United States
Securities and Exchange Commission
Washington, DC 20549
Amendment No. 1 to
Form 10-QSB/A
(Mark One)
(X) Quarterly Report Under Section 13 or 15(d) of the
Securities and Exchange Act of 1934
For Quarter Ended August 31, 1999
or
( ) Transition report under Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period from ______ to _______
Commission File No. 0-12561
Meditech Pharmaceuticals, Inc.
------------------------------
(Exact name of Registrant as specified in its charter)
Nevada 95-3819300
------ ----------
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
PMB 382, 10105 E. Via Linda, #103, Scottsdale, AZ 85258
-------------------------------------------------------
(Address of principal executive offices and zip code)
(480) 614-2874
--------------
(Registrant's telephone number)
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 (and 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 [ ]
Indicate the number of shares outstanding of each of the issuer's class of
common stock, as of the lasts practicable date.
124,563,432 shares of $.001 par value common stock, as of November 30, 1996
Transactional small business disclosure format (check one): Yes [ ] No [X]
This quarterly report on Form 10-QSB (The "Report") may be deemed to contain
forward-looking statements within the meaning of the Private Securities
Litigation Act of 1995 ("The Reform Act".) Forward-looking statements in this
report or hereafter included in other publicly available documents filed with
the Securities and Exchange Commission (The "Commission"), reports to the
Company's stockholders and other publicly available statements issued or
released by the Company involve known and unknown risks, uncertainties and other
factors which could cause the Company's actual results, performance (financial
or operating) or achievements to differ from the future results, performance
(financial or operating) or achievements expressed or implied by such
forward-looking statements. Such future results are based upon management's best
estimates based upon current conditions and the most recent results of
operations. These risks include, but are not limited to, the risks set forth
herein, each of which could adversely affect the Company's business and the
accuracy of the forward-looking statements contained herein.
MEDITECH PHARMACEUTICALS, INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONTENTS
AUGUST 31, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
Page
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets 1
Condensed Consolidated Statements of Operations 2
Condensed Consolidated Statements of Cash Flows 3 - 4
Notes to Condensed Consolidated Financial Statements 5 - 11
MEDITECH PHARMACEUTICALS, INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONDENSED CONSOLIDATED BALANCE SHEETS
MAY 31, 1999 AND AUGUST 31, 1999 (UNAUDITED)
- -------------------------------------------------------------------------------------------------
ASSETS
August 31, May 31,
1999 1999
------------- -------------
(unaudited)
CURRENT ASSETS
Prepaid expenses $ 600 $ 600
------------- -------------
TOTAL CURRENT ASSETS $ 600 $ 600
============= =============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 1,448,390 $ 1,448,800
Accrued compensation 2,777,500 2,717,000
Advances from affiliates 3,369,500 3,294,700
Advances from stockholders 38,610 36,985
Loan payable 71,000 71,000
------------- -------------
Total current liabilities 7,705,000 7,568,485
------------- -------------
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
0 (unaudited) and 0 issued and outstanding - -
Common stock, $0.001 par value
400,000,000 shares authorized
131,213,432 (unaudited) and 129,363,432 shares issued
and outstanding 131,200 129,400
Additional paid-in capital 7,132,800 7,012,915
Accumulated deficit (15,159,700) (14,901,500)
------------- -------------
Total stockholders' deficit (7,895,700) (7,759,185)
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 600 $ 600
============= =============
The accompanying notes are an integral part of these financial statements.
1
MEDITECH PHARMACEUTICALS, INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED AUGUST 31, 1999 AND 1998 (UNAUDITED) AND
FOR THE PERIOD FROM MAY 4, 1982 (INCEPTION) TO AUGUST 31, 1999 (UNAUDITED)
- ---------------------------------------------------------------------------------------------
For the
Period from
May 4,
For the Three Months Ended 1982
August 31, (Inception) to
------------------------------- August 31,
1999 1998 1999
-------------- -------------- --------------
(unaudited) (unaudited) (unaudited)
OPERATING EXPENSES
Research and development $ - $ - $ 1,837,100
General and administrative 183,500 201,900 10,886,500
Aborted stock offering costs - - 325,400
-------------- -------------- --------------
Total operating expenses 183,500 201,900 13,049,000
-------------- -------------- --------------
LOSS BEFORE OTHER INCOME (EXPENSE) (183,500) (201,900) (13,049,000)
-------------- -------------- --------------
OTHER INCOME (EXPENSE)
Interest expense (74,700) (68,300) (2,814,600)
Interest income - - 298,500
Other income, net - - 75,600
-------------- -------------- --------------
Total other income (expense) (74,700) (68,300) (2,440,500)
-------------- -------------- --------------
LOSS BEFORE MINORITY INTEREST IN LOSSES OF
SUBSIDIARY (258,200) (270,200) (15,489,500)
MINORITY INTEREST IN LOSSES OF SUBSIDIARY - - 329,800
-------------- -------------- --------------
NET LOSS $ (258,200) $ (270,200) $ (15,159,700)
============== ============== ==============
BASIC AND DILUTED LOSS PER SHARE $ (0.01) $ (0.01) $ (0.16)
============== ============== ==============
WEIGHTED-AVERAGE SHARES OUTSTANDING 129,363,432 127,172,128 96,883,652
============== ============== ==============
The accompanying notes are an integral part of these financial statements.
2
MEDITECH PHARMACEUTICALS, INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED AUGUST 31, 1999 AND 1998 (UNAUDITED) AND
FOR THE PERIOD FROM MAY 4, 1982 (INCEPTION) TO AUGUST 31, 1999 (UNAUDITED)
- ---------------------------------------------------------------------------------------------------
For the
Period from
May 4,
For the Three Months Ended 1982
August 31, (Inception) to
----------------------------- August 31,
1999 1998 1999
------------- ------------- -------------
(unaudited) (unaudited) (unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (258,200) $ (270,200) $(15,159,700)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities
Depreciation and amortization - - 135,600
Stock-based expenses 121,700 171,700 1,963,400
Minority interest in losses of subsidiary - - (329,800)
Accrued interest on advances from affiliates 74,700 68,300 2,299,500
Increase in
Prepaid expenses - - (600)
Increase (decrease) in
Accounts payable and accrued expenses 11,000 (6,600) 1,459,700
Accrued compensation 50,800 60,900 2,767,800
------------- ------------- -------------
Net cash provided by (used in) operating activities - 24,100 (6,864,100)
------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of furniture and equipment - - (135,600)
------------- ------------- -------------
Net cash used in investing activities - - (135,600)
------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from advances, net - (28,900) 2,244,300
Proceeds from loan payable - - 71,000
Proceeds from sale of stock, net - 4,800 4,684,400
------------- ------------- -------------
Net cash provided by (used in) financing activities - (24,100) 6,999,700
------------- ------------- -------------
Net increase in cash - - -
CASH, BEGINNING OF PERIOD - - -
------------- ------------- -------------
CASH, END OF PERIOD $ - $ - $ -
============= ============= =============
The accompanying notes are an integral part of these financial statements.
3
MEDITECH PHARMACEUTICALS, INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED AUGUST 31, 1999 AND 1998 (UNAUDITED) AND
FOR THE PERIOD FROM MAY 4, 1982 (INCEPTION) TO AUGUST 31, 1999 (UNAUDITED)
- ---------------------------------------------------------------------------------------------------
For the
Period from
May 4,
For the Three Months Ended 1982
August 31, (Inception) to
----------------------------- August 31,
1999 1998 1999
------------- ------------- -------------
(unaudited) (unaudited) (unaudited)
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
INTEREST PAID $ - $ - $ -
============= ============= =============
INCOME TAXES PAID $ - $ - $ -
============= ============= =============
The accompanying notes are an integral part of these financial statements.
4
MEDITECH PHARMACEUTICALS, INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1999 AND AUGUST 31, 1999 (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 and completed its initial public offering in August 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
Principles of Consolidation
---------------------------
The 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.
Going Concern Issues
--------------------
The Company has received a report from its independent auditors that
includes an explanatory paragraph describing the Company's uncertainty
to continue as a going concern. These consolidated financial statements
contemplate the ability to continue as such and do not include any
adjustments that might result from this uncertainty.
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 annual
consolidated financial statements prepared in accordance with generally
accepted accounting principles have been omitted pursuant to such rules
and regulations. The results of the three months ended August 31, 1999
are not necessarily indicative of the results to be expected for the
full year ending May 31, 2000.
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. All losses
accumulated since inception have been considered as part of the
Company's development stage activities.
5
MEDITECH PHARMACEUTICALS, INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1999 AND AUGUST 31, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Estimates
---------
In preparing financial statements in conformity with generally accepted
accounting principles, management makes 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. Actual results could differ from those
estimates.
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. To date, no impairment has
occurred.
Income Taxes
------------
The Company utilizes SFAS No. 109, "Accounting for Income Taxes," which
requires the recognition of 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 affect taxable income. Valuation allowances
are established, when necessary, to reduce deferred tax assets to the
amount expected to be realized.
Loss per Share
--------------
The Company utilizes SFAS No. 128, "Earnings 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 August 31, 1999 and 1998, the Company incurred
net losses; therefore, basic and diluted loss per share are the same.
6
MEDITECH PHARMACEUTICALS, INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1999 AND AUGUST 31, 1999 (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. There is no
guarantee the officer will be willing to provide these facilities in
the future (see Note 5).
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.
NOTE 4 - CAPITAL TRANSACTIONS
During the three months ended August 31, 1999, the Company issued
450,000 shares of common stock to employees for compensation. The
shares were valued at $11,250.
During the three months ended August 31, 1999, the Company issued
1,400,000 shares of common stock to vendors for services rendered. In
connection with the issuance, the Company recorded $75,000 in
consulting expense.
During the three months ended August 31, 1999, holders of 5,000,000
employee options exercised their options to purchase common stock for
forgiveness of $50,000 of accrued compensation, which represented the
exercise price of the options.
During the three months ended August 31, 1999, holders of 500,000
options exercised their option to purchase common stock for a
subscription receivable of $10,000.
NOTE 5 - 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, 1999
and August 31, 1999, the Company maintained short-term advances from
affiliates of $3,294,700 and $3,369,500 (unaudited), respectively.
Accrued interest is attributed to the outstanding balance as incurred.
The advances bear interest at 9% per annum on any outstanding balance.
Due to cash shortages, the Company has accrued deferred salaries and
related taxes payable to certain officers who are stockholders and
directors of the Company. At August 31, 1999, the aggregate amount of
accrued compensation was $2,777,500 (unaudited).
7
MEDITECH PHARMACEUTICALS, INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1999 AND AUGUST 31, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
NOTE 5 - RELATED PARTY TRANSACTIONS (CONTINUED)
The Company has entered into certain employment agreements with its
officers and stockholders (see Note 6).
The Company maintains its primary place of business in facilities owned
by the Chief Executive Officer. Expenses associated with the facilities
are immaterial. As such, no expense has been recorded by the Company.
NOTE 6 - SUBSEQUENT EVENTS
Stock Purchase Warrants and Options
-----------------------------------
On January 17, 2000, the Company issued options to purchase 5,000,000
shares of common stock to employees and stockholders of the Company.
The options are exercisable at $0.21 per share for 2,500,000 options
and $0.05 per share for 2,500,000 options and expire on February 3,
2007. The Company recognized $15,435 as compensation expense related to
these options.
On February 1, 2000, the Company issued to employees of the Company
options to purchase 700,000 shares of common stock exercisable at $0.21
per share, vesting immediately and expiring on May 1, 2007. No
compensation expense was recognized as the exercise price at the time
of the grant approximated the fair market value of the stock at the
date of grant.
On February 1, 2000, the Company issued options to purchase 900,000
shares of its common stock to consultants of the Company. The options
are exercisable at $0.21 per share and expire on May 31, 2006. Related
to these options, the Company recognized $27,000 in compensation
expense, which represents the fair market value of the options at the
date of grant.
On February 1, 2000, the Company issued options to purchase 50,000
shares of its common stock to a consultant of the Company. The options
are exercisable at $0.05 per share and expire on May 1, 2007. Related
to these options, the Company recognized consulting expense of $2,000.
On May 16, 2000, the Company issued warrants to purchase 7,000,000
shares of common stock as a condition of entering into an investment
agreement. The warrants are exercisable immediately at $0.03 per share
and expire in 10 years. The warrants are valued at $2,380,000 and
represent offering costs. When the transaction closes, it will be
reflected as a reduction in the net proceeds from the offering or, if
the transaction is aborted, will be charged to operations.
8
MEDITECH PHARMACEUTICALS, INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1999 AND AUGUST 31, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
NOTE 6 - SUBSEQUENT EVENTS (CONTINUED)
Stock Purchase Warrants and Options (Continued)
-----------------------------------
During the year ended May 31, 2000, the Company issued options to
purchase 5,800,000 shares of common stock exercisable at $0.01 per
share, vesting immediately and expiring on May 31, 2006 to employees of
the Company. Related to these options, the Company recognized $20,000
of compensation expense, which represents the intrinsic value of the
options. As of May 31, 2000, options representing 300,000 shares of
stock remained unexercised.
Employment Agreements
---------------------
The Company entered into an employment agreement dated as of February
3, 2000 with its Chief Executive Officer, contingent upon completion of
an offering. The agreement is for a three-year term and provides for a
base salary of $150,000 per annum for the first year with an increase
at least equal to the consumer price index over each succeeding year.
The agreement provides for a severance payment including the unearned
salary for the remainder of the contract plus any prorated earned
bonuses in the event of termination without cause or upon change of
control. Additionally, the agreement grants options to purchase
15,950,000 shares of common stock exercisable at various prices and
vesting over the course of his employment agreement.
The Company entered into an employment agreement dated as of February
3, 2000 with its Chief Financial Officer, contingent upon completion of
an offering. The agreement is for a three-year term providing for a
base salary of $120,000 per annum for the first year and not less than
$120,000 per annum during the second and third years of the agreement.
In addition, the officer will be granted a total of 13,950,000 warrants
exercisable at various prices and vesting over the course of the
agreement. The agreement provides for a severance payment including the
remainder of the base salary due under the agreement if the officer is
discharged without cause or if the officer is terminated within 12
months of a change of control of the Company. The severance payment
will be equal to 12 months of the current salary.
9
MEDITECH PHARMACEUTICALS, INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1999 AND AUGUST 31, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
NOTE 6 - SUBSEQUENT EVENTS (CONTINUED)
License Agreement
-----------------
On March 24, 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,
the Company issued a one-year option to INR for 10,000,000 shares of
common stock, immediately 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. During the second quarter of 2000, the agreement
was executed. The option was valued at $400,000, using the
Black-Scholes option-pricing model, which has been recorded as an
operating expense on the date granted.
During the three months ended November 30, 2000, INR exercised options
to purchase 3,333,333 shares of common stock and paid $100,000 to the
Company.
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.
Under the agreement, in order to invoke a put right, the Company must
have an effective registration statement on file with the Securities
and Exchange Commission and 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 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.
10
MEDITECH PHARMACEUTICALS, INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1999 AND AUGUST 31, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
NOTE 6 - SUBSEQUENT EVENTS (CONTINUED)
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. This may be construed as a below-market issuance of
securities and could result in significant charges to the Company's
earnings.
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.
11
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 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 our patents, initiating and continuing clinical tests,
recruiting personnel and raising capital.
12
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED AUGUST 31, 1999 AND 1998.
REVENUES. There were no revenues for the three months ended August 31,
1999, nor were there any revenues for the three months ended August 31,
1998.
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 benefits 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 August 31, 1999 or August 31, 1998.
GENERAL AND ADMINISTRATIVE EXPENSES. Direct costs were $183,500 for the
three months ended August 31, 1999, as compared with $201,900 for the
three months ended August 31, 1998. The decrease was primarily due to
the change in stock based compensation issued to employees and vendors
for services ($136,250 in the three months ended August 31, 1999 as
compared to $176,500 in the three months ended August 31, 1998).
INTEREST EXPENSE. Interest expense was $74,700 for the three months
ended August 31, 1999 as compared to $68,300 for the three months ended
August 31, 1998. This increase was due to the additional debt incurred
in 1999. This interest is accrued at a rate of 9% simple interest per
annum on funds advanced to the company by Petro-Med Inc. Meditech's
Chief Executive Officer, Gerald N. Kern, also serves as Chairman of
Petro-Med Inc.
NET LOSS. Net loss was $258,200 for the three months ended August 31,
1999 as compared to $270,200 for the three months ended August 31,
1998. The decrease in net loss was the decrease in stock based
compensation issued to employees and vendors for services from August
31, 1999 to August 31, 1998.
13
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have funded our operations and investments in
property and equipment through cash from equity financings.
Our cash and cash equivalents were $0 at August 31, 1999 and August 31,
1998.
Net cash provided by operations in the three months ended August 31,
1999 was $0 compared to $24,100 in the three months ended August 31,
1998.
Net cash used in investing activities was $0 for the three months ended
August 31, 1999 and 1998.
Net cash used in financing activities in the three months ended August
31, 1999 was $0 compared to $24,100 in the three months ended August
31, 1998.
On March 24, 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,
the Company issued a one-year option to INR for 10,000,000 shares of
common stock, immediately 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. During the second quarter of 2000, the agreement
was executed. The option was valued at $400,000, using the
Black-Scholes option-pricing model, which has been recorded as an
operating expense on the date granted.
During the three months ended November 30, 2000, INR exercised options
to purchase 3,333,333 shares of common stock and paid $100,000 to the
Company.
On June 30, 2000, we entered into an investment agreement with Swartz
Private Equity, LLC. 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
this registration statement is declared effective. 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. Any time that the shares are
putted, the discount between the put price to Swartz and the trading
price will result in a selling discount for the Swartz shares which
will be part of our operating expenses in the income statement.
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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.
Should the Swartz financing fail to close, we will lack the capital
necessary to meet operational requirements and achieve our business
plan. In addition, the shareholders will suffer dilution from the 7
million warrants which have been granted to Swartz prior to the
proposed offering. The warrants are valued at $2,380,000 and represent
offering costs. If the transaction is aborted, these costs will be
charged to operations.
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Part II - Other information
Item 1 - Legal proceedings
Not applicable
Item 2 - Change in securities
Not applicable
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
Not applicable
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SIGNATURE(S)
Pursuant to the requirements of the Securities 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)
Dated ____________________ By: /s/ Cynthia S. Kern
-----------------------------------
Cynthia S. Kern, President
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