Edgar Filing: MEDICAL DISCOVERIES INC

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-KSB

[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001

[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT For the
transition period from ___________ to __________

Commission file number 0-12627

MEDICAL DISCOVERIES, INC.
-------------------------
(Name of small business issuer in its charter)

Utah 87-0407858
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

738 Aspenwood Lane, Twin Falls, Idaho 83301
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(Address of principal executive offices)
(208) 736-1799
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(Issuer's telephone number, including area code)

Securities registered under Section 12(b) of the Exchange Act:

Name of Each Exchange

Title of Each Class On Which Registered
------------------- ---------------------

None None

Securities registered under Section 12(b) of the Exchange Act:
Common Stock, no par value
--------------------------
(Title of Class)

Check whether the issuer: (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes [X] No [
]

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]

The issuer had no revenues for its most recent fiscal year.

The aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the price at which the common equity was
sold, as of February 11, 2002, was $3,856,046.

As of February 11, 2002, the issuer had 34,706,917 shares of Common Stock
outstanding.

Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]

TABLE OF CONTENTS

PART I

Item 1. Description of Business 3

Item 2. Description of Property 9

Item 3. Legal Proceedings 9

Item 4. Submission of Matters to a Vote of Security Holders 9

PART II

Item 5. Market for Common Equity and Related Stockholder Matters 9

Item 6. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10

Item 7. Financial Statements 14

Item 8. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 29

PART III

Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act 29

Item 10. Executive Compensation 30

Item 11. Security Ownership of Certain Beneficial Owners and Management 31

Item 12. Certain Relationships and Related Transactions 31

Item 13. Exhibits and Reports on Form 8-K 31

This report contains certain forward-looking statements that involve risks and
uncertainties, including statements regarding the Company's plans, objectives,
goals, strategies and financial performance. The Company's actual results could
differ materially from the results anticipated in these forward-looking
statements as a result of certain factors set forth under "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Cautionary Statement for Forward-Looking Information and Factors
Affecting Future Results" and elsewhere in this report.

PART I

ITEM 1. DESCRIPTION OF BUSINESS.

ORGANIZATIONAL HISTORY

Medical Discoveries, Inc. ("MDI" or the "Company") was incorporated under the
laws of the State of Utah on November 20, 1991. Effective as of August 6, 1992,
the Company merged with and into WPI Pharmaceutical, Inc., a Utah corporation
("WPI"), pursuant to which WPI was the surviving corporation. Pursuant to the
MDI-WPI merger, the name of the surviving corporation was changed to Medical
Discoveries, Inc. WPI was incorporated under the laws of the State of Utah on
February 22, 1984 under the name Westport Pharmaceutical, Inc. Effective as of
May 8, 1984, Westport Pharmaceutical, Inc. merged with and into Euripides
Technology, Inc., a Utah corporation ("Euripides"), pursuant to which Euripides
was the surviving corporation. Pursuant to the Westport-Euripides merger, the
name of the surviving corporation was changed to Westport Pharmaceutical, Inc.
Westport Pharmaceutical, Inc. subsequently changed its name to WPI
Pharmaceutical, Inc. Euripides was incorporated under the laws of the State of
Utah on November 9, 1983.

On July 6, 1998, the Company incorporated a wholly-owned subsidiary, Regenere,
Inc., in the State of Nevada. On October 2, 1998, the Company incorporated
another wholly-owned subsidiary, MDI Healthcare Systems, Inc., in the State of
Nevada. Both subsidiaries were incorporated to undertake special purposes,
neither of which is currently being pursued by the Company. Neither subsidiary
currently has any operations or significant assets.

OVERVIEW

MDI is a publicly traded corporation (Over The Counter, Bulletin Board as MLSC).
MDI is considered a development stage company, as defined in SFAS No. 7. MDI is
a bio-pharmaceutical research company engaged in the research, development and
validation of a new (novel) class of drugs, based upon the company's patented
and proprietary electrolysis technologies. MDI is developing active anti-viral
(HIV/AIDS), anti-bacterial and anti-fungal agents for a variety of applications.

The company has developed a product, (hereafter "MDI-P"), which appears to have
the ability to destroy certain viruses and bacteria, including the HIV virus.
MDI-P may also have the ability to kill other infectious agents, possibly
including pathogenic fungi and parasites. MDI-P may possibly be used as a
sterilizing agent for medical and dental instruments. MDI-P may also potentially
be used to remove or inactivate infectious agents in human and animal
blood-derived products such as plasma and gamma globulin.

The Company is committed to its pursuit of establishing MDI-P as an effective
anti-bacterial, anti-viral and anti-fungal pharmaceutical for in-vitro and
in-vivo applications and to developing MDI-P as an effective liquid chemical
sterilant for a variety of applications. To date, the Company has not generated
significant revenues from operations or realized a profit. MDI is currently
attempting to secure capital commitments to finance continued research and
testing of its novel drugs and technologies, in order to secure required
approvals to bring products to market. In that MDI is a development stage
company, it will increasingly require additional funding to continue the
development of its technology and to finance submittal of its testing and trials
to the appropriate regulatory agencies in order to secure approvals for product
development and sales.

THE PRODUCT

The Company's primary product is referred to as MDI-P, which stands for "Medical

Discoveries, Inc.-Pharmaceutical." MDI-P is produced by the electrolysis of
saline, using a patented instrument with proprietary electrodes. This solution
has a significant oxidation reduction potential due to a mixture of oxidative
products resulting from electrolysis.

Electrolysis is the method whereby a certain type of electric current is passed
through a chemical solution. The electrical current causes the chemicals in the
saline solution to alter, producing a variety of chemical compounds, such as
ozone and hypochlorous acid. Different electrical currents produce different
concentrations of these and related chemicals. In published scientific
literature, electrolyzed saline solutions have been shown to have an intense
anti-microbicidal effect.

In-vivo applications of MDI-P, targeted at treating certain human diseases,
would require administration intravenously, orally, nasally or topically as
required. In the Company's currently proposed protocol for treating human
diseases, this electrolyzed solution would be administered intravenously to a
patient in a series of injections over a period of time. In-vitro applications,
such as the sterilization of surgical instruments, would involve the washing
and/or submersion of the instrument or material in the MDI-P solution.

Independent research has revealed that MDI-P is capable of rapidly killing HIV
upon direct contact and preventing infection of cells in a cell culture. In
addition, MDI-P is capable of rapid killing of the HIV virus in an acutely
infected cell line. Furthermore, the destruction of the HIV virus by MDI-P does
not require any additional combination of drugs. When compared to currently
available anti-retroviral drugs, this is a significant clinical and economic
advance. This research testing has demonstrated that MDI-P is effective in
destroying the HIV virus.

During the past eight years, the Company has conducted a variety of in-vitro
(laboratory) testing at the following university and medical research
institutions:

Stratton V.A. Medical Center, Albany, New York
Albany Medical College, Albany NY
Indiana University School Of Medicine And Dentistry
University of California, Los Angeles
Baylor College of Medicine and Dentistry, Dallas

In 1998, MDI initiated in vitro testing, conducted at the Dana-Farber Cancer
Institute, Boston, Massachusetts, a major teaching affiliate of the Harvard
Medical School. This facility is an NIH-approved (National Institute of Health)
research laboratory which uses the latest techniques for analyzing
anti-retroviral (HIV/AIDS) drugs. The results of this independent testing
confirmed that MDI-P achieved destruction of more than 90% of the HIV virus in
cell cultures, with no toxicity to the cells.

In 2000, data and results published by Dr. Aldonna Baltch, M.D., of the Stratton
V.A. Medical Center and Albany Medical College, Albany NY, indicate that MDI-P
is a potent antibacterial and anti-fungal agent. Dr. Baltch's work demonstrated
that MDI-P was effective in destroying the fungus Candida albicans and
Legionella pneumophillia (Legionaire's Disease) within 60-seconds of exposure
with no evidence of cell toxicity. This work was published in The American
Journal of Infection Control in 2000 and as abstracts of the American Society of
Microbiology meetings in 1997 and 1998.

Recent toxicity tests, completed in 2001 by WIL Research Laboratories,
demonstrated that MDI-P produced no systemic toxicity in laboratory animal tests
used to assess potential problems for human application. These studies were
conducted following FDA guidelines and have helped establish that MDI-P is
reasonably safe for human Phase I/II clinical trials.

Additionally, several human clinical trials involving AIDS patients were
performed offshore in Mexico and The Cayman Islands during the early history of
the company. MDI is currently considering additional offshore tests, using an
updated protocol acceptable to US regulatory agencies.

All of these tests have demonstrated that MDI-P has broad spectrum anti-viral,
anti-fungal and anti-bacterial characteristics. The Company believes that MDI-P
may offer new hope to patients in the fields of anti-bacterial and anti-fungal
applications, where side effects and cost pressures are issues.

Prior to filing an Investigational New Drug (IND) application with the U.S. Food
And Drug Administration (FDA), additional FDA-required testing for
standardization and documentation will be completed at Ricerca Inc. in
Painesville, Ohio, and CMI in Portland, Oregon.

Upon the FDA's acceptance and approval of the IND, the Company will undertake
Human Clinical Trials, Phases 1 and 2, involving patients infected with the AIDS
virus. When finished, MDI will petition the FDA to enter into Phase 3
Multi-Center Clinical Trials. When these trials are implemented and analyses are
completed, the Company will seek approval from the FDA to establish worldwide
access to MDI-P for the treatment of HIV patients.

RECENT DEVELOPMENTS

On March 27, 2002, the Company entered into an Advisory Agreement with Euronet
International, Inc., a New York City-based business and financial advisory firm.
Under the terms of the agreement, Euronet International will seek to initiate a
private placement of MDI stock to raise up to $10 million. While details of the
private placement have not been finalized, the parties anticipate a preferred
stock offering to accredited investors via the Internet. The Company will need
to secure shareholder approval to amend its articles of incorporation before the
Company can offer preferred stock. A shareholder meeting is planned during the
month of June 2002. The primary usage of proceeds from the offering will be to
retire debt owing to former joint venture partner Harvest Group L.L.C., and to
pursue an application with the FDA regarding MDI-P. The Advisory Agreement is
attached as Exhibit 10.3.

In January, 2002, the Company received the results of toxicity tests, completed
in 2001 by WIL Research Laboratories, demonstrating that MDI-P produced no
systemic toxicity in laboratory animal tests used to assess potential problems
for human application. These studies were conducted following FDA guidelines and
have helped establish that MDI-P is reasonably safe for human phase I and phase
II clinical trials.

In January, 2001, the Company received Patent Number 6,117,285 from the United
States Patent And Trademark Office, entitled "System For Carrying Out
Sterilization Of Equipment." MDI now has a total of eight granted United States
patents relating to the company's proprietary electrolysis devices, methods and
the patented products and applications derived therefrom. The family of patents
represents the continued development of MDI's technology and intellectual
property, begun in 1992 with proprietary hydrolysis of saline solutions for
microbicidal applications and the development of a patented machine to produce
these products.

Also in April, 2001, the Company received Japanese Patent Application Number
508856/96 from the Japanese Patent Office, entitled "System And Method For
Carrying Out Sterilization." The new patent is based upon the original US Patent
No. 5,507,932, "Apparatus For Electrolyzing Fluids", issued to Medical
Discoveries, Inc. in 1996. This patent was the second in a family of additional
patents in the US and elsewhere that defines and safeguards the proprietary
electrolysis technology used by MDI.

Also in January, 2001, a new study on the microbe-killing properties of MDI-P,
using four microorganisms that are difficult to eradicate in the hospital
environment, was completed at the Infectious Diseases Section of the Stratton VA
Medical Center in Albany, New York. The infectious diseases research group,
headed by Aldona Baltch, M.D., found that MDI-P is a highly effective
microbicide for the organisms studied. The results of this study suggest that
MDI-P may be useful for disinfecting inanimate surfaces, cold sterilization of
medical devices, antisepsis, and irrigation therapy for wounds and ulcers. The
findings of Dr. Baltch's group have been published in The American Journal Of
Infection Control (AJIC 2000;28:251-7), the official journal of the Association
for Professionals in Infection Control and Epidemiology, Inc.

As of November 29, 2001, the Company settled its ongoing dispute with Harvest
Group, L.L.C. ("Harvest"). The settlement required the Company to deliver to
Harvest a non-interest bearing, convertible promissory note (the "Note") in the
principal sum of $500,000 due on July 8, 2002 (the "Due Date") in full
satisfaction of all current amounts owning on loans from Harvest and all of
Harvest's other claims against the Company. Under the terms of the Note,
Harvest's only recourse, if the Company does not satisfy the Note in full by the
Due Date, is to convert the unpaid principal amount to unregistered shares of
common stock of the Company.

Upon the expiration of the Due Date, any principal sum outstanding shall
automatically convert to a number of shares of the Company's common stock equal
to a percentage of the total number of shares then issued and outstanding, on a
fully-diluted basis (including any unexercised, outstanding stock options or
other rights to acquire stock), as follows:

Principal Sum Percentage of Common
Outstanding Stock Issued and Outstanding
--------------------- ----------------------------

$1 - 400,000 20%
$400,001 - 450,000 25%
$450,001 - 500,000 30%

For example, if, as of the Due Date, the Company has 33,000,000 shares of common
stock issued and outstanding, 2,000,000 options outstanding and not yet
exercised, and the principal sum of $410,000 remains unpaid as of the expiration
of the Due Date, the Note will convert to 11,666,666 ([35,000,000/(1-0.25)] -
35,000,000) shares of common stock of the Company. Notwithstanding the automatic
conversion provisions, Harvest may, in its sole and absolute discretion, suspend
the automatic conversion of the Note beyond the Due Date by providing written
notice to the Company of such election no fewer than thirty (30) days prior to
the Due Date. If Harvest suspends the conversion of the Note, the conversion
shall remain suspended indefinitely unless and until Harvest elects to convert
the Note by giving the Company at least thirty (30) days prior written notice of
such election. During any such period of suspension of the automatic conversion
of the Note, the Company may pay the principal sum due thereunder in whole or in
part.

The settlement also prohibits the Company from certain sales, licensing and
financing transactions concerning its patents until the Company has satisfied
the Note. In addition, the agreement calls for the Company to receive all
skin-care products inventory in Harvest's possession and a return of the
Company's office furnishings that have been held by Harvest since the dispute
arose.

PATENTS AND PATENT APPLICATIONS

MDI's patents and resulting intellectual properties now span more than a decade
of research and development. Medical Discoveries, Inc. holds eight United States
Patents and two Japanese patents on its core technologies. These US Patents are
identified and have been awarded by the U.S. Patent Office under the following
Notifications:

Patent No. 5,334,383
"Electrically Hydrolyzed Salines As In Vivo Microbicides For Treatment Of
Cardiomyopathy And Multiple Sclerosis," issued in 1994 and valid until 2011.

Patent No. 5,507,932
"Apparatus For Electrolyzing Fluids," issued in 1996 and originally valid
through 2014. This patent is currently lapsed for accidental failure to pay a
maintenance fee and the Company is seeking revival.

Patent No. 5,560,816
"Method For Electrolyzing Fluids," issued in 1996 and valid through 2016.

Patent No. 5,622,848
"Electrically Hydrolyzed Saline Solutions As Microbicides For In Vitro Treatment
Of Contaminated Fluids Containing Blood," issued in 1997 and valid through 2014.

Patent No. 5,674,537
"An Electrolyzed Saline Solution Containing Concentrated Amounts Of Ozone And
Chlorine Species," issued in 1997 and valid through 2015.

Patent No. 5,731,008
"Electrically Hydrolyzed Salines As Microbicides," issued in 1998 and valid
through 2016.

Patent No. 6,007,686
"System For Electrolyzing Fluids For Use As Antimicrobial Agents," issued in
1999 and valid through 2016.

Patent No. 6,117,285
"System For Carrying Out Sterilization Of Equipment," issued in 2000 and valid
through 2017.

RESEARCH AND DEVELOPMENT

MDI is a start-up company with limited resources. During the two fiscal years
ended December 31, 2000 and 2001, the Company spent $117,150 and 132,300,
respectively on research and development of MDI-P. The Company intends actively
to pursue and expand its research effort as funds will allow. The focus of the
initial research is on the use of MDI-P as a human anti-viral agent,
broad-spectrum bactericide, anti-fungal agent, and a potential sterilizing agent
for blood products. In the future, as funds allow, the Company will also focus
its research on the use of MDI-P as a sterilizing agent for dental and medical
instruments.

COMPETITION

The biotechnology and pharmaceutical industries are characterized by rapidly
evolving technologies and intense competition. The Company's competitors include
major pharmaceutical, chemical, and specialized biotechnology companies, many of
which have financial, technical, and marketing resources significantly greater
than those of the Company. Fully integrated pharmaceutical companies, due to
their expertise in research and development, manufacturing, testing, obtaining
regulatory approvals, and marketing, as well as their substantially greater
financial and other resources, may be the Company's most formidable competitors.
In addition, acquisitions by such pharmaceutical companies could enhance the
financial and marketing resources of smaller competitors. Furthermore, colleges,
universities, governmental agencies, and other public and private research
organizations will continue to conduct research and possibly market competitive
commercial products on their own or through joint ventures. These institutions
are becoming more active in seeking patent protection and licensing arrangements
to collect royalties for use of technology that they have developed. These
institutions also will compete with the Company in recruiting and retaining
highly qualified scientific personnel.

If and when MDI obtains any required regulatory approval for any of the uses of
MDI-P which require them, it must then compete for acceptance in the
marketplace. Given that such regulatory approval, especially in the United
States, may take a number of years, the timing of the introduction of MDI-P and
other products to the market is critical. Other safe and effective drugs and
treatments may be introduced into the market prior to the time that the Company
is able to obtain approval for the commercialization of MDI-P. In addition, even
after such regulatory approval is obtained, competition among products approved
for sale may be affected by, among other things, product efficacy, safety,
reliability, availability, price, and patent position. There can be no assurance
that MDI-P will be competitive if and when introduced into the marketplace for
any of its possible uses.

COMPETITIVE BUSINESS POSITION

MDI is aware of other companies who may be developing similar technologies and
products for markets in which MDI may pursue product development and revenue.
MDI is continuing to monitor and learn about these companies and technologies,
in that they may provide opportunities to develop key relationships that will
enhance the company's understanding and development of these technologies and
assist MDI to enter worldwide markets in the future, either separately or in
strategic alliance with several of these companies. None of these companies is
seen as an immediate competitor to MDI's stated strategy of developing a
research data base for research-based product development, while continuing to
develop intellectual property and to secure patent rights worldwide.

Electrolyzed water, sometimes called "Function Water", has received rapid and
intense attention in Japan. In support of this technology, the Japanese
government has established a special organization to study applications for this
technology. The name for this organization is the Function Water Foundation.
Japan currently has as many as 35 separate companies developing products to make
the benefits of function water available for a wide variety of applications.

Other markets that MDI is considering for product development are medical
instrument

sterilization and sterilization for animal products production. The Company
suspects that several other companies have similar interests in these markets.

Over the last year MDI began developing a comprehensive strategic plan that
focuses on three areas: market attractiveness, time/cost to prove technology,
and commercialization alternatives. In every instance, MDI is approaching
product development and marketing opportunities which are based upon the
company's solid research and proprietary product development, backed by patented
technologies and secure intellectual properties.

GOVERNMENT REGULATIONS

The Company's use of the MDI-P solution in the treatment of HIV and for other
human or in vitro uses is subject to extensive regulation by United States and
foreign governmental authorities. These regulations apply not only to the use of
MDI-P itself, but also to the manufacture of the electrolysis equipment used to
create MDI-P. In particular, pharmaceutical treatments are subject to rigorous
preclinical and clinical testing and other approval requirements by the Federal
Drug Administration in the United States under the federal Food, Drug and
Cosmetic Act and by comparable agencies in most foreign countries. Various
federal, state and foreign statutes also govern or influence the manufacture,
labeling, storage, record keeping, and marketing of such products.
Pharmaceutical manufacturing facilities are also regulated by state, local, and
other authorities. Obtaining approval from the FDA and other regulatory
authorities for a new drug or treatment may take several years and involve
substantial expenditures. Moreover, ongoing compliance with these requirements
can require the expenditure of substantial resources. Difficulties or
unanticipated costs may be encountered by the Company in its efforts to secure
necessary governmental approvals, which could delay or preclude the Company from
marketing MDI-P.

For in vivo uses of MDI-P, the Company must conduct preclinical studies to
prepare an IND application. If the FDA accepts the IND application, the Company
would be allowed to commence a series of clinical trials. Each clinical study
must be evaluated by an independent institutional review board. Data from
preclinical testing and clinical trials of MDI-P against HIV or as an
anti-bacterial agent may eventually be submitted to the FDA in a "New Drug
Application" ("NDA") for marketing approval. After the FDA grants approval for
the NDA, initial marketing efforts may begin. Each step of the approval process
can involve considerable time, money, and effort. At any point, approvals may be
withdrawn if compliance with regulatory standards are not maintained. For in
vitro uses, the FDA process is significantly less complicated and time
consuming. Because the use of MDI-P as a sterilizing agent does not require the
injection of this "new drug" in a human patient, MDI is required by the FDA
regulations only to demonstrate in laboratory tests that MDI-P is an effective
sterilizing agent. This data is required to be filed with the FDA by MDI in the
form of a "510(K) Application." This 510(K) Application is subject to FDA
approval, but the time required for such approval is considerably less than the
time required for the approval of a "new drug" because extensive clinical data
is not required.

Other product applications which may be developed for MDI-P could require
regulatory approvals from other governmental agencies, such as the Environmental
Protection Agency pursuant to the Federal Insecticide, Fungicide, and
Rodenticide Act and the Toxic Substances Control Act, and other present and
potential federal, state and local regulations. These approvals can involve
considerable money, time and effort and do not, in and of themselves, guarantee
any commercial success for the product applications approved.

LICENSING, DISTRIBUTION, AND MANUFACTURING

Given the preliminary nature of the Company's research, and given the
uncertainty of regulatory approvals and market viability, management of the
Company is concentrating on making informed decisions regarding the best course
for commercialization of MDI-P in its various potential applications. MDI may
seek to commercialize potential applications of MDI-P either directly or
indirectly in contracts with third parties, including larger, established
companies.

EMPLOYEES

The Company currently has no employees. Judy M. Robinett, the Company's CEO, is
an independent contractor to the Company. The Company has engagements with a
number of other consultants for communications, investor relations, website
development, accounting and

other services. If the Company obtains sufficient funding, it anticipates adding
several employees in 2002.

ITEM 2. DESCRIPTION OF PROPERTY.

The Company does not currently own or lease any real property. Currently, the
Company operates out of the CEO's home office and does not pay rent.

ITEM 3. LEGAL PROCEEDINGS.

As of November 29, 2001, the Company settled its ongoing dispute with Harvest
Group, L.L.C. ("Harvest"). The settlement required the Company to deliver to
Harvest a non-interest bearing, convertible promissory note (the "Note") in the
principal sum of $500,000 due on July 8, 2002 (the "Due Date") in full
satisfaction of all current amounts owning on loans from Harvest and all of
Harvest's other claims against the Company. Under the terms of the Note,
Harvest's only recourse if the Company does not satisfy the Note in full by the
Due Date is to convert the unpaid principal amount to unregistered shares of
common stock of the Company.

Principal Sum Percentage of Common
Outstanding Stock Issued and Outstanding

$1 - 400,000 20%
$400,001 - 450,000 25%
$450,001 - 500,000 30%

For example, if, as of the Due Date, the Company has 33,000,000 shares of common
stock issued and outstanding, 2,000,000 options outstanding and not yet
exercised, and the principal sum of $410,000 remains unpaid as of the expiration
of the Due Date, the Note will convert to 11,666,666 ([35,000,000/(1- 0.25)] -
35,000,000) shares of common stock of the Company. Notwithstanding the automatic
conversion provisions, Harvest may, in its sole and absolute discretion, suspend
the automatic conversion of the Note beyond the Due Date by providing written
notice to the Company of such election no fewer than thirty (30) days prior to
the Due Date. If Harvest suspends the conversion of the Note, the conversion
shall remain suspended indefinitely unless and until Harvest elects to convert
the Note by giving the Company at least thirty (30) days' prior written notice
of such election. During any such period of suspension of the automatic
conversion of the Note, the Company may pay the principal sum due thereunder in
whole or in part.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.

PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

MARKET INFORMATION

The Company's common stock is traded on the NASD OTC Bulletin Board under the
symbol "MLSC." The following table sets forth the range of bid quotations for
the Company's common stock for the quarters indicated according to data provided
by The NASDAQ Stock Market,

Inc. Such quotations reflect inter-dealer prices, without retail mark-ups,
markdowns or commissions, and may not represent actual transactions.

FISCAL YEAR ENDED DECEMBER 31, 2001 HIGH BID LOW BID
-----------------------------------

First Quarter Unknown Unknown
Second Quarter $0.145 $0.085
Third Quarter 0.17 0.095
Fourth Quarter 0.21 0.115

FISCAL YEAR ENDED DECEMBER 31, 2000 HIGH BID LOW BID
----------------------------------- -------- -------

First Quarter $0.845 $0.06
Second Quarter 1.180 0.01
Third Quarter 0.230 0.12
Fourth Quarter 0.195 0.06

During much of January, February and March, 2001, no public market (as defined
in Item 10(b)(2) of Regulation S-B) existed for the Company's common stock.
During that period, bid and ask quotations were not posted to the OTC Bulletin
Board or published in the Pink Sheets. As of mid-March, 2001, bid and ask
quotations in the Company's common stock were again published in the Pink Sheets
and as of April 11, 2001, bid and ask quotations in the Company's common stock
were again posted to the OTC Bulletin Board.

SHAREHOLDERS

The approximate number of shareholders of record of the Company's common stock
as of February 11, 2002, was 1,248. This number does not include shareholders
whose shares are held in securities position listings.

DIVIDENDS

The Company has not paid any cash dividends on its common stock in the last two
fiscal years and does not anticipate paying dividends in the foreseeable future.
The Company presently intends to retain future earnings for financing the growth
and expansion of the Company.

UNREGISTERED SALES OF SECURITIES

On August 30, 2001, the Company sold 500,000 shares of common stock to Ferret
Resources at $0.15 per share for total proceeds of $75,000. On December 20,
2001, the Company sold another 160,000 shares of common stock to Ferret
Resources at $0.15 per share for total proceeds of $24,000. These sales did not
involve an underwriter. The Company believes these sales were exempt from
registration pursuant to Section 4(2) of the Securities Act of 1933 because the
sales did not involve a public offering.

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

The purpose of this section is to discuss and analyze the Company's consolidated
financial condition, liquidity and capital resources and results of operations.
This analysis should be read in conjunction with the financial statements and
notes thereto at pages 16 through 29.

This section contains certain forward-looking statements that involve risks and
uncertainties, including statements regarding the Company's plans, objectives,
goals, strategies and financial performance. The Company's actual results could
differ materially from the results anticipated in these forward-looking
statements as a result of factors set forth under "Cautionary Statement for
Forward-Looking Information and Factors Affecting Future Results" below and
elsewhere in this report.

RESULTS OF OPERATIONS

REVENUES AND GROSS PROFIT. The Company did not book any revenues in the year
ended December

31, 2001 as the Company continues to pursue pre-commercialization activities
regarding its technologies. By comparison, the Company booked revenues of $7,495
in 2000 from isolated sales of the Company's skin care products, resulting in a
gross profit of $4,719.

OPERATING EXPENSES AND OPERATING LOSS. The Company spent $132,300 for research
and development during the year ended December 31, 2001, as compared with
$117,150 for the same period in 2000. The Company's general and administrative
expenses were $1,247,302 in 2001, up from $254,767 during the year ended
December 31, 2000. While the net cash used by operating activities in 2001
remained relatively unchanged from 2000 ($158,300 in 2001 versus $115,588 in
2000), the Company took significant charges for stock options issued for
services (in the amount of $159,405), stock issued for services and expenses (in
the amount of $364,599), and a net increase of $385,000 in notes payable to
settle the Harvest litigation (discussed in Item 3 above). As a result of the
foregoing, the Company sustained an operating loss of $1,379,602 for the year
ended December 31, 2001, as compared with a loss of $473,766 for the same period
of 2000.

OTHER INCOME/EXPENSE AND NET LOSS. The Company incurred interest expenses of
$150,056 in 2001, as compared with $76,927 in such expenses in 2000. In sum, the
Company's net loss for 2001 was $1,529,658, or a loss of approximately $0.05 per
fully diluted share. In 2000, the Company sustained a net loss of $281,767, or a
loss of approximately $0.01 per fully diluted share.

INCOME TAXES. The Company has a net operating loss carryforward of approximately
$8,910,000. Due to the Company's operating condition, the net operating loss has
been fully offset with a valuation allowance resulting in no deferred tax asset.
See Note I to the Financial Statements for a further explanation of this
analysis.

FUTURE COMMITMENT AND EXPECTATIONS. Management expects the Company will operate
at a loss for several more years while it continues to study, gain regulatory
approval of and commercialize its technologies. If the Company is successful in
raising additional capital, the Company will likely spend more in 2002 in
research and development and general and administrative expenses, and thereby
sustain greater resulting losses, than it has in recent years.

RECENTLY ISSUED ACCOUNTING STATEMENTS. In July 2001, the Financial Accounting
Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS)
No. 141, "Business Combinations" and No. 142, "Goodwill and Other Intangible
Assets". In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations". In August 2001, the FASB issued SFAS No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets". The Company
believes that the adoption of these accounting standards will not have any
material effect on the financial statements of the Company.

LIQUIDITY AND CAPITAL RESOURCES

The Company will require significant additional funding to continue to develop,
research and seek regulatory approval of its technologies. In addition, the
Company cannot survive, even in the near term, without immediate additional
funding for operations. The Company does not currently generate any cash from
operations and has no credit facilities in place or available. Currently, the
Company is funding operations through short-term loans from shareholders and
others.

Management is seeking to raise substantial additional funds in private stock
offerings in order to meet its near-term and long-term funding requirements.
While management is optimistic that it can raise such funds, the Company has not
always been successful in doing so in recent years. Given that the Company is
still in an early development stage and does not have revenues from operations,
raising equity financing is difficult. In addition, any additional equity
financing will have a substantial dilutive effect to the Company's current
shareholders.

CAUTIONARY STATEMENT FOR FORWARD LOOKING INFORMATION
AND FACTORS AFFECTING FUTURE RESULTS

Certain information set forth in this report contains "forward-looking
statements" within the meaning of federal securities laws. Forward looking
statements include statements concerning plans, objectives, goals, strategies,
future events, future revenues or

performance, capital expenditures, and financing needs of the Company and other
information that is not historical information. When used in this report, the
words "estimates," "expects," "anticipates," "forecasts," "plans," "intends,"
"believes" and variations of such words or similar expressions are intended to
identify forward-looking statements. Additional forward-looking statements may
be made by the Company from time to time. All such subsequent forward-looking
statements, whether written or oral and whether made by or on behalf of the
Company, are also expressly qualified by these cautionary statements.

The Company's forward-looking statements are based upon the Company's current
expectations and various assumptions. The Company's expectations, beliefs and
projections are expressed in good faith and are believed by the Company to have
a reasonable basis, including without limitation, management's examination of
historical operating trends, data contained in the Company's records and other
data available from third parties, but there can be no assurance that
management's expectations, beliefs and projections will result or be achieved or
accomplished. The Company's forward-looking statements apply only as of the date
made. The Company undertakes no obligation to publicly update or revise
forward-looking statements which may be made to reflect events or circumstances
after the date made or to reflect the occurrence of unanticipated events. There
are a number of risks and uncertainties that could cause actual results to
differ materially from those set forth in, contemplated by or underlying the
forward-looking statements contained in this report. In addition to the other
factors and matters discussed elsewhere in this report, the following factors
are among the factors that could cause actual results to differ materially from
the forward-looking statements. Any forward-looking statements made by or on
behalf of the Company should be considered in light of these factors.

WE HAVE NOT GENERATED SIGNIFICANT OPERATING REVENUES OR ANY PROFITS AND MAY
CONTINUE TO OPERATE AT A LOSS. We are a development stage company. To date, we
have not generated significant revenues from operations or realized a profit. We
have experienced a loss from operations in every fiscal year since our
inception. Our losses from operations in 2000 were $473,766 and losses from
operations in 2001 were $1,379,602. We will likely continue to experience a net
operating loss until, and if, we can fully commercialize our technologies. We
are presently investing all of our resources in the testing, development and
commercialization of MDI-P and our other technologies. There can be no assurance
that MDI-P, our other technologies, or any other project undertaken by us will
ever enable MDI to generate consistent revenues from operations. Even if our
technologies begin generating revenues, the revenues may not exceed the costs of
research, development, testing, regulatory approval and other costs.
Accordingly, we may not ever realize a profit from operations.

WE MAY NOT BE ABLE TO RAISE SUFFICIENT CAPITAL TO MEET PRESENT AND FUTURE
OBLIGATIONS. As of December 31, 2001, our current liabilities exceeded our
current assets by $3,282,331 and we had cash of only $2,481. We need additional
capital immediately in order to satisfy current liabilities and meet basic
operational needs. We also will need substantial additional capital to fund
regulatory approvals and to fully commercialize our technologies. We do not
anticipate that revenues will satisfy these capital requirements. Furthermore,
we may not to be able to obtain the amount of additional capital needed or may
be forced to pay an extremely high price for capital. Factors affecting the
availability and price of capital may include, without limitation, the
following: (1) market factors affecting the availability and cost of capital
generally; (2) our performance; (3) the size of our capital needs; (4) the
market's perception and acceptance of our technologies; and (5) the price,
volatility and trading volume of our common shares. If we are unable to obtain
sufficient capital or are forced to pay a high price for capital, we may be
unable to complete testing, regulatory approval and commercialization of our
technologies and may never achieve consistent revenues or profitability. In
addition, because of their size, resources and other factors, our competitors
may have better access to capital than we do and, as a result, may be able to
exploit opportunities more rapidly, easily or thoroughly than we can.

WE MAY ISSUE SUBSTANTIAL AMOUNTS OF ADDITIONAL SHARES WITHOUT STOCKHOLDER
APPROVAL. Our Articles of Incorporation authorize us to issue up to 100 million
shares of common stock. Fewer than 35 million shares are issued now, leaving
approximately 65 million shares available for future issuance. All such shares
may be issued without any action or approval by our stockholders. We anticipate
issuing additional shares in connection with private stock offerings for the
purpose of raising capital. The issuance of any additional shares

of common stock would further dilute the percentage ownership of MDI held by
existing stockholders.

OUR OPERATIONS ARE AND WILL BE SUBJECT TO EXTENSIVE GOVERNMENT REGULATION. As
more fully discussed in "Description of Business--Government Regulations" above,
before MDI-P or any of our other technologies can be used as drugs or in other
human applications in the United States, we will need to obtain approval from
the Federal Drug Administration. Similar approval is also required in most other
countries. FDA approval and the prerequisite testing is time consuming and
expensive. Also, many of the applications we are considering for our technology
are regulated by the Environmental Protection Agency. The EPA approval process
is similarly lengthy and expensive. There can be no assurance that we will
attract sufficient capital to fully pursue the regulatory approval process. Even
if we do attract sufficient capital, we can make no assurance that we will be
successful in achieving approval or, if we do achieve approval, that future
revenues will be sufficient to justify the expense of the regulatory approval
process.

OUR TECHNOLOGIES ARE UNPROVEN. While we have received positive results from
preliminary studies of MDI-P, more studies are necessary in order for us to
accurately predict the ultimate effectiveness of our technologies as anti-viral,
anti-bacterial and anti-fungal agents. Furthermore, we cannot as of yet be sure
that MDI-P is safe to humans when used as intended. Extensive additional
research and testing will be necessary before we can fully commercialize our
technologies. If our technologies are ultimately deemed unsafe or ineffective,
then we will not likely be able to recoup our substantial investment in research
and development.

WE FACE INTENSE COMPETITION AND COMPETING PRODUCTS. As more fully discussed in
"Description of Business--Competition" above, competition in the market for
MDI-P is intense and will likely further intensify. We are aware of private and
government entities that have studied and used MDI-P-like products in Russia and
Japan for several years. If MDI-P gains recognition, we anticipate that
international pharmaceutical companies will be interested in investing or
competing in this market. Our present and future competitors may be able to
develop and commercialize technologies quicker than we can. In addition, even if
we do successfully commercialize our technologies, there can be no assurance
that our products will gain significant market share as we attempt to compete
with more traditional anti-viral, anti-bacterial, anti-fungal, disinfectant and
sterilization products and methods.

OUR INTELLECTUAL PROPERTY MAY NOT BE ADEQUATELY PROTECTED. It is our policy to
protect our intellectual property and proprietary technologies by, among other
means, filing patent applications to protect technology that we consider
important to the development of our business. We also rely on trade secrets and
improvements, unpatented know-how, and continuing technological innovation to
develop and maintain our competitive position. Despite our policy to seek patent
protection wherever appropriate, there can be no assurance that our patent
applications will result in further patents being issued or that, if issued, the
patents will afford protection against competitors with similar technology.
While we have obtained several United States patents, persons in jurisdictions
outside of the United States in which no application has been filed, or which do
not honor United States patents, may develop and market infringing technologies.
Also, the cost of enforcing patents outside of North America, as well as other
obstacles, may limit our ability to enforce any patents outside of the United
States. There can also be no assurance that any patent issued to the Company
will not be infringed or circumvented by others or that others will not obtain
patents that the Company would need to license or circumvent. There can be no
assurance that licenses, which might be required for the Company's processes or
products, would be available on reasonable terms or that patents issued to
others would not prevent the Company from developing and marketing its products.
In addition, there can be no assurance that a court of competent jurisdiction
would hold our patents valid if issued. To the extent we also rely on unpatented
trade secrets, there can be no assurance that others will not independently
develop substantially equivalent proprietary information and techniques or
otherwise gain access to our trade secrets or disclose such technology.

ITEM 7. FINANCIAL STATEMENTS.

FINANCIAL STATEMENTS TABLE OF CONTENTS

Page No.
--------

INDEPENDENT AUDITORS' REPORT................................................... 15

FINANCIAL STATEMENTS

Consolidated Balance Sheet.................................................. 16

Consolidated Statements of Operations....................................... 17

Consolidated Statements of Changes in Stockholders' Deficit................. 18

Consolidated Statements of Cash Flows....................................... 21

Notes to Financial Statements............................................... 22

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders
Medical Discoveries, Inc. and Subsidiaries
Boise, Idaho

We have audited the accompanying consolidated balance sheet of Medical
Discoveries, Inc. and Subsidiaries (a development stage company) as of December
31, 2001, and the related consolidated statements of operations, changes in
stockholders' deficit, and cash flows for the years ended December 31, 2001 and
2000, and for the period from inception (November 20, 1991) to December 31,
2001. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to report on these consolidated
financial statements based on our audits. The Company's financial statements for
the period from inception (November 20, 1991) through December 31, 1999 were
audited by other auditors whose report, dated March 20, 2000, expressed an
unqualified opinion on those statements. The financial statements for the period
from inception (November 20, 1991) through December 31, 1999 reflect total
revenues and net loss of $150,015 and $9,951,404, respectively, of the related
totals. The other auditors' report has been furnished to us, and our report,
insofar as it relates to the amounts included for such prior period, is based
solely on the report of such other auditors.

We conducted our audits in accordance with U.S. generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, based on our audits and the report of other auditors, such
consolidated financial statements present fairly, in all material respects, the
financial position of Medical Discoveries, Inc. and Subsidiaries as of December
31, 2001, and the results of their operations and their cash flows for the years
ended December 31, 2001 and 2000, and for the period from inception (November
20, 1991) to December 31, 2001, in conformity with U.S. generally accepted
accounting principles.

The accompanying 2001 consolidated financial statements have been prepared
assuming the Company will continue as a going concern. The Company is a
development stage enterprise engaged in developing bio-pharmaceutical research.
As discussed in Note B to the financial statements, the stockholders' deficiency
and the operating losses since inception raise substantial doubt about its
ability to continue as a going concern. Management's plans concerning these
matters are also described in Note B. The financial statements do not include
any adjustments that might result from the outcome of these uncertainties.

Balukoff Lindstrom & Co.

Boise, Idaho
March 27, 2002

MEDICAL DISCOVERIES, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEET
December 31, 2001

Current assets
Cash $ 2,481
Current portion of deferred charges 48,305
------------

Total current assets 50,786

Equipment, at cost, net of accumulated depreciation 679
Deferred charges, less current portion 60,381
------------

Total assets $ 111,846
============

Current liabilities
Accounts payable $ 1,832,340
Accrued interest 279,860
Current portion of notes payable 477,717
Convertible notes payable 743,200
------------

Total current liabilities 3,333,117

Stockholders' deficit
Escrow receivable (227,300)
Additional paid in capital 159,405
Common stock, no par value, authorized
100,000,000 shares; 34,706,917
shares issued and outstanding at December 31, 2001 10,797,526
Accumulated deficit (13,950,902)
------------

Total stockholders' deficit (3,221,271)
------------

$ 111,846
============

See accompanying notes

MEDICAL DISCOVERIES, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31, 2001 and 2000, and Cumulative Amounts Since
November 20, 1991 (Date of Inception)

Cumulative
Amounts
Since
November 20,
1991 (Date of
2001 2000 Inception)
---------------- --------------- ------------------

Revenues $ -- $ 7,495 $ 134,104

Cost of goods sold -- 2,776 10,526
------------ ------------ ------------

Gross profit -- 4,719 123,578

Research and development expenses 132,300 117,150 2,521,741
Inventory writedown -- 96,859 96,859
Impairment loss -- 9,709 9,709
License -- -- 1,001,500
General and administrative expenses 1,247,302 254,767 9,362,655
------------ ------------ ------------

Operating loss (1,379,602) (473,766) (12,868,886)

Other income (expense)
Interest income -- -- 23,406
Other income -- 268,926 268,926
Interest expense (150,056) (76,927) (421,811)
------------ ------------ ------------
(150,056) 191,999 (129,479)

Loss before income taxes and
extraordinary item (1,529,658) (281,767) (12,998,365)

Income taxes -- -- --

Forgiveness of debt net of $0 income taxes -- -- 1,235,536
------------ ------------ ------------

Net loss available to shareholders $ (1,529,658) $ (281,767) $(11,762,829)
============ ============ ============

Net loss per share
Continuing operations $ (0.05) $ (0.01) $ (0.60)
Extraordinary item -- -- 0.06
------------ ------------ ------------
Net loss per share $ (0.05) $ (0.01) $ (0.54)
============ ============ ============

Weighted average shares outstanding 33,124,927 27,169,288 21,576,285

See accompanying notes

MEDICAL DISCOVERIES, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS DEFICIT
Period From Date of Inception (November 20, 1991) to December 31, 2001

Common stock Additional Escrow/
-------------------------- Paid in Accumulated Subscription
Shares Amount Capital Deficit Receivables Total
----------- ------------ -------- ------------ ------------- -----------

Balance at October 31, 1991 3,500,000 $ 252,997 $ -- $ (1,482,514) $ -- $(1,229,517)

Reverse stock split (1 for 2) (1,750,000) -- -- -- -- --

Restatement for reverse
acquisition of WPI Pharmaceutical,
Inc. by Medical Discoveries, Inc. -- (252,997) -- 252,997 -- --

Shares issued in merger of WPI
Pharmaceutical, Inc. and Medical
Discoveries, Inc. 10,000,000 135,000 -- (170,060) -- (35,060)
----------- ------------ -------- ------------ --------- -----------

Balance at November 20, 1991
(Date of Inception) 11,750,000 135,000 -- (1,399,577) -- (1,264,577)

Issuance of common stock for cash 200,000 100,000 -- -- -- 100,000

Issuance of common stock for services 500,000 250,000 -- -- -- 250,000

Issuance of common stock for cash 40,000 60,000 -- -- -- 60,000

Net loss to October 31, 1992 -- -- -- (370,398) -- (370,398)
----------- ------------ -------- ------------ --------- -----------

Balance at October 31, 1992 12,490,000 545,000 -- (1,769,975) -- (1,224,975)

Net loss two months ended
December 31, 1992 -- -- -- (65,140) -- (65,140)
----------- ------------ -------- ------------ --------- -----------

Balance at December 31, 1992 12,490,000 545,000 -- (1,835,115) -- (1,290,115)

Issuance of common stock for license 2,000,000 1,000,000 -- -- -- 1,000,000

Issuance of common stock for cash 542,917 528,500 -- -- -- 528,500

Issuance of common stock for services 251,450 127,900 -- -- -- 127,900

Issuance of common stock for $100,000
cash plus services 800,000 400,000 -- -- -- 400,000

Net loss -- -- -- (2,271,999) -- (2,271,999)
----------- ------------ -------- ------------ --------- -----------

Balance at December 31, 1993 16,084,367 2,601,400 -- (4,107,114) -- (1,505,714)

Issuance of common stock for cash 617,237 739,500 -- -- -- 739,500

Issuance of common stock for services 239,675 239,675 -- -- -- 239,675

Cash contributed -- 102,964 -- -- -- 102,964

Net loss -- -- -- (1,223,162) -- (1,223,162)
----------- ------------ -------- ------------ --------- -----------

Balance at December 31, 1994 16,941,279 3,683,539 -- (5,330,276) -- (1,646,737)

Issuance of common stock for cash 424,732 283,200 -- -- -- 283,200

Issuance of common stock for services 4,333,547 1,683,846 -- -- (584,860) 1,098,986

Issuance of common stock option
to satisfy debt restructuring -- 20,000 -- -- -- 20,000

Net loss -- -- -- (1,007,522) -- (1,007,522)
----------- ------------ -------- ------------ --------- -----------

Balance at December 31, 1995 21,699,558 5,670,585 -- (6,337,798) (584,860) (1,252,073)

See accompanying notes

Issuance of common stock for cash 962,868 635,000 -- -- (60,000) 575,000

Issuance of common stock for services 156,539 101,550 -- -- -- 101,550

Common stock canceled (1,400,000) (472,360) -- -- 472,360 --

Issuance of common stock in
settlement of obligations 239,458 186,958 -- -- -- 186,958

Net loss -- -- -- (456,466) -- (456,466)
----------- ------------ -------- ------------ --------- -----------

Balance at December 31, 1996 21,658,423 6,121,733 -- (6,794,264) (172,500) (845,031)

Issuance of common stock for services
and interest 12,500 3,625 -- -- -- 3,625

Issuance of common stock for cash 311,538 135,000 -- -- 60,000 195,000

Issuance of common stock in settlement
of contract 800,000 200,000 -- -- -- 200,000

Issuance of common stock from
exercise of options 87,836 21,959 -- -- -- 21,959

Issuance of common stock for
conversion of notes payable 100,000 25,000 -- -- -- 25,000

Net loss -- -- -- (831,762) -- (831,762)
----------- ------------ -------- ------------ --------- -----------

Balance at December 31, 1997 22,970,297 6,507,317 -- (7,626,026) (112,500) (1,231,209)

Issuance of common stock for cash 2,236,928 650,000 -- -- -- 650,000

Issuance of common stock for debt 283,400 56,680 -- -- -- 56,680

Issuance of common stock options
for services -- 2,336,303 -- -- -- 2,336,303

Issuance of common stock for services 683,000 110,750 -- -- -- 110,750

Issuance of common stock from
exercise of warrants 200,000 200 -- -- -- 200

Net loss -- -- -- (3,481,889) -- (3,481,889)
----------- ------------ -------- ------------ --------- -----------

Balance at December 31, 1998 26,373,625 9,661,250 -- (11,107,915) (112,500) (1,559,165)

Issuance of stock for:
Interest 100,000 30,000 -- -- -- 30,000
Cash 13,334 2,000 -- -- -- 2,000

Options exercised and waived
option price 170,000 24,000 -- -- -- 24,000

Options issued for services -- 196,587 -- -- -- 196,587

Net loss -- -- -- (1,031,562) -- (1,031,562)
----------- ------------ -------- ------------ --------- -----------

Balance at December 31, 1999 26,656,959 9,913,837 -- (12,139,477) (112,500) (2,338,140)

Write-off of subscription receivable -- -- -- -- 112,500 112,500

Issuance of stock for escrow receivable 5,500,000 500,000 -- -- (500,000) --

See accompanying notes

Reversal of shares issued (81,538) -- -- -- -- --

Research and development costs -- -- -- -- 115,400 115,400

Net loss -- -- -- (281,767) -- (281,767)
----------- ------------ -------- ------------ --------- -----------

Balance at December 31, 2000 32,075,421 10,413,837 -- (12,421,244) (384,600) (2,392,007)

Issuance of common stock options
for services -- -- 159,405 -- -- 159,405

Issuance of common stock for cash 660,000 99,000 -- -- -- 99,000

Issuance of common stock for services
and interest 1,971,496 284,689 -- -- -- 284,689

Research and development costs -- -- -- -- 132,300 132,300

Operating expenses -- -- -- -- 25,000 25,000

Net loss -- -- -- (1,529,658) -- (1,529,658)
----------- ------------ -------- ------------ --------- -----------

Balance at December 31, 2001 34,706,917 $ 10,797,526 $159,405 $(13,950,902) $(227,300) $(3,221,271)
=========== ============ ======== ============ ========= ===========

See accompanying notes

MEDICAL DISCOVERIES, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 2001 and 2000, and Cumulative Amounts Since
November 20, 1991 (Date of Inception)

Cumulative
Amounts
Since
November 20,
1991 (Date of
2001 2000 Inception)
----------- --------- -------------

Cash flows from operating activities
Net loss $(1,529,658) $(281,767) $(12,551,325)
Adjustments to reconcile net loss to net
cash used by operating activities
Common stock options issued for services 159,405 -- 2,716,295
Common stock issued for services, expenses,
and litigation 265,599 -- 3,825,585
Reduction of escrow receivable from
research and development and
operating expenses 157,300 115,400 272,700
Reduction of legal costs -- -- (130,000)
Notes payable issued for litigation 385,000 -- 385,000
Depreciation 3,935 14,870 99,592
Write-off of subscription receivables -- 112,500 112,500
Impairment loss on assets -- 9,709 9,709
Loss on disposal of equipment -- -- 30,364
Gain on debt restructuring -- -- (1,235,536)
Write-off of receivables -- -- 193,965
Changes in assets and liabilities
Accounts receivable -- -- (7,529)
Inventory -- 99,370 --
Deferred charges (108,686) -- (108,686)
Other assets -- 900 --
Accounts payable 322,661 (271,132) 1,676,431
Accrued expenses 87,144 84,562 301,341
----------- --------- ------------

Net cash used by operating activities (257,300) (115,588) (4,409,594)

Cash flows from investing activities
Purchase of equipment -- -- (132,184)
Payments received on note receivable -- -- 130,000
----------- --------- ------------

Net cash used by investing activities -- -- (2,184)

Cash flows from financing activities
Contributed equity -- -- 131,374
Issuance of common stock 99,000 -- 3,354,359
Payments on notes payable (109,000) -- (206,287)
Proceeds from notes payable 250,000 133,000 916,613
Payments on convertible notes payable -- (7,783) (98,500)
Proceeds from convertible notes payable -- -- 316,700
----------- --------- ------------

Net cash provided by financing activities 240,000 125,217 4,414,259
----------- --------- ------------

Net increase (decrease) in cash (17,300) 9,629 2,481

Cash, beginning of period 19,781 10,152 --
----------- --------- ------------

Cash, end of period $ 2,481 $ 19,781 $ 2,481
=========== ========= ============

Supplemental disclosures of cash flow information
Interest paid $ 76,874 $ --
Noncash investing and financing activities
Conversion of notes payable to common stock $ 19,090 $ --

See accompanying notes

NOTE A - SIGNIFICANT ACCOUNTING POLICIES

Organization

On July 6, 1998, the Company incorporated a wholly owned subsidiary, Regenere,
Inc., in the State of Nevada. On October 2, 1998, the Company incorporated
another wholly owned subsidiary, MDI Healthcare Systems, Inc., in the State of
Nevada. Both subsidiaries were incorporated to undertake special purposes,
neither of which is currently being pursued by the Company. Neither subsidiary
currently has any operations or significant assets.

The consolidated financial statements include the accounts of Medical
Discoveries, Inc. and subsidiaries, after elimination of significant
intercompany items and transactions.

Development Stage Company

The Company has not generated any significant revenue and is, therefore,
considered a development stage company as defined in the Financial Accounting
Standards Board (FASB) Statement of Financial Accounting Standards (SFAS) No. 7.
The Company has, at the present time, not paid any dividends and any dividends
that may be paid in the future will depend upon the financial requirements of
the Company and other relevant factors. The development stage commenced on
November 20, 1991, which is the date of the inception.

Cash and Cash Equivalents

For purposes of the statement of cash flows, the Company considers all highly
liquid debt instruments maturing in three months or less to be cash equivalents.

Deferred Charges

Deferred charges represent prepaid consulting fees. The consulting agreement and
related terms are discussed in Note N.

Equipment

Capital additions are classified as equipment and are recorded at cost.
Depreciation is recorded by use of the straight-line method.

Maintenance and repairs are charged to operations as incurred. When an asset is
disposed of, accumulated depreciation is deducted from the original cost, and
any gain or loss arising from its disposal is credited or charged to operations.

Value of Financial Instruments

The Company has a number of financial instruments. The Company estimates that
the fair value of all financial instruments, at December 31, 2001, do not differ
materially from the aggregate carrying values of its financial instruments
recorded in the accompanying balance sheet. The estimated fair value amounts
have been determined by the Company using available market information and
appropriate valuation methodologies. Considerable judgment is required in
interpreting market data to develop the estimates of fair value, and
accordingly, the estimates are not necessarily indicative of the amounts that
the Company could realize in a current market exchange.

Estimates

Management uses estimates and assumptions in preparing financial statements.
Those estimates and assumptions affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities, and reported
revenues and expenses. Significant estimates used in preparing these financial
statements include those assumed in determining the valuation of stock options
issued to non-employees as payment for services and determining the costs
associated with prior service agreements. It is at least reasonably possible
that the significant estimates used will change within the next year.

Earnings Per Share

Earnings per share are computed by dividing net income applicable to common
shareholders by the weighted average number of shares outstanding. Common stock
equivalents and stock options have not been included as they are anti-dilutive.

Reclassifications

Certain 2000 amounts have been reclassified to conform to the 2001 presentation.

Business and Concentration of Credit

The primary purpose of the business is the research and development of the
sterilization of medical equipment and an anti-viral treatment for infectious
diseases. The Company has no significant revenues and, therefore, no significant
trade receivables or extensions of credit.

Recently Issued Accounting Statements

In July 2001, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 141, "Business Combinations" and
No. 142, "Goodwill and Other Intangible Assets". SFAS 141 requires business
combinations to be accounted for by the purchase method starting July 1, 2001.
SFAS 142 requires intangible assets to be amortized over their useful life if
determinable. Intangible assets with indeterminable lives (such as goodwill) are
no longer subject to amortization, rather they are subject to impairment by
applying a fair-value-based test.

In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations". SFAS 143 requires the fair value of a liability for an asset
retirement obligation be recognized in the period in which it is incurred. SFAS
143 will be effective for years beginning after June 15, 2002, although earlier
adoption is permitted.

In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets". SFAS 144 slightly changes and clarifies the
accounting for long-lived assets. SFAS 144 will be effective for years beginning
after December 15, 2001, although earlier adoption is permitted

The Company believes that the adoption of these accounting standards will not
have any material effect on the financial statements of the Company.

NOTE B -- GOING CONCERN

As shown in the accompanying financial statements, the Company incurred a net
loss of $1,529,658 during the year ended December 31, 2001 and has incurred
losses since inception of $11,762,829. As of December 31, 2001, the Company's
stockholders' deficit is $13,950,902. The Company has not had significant
revenues and is still in the process of developing anti-viral treatments for
infectious diseases, skin cleansing products and the sterilization of medical
equipment. The Company is hopeful, but there is no assurance, that the current
product development and research will be economically viable. Those factors
create an uncertainty about the Company's ability to continue as a going
concern.

The Company is dependent upon the sale of its common stock and short-term notes
to satisfy its current cash operating needs. The Company is also looking into
various applications of its technology and the possibilities of sales to or
development funds from outside companies. Although management has been
successful thus far in raising a minimal amount of capital for operations, there
can be no assurance that the Company and its management will be able to continue
to sell sufficient amounts of common stock or identify applications to bring the
current product development to a point where it is economically viable.
Management plans to meet its cash needs through the issuance of additional
shares of common

stock, sales of product from its technologies and developmental funds from
outside companies. The ability of the Company to continue as a going concern is
dependent on that plan's success. The financial statements do not include any
adjustments that might be necessary if the Company is unable to continue as a
going concern.

NOTE C -- EQUIPMENT

Equipment consists of:

2001

Office Equipment $ 37,944
Other Equipment 45,562
--------
83,506

Accumulated depreciation and amortization (82,827)
--------

$ 679
========

The estimated useful lives of equipment is two to seven years.

NOTE D -- ASSET IMPAIRMENT

At September 30, 2000 the Company evaluated whether an impairment of the asset
used to manufacture certain inventory existed due to the discontinuance of the
sale and production of that type of inventory. The evaluation determined that an
impairment does exist with respect to the equipment. The recognition of this
impairment was in accordance with the provisions of SFAS 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of, and
resulted in assets being written down to their estimated discounted cash flow.
The non-cash impairment loss was $9,709.

NOTE E -- ACCOUNTS PAYABLE

As discussed in Note A, the Company merged with WPI. At that time, WPI was
carrying approximately $265,000 of accounts payable owed to various vendors on
its books. These payables were transferred to the books of the new entity. These
payables have never been satisfied, and all collection attempts by any of the
vendors have ceased for several years. During 2000, management and legal counsel
determined that the payables were no longer valid obligations of the Company.
The related reduction of the accounts payable balances has been included in the
income statement in the caption "other income."

NOTE F -- NOTES PAYABLE

The Company has the following notes payable at December 31, 2001:

Notes payable to shareholders, which are currently due
and in default. Interest is at 12%. The notes are unsecured. $336,717

Notes payable to shareholders, which are currently due
and in default. Interest is at fixed lump sum amounts
ranging from $10,000 to $40,000. The notes are unsecured. 141,000
--------

$477,717
========

NOTE G -- CONVERTIBLE NOTES PAYABLE

As of December 31, 2001 and 2000, the Company owes $193,200 in convertible notes
payable to a trust. The notes have a stated interest rate of 12% and were due in
1998. Each $1,000 note is convertible into 667 shares of the Company's common
stock. As of December 31, 2001 the Company also owes $50,000 in a convertible
note payable to an entity. This note has a stated interest rate of 18% and is
due on February 1, 2002. The note can be converted into 333,333 shares of the
Company's common stock until February 1, 2002, after that date the note loses
its convertible feature. Additionally, as of December 31, 2001, pursuant to the
settlement of its dispute with Harvest Group, L.L.C. as described in Note M, the
company reclassified $115,000 of previously recorded notes payable to
convertible notes payable and recorded an additional $385,000 of convertible
notes payable to bring the total due to Harvest Group, L.L.C. to $500,000. The
terms of this convertible note payable are described in Note M.

NOTE H -- STOCK SUBSCRIPTION RECEIVABLE

The Company sold shares of its common stock to a private investor in exchange
for a note receivable of $112,500 in 1994. This note was written off in 2000 due
to management's evaluation of uncertainty of collection. The write-off has been
included in general and administrative expenses.

NOTE I -- INCOME TAXES

Income taxes are provided for temporary differences between financial and tax
basis income. The components of net deferred taxes are as follows at December 31
using a combined deferred tax rate of 40%:

Years Ended December 31,
------------------------------
2001 2000
-------- ---------

Federal income tax
benefit at statutory rate $466,000 $ 113,000
State income tax
benefit 82,000 20,000
Expiration of options 470,000 --
Change in valuation
allowance (78,000) (133,000)
-------- ---------
$ -- $ --
======== =========

The net timing differences for deferred income tax assets are as follows:

2001 2000
----------- -----------

Net operating loss carryforward $ 3,565,000 $ 3,017,000
Stock options 498,000 968,000
Accrued compensation 378,000 378,000
Valuation allowance (4,441,000) (4,363,000)
----------- -----------

Net deferred tax asset $ -- $ --
=========== ===========

Inasmuch as it is not possible to determine when or if the net operating losses
will be utilized, a valuation allowance has been established to offset the
benefit of the utilization of the net operating losses.

The Company has available net operating losses of approximately $8,910,000,
which can be utilized to offset future earnings of the Company. The Company also
has available approximately $80,000 in research and development credits which
expire in 2008. The utilization of the net operating losses and research and
development credits are dependent upon the tax laws in effect at the time such
losses can be utilized. The losses begin to expire between the years 2007 and
2021. Should the Company experience a change of ownership the utilization of net
operating losses could be reduced.

NOTE J -- STOCK OPTIONS AND WARRANTS

The Company has an incentive stock option plan wherein 4,000,000 shares of the
Company's common stock can be issued. In addition, the Company has granted
2,249,341 warrants of which zero and 2,249,341 were outstanding at December 31,
2001 and 2000, respectively. The Company has granted stock options and warrants
to certain officers and shareholders of the Company to purchase shares of the
Company's common stock. A schedule of the options and warrants is as follows:

Number of Warrants and
Warrants and Option Price
Options Per Share
------------ ------------

Outstanding at January 1, 2000 5,644,341 $.15 to 3.00
Granted 100,000 .25
Exercised -- --
Expired (865,000) .25 to 3.00

Forfeited (200,000) .25
---------- ------------

Outstanding at December 31, 2000 4,679,341 $.25 to 1.00
Granted 1,450,000 .01 to .25
Exercised -- --
Expired (2,521,341) .25 to 1.00
Forfeited -- --
---------- ------------

Outstanding at December 31, 2001 3,608,000 $ .01 to .50
========== ============

In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, which established financial accounting
and reporting standards for stock-based compensation. This standard defines a
fair value method of accounting for an employee stock option or similar equity
instrument. This statement gives entities the choice between adopting the fair
value method or continuing to use the intrinsic value method under Accounting
Principles Board (APB) Opinion No. 25 with footnote disclosures of the pro forma
effects if the fair value method had been adopted. The Corporation has opted for
the latter approach. Had compensation expense for the Corporation's stock option
plan been determined based on the fair value at the grant date for awards in
2001 and 2000 consistent with the provisions of FAS No. 123, the Corporation's
results of operations would have been reduced to the pro forma amounts indicated
below:

December 31,
-----------------------------
2001 2000
----------- ---------

Net loss -- as reported $(1,529,658) $(281,767)
Net loss -- pro forma $(1,529,658) $(299,749)
Loss per share -- as reported $ (.05) $ (.01)
Loss per share -- pro forma $ (.05) $ (.01)

During 2001, there were no employee stock options granted and all previously
granted employee stock options were fully vested.

The fair value of each option grant is estimated at the date of grant using the
Black-Scholes option-pricing model with the following assumptions:

December 31,
-----------------------------
2001 2000
----------- ---------

Expected dividend yield $ -- $ --
Expected stock price volatility -- 229%
Risk-free interest rate -- 5%
Expected life of options -- 1 year

The weighted average fair value of options granted during 2001 and 2000 were $--
and $.18, respectively.

The following table summarized information about fixed stock options outstanding
at December 31, 2001.

Options Outstanding Options Exercisable
------------------------------------------------------------ -------------------------------
Weighted
Average
Remaining Weighted Weighted
Range of Contractual Average Average
Exercise Number Life Exercise Number Exercise
Prices Outstanding (Years) Price Exercisable Price
----------- ----------- ----------- -------- ----------- --------

$.25 to .50 3,608,000 2.1 $ .18 3,608,000 $ .18

NOTE K -- RELATED PARTY TRANSACTIONS

At December 31, 2001, the Company had accounts payable to current and former
officers and directors totaling $1,157,450 for services performed and costs
incurred in behalf of the Company. The Company had notes payable to stockholders
of the Company aggregating $552,717 at December 31, 2001. Interest expense
recorded on these notes was approximately $130,000 and $72,000 for 2001 and
2000, respectively.

NOTE L -- COMMITMENT REGARDING PEREGRINE STOCK AND SUBSEQUENT EVENT

Peregrine Properties, LLC, a Utah limited liability company ("Peregrine"), has
entered into an agreement to provide $500,000 to the Company to fund testing and
research steps necessary to continue development of MDI-P. The studies are
funded through an escrow agent. As of December 31, 2000, the Company had
deposited in escrow a single certificate for 5.5 million shares of common stock
for these purposes. Through December 31, 2001, Peregrine had funded $275,800 to
the escrow, of which $272,700 had been disbursed and recorded as research and
development expense on the financial statements of the Company. The remaining
$227,300 to be expended under the agreement has been recorded on the balance
sheet in equity under the caption escrow receivable. As expenditures are made
from the escrow for research and development, the expenses are recorded on the
books of the Company with a corresponding reduction in the escrow receivable.
Under the original agreement, upon completion of the studies, the escrow agent
was to disburse the 5.5 million shares to Peregrine and to disburse the research
results to the Company. On March 22, 2002, the parties entered into an agreement
the result of which was to partially close the escrow agreement to the extent of
Peregrine's funding to date. On that date, 3,143,800 shares were distributed to
Peregrine and all research conducted to date was disbursed to the Company.
Additional research is ongoing, which will be funded by the remaining commitment
from Peregrine.

NOTE M -- SETTLEMENT OF HARVEST JOINT VENTURE LITIGATION

Principal Sum Percentage of Common
Outstanding Stock Issued and Outstanding
--------------------- ----------------------------

$1 - 400,000 20%
$400,001 - 450,000 25%
$450,001 - 500,000 30%

For example, if, as of the Due Date, the Company has 33,000,000 shares of common
stock issued and outstanding, 2,000,000 options outstanding and not yet
exercised, and the principal sum of $410,000 remains unpaid as of the expiration
of the Due Date, the Note will convert to 11,666,666 ([35,000,000/(1- 0.25)] -
35,000,000) shares of common stock of the Company. Notwithstanding the automatic
conversion provisions, Harvest may, in its sole and absolute discretion, suspend
the automatic conversion of the Note beyond the Due Date by providing written
notice to the Company of such election no fewer than thirty (30) days prior to
the Due Date. If Harvest suspends the conversion of the Note, the conversion
shall remain suspended indefinitely unless and until Harvest elects to convert
the Note by giving the Company at least thirty (30) days prior written notice of
such election. During any such period of suspension of the automatic conversion
of the Note, the Company may pay the principal sum due thereunder in whole or in
part.

NOTE N -- COMMITMENT REGARDING CONSULTING AGREEMENT

On March 22, 2001, the Company entered into an agreement with Marlin Toombs, a
previous member of the Board of Directors. Mr. Toombs is to provide consulting
services to the Company for the period March 22, 2001 through March 1, 2004. The
costs associated with the services are:

- $5,200 within 30 days of signing the agreement

- $3,000 per month for the period April 1, 2001 through March 1, 2004

- Issuance of 878,000 shares of restricted common stock within 30 days of
signing

- An option to purchase 200,000 of common stock at $.25 per share, expiring
December 31, 2005

The value of the stock and stock options issued to Mr. Toombs pursuant to this
agreement has been recorded on the balance sheet as deferred charges and will be
amortized over the period of the consulting agreement. For the year ended
December 31, 2001, approximately $70,000 of expense was recognized related to
the agreement. Future minimum cash payments under the agreement are as follows:

2002 $36,000
36,000
2003 9,000
-------
$81,000
=======

NOTE O -- SUBSEQUENT EVENTS

On January 1, 2002, the Company granted Judy Robinett an option to purchase
500,000 shares of the Company's common stock at $0.01 per share with an
expiration date of January 1, 2005. The estimated cost of the option grant is
$60,000. On March 18, 2002, the Company granted two individuals an option to
purchase 250,000 shares, in total, of the Company's common stock at $0.10 per
share with an expiration date of March 17, 2005. The estimated cost of the
option grant is $25,000.

As more fully described in Note L above, on March 22, 2002, the Company entered
into a partial release agreement with Peregrine Properties, LLC with respect to
the research funding agreement between the parties.

On March 27, 2002, the Company entered into an Advisory Agreement with Euronet
International, Inc., a New York City-based business and financial advisory firm.
Under the terms of the agreement, Euronet International will seek to initiate a
private placement of MDI stock to raise up to $10 million. While details of the
private placement have not been finalized, the parties anticipate a preferred
stock offering to accredited investors via the Internet. The Company will need
to secure shareholder approval to amend its articles of incorporation before the
Company can offer preferred stock. A shareholder meeting is planned during the
month of June 2002. The primary usage of proceeds from the offering will be to
retire debt owing to former joint venture partner Harvest Group LLC, and to
pursue an application with the FDA regarding MDI-P.

The Advisory Agreement has a 12-month term, subject to early termination by the
Company if certain milestones are not satisfied. Under the Advisory Agreement,
Euronet is entitled to the following compensation: (i) an initial retainer fee
of 360,000 shares of common stock of the Company; (ii) a monthly retainer fee of
$6,000 per month for the term of the agreement; (iii) 4.9% of the issued and
outstanding shares of common and preferred stock (if any) of the Company
following the closing of a transaction generating proceeds to the Company of $1
million or more; (iv) a warrant to purchase common stock of the company equal to
10% of any investment of $1 million or more, exercisable for 5 years, with an
exercise price equal to 120% of the price paid by investors; (v) 4% of gross
proceeds received in the first year from specified strategic relationships
established by Euronet between the Company and third parties, 2% of which is
payable in cash and 2% of which is payable in common stock warrants exercisable
within 3 years with an exercise price equal to 120% of the market price on the

date of issuance.

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

None.

PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT.

DIRECTORS AND EXECUTIVE OFFICERS

The following table identifies the names, ages, and positions of all directors
and executive officers of the Company as of March 25, 2001.

Name Age Positions
----------------------------------------------------------------------------------

David R. Walker ................ 57 Chairman, Board of Directors
Judy M. Robinett ............... 49 Director and Chief Executive Officer
William J. Novick, Jr., Ph.D. .. 70 Director
Alvin Zidell ................... 71 Director
Nilesh Desai, M.D. ............. 52 Director

All current directors are serving until their successors are elected.

David R. Walker joined the Board of Directors on May 2, 1996, and was appointed
Chairman of the Board of Directors on May 10, 1998. He is currently General
Manager of Sunheaven Farms in Prosser, Washington, a position he has held for
over twenty years.

Judy M. Robinett has served as the Company's Chief Executive Officer since
November, 2000, and on February 9, 2001, was elected by the Directors to fill a
vacancy on the Board. Since 1994, she has owned and operated an international
consulting company focused on strategic planning, finance, marketing, and
distribution for entrepreneurs and established companies.

William J. Novick, Jr., Ph.D. has served as a Director since July 28, 1997 He
previously held positions of Vice President and Chief Technical Officer for the
Company. During the past five years, he has consulted on various pharmaceutical
projects and research for Pharmacia, Upjohn, Park-Davis, Cubest, MRL, Aventis,
Pfizer, Forest Labs and RPR.

Alvin Zidell has been a Director of the Company since December 1, 1993. In the
past five years, he has served as a Vice President of Zidell Properties, a
building company, President of Siding for Less, a siding installation company,
and the owner of an investment company, Alvin Zidell Investments.

Neal Desai, M.D., has served as a Director of the Company since January of 1999.
Dr. Desai is a Diplomat of the American Board of Internal Medicine, and is the
owner of Victory Olive Medical Group in Burbank, California, where he has
practiced internal medicine since 1980.

COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
executive officers and directors, and persons who beneficially own more than ten
percent of the Company's stock, to file initial reports of ownership and reports
of changes in ownership with the Securities and Exchange Commission. Officers,
directors and greater than ten-percent owners are required by applicable
regulations to furnish the Company with copies of all Section 16(a) forms that
they file. Based solely on a review of the copies of such forms furnished to the
Company and written representations from certain persons, the Company believes
that during the year ended December 31, 2001, persons subject to Section 16(a)
reporting requirements filed the required reports on a timely basis.

ITEM 10. EXECUTIVE COMPENSATION.

The following table sets forth certain summary information concerning
compensation paid by the Company to its Chief Executive Officer (the "Named
Executive Officer") for the years ended December 31, 2001, 2000, and 1999.

No other executive officer of the Company received a total annual salary and
bonus in excess of $100,000 during the year ended December 31, 2001.

SUMMARY COMPENSATION TABLE

Long-Term
Compensation
------------
Annual Compensation Securities
Name and Principal Fiscal Year ------------------------ Underlying
Position Ended Salary ($) Bonus ($) Options (#)
------------------ ----------- ---------- --------- ------------

Judy Robinett, CEO 12/31/01 48,000 4,500 (a) 1,500,000
12/31/00 20,000 -- --
12/31/99 -- -- --

(a) Represents value of 30,000 shares of common stock of the Company granted on
April 20, 2001, based on the closing price of the stock that day ($0.15).

OPTIONS GRANTED IN LAST FISCAL YEAR

Percent of
Number of Total Options Market
Securities Granted to Price on
Underlying Employees in Exercise of Date of Expiration
Name Options Fiscal Year Base Price Grant Date
---- ---------- ------------- ----------- -------- ----------

Judy Robinett 1,000,000 100% $0.01 $0.115 12/20/04

AGGREGATED OPTION EXERCISES IN LAST
FISCAL YEAR AND FY-END OPTION VALUES

Number of Value of
Unexercised Unexercised In-
Securities The-Money
Underlying Options at FY-
Options at FY- End ($)
Shares Acquired on End Exercisable/ Exercisable/
Name Exercise Value Realized Unexercisable Unexercisable
---- ------------------ -------------- ---------------- ---------------

Judy Robinett -- N/A 1,000,000/0 $115,000/N/A

STOCK APPRECIATION RIGHTS AND LONG-TERM INCENTIVE PLAN AWARDS

The Company has never granted any freestanding stock appreciation rights and
does not maintain any long-term incentive plans.

COMPENSATION OF DIRECTORS

The Company does not currently compensate directors for services provided as
directors.

EMPLOYMENT CONTRACTS

Judy M. Robinett, the Company's CEO, is an independent contractor without an
employment agreement. She is currently paid a salary of $180,000 per year. The
Company provides no benefits to Ms. Robinett.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The
following table sets forth information regarding persons known by the Company to
beneficially own, as defined by Rule 13d-3 under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), more than 5% of the Company's common
stock as of February 11, 2002, based solely on information regarding such
ownership available to the Company in filings by such beneficial owners with the
SEC on Schedules 13D and 13G. The following table also sets forth information
regarding beneficial ownership of common stock as of February 11, 2002 by each
of the directors and executive officers and by the directors and executive
officers as a group. Except as set forth in the footnotes below, all such
persons possess sole voting and investment power with respect to the shares
listed.

NUMBER OF SHARES AND RIGHT TO ACQUIRE
NATURE OF BENEFICIAL WITHIN 60 DAYS OF PERCENT
NAME OF BENEFICIAL OWNER OWNERSHIP(a) FEBRUARY 28, 2002 OF CLASS(b)
------------------------ -------------------- ------------------ -----------
CERTAIN BENEFICIAL OWNERS:
None (c)

DIRECTORS AND OFFICERS:

David R. Walker ............................ 303,539 150,000 *
Judy M. Robinett ........................... 1,530,000 1,500,000 3.9
William J. Novick, Jr., Ph.D. .............. 511,934 443,000 1.3
Alvin Zidell ............................... 617,062 485,000 1.6
Nilesh Desai, M.D. ......................... 334,081 75,000 *

ALL DIRECTORS AND EXECUTIVE OFFICERS AS A GROUP
(5 PERSONS) ................................... 3,296,616 2,653,000 8.5

---------------
* Less than 1%

(a) Amounts in Column 2 include shares listed in Column 3. For purposes of
this table, shares are considered to be beneficially owned if the person
directly or indirectly has the sole or shared power to vote or direct the
voting of the securities or the sole or shared power to dispose of or
direct the disposition of the securities. Shares are also considered
beneficially owned if a person has the right to acquire the beneficial
ownership of the shares within 60 days of February 28, 2002. Unless
otherwise indicated in these footnotes, each stockholder has sole voting
and investment power with respect to the shares beneficially owned.

(b) The percentages shown are based upon the shares indicated in Column 2 and
using the fully-diluted capitalization as of February 11, 2002 of
38,814,917 shares (including 34,706,917 shares issued and outstanding,
plus outstanding options for an additional 4,108,000 shares).

(c) As discussed in Note L to the financial statements, the Company has issued
a certificate for 5,500,000 shares to Peregrine Properties LLC
("Peregrine") pursuant to a research funding arrangement being funded
through escrow. Until Peregrine satisfies its funding obligations,
Peregrine will not have beneficial ownership of those shares. However,
those shares are deemed issued and outstanding for purposes of the
percentage ownership calculations in this table. The 5,500,000 shares
represent 14.6% of the total issued and outstanding shares of common stock
of the Company as of February 11, 2002. Also, note that subsequent to
February 11, 2002, 3,143,800 of the shares were released from escrow to
Peregrine. See Note L to the financial statements for a further
explanation.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

None.

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.

(a) EXHIBITS.

The following documents are furnished as exhibits to this Form 10-KSB. Exhibits
marked with an asterisk are filed herewith. The remainder of the exhibits
previously have been filed with the Commission and are incorporated herein by
reference.

NUMBER EXHIBIT

3.1 Amended and Restated Articles of Incorporation of the Company (filed
as Exhibit 3.1 to the Company's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1994, and incorporated herein by
reference).

3.2 Amended Bylaws of the Company (filed as Exhibit 3.2 to the Company's
Annual Report on Form 10-KSB for the fiscal year ended December 31,
1994,and incorporated herein by reference).

10.1 JV Agreement dated as of June 28, 2000, among Medical Discoveries,
Inc., Harvest Group, L.L.C. and Hydromedics, Inc. (f/k/a Advanced
Sales Company, Inc.) (filed as Exhibit 10.1 to the Company's
Quarterly Report on Form 10-QSB for the quarter ended September 30,
2000, and incorporated herein by reference).

10.2 Mutual Release and Settlement Agreement dated as of November 29,
2001, among Medical Discoveries, Inc., Harvest Group, L.L.C. and
Hydromedics, Inc. (f/k/a Advanced Sales Company, Inc.) (filed as
Exhibit 10 to the Company's Current Report on Form 8-K on December
15, 2000 and incorporated herein by reference).

10.3 Advisory Agreement dated as of March 26, 2002, between Medical
Discoveries, Inc. and Euronet International, Inc.*

16.1 Letter from Tanner + Co. dated December 15, 2000 (filed as Exhibit
99 to the Company's Current Report on Form 8-K on December 15, 2000
and incorporated herein by reference).

16.2 Letter from Tanner + Co. dated January 4, 2001 (filed as Exhibit 16
to the Company's Current Report on Form 8-K/A on January 4, 2001 and
incorporated herein by reference).

21 Subsidiaries of the Registrant.*

----------------------------
* Filed herewith.

(b) REPORTS ON FORM 8-K.

The Company filed a current report on Form 8-K with the Commission on December
6, 2001 relating to the settlement with Harvest Group, L.L.C. discussed in Item
3 above.

SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

MEDICAL DISCOVERIES, INC.

/s/ Judy M. Robinett
----------------------------------------
Judy M. Robinett
Chief Executive Officer
Date: March 29, 2002

In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.

NAME POSITION DATE
---- -------- ----

/s/ Judy M. Robinett Chief Executive Officer and Director March 29, 2002
-------------------------------- (Principal Executive and Financial
Judy M. Robinett Officer)

/s/ David R. Walker Chairman of the Board of Directors March 29, 2002
--------------------------------
David R. Walker

Director
--------------------------------
William J. Novick, Jr. Ph.D.

/s/ Alvin Zidell Director April 1, 2002
--------------------------------
Alvin Zidell

Director
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Nilesh Desai, M.D.

INDEX TO EXHIBITS

NUMBER EXHIBIT

3.2 Amended Bylaws of the Company (filed as Exhibit 3.2 to the Company's
Annual Report on Form 10-KSB for the fiscal year ended December 31,
1994,and incorporated herein by reference).

10.3 Advisory Agreement dated as of March 26, 2002, between Medical
Discoveries, Inc. and Euronet International, Inc.*

16.1 Letter from Tanner + Co. dated December 15, 2000 (filed as Exhibit
99 to the Company's Current Report on Form 8-K on December 15, 2000
and incorporated herein by reference).

16.2 Letter from Tanner + Co. dated January 4, 2001 (filed as Exhibit 16
to the Company's Current Report on Form 8-K/A on January 4, 2001 and
incorporated herein by reference).

21 Subsidiaries of the Registrant.*

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* Filed herewith.