UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 1 to
Form 10-QSB/A
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended February 29, 2000
-----------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
COMMISSION FILE NUMBER 0-12561
MEDITECH PHARMACEUTICALS, INC.
(Exact name of Registrant as specified in its charter)
NEVADA 95-3819300
- --------------------------------- -------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
PMB 382, 10105 E. VIA LINDA, #103
SCOTTSDALE, ARIZONA 85258
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (480) 614-2874
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 (2) has been subject to such filing requirement for
the past 90 days. Yes [ X ] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
136,713,432 shares of $.001 par value common stock, as of February 29, 2000
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
February 29, 2000 (unaudited)
- -------------------------------------------------------------------------------
Page
----
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets ....................... 1
Condensed Consolidated Statements of Operations ............. 2 - 3
Condensed Consolidated Statements of Cash Flows ............. 4 - 5
Notes to Condensed Consolidated Financial Statements ........ 6 - 11
MEDITECH PHARMACEUTICALS, INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONDENSED CONSOLIDATED BALANCE SHEETS
May 31, 1999 and February 29, 2000 (unaudited)
- -------------------------------------------------------------------------------
ASSETS
February 29, May 31,
2000 1999
------------- -------------
(unaudited)
Current assets
Prepaid expenses .............................................. $ 600 $ 600
------------- -------------
Total current assets ......................... $ 600 $ 600
============= =============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Accounts payable and accrued expenses ......................... $ 1,464,900 $ 1,448,800
Accrued compensation .......................................... 2,787,100 2,717,000
Advances from affiliates ...................................... 3,519,840 3,294,700
Advances from stockholders .................................... 41,860 36,985
Loan payable .................................................. 71,000 71,000
------------- -------------
Total current liabilities ................................. 7,884,700 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
136,713,432 (unaudited) and 129,363,432 shares issued
and outstanding ...................................... 136,700 129,400
Additional paid-in capital .................................... 7,669,800 7,012,915
Accumulated deficit ........................................... (15,881,900) (14,901,500)
------------- -------------
Total stockholders' deficit ...................... (8,075,400) (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 and Nine Months Ended February 29, 2000 and
February 28, 1999 (unaudited) and
for the Period from May 4, 1982 (Inception) to February 29, 2000 (unaudited)
-------------------------------------------------------------------------------
For the
Period from
May 4, 1982
For the Three Months Ended For the Nine Months Ended (Inception) to
February, February, February 29,
----------------------------- ----------------------------- -------------
2000 1999 2000 1999 2000
------------- ------------- ------------- ------------- -------------
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
Operating expenses
Research and
development ........ $ -- $ -- $ -- $ -- $ 1,837,100
General and
administrative ..... 506,600 60,400 751,300 323,700 11,454,300
Aborted stock
offering costs ..... -- -- -- -- 325,400
------------- ------------- ------------- ------------- -------------
Total operating
expenses ............. 506,600 60,400 751,300 323,700 13,616,800
------------- ------------- ------------- ------------- -------------
Loss before other
income (expense) ..... (506,600) (60,400) (751,300) (323,700) (13,616,800)
------------- ------------- ------------- ------------- -------------
Other income
(expense)
Interest expense ... (78,100) (71,500) (229,100) (210,000) (2,969,000)
Interest income .... -- -- -- -- 298,500
Other income, net .. -- -- -- -- 75,600
------------- ------------- ------------- ------------- -------------
Total other income
(expense) ............ (78,100) (71,500) (229,100) (210,000) (2,594,900)
------------- ------------- ------------- ------------- -------------
Loss before minority
interest in losses
of subsidiary ........ (584,700) (131,900) (980,400) (533,700) (16,211,700)
Minority interest in
losses of
subsidiary ........... -- -- -- -- 329,800
------------- ------------- ------------- ------------- -------------
Net loss ................ $ (584,700) $ (131,900) $ (980,400) $ (533,700) $(15,881,900)
============= ============= ============= ============= =============
The accompanying notes are an integral part of these financial statements.
2
MEDITECH PHARMACEUTICALS, INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three and Nine Months Ended February 29, 2000 and
February 28, 1999 (unaudited) and
for the Period from May 4, 1982 (Inception) to February 29, 2000 (unaudited)
- -------------------------------------------------------------------------------
For the
Period from
May 4, 1982
For the Three Months Ended For the Nine Months Ended (Inception) to
February, February, February 29,
----------------------------- ----------------------------- -------------
2000 1999 2000 1999 2000
------------- ------------- ------------- ------------- -------------
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
Basic and diluted loss
per share ............ $ (0.01) $ (0.01) $ (0.01) $ (0.01) $ (0.16)
============= ============= ============= ============== =============
Weighted-average
shares
outstanding .......... 131,001,894 129,363,432 129,907,593 128,624,970 97,862,876
============= ============= ============= ============== =============
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 Nine Months Ended February 29, 2000 and February 28, 1999 (unaudited)
and for the Period from May 4, 1982 (Inception) to February 29, 2000
(unaudited)
- -------------------------------------------------------------------------------
For the
Period from
May 4, 1982
For the Nine Months Ended (Inception) to
February, February 29,
----------------------------- -------------
2000 1999 2000
------------- ------------- -------------
(unaudited) (unaudited) (unaudited)
Cash flows from operating activities
Net loss .......................................... $ (980,400) $ (533,700) $(15,881,900)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities
Depreciation and amortization ................. -- -- 135,600
Stock-based expenses .......................... 600,700 171,700 2,442,400
Minority interest in losses of subsidiary ..... -- -- (329,800)
Contributed services .......................... 63,500 -- 63,500
Accrued interest on advances from affiliates .. 229,100 210,000 2,453,900
Increase in
Prepaid expenses ................................ -- -- (600)
Increase (decrease) in
Accounts payable and accrued expenses ........... (6,400) (6,100) 1,442,300
Accrued compensation ............................ 52,700 182,200 2,769,700
------------- ------------- -------------
Net cash provided by (used in) operating activities .. (40,800) 24,100 (6,904,900)
------------- ------------- -------------
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 ....................... 40,800 (28,900) 2,285,100
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 .. 40,800 (24,100) 7,040,500
------------- ------------- -------------
Net increase in cash ................................. -- -- --
Cash, beginning of period ............................ -- -- --
------------- ------------- -------------
Cash, end of period .................................. $ -- $ -- $ --
============= ============= =============
The accompanying notes are an integral part of these financial statements.
4
MEDITECH PHARMACEUTICALS, INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended February 29, 2000 and February 28, 1999 (unaudited)
and for the Period from May 4, 1982 (Inception) to February 29, 2000
(unaudited)
- -------------------------------------------------------------------------------
For the
Period from
May 4, 1982
For the Nine Months Ended (Inception) to
February, February 29,
----------------------------- -------------
2000 1999 2000
------------- ------------- -------------
(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.
5
MEDITECH PHARMACEUTICALS, INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
May 31, 1999 and February 29, 2000 (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 nine months ended February 29, 2000 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.
6
MEDITECH PHARMACEUTICALS, INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
May 31, 1999 and February 29, 2000 (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 nine
months ended February 29, 2000 and February 28, 1999, the Company incurred
net losses; therefore, basic and diluted loss per share are the same.
7
MEDITECH PHARMACEUTICALS, INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
May 31, 1999 and February 29, 2000 (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
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.
8
MEDITECH PHARMACEUTICALS, INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
May 31, 1999 and February 29, 2000 (unaudited)
- -------------------------------------------------------------------------------
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
February 29, 2000, the Company maintained short-term advances from
affiliates of $3,294,700 and $3,519,840 (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 February 29, 2000, the aggregate amount of
accrued compensation was $2,787,100 (unaudited).
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 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.
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.
9
MEDITECH PHARMACEUTICALS, INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
May 31, 1999 and February 29, 2000 (unaudited)
- -------------------------------------------------------------------------------
NOTE 6 - SUBSEQUENT EVENTS (Continued)
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.
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.
10
MEDITECH PHARMACEUTICALS, INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
May 31, 1999 and February 29, 2000 (unaudited)
- -------------------------------------------------------------------------------
NOTE 5 - SUBSEQUENT EVENTS (Continued)
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.
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.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED
FEBRUARY 29, 2000 AND FEBRUARY 28, 1999.
REVENUES. There were no revenues for the three months ended February 29,
2000, nor were there any revenues for the three months ended February 28,
1999.
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 February 29, 2000 or February 28, 1999.
12
GENERAL AND ADMINISTRATIVE EXPENSES. Direct costs were $506,600 for the
three months ended February 29, 2000, as compared with $60,400 for the
three months ended February 28, 1999. The increase was due to stock based
compensation issued to employees, vendors and INR in the amount of $464,000
in the three months ended February 29, 2000.
INTEREST EXPENSE. Interest expense was $78,100 for the three months ended
February 29, 2000 as compared to $71,500 for the three months ended
February 28, 1999. This increase was due to the additional debt incurred in
2000. 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 $584,700 for the three months ended February 29,
2000 as compared to $131,900 for the three months ended February 28, 1999.
The increase in net loss was due to increased stock based compensation
issued in 2000.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED
FEBRUARY 29, 2000 AND FEBRUARY 28, 1999.
REVENUES. There were no revenues during the nine months ended February 29,
2000 (the "2000 Period") nor were there any revenues for the nine months
ended February 28, 1999 (the "1999 Period").
RESEARCH AND DEVELOPMENT COSTS. There were no research and development
costs for the 2000 Period or for the 1999 Period.
GENERAL AND ADMINISTRATIVE EXPENSES. Direct costs were $751,300 for the
2000 Period, as compared with $323,700 for the 1999 Period. The increase
was primarily due to stock-based the increase in stock based compensation
expense of $601,000 recorded in the 2000 Period as compared to $176,500
recorded in the 1999 Period. In the future, we expect direct costs to
increase in absolute dollar terms but to decrease as a percentage of
revenues due to OTC products reaching the market and the sale of additional
product licenses. In the future, we expect selling, general and
administrative expenses to increase in absolute dollars but to decrease as
a percentage of revenues due to improved economies of scale and higher
overall revenues.
INTEREST EXPENSE. Interest expense was $229,100 for the 2000 Period as
compared to $210,000 for the 1999 Period. This increase was due to the
additional debt incurred in the 2000 Period. 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 $980,400 in the 2000 Period compared to $533,700 in
the 1999 Period. The increase was primarily due to the $424,500 increase in
stock-based compensation expense from the 2000 Period to the 1999 Period.
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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 $0 at February 29, 2000 and February 28,
1999.
Net cash used in operations in the 2000 Period was $40,800 compared to cash
provided by operations of $24,100 in the 1999 Period.
Net cash used in investing activities in the $0 in the 2000 Period and the
1999 Period.
Net cash provided by financing activities in the 2000 Period was $40,800
compared to cash used in financing activities of $24,100 in the 1999
Period.
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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