260,426
------------ ------------
Minority interest in consolidated subsidiary 191,300 191,300
------------ ------------
Commitments and contigencies
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; 352,185,487 shares issued and outstanding 3,808,672 198,672
Subscriptions receivable (165,000) (165,000)
Additional paid-in capital 9,862,956 8,963,610
Deficit accumulated during the development stage (17,476,305) (17,381,738)
------------ ------------
Total stockholders' deficit (3,969,676) (8,384,456)
------------ ------------
Total liabilities and stockholders' deficit $ 28,773 $ 67,270
============ ============
"See Accompanying Notes and Accountant's Report"
F-1
MEDITECH PHARMACEUTICALS, INC. AND SUBSIDIARY
(Development Stage Companies)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
=======================================================================================
For the Period
May 14, 1982
For The Three (Date of
Months Ended Inception) to
November 30, November 30,
2004 2004
------------- -------------
Revenue $ -- $ 152,132
------------- -------------
Operating expenses:
Research and development -- 1,899,450
General and administrative 22,734 14,086,770
General -- 325,400
------------- -------------
Total Operating expenses 22,734 16,311,620
------------- -------------
Loss before other income (expense) (22,734) (16,159,488)
------------- -------------
Other income (expense):
Interest expense (8) (3,439,382)
Interest income -- 305,921
Other income, net -- 81,612
Gain on write-down of accounts payable -- 1,405,232
------------- -------------
Total other income (expenses) (8) (1,646,617)
------------- -------------
Loss before minority interest in losses of subsidiary (22,742) (17,806,105)
------------- -------------
Minority interest in losses of subsidiary -- 329,800
------------- -------------
Net (loss) income $ (22,742) $ (17,476,305)
============= =============
Net (loss) income available to common stockholders
per common share: -- --
Net (loss) income per common share - basic and diluted $ --
=============
Weighted average shares outstanding:
Basic 189,488,227
=============
Diluted 189,488,227
=============
"See Accompanying Notes and Accountant's Report"
F-2
MEDITECH PHARMACEUTICALS, INC. AND SUBSIDIARY
(Development Stage Companies)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
=======================================================================================
For the Period
May 14,1982
For The Three (Date of
Months Ended Inception) to
November 30, November 30,
2004 2004
------------ ------------
Cash flows from operating activities:
Net loss $ (22,742) $(17,476,305)
Adjustments to reconcile net )loss) income to
net cash used in operating activities:
Depreciation and amortization 212 140,670
Warrants and options issued to employees,
vendors and consultants -- 851,000
Minority interest in losses of subsidiary -- (329,000)
Stock issued to employees, vendors and -- 1,667,300
consultants -- 15,000
Contributed services -- 463,050
Accrued interest on advances from affiliates -- 3,241,648
Gain on write-down of accounts payable -- (1,405,232)
Changes in operating assets and liabilities:
Other receivable -- (2,545)
Trademark (189)
Other assets -- (9,204)
Accounts payable and accrued expenses (8,468) 1,595,900
Accrued compensation -- 3,302,269
------------ ------------
Net cash used in operating activities (30,998) (7,945,638)
Cash flows used in investing activities
Purchases of furniture and equipment -- (140,966)
------------ ------------
Cash flows from financing activities:
Proceeds from advances from affiliates, net -- 2,190,800
Proceeds from note payable 10,000 10,000
Proceeds from sale of stock and exercise options, net -- 5,320,568
Cost incurred to register securities -- (62,336)
Principal payments on advances from stockholder -- (43,500)
------------ ------------
Net cash provided by financing activities 10,000 7,415,532
------------ ------------
Net change in cash and cash equivalents (20,998) (671,072)
Cash and cash equivalents, beginning of period 38,720 --
------------ ------------
Cash and cash equivalents, end of period $ 17,723 $ (671,072)
============ ============
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ -- $ --
Noncash financing transactions:
Conversion of debt to equity
Issuance of restricted common stock $ 3,610,000 $ --
Additional paid-in capital 899,346 --
------------ ------------
Total advances converted to equity $ 4,509,346 $ --
============ ============
"See Accompanying Notes and Accountant's Report"
F-3
MEDITECH PHARMACEUTICALS, INC
AND SUBSIDIARY
(Development Stage Companies)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 2004 (Unaudited)
- --------------------------------------------------------------------------------
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business activity (Company and Subsidiaries)
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.
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" - see Note C) (Collectively, the "Company").
All significant 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
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 that 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.
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 managements, 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 November 30, 2004 are not necessarily indicative of the
results to be expected for the full year ending May 31, 2005.
Estimates
The preparation of 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 reported period.
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-4
MEDITECH PHARMACEUTICALS, INC
AND SUBSIDIARY
(Development Stage Companies)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 2004 (Unaudited)
- --------------------------------------------------------------------------------
Revenue
Revenue represents license fees that are recognized when earned over the
period of the applicable license agreement.
Impairment of Long-Lived Assets
The Company reviews its long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount 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, 2004.
There can be no assurance, however, that market conditions will not change
which could result in impairment on long-lived assets in the future.
Stock-Based Compensation
The Company accounts for non-employee stock-based compensation under
Statement of Financial Accounting Standards No. 123 ("SFAS 123"),
"Accounting for Stock-Based Compensation." SFAS 123 defines a fair value
based method of accounting for stock-based compensation. However, SFAS 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." 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 disclosures of net
income (loss) and earnings per share, as if the fair value method of
accounting defined in SFAS 123 had been applied. The Company has elected to
account for its stock-based compensation to employees under APB 25.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the option vesting period. Adjustments
are made for options forfeited prior to vesting. The effect on compensation
expense and net (loss) income had compensation cost for the Company's stock
option issues been determined based on fair value on the date of grant
consistent with the provisions of SFAS 123 is as follows for the years
ended May 31:
2004 2003
---------- ----------
Net (loss) income, as reported (612,896) (612,896)
Additional compensation expense under SFAS 123 - -
---------- ----------
Pro forma net (loss) income $ (612,896) (612,896)
========== ==========
Pro forma net (loss) income per share $ - $ -
========== ==========
Income Taxes
The Company recognizes deferred tax assets and liabilities for the expected
future tax consequences of events that have been included in the financial
statements or tax returns. Under this method, deferred income taxes are
recognized for the tax consequences in future years of differences between
the tax bases of assets and liabilities and their financial reporting
amounts at each period end based on enacted tax laws and statutory tax
rates applicable to the periods in which the differences are expected to
F-5
MEDITECH PHARMACEUTICALS, INC
AND SUBSIDIARY
(Development Stage Companies)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 2004 (Unaudited)
- --------------------------------------------------------------------------------
affect taxable income. A valuation allowance is provided for significant
deferred tax assets when it is more likely than not those 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.
For the three months ended November 30, 2004 and 2003, the Company incurred
net losses; therefore, potential common shares are ignored as their effect
would be anti-dilutive.
Comprehensive Income
Comprehensive income is not presented in the Company's consolidated
financial statements since the Company did not have any items of
comprehensive income in any period presented.
Segments of an Enterprise and Related Information
As the Company operates in one segment, the Company has not made segment
disclosures in the accompanying consolidated financial statements.
New Accounting Standard
In April 2002, the Financial Accounting Standards Board (FASB) issued the
Statement of Financial Accounting Standards (SFAS) No. 145, Rescission of
FASB Statements No. 4, 44, and 64, Amendment of FASB Statement 13, and
Technical Corrections. SFAS No. 145 permits the recognition of an
extraordinary gain or loss from extinguishments only when it meets the
criteria of Accounting Principles Board (APB) Opinion No. 30. APB No. 30
states that extraordinary items are events and transactions that are
distinguishable by both their unusual nature and by the frequency of their
occurrence. This provision of SFAS No. 145 is effective for fiscal years
beginning after May 15, 2002, with earlier application encouraged. Any
extraordinary gain or loss from the extinguishments of debt in prior
periods presented that do not meet conditions of APB No. 30 must be
reclassified. Upon adoption of SFAS No.145 in 2002, the Company
reclassified the extraordinary gain on loan forgiveness in 2001 as a
separate component of other income and presented as a component of
continuing operations.
On April 30, 2003, the FASB issued a Financial Interpretation No. 45,
"Disclosure Requirements Mandate Fair Value at Inception." FIN 45 states
that "a guarantor is required to recognize, at the inception of a
guarantee, a liability for the obligations it has undertaken in issuing the
guarantee, including its ongoing obligations to stand ready to perform over
the term of the guarantee of the event that the specified triggering events
or conditions occur. The objective of the initial measurement of that
liability is the fair value of the guarantee at its inception." FIN 45
covers guarantee contracts such as financial and market value guarantees,
performance guarantees, and indirect guarantees of the indebtedness of
others. As of November 30, 2004, the Company does not have any guarantee
contracts affected by this interpretation.
In April 2003, the FASB issued SFAS No.149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities," ("SFAS No. 149"), which
amends and clarifies financial accounting and reporting for derivative
instruments, including certain derivative instruments embedded in other
contracts and for hedging activities under SFAS No. 133. SFAS No. 149 is
effective for contracts entered into or modified after June 30, 2003 except
for the provisions that were cleared by the FASB in prior pronouncements.
As of November 30, 2004, the Company does not have any contracts affected
by this interpretation.
On May 31, 2003 the FASB issued Statement of Financial Accounting Standards
No. 150, "Accounting for Certain Financial Instruments with Characteristics
of Both Liabilities and Equity." This statement establishes standards for
F-6
MEDITECH PHARMACEUTICALS, INC
AND SUBSIDIARY
(Development Stage Companies)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 2004 (Unaudited)
- --------------------------------------------------------------------------------
how an issuer classifies and measures certain financial instruments with
characteristics of both liabilities and equity. It requires that an issuer
classify a financial instrument that is within its scope as a liability (or
an asset in some circumstances). Many of those instruments were previously
classified as equity. Some of the provisions of this Statement are
consistent with the current definition of liabilities in FASB Concepts
Statement No. 6, Elements of Financial Statements. The remaining provisions
of this statement are consistent with the Board's proposal to revise that
definition to encompass certain obligations that a reporting entity can or
must settle by issuing its own equity shares, depending on the nature of
the relationship established between the holder and the issuer. Application
of the provisions of SFAS 150 is effective at the beginning of the first
interim period beginning after June 15, 2003. The adoption of SFAS No. 150
did not have a material impact on the Company's financial position or
results of operations.
Reclassifications
Certain reclassifications have been made to prior year amounts in the
consolidated financial statements in order to conform to the current year
presentation. These reclassifications have no effect on previously reported
results of operations.
NOTE B - MINORITY INTEREST IN CONSOLIDATED SUBSIDIARY
On January 22, 1987, the Company and a 50% investor formed VRT, Inc.
("VRT"), a Nevada corporation, for the purposes of developing a marketing
strategy for its products. On January 26, 1987, the Company granted certain
exclusive rights to VRT to market and distribute the Company's products.
The agreement expired on November 30, 1996.
On April 30, 1987, pursuant to a merger agreement, VRT was combined with
Viral, a Nevada corporation and an inactive public shell, which became the
surviving corporation. In the transaction, Viral issued 15,000,000 shares
of common stock to the company and its investor for all outstanding shares
of VRT. After the merger, the Company owned 37% of Viral. Viral's Board of
Directors is controlled by officers and directors of the Company.
Additionally, the companies have the same management team, and Viral is
economically dependent on the Company to fund its continuing operations.
Therefore, Viral has been consolidated as it is effectively controlled by
the Company.
At May 31, 2004, the assets and liabilities of Viral were as follows:
ASSETS
Due from Meditech $ 400,000
---------
Total Assets $ 400,000
=========
LIABILITIES
Accounts Payable $ 5,000
Due to Meditech 129,000
---------
Total Liabilities 134,000
EQUITY 266,000
---------
Total Liabilities and Equity $ 400,000
=========
Amounts recorded as minority interest in consolidated subsidiary on the
accompanying consolidated balance sheet represent the pro rata portion of
Viral's equity attributable to minority stockholders.
F-7
MEDITECH PHARMACEUTICALS, INC AND SUBSIDIARY
(Development Stage Companies)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 2004 (Unaudited)
- --------------------------------------------------------------------------------
NOTE C - COMMITMENTS AND CONTINGENCIES
Leases
Currently, the Company uses its operating facilities provided by its Chief
Executive Officer, without a license agreement. During the three months
ended November 30, 2004, and the year ended May 31, 2004, the Company
incurred approximately $4,500 and $18,000, 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 31, 2001) with two of its officers. The agreements are for
three-year terms ending on March 15, 2003, however if it is not terminated
by either party, the term shall be automatically renewed for successive
one-year periods commencing on each anniversary date of the original term.
As of May 31, 2004, the agreements were not terminated. The agreements
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 an annual bonus based on
certain performance goals and a severance payment based on two years of
base salary and bonus based, 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 financial 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 INR 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 is
reached, the Company will 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 will 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, which 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 of 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
royalty revenue related to this agreement.
NOTE D - STOCKHOLDERS' DEFICIT
During the three months ended November 30, 2004, the Company issued
180,500,000 shares of restricted common stock.
F-8
MEDITECH PHARMACEUTICALS, INC AND SUBSIDIARY
(Development Stage Companies)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 2004 (Unaudited)
- --------------------------------------------------------------------------------
On October 25, 2004, the Company and Petro-Med entered into a Debt Exchange
Agreement. On this date, the Company issued 180,500, 000 shares of
restricted common stock at an exchange price of $0.02 per share for the
$3,610,000 principal amount. On this date, there was accrued interest of
$899,346, however, all interest was forgiven. The accrued interest was
considered additional paid in capital in the issuance of shares.
NOTE E - 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 common shares
during the 20 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 years ended May 31, 2004 and 2003, the Company exercised no put
options.
NOTE G - RELATED PARTY TRANSACTIONS
Since inception, the Company has received advances from Petro-Med, Inc., an
affiliate, to fund its working capital requirements. At May 31, 2004, 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. During fiscal year ended May 31, 2003, both
partners agreed to stop accruing interest on these advances. On October 25,
2004, the Company and Petro-Med entered into a debt exchange agreement,
thereby, paying in full the advances due to Petro-Med (see Note D).
The Company maintains its primary place of business in facilities owned by
the Chief Executive Office, for which it is charged rent expense (see Note
C).
F-9
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
securing patents, initiating and continuing clinical tests, recruiting personnel
and raising capital. Through May 31, 2003, we have derived our revenues from the
sale of a license option to INR to develop and market new patented products.
Going Concern
Our condensed consolidated financial statements for the three months ended
November 30, 2004, and the fiscal year ended May 31, 2004 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 the
consolidated financial statements, we experienced a loss of $22,742 during the
three months ended November 30, 2004, had a cash balance of $17,723, and an
accumulated deficit of $17,404,479 as of November 30, 2004. These factors, among
others, raise substantial doubt about our ability to continue as a going
concern.
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 products, and to conduct additional
testing on our products. We intend to obtain the necessary financing through our
Investment Agreement with Swartz Private Equity, LLC and other sources. 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, 2004 AND 2003.
Revenues
There were no revenues for the three months ended November 30, 2004 and 2003.
Operating Expenses
Our expenses include research and development and general and administrative.
Research and development consists of laboratory expenses, consulting expenses,
test expenses, 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 and facilities costs represent a high percentage of our operating
expenses and are relatively fixed in advance of each quarter.
Research and Development Costs
There were no research and development costs for the three months ended November
30, 2004 and 2003.
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General and Administrative Expenses
Direct costs were $22,734 for the three months ended November 30, 2004, as
compared with $154,038 for the three months ended November 30, 2003. The
decrease was primarily due to lower miscellaneous expenses, accounting fees, and
accrual of interest charged on accounts payable.
Interest Expense.
Interest expense was $8 for the three months ended November 30, 2004, as
compared with $0 for the three months ended November 30, 2003. This interest
consists of interest accrued at a rate of 7% simple interest per annum on funds
advanced to the Company by Halter Capital Corporation. The interest on this note
shall be due and payable in twelve equal monthly payments.
Net Loss
Net loss was approximately $22,742 for the three months ended November 30, 2004
as compared to $153,977 for the three months ended November 30, 2003. The
decrease in the net loss is due primarily to the decrease in general and
administrative expenses.
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 $17,723 at November 30, 2004 (down from
$58,964 at May 31, 2004). This decrease was due to a decrease of cash inflow
from contributed capital.
Net cash used in operations in 2004 was approximately $91,538, as compared to
cash used in operations of $115,724 in 2003. Less cash was used in operations in
fiscal year 2004 due to a decrease in accounting, consulting, legal and travel
expenses.
Net cash used in investing activities in 2004 and 2003 was approximately $1,773
and $0, respectively, which was due to purchases of office equipment.
Net cash provided by financing activities in 2004 was approximately $142,222, as
compared to $94,000 in 2003. This increase was primarily due to proceeds
received from the sale of restricted stock.
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 stock to Swartz for up to an
aggregate of $30 million from time to time during a three-year period beginning
on the date that the registration statement registering the resale of these
shares 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. Through August 31, 2004, 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 the end of the period covered by this Form 10-Q, the Company carried out
an evaluation, under the supervision and with the participation of its chief
executive officer and chief financial officer, of the effectiveness of the
design and operation of its disclosure controls and procedures (as defined in
Rule 13-a-15-e or 15-d-15-e under the Securities Exchange Act of 1934).
Based on this evaluation, the Company's chief executive officer and chief
financial officer concluded that as of the evaluation date, such disclosure
controls and procedures were reasonably designed to ensure that information
required to be disclosed by the Company in reports it files or submits under the
Exchange Act is recorded, processed, summarized and reported within the time
periods specified in the rules and forms of the Securities and Exchange
Commission.
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Item 4. Other Information
- --------------------------
Item 1. Legal Proceedings
Not applicable.
Item 2. Change in Securities
During the three months ended November 30, 2004, we issued 180,500,000
shares of restricted common stock.
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
The following exhibits are included herein:
31.1 Certification of CEO Pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.
31.1 Certification of CFO Pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.
32.1 Certification of CEO Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
32.2 Certification of CFO Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
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Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
Meditech Pharmaceuticals, Inc.
By: /s/ Gerald N. Kern
- -----------------------------------------------------
Gerald N. Kern, Chairman and Chief Executive Officer
Dated: 01/19/05
------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and/or the class indicated.
/s/ Gerald N. Kern Dated: 01/19/05
- -----------------------------
Gerald N. Kern, Chairman and
Chief Executive Officer
/s/ Steven I. Kern Dated: 01/19/05
- -----------------------------
Steven I. Kern, Director, President,
Chief Operating Officer and
Chief Financial Officer
/s/ Cynthia S. Kern Dated: 01/19/05
- -----------------------------
Cynthia S. Kern, Vice Chairman,
Director and Secretary
/s/ Harry Hall Dated: 01/19/05
- -----------------------------
Harry Hall, Director
/s/ Lester F. Goldstein Dated: 01/19/05
- -----------------------------
Lester F. Goldstein, Director
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