-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, O/o/q3Z1bH+k2qnMD21fFnvxRtLKzoKsonNw5L+/AMS96BNVK0mQd03vRv09PEiO PuH2v7riOwIfYRqLX+il5w== 0001000096-05-000028.txt : 20050119 0001000096-05-000028.hdr.sgml : 20050119 20050119160113 ACCESSION NUMBER: 0001000096-05-000028 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20041130 FILED AS OF DATE: 20050119 DATE AS OF CHANGE: 20050119 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MEDITECH PHARMACEUTICALS INC CENTRAL INDEX KEY: 0000717588 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 953819300 STATE OF INCORPORATION: NV FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-12561 FILM NUMBER: 05536417 BUSINESS ADDRESS: STREET 1: 10105 E VIA LINDA #103 STREET 2: PMB 382 CITY: SCOTTSDALE STATE: AZ ZIP: 85258 BUSINESS PHONE: 4806142874 MAIL ADDRESS: STREET 1: 10105 E VIA LINDA STREET 2: 103 382 CITY: SCOTTSDALE STATE: AZ ZIP: 85258 10QSB 1 meditech10qsb113004.txt FORM 10-QSB (11-30-2004) 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. 2 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. 3 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. 4 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 6 EX-31.1 2 meditech11302004exh311.txt CERTIFICATIONS REQUIRED UNDER SECTION 302 Exhibit 31.1 CERTIFICATION BY THE CHIEF EXECUTIVE OFFICER UNDER SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Gerald Kern, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Meditech Pharmaceuticals, Inc; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report. 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) for the registrant and have: a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b. Evaluated the effectiveness of the registrants' disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c. Disclosed in this report any changes in the registrants' internal control over financial reporting that occurred during the registrants' most recent fiscal quarter (the registrant's fourth fiscal quarter in case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants' internal control over financial reporting; and 5. The registrants' other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants' internal control over financial reporting. By: /s/ Gerald Kern -------------------------- Gerald Kern Chairman and Chief Executive Officer January 19, 2005 EX-31.2 3 meditech11302004exh312.txt CERTIFICATIONS REQUIRED UNDER SECTION 302 Exhibit 31.2 CERTIFICATION BY THE CHIEF FINANCIAL OFFICER UNDER SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Steven Kern, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Meditech Pharmaceuticals, Inc; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report. 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) for the registrant and have: a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b. Evaluated the effectiveness of the registrants' disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c. Disclosed in this report any changes in the registrants' internal control over financial reporting that occurred during the registrants' most recent fiscal quarter (the registrant's fourth fiscal quarter in case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants' internal control over financial reporting; and 5. The registrants' other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants' internal control over financial reporting. By: /s/ Steven Kern -------------------------- Steven Kern Director January 19, 2005 EX-32.1 4 meditech11302004exh321.txt CERTIFICATIONS REQUIRED UNDER SECTION 906 Exhibit 32.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly report of Meditech Pharmaceuticals, Inc. (the "Company") on Form 10-QSB for the period ending November 30, 2004, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I , Gerald N. Kern, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13 (a) or 15 (d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. By: /s/ Gerald N. Kern -------------------------- Gerald N. Kern Chief Executive Officer January 19, 2005 EX-32.2 5 meditech11302004exh322.txt CERTIFICATIONS REQUIRED UNDER SECTION 906 Exhibit 32.2 CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly report of Meditech Pharmaceuticals, Inc. (the "Company") on Form 10-QSB for the period ending November 30, 2004, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I , Steven Kern, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13 (a) or 15 (d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. By: /s/ Steven Kern -------------------------- Steven. Kern Director January 19, 2005 -----END PRIVACY-ENHANCED MESSAGE-----