**UNITED      STATES**

**SECURITIES      AND EXCHANGE COMMISSION**

**Washington,      D.C. 20549**

**Form 10-QSB**

| þ |   | **QUARTERLY                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE                ACT OF                1934**                                                                                                                                |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   | For                the quarterly period ended September 30, 2006                                                                                                                                                                                                        |
|   |   |                                                                                                                                                                                                                                                                    |
| o      |   | **TRANSITION                REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE                ACT**                                                                                                                                                                       |
|   |   | For                the transition period from                                                   to                                                                  |

**MEDICAL      DISCOVERIES, INC.**

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

 

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|                                                                                                                                                                     |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
| PART                  I                                                                                                                                                  |   |
| FINANCIAL                  INFORMATION                                                                                                                                   |   |
|     ITEM                1.                FINANCIAL STATEMENTS                                                                                       | 3      |
|     ITEM                2.                MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF                OPERATIONS | 12     |
|     ITEM                3.                CONTROLS AND PROCEDURES                                                                                    | 16     |
|                                                                                                                                                                     |   |
| PART                    II     OTHER INFORMATION                                                                                                     |   |
|     ITEM                6.                EXHIBITS                                                                                                   | 17     |
| SIGNATURES                                                                                                                                                               | 18     |
| INDEX                  TO EXHIBITS                                                                                                                                       |   |
| EXHIBIT                  31.1                                                                                                                                            |   |
| EXHIBIT                  31.2                                                                                                                                            |   |
| EXHIBIT                  32.1                                                                                                                                            |   |
| EXHIBIT                  32.2                                                                                                                                            |   |

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**PART      I**

**FINANCIAL      INFORMATION **

**ITEM      1. FINANCIAL STATEMENTS**

----

**MEDICAL      DISCOVERIES, INC. AND SUBSIDIARIES**

| ASSETS                                                                                                                                 |   |   |                               |   |   |                        |   |
|----------------------------------------------------------------------------------------------------------------------------------------|--------|--------|------------------------------------|--------|--------|-----------------------------|--------|
|                                                                                                                                        |   |   | September                30,  |   |   | December                31, |   |
|                                                                                                                                   |   |   | 2006                               |   |   | 2005                        |   |
| CURRENT                ASSETS                                                                                                          |   |   |                               |   |   |                        |   |
|                                                                                                                                   |   |   |                               |   |   |                        |   |
| Cash                                                                                                                              |   | $      | 103,744                            |   | $      | 654,438                     |   |
| Receivables                                                                                                                       |   |   | 225,000                            |   |   | -                           |   |
|                                                                                                                                   |   |   |                               |   |   |                        |   |
|  Total                Current Assets                                                                                              |   |   | 328,744                            |   |   | 654,438                     |   |
|                                                                                                                                   |   |   |                               |   |   |                        |   |
| Note                receivable, net of allowance of $169,475                                                                      |   |   | 150,000                            |   |   | 296,050                     |   |
| Property                and Equipment, net                                                                                        |   |   | 66,707                             |   |   | 80,635                      |   |
|                                                                                                                                   |   |   |                               |   |   |                        |   |
|  TOTAL                ASSETS                                                                                                      |   | $      | 545,451                            |   | $      | 1,031,123                   |   |
|                                                                                                                                   |   |   |                               |   |   |                        |   |
| LIABILITIES                AND STOCKHOLDERS' DEFICIT                                                                                   |   |   |                               |   |   |                        |   |
|                                                                                                                                   |   |   |                               |   |   |                        |   |
| CURRENT                LIABILITIES                                                                                                     |   |   |                               |   |   |                        |   |
|                                                                                                                                   |   |   |                               |   |   |                        |   |
| Accounts                payable                                                                                                   |   | $      | 2,165,193                          |   | $      | 2,608,783                   |   |
| Accrued                interest payable                                                                                           |   |   | 260,202                            |   |   | 237,836                     |   |
| Notes                payable                                                                                                      |   |   | 56,000                             |   |   | 56,000                      |   |
| Convertible                notes payable                                                                                          |   |   | 193,200                            |   |   | 193,200                     |   |
| Research                and development obligation                                                                                |   |   | 2,347,095                          |   |   | 592,100                     |   |
| Financial                instrument                                                                                               |   |   | 1,139,245                          |   |   | 2,859,596                   |   |
|                                                                                                                                   |   |   |                               |   |   |                        |   |
|  Total                Current Liabilities                                                                                         |   |   | 6,160,935                          |   |   | 6,547,515                   |   |
|                                                                                                                                   |   |   |                               |   |   |                        |   |
| NOTE                PAYABLE                                                                                                            |   |   | 90,000                             |   |   | -                           |   |
|                                                                                                                                   |   |   |                               |   |   |                        |   |
| TOTAL                LIABILITIES                                                                                                       |   |   | 6,250,935                          |   |   | 6,547,515                   |   |
|                                                                                                                                   |   |   |                               |   |   |                        |   |
| STOCKHOLDERS'                DEFICIT                                                                                                   |   |   |                               |   |   |                        |   |
|                                                                                                                                   |   |   |                               |   |   |                        |   |
| Preferred                Stock - undesignated, Series A, convertible; no par value; 50,000                shares                  |   |   |                               |   |   |                        |   |
|  authorized;                34,420 and 42,000 shares issued and outstanding,                respectively;                         |   |   |                               |   |   |                        |   |
|  (aggregate                liquidation preference of $3,442,000 and $4,200,000,                respectively)                      |   |   | 514,612                            |   |   | 523,334                     |   |
| Common                stock, no par value; 250,000,000 shares authorized; 117,922,148 and                                         |   |   |                               |   |   |                        |   |
|  107,679,724                shares issued and outstanding, respectively                                                           |   |   | 15,220,617                         |   |   | 15,211,895                  |   |
| Additional                paid-in capital                                                                                         |   |   | 1,056,020                          |   |   | 988,670                     |   |
| Deficit                accumulated prior to the development stage                                                                 |   |   | (1,399,577                         | )      |   | (1,399,577                  | )      |
| Deficit                accumulated during the development stage                                                                   |   |   | (21,097,156                        | )      |   | (20,840,714                 | )      |
|                                                                                                                                   |   |   |                               |   |   |                        |   |
|  Total                Stockholders' Deficit                                                                                       |   |   | (5,705,484                         | )      |   | (5,516,392                  | )      |
|                                                                                                                                   |   |   |                               |   |   |                        |   |
|  TOTAL                LIABILITIES AND STOCKHOLDERS' DEFICIT                                                                       |   | $      | 545,451                            |   | $      | 1,031,123                   |   |
|                                                                                                                                   |   |   |                               |   |   |                        |   |

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**MEDICAL      DISCOVERIES, INC. AND SUBSIDIARIES**

|                                                                  |   |                                                                                                                                                   |        |                                                                                   |   |                                        |   |  From                  Inceptionof                    theDevelopment                    Stage on |        |
|-----------------------------------------------------------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------|-------------|-----------------------------------------------------------------------------------|--------|---------------------------------------------|--------|-----------------------------------------------------------------------------------------------------------------|-------------|
|                                                                  |   |                         For                    the Three Months                    Ended    September 30, |        | For                      the Nine Months                      Ended September 30, |   | November                    20, 1991Through |   |
|                                                                  |   | 2006                                                                                                                                                   |        | 2005                                                                              |   | 2006                                        |   | 2005                                                                                                            |        | September                  30, 2006 |   |
| REVENUES                                                              |   | $                                                                                                                                                      | 800,000     |                                                                              | $      | -                                           |   | $                                                                                                               | 800,000     |   | $ | - |   | $ | 957,044 |   |
|                                                                  |   |                                                                                                                                                   |        |                                                                              |   |                                        |   |                                                                                                            |        |   |   |   |   |   |   |   |
| COST                  OF GOODS SOLD                                   |   |                                                                                                                                                   | -           |                                                                              |   | -                                           |   |                                                                                                            | -           |   |   | - |   |   | 14,564 |   |
|                                                                  |   |                                                                                                                                                   |        |                                                                              |   |                                        |   |                                                                                                            |        |   |   |   |   |   |   |   |
| GROSS                  PROFIT                                    |   |                                                                                                                                                   | 800,000     |                                                                              |   | -                                           |   |                                                                                                            | 800,000     |   |   | - |   |   | 942,480 |   |
|                                                                  |   |                                                                                                                                                   |        |                                                                              |   |                                        |   |                                                                                                            |        |   |   |   |   |   |   |   |
| OPERATING                  EXPENSES                                   |   |                                                                                                                                                   |        |                                                                              |   |                                        |   |                                                                                                            |        |   |   |   |   |   |   |   |
|                                                                  |   |                                                                                                                                                   |        |                                                                              |   |                                        |   |                                                                                                            |        |   |   |   |   |   |   |   |
| General                  and administrative                      |   |                                                                                                                                                   | 618,359     |                                                                              |   | 557,713                                     |   |                                                                                                            | 1,349,825   |   |   | 1,446,034 |   |   | 18,404,822 |   |
| Research                  and development                        |   |                                                                                                                                                   | 1,667,080   |                                                                              |   | 364,335                                     |   |                                                                                                            | 1,994,322   |   |   | 2,034,841 |   |   | 7,715,521 |   |
| Inventory                  write-down                            |   |                                                                                                                                                   | -           |                                                                              |   | -                                           |   |                                                                                                            | -           |   |   | - |   |   | 96,859 |   |
| Impairment                  loss                                 |   |                                                                                                                                                   | -           |                                                                              |   | -                                           |   |                                                                                                            | -           |   |   | - |   |   | 9,709 |   |
| License                  fees                                    |   |                                                                                                                                                   | -           |                                                                              |   | -                                           |   |                                                                                                            | -           |   |   | - |   |   | 1,001,500 |   |
|                                                                  |   |                                                                                                                                                   |        |                                                                              |   |                                        |   |                                                                                                            |        |   |   |   |   |   |   |   |
|  Total                  Expenses                                 |   |                                                                                                                                                   | 2,285,439   |                                                                              |   | 922,048                                     |   |                                                                                                            | 3,344,147   |   |   | 3,480,875 |   |   | 27,228,411 |   |
|                                                                  |   |                                                                                                                                                   |        |                                                                              |   |                                        |   |                                                                                                            |        |   |   |   |   |   |   |   |
| LOSS                  FROM OPERATIONS                                 |   |                                                                                                                                                   | (1,485,439  | )                                                                                 |   | (922,048                                    | )      |                                                                                                            | (2,544,147  | ) |   | (3,480,875 | ) |   | (26,285,931 | ) |
|                                                                  |   |                                                                                                                                                   |        |                                                                              |   |                                        |   |                                                                                                            |        |   |   |   |   |   |   |   |
| OTHER                  INCOME (EXPENSES)                              |   |                                                                                                                                                   |        |                                                                              |   |                                        |   |                                                                                                            |        |   |   |   |   |   |   |   |
|                                                                  |   |                                                                                                                                                   |        |                                                                              |   |                                        |   |                                                                                                            |        |   |   |   |   |   |   |   |
| Unrealized                  gain (loss) on financial instrument  |   |                                                                                                                                                   | 840,271     |                                                                              |   | (200,673                                    | )      |                                                                                                            | 1,720,351   |   |   | 1,790,242 |   |   | 4,020,542 |   |
| Interest                  income                                 |   |                                                                                                                                                   | 519         |                                                                              |   | 2,674                                       |   |                                                                                                            | 2,295       |   |   | 17,584 |   |   | 57,593 |   |
| Interest                  expense                                |   |                                                                                                                                                   | (7,538      | )                                                                                 |   | (7,591                                      | )      |                                                                                                            | (22,382     | ) |   | (30,726 | ) |   | (1,178,083 | ) |
| Foreign                  currency transaction gain (loss)        |   |                                                                                                                                                   | 2,300       |                                                                              |   | (9,720                                      | )      |                                                                                                            | (21,125     | ) |   | 51,080 |   |   | 35,355 |   |
| Gain                  on debt restructuring                      |   |                                                                                                                                                   | 2,709       |                                                                              |   | -                                           |   |                                                                                                            | 607,761     |   |   | 196,353 |   |   | 2,039,650 |   |
| Other                  income                                    |   |                                                                                                                                                   | 22          |                                                                              |   | -                                           |   |                                                                                                            | 805         |   |   | - |   |   | 905,917 |   |
|                                                                  |   |                                                                                                                                                   |        |                                                                              |   |                                        |   |                                                                                                            |        |   |   |   |   |   |   |   |
|  Total                  Other Income (Expenses)                  |   |                                                                                                                                                   | 838,283     |                                                                              |   | (215,310                                    | )      |                                                                                                            | 2,287,705   |   |   | 2,024,533 |   |   | 5,880,974 |   |
|                                                                  |   |                                                                                                                                                   |        |                                                                              |   |                                        |   |                                                                                                            |        |   |   |   |   |   |   |   |
| NET                  LOSS                                             |   |                                                                                                                                                   | (647,156    | )                                                                                 |   | (1,137,358                                  | )      |                                                                                                            | (256,442    | ) |   | (1,456,342 | ) |   | (20,404,957 | ) |
|                                                                  |   |                                                                                                                                                   |        |                                                                              |   |                                        |   |                                                                                                            |        |   |   |   |   |   |   |   |
| Preferred                  stock dividend from                   |   |                                                                                                                                                   |        |                                                                              |   |                                        |   |                                                                                                            |        |   |   |   |   |   |   |   |
|  beneficial                  conversion feature                  |   |                                                                                                                                                   | -           |                                                                              |   | -                                           |   |                                                                                                            | -           |   |   | - |   |   | (692,199 | ) |
|                                                                  |   |                                                                                                                                                   |        |                                                                              |   |                                        |   |                                                                                                            |        |   |   |   |   |   |   |   |
| NET                  LOSS APPLICABLE TO                               |   |                                                                                                                                                   |        |                                                                              |   |                                        |   |                                                                                                            |        |   |   |   |   |   |   |   |
| COMMON                  SHAREHOLDERS                             |   | $                                                                                                                                                      | (647,156    | )                                                                                 | $      | (1,137,358                                  | )      | $                                                                                                               | (256,442    | ) | $ | (1,456,342 | ) | $ | (21,097,156 | ) |
|                                                                  |   |                                                                                                                                                   |        |                                                                              |   |                                        |   |                                                                                                            |        |   |   |   |   |   |   |   |
| BASIC                  AND DILUTED LOSS PER SHARE                     |   | $                                                                                                                                                      | (0.01       | )                                                                                 | $      | (0.01                                       | )      | $                                                                                                               | (0.00       | ) | $ | (0.01 | ) |   |   |   |
|                                                                  |   |                                                                                                                                                   |        |                                                                              |   |                                        |   |                                                                                                            |        |   |   |   |   |   |   |   |
| WEIGHTED                  AVERAGE NUMBER OF                           |   |                                                                                                                                                   |        |                                                                              |   |                                        |   |                                                                                                            |        |   |   |   |   |   |   |   |
| SHARES                  OUTSTANDING                              |   |                                                                                                                                                   | 117,922,148 |                                                                              |   | 107,760,835                                 |   |                                                                                                            | 112,382,132 |   |   | 107,282,554 |   |   |   |   |
|                                                                  |   |                                                                                                                                                   |        |                                                                              |   |                                        |   |                                                                                                            |        |   |   |   |   |   |   |   |

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**MEDICAL      DISCOVERIES, INC. AND SUBSIDIARIES**

|                                                                                                      |   |                                                          |       |                                |   | From                Inception         |   |
|-----------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------|------------|-------------------------------------|--------|---------------------------------------|--------|
|                                                                                                      |   |                                                          |       |                                |   | of                the                 |   |
|                                                                                                      |   |                                                          |       |                                |   | Development                Stage      |   |
|                                                                                                      |   | Nine                Months                Ended September 30, |       | on                November 20, 1991 |   |
|                                                                                                      |   | 2006                                                          |       | 2005                                |   | Through                Sept. 30, 2006 |   |
| CASH                FLOWS FROM OPERATING ACTIVITIES                                                       |   |                                                          |       |                                |   |                                  |   |   |   |   |
| Net                loss                                                                                   |   | $                                                             | (256,442   | )                                   | $      | (1,456,342                            | )      | $ | (20,404,957 | ) |
| Adjustments                to reconcile net loss to net cash used by operating                activities: |   |                                                          |       |                                |   |                                  |   |   |   |   |
| Foreign                currency transaction (gain) loss                                              |   |                                                          | 21,125     |                                |   | (51,080                               | )      |   | (35,355 | ) |
| Bad                debt expense                                                                      |   |                                                          | 167,175    |                                |   | -                                     |   |   | 167,175 |   |
| Gain                on debt restructuring                                                            |   |                                                          | (607,761   | )                                   |   | (196,353                              | )      |   | (2,039,650 | ) |
| Common                stock issued for services, expenses, and litigation                            |   |                                                          | -          |                                |   | 18,750                                |   |   | 4,267,717 |   |
| Commitment                for research and development obligation                                    |   |                                                          | 1,712,745  |                                |   | 665,700                               |   |   | 2,378,445 |   |
| Depreciation                                                                                         |   |                                                          | 13,928     |                                |   | 4,613                                 |   |   | 122,714 |   |
| Reduction                of escrow receivable from research and development                          |   |                                                          | -          |                                |   | -                                     |   |   | 272,700 |   |
| Unrealized                gain on financial instrument                                               |   |                                                          | (1,720,351 | )                                   |   | (1,790,242                            | )      |   | (4,020,542 | ) |
| Stock                options and warrants granted for services                                       |   |                                                          | 67,350     |                                |   | -                                     |   |   | 4,878,603 |   |
| Reduction                of legal costs                                                              |   |                                                          | -          |                                |   | -                                     |   |   | (130,000 | ) |
| Write-off                of subscriptions receivable                                                 |   |                                                          | -          |                                |   | -                                     |   |   | 112,500 |   |
| Impairment                of loss on assets                                                          |   |                                                          | -          |                                |   | -                                     |   |   | 9,709 |   |
| Loss                on disposal of equipment                                                         |   |                                                          | -          |                                |   | 51,100                                |   |   | 30,364 |   |
| Write-off                of accounts receivable                                                      |   |                                                          | -          |                                |   | -                                     |   |   | 245,065 |   |
| Note                payable issued for litigation                                                    |   |                                                          | -          |                                |   | -                                     |   |   | 385,000 |   |
| Changes                in operating assets and liabilities                                                |   |                                                          |       |                                |   |                                  |   |   |   |   |
| Increase                in receivables                                                               |   |                                                          | (225,000   | )                                   |   | -                                     |   |   | (232,529 | ) |
| Increase                in accounts payable                                                          |   |                                                          | 254,171    |                                |   | 209,939                               |   |   | 2,718,357 |   |
| Increase                in accrued interest payable                                                  |   |                                                          | 22,366     |                                |   | 30,672                                |   |   | 660,285 |   |
|  Net                Cash Used by Operating Activities                                                |   |                                                          | (550,694   | )                                   |   | (2,513,243                            | )      |   | (10,614,399 | ) |
|                                                                                                      |   |                                                          |       |                                |   |                                  |   |   |   |   |
| CASH                FLOWS FROM INVESTING ACTIVITIES                                                       |   |                                                          |       |                                |   |                                  |   |   |   |   |
| Increase                in deposits                                                                  |   |                                                          | -          |                                |   | -                                     |   |   | (51,100 | ) |
| Purchase                of equipment                                                                 |   |                                                          | -          |                                |   | (78,045                               | )      |   | (221,334 | ) |
| Issuance                of notes receivable                                                          |   |                                                          | -          |                                |   | (313,170                              | )      |   | (313,170 | ) |
| Payments                received on notes receivable                                                 |   |                                                          | -          |                                |   | -                                     |   |   | 130,000 |   |
|  Net                Cash Used by Investing Activities                                                |   |                                                          | -          |                                |   | (391,215                              | )      |   | (455,604 | ) |
|                                                                                                      |   |                                                          |       |                                |   |                                  |   |   |   |   |
| CASH                FLOWS FROM FINANCING ACTIVITIES                                                       |   |                                                          |       |                                |   |                                  |   |   |   |   |
| Issuance                of common stock, preferred stock and warrants for                cash        |   |                                                          | -          |                                |   | 3,006,000                             |   |   | 10,033,845 |   |
| Contributed                equity                                                                    |   |                                                          | -          |                                |   | -                                     |   |   | 131,374 |   |
| Proceeds                from notes payable                                                           |   |                                                          | -          |                                |   | -                                     |   |   | 1,336,613 |   |
| Payments                on notes payable                                                             |   |                                                          | -          |                                |   | (300,000                              | )      |   | (801,287 | ) |
| Proceeds                from convertible notes payable                                               |   |                                                          | -          |                                |   | -                                     |   |   | 571,702 |   |
| Payments                on convertible notes payable                                                 |   |                                                          | -          |                                |   | -                                     |   |   | (98,500 | ) |
|  Net                Cash Provided by Financing Activities                                            |   |                                                          | -          |                                |   | 2,706,000                             |   |   | 11,173,747 |   |
|                                                                                                      |   |                                                          |       |                                |   |                                  |   |   |   |   |
| NET                INCREASE (DECREASE) IN CASH                                                       |   |                                                          | (550,694   | )                                   |   | (198,458                              | )      |   | 103,744 |   |
|                                                                                                      |   |                                                          |       |                                |   |                                  |   |   |   |   |
| CASH                AT BEGINNING OF PERIOD                                                           |   |                                                          | 654,438    |                                |   | 1,455,397                             |   |   | - |   |
|                                                                                                      |   |                                                          |       |                                |   |                                  |   |   |   |   |
| CASH                AT END OF PERIOD                                                                 |   | $                                                             | 103,744    |                                | $      | 1,256,939                             |   | $ | 103,744 |   |
|                                                                                                      |   |                                                          |       |                                |   |                                  |   |   |   |   |
|                                                                                                      |   |                                                          |       |                                |   |                                  |   |   |   |   |

----

**MEDICAL      DISCOVERIES, INC. AND SUBSIDIARIES**

|                                                                 |   |   |                                                                                                   |   |   |
|----------------------------------------------------------------------|--------|--------|--------------------------------------------------------------------------------------------------------|--------|--------|
|                                                                 |   |   |                                                                                                   |   |   |   |   |
|                                                                      |   |   | For                  the Nine Months                  Ended  September                  30,  |   |
|                                                                 |   |   | 2006                                                                                                   |   |   | 2005 |   |
| SUPPLEMENTAL                  DISCLOSURES OF                         |   |   |                                                                                                   |   |   |   |   |
| CASH                  FLOW INFORMATION                          |   |   |                                                                                                   |   |   |   |   |
|  Initial                  valuation of financial instrument     |   | $      | -                                                                                                      |   | $      | 6,279,829 |   |
|  Conversion                  of preferred stock to common stock |   | $      | 8,722                                                                                                  |   | $      | - |   |

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**MEDICAL        DISCOVERIES, INC. AND SUBSIDIARIES**

**Note      1 — Basis of Presentation**

*Unaudited      Interim Consolidated Financial Statements*

*Loss      Per Common Share*

|                                           |   |                                                              |        |     |   |
|------------------------------------------------|--------|-------------------------------------------------------------------|-------------|----------|--------|
|                                           |   | **Potential                    Common Shares**as of September 30, |        |
|                                           |   | **2006**                                                          |        | **2005** |   |
| Convertible                  notes             |   | $                                                                 | 128,671     |     | $      | 128,671 |   |
| Convertible                  preferred stock   |   |                                                              | 62,018,018  |     |   | 38,244,444 |   |
| Warrants                                       |   |                                                              | 40,923,861  |     |   | 40,923,861 |   |
| Stock                  options                 |   |                                                              | 19,983,000  |     |   | 19,483,000 |   |
| Total                  potential common shares |   | $                                                                 | 123,053,550 |     | $      | 98,779,976 |   |
|                                           |   |                                                              |        |     |   |   |   |

*Stock      Based Compensation*

*Revenue      Recognition*

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**MEDICAL        DISCOVERIES, INC. AND SUBSIDIARIES**

**Note      2 — Going Concern Considerations**

**Note      3 - Stockholders’ Equity**

*Common      and preferred stock*

*Financial      instrument*

*Stock      options*

**Note      4 - Related Party Transactions**

**Note      5 - Notes Receivable **

----

**MEDICAL        DISCOVERIES, INC. AND SUBSIDIARIES**

**Note      6 - Formestane Cream (formerly SaveCream) Asset Purchase **

**Note      7 - Other Significant Transactions**

*Debt      Restructuring*

*Licensing      Agreement*

----

**MEDICAL        DISCOVERIES, INC. AND SUBSIDIARIES**

*Amendment      and Loan Agreement with Inventor *

----

**ITEM      2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF      OPERATIONS.** 

**Overview**

**Recent      Events**

----

*Cystic      Fibrosis IND. *

**Results      of Operations**

***Revenues      and Gross Profit —***

***Operating      Expenses and Operating Income or Loss***

----

***Other      Income/Expense and Net Loss —***

***Future      Expectations***

***Liquidity      and Capital Resources***

----

**Off-Balance      Sheet Arrangements**

**Cautionary      Statement for Forward Looking Information**

----

**ITEM      3. CONTROLS AND PROCEDURES** 

----

**PART      II**

**OTHER      INFORMATION**

**ITEM      6. EXHIBITS** 

|       |   |        |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|------------|--------|-------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **Number** |   | **Exhibit** |
|       |   |        |
|       | 2      | .1          |   | Sale                and Purchase Agreement between Attorney Hinnerk-Joachim Müller as                liquidator of Savetherapeutics AG i.L. and Medical Discoveries, Inc.                regarding the purchase of the essential assets of Savetherapeutics                AG i.L.                (filed as Exhibit 2.1 to the Company’s Annual Report on Form 10-KSB for                the fiscal year ended December 31, 2004, and incorporated herein                by                reference). |
|       |
|       | 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).                                                                                                                                                                                                                                                           |
|       |
|       | 4      | .1          |   | Registration                Rights Agreement dated October 18, 2004 among Monarch Pointe Fund,                Ltd., Mercator Advisory Group, LLC and Medical Discoveries,                Inc. (filed                as Exhibit 4.1 to the Company’s Annual Report on Form 10-KSB for the                fiscal year ended December 31, 2004, and incorporated herein by                reference).                                                                                                |
|       |
|       | 4      | .2          |   | Registration                Rights Agreement dated December 3, 2004 among Mercator Momentum Fund,                LP, Mercator Momentum Fund III, LP, Mercator Advisory Group, LLC and                Medical Discoveries, Inc. (filed                as Exhibit 4.2 to the Company’s Annual Report on Form 10-KSB for the                fiscal year ended December 31, 2004, and incorporated herein by                reference).                                                          |
|       |   |        |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|       | 4      | .3          |   | Certificate                of Designations of Preferences and Rights of Series A Convertible                Preferred Stock of Medical Discoveries, Inc. (filed as Exhibit 4.1                to                Registration Statement No. 333-121635 filed on Form SB-2 on December                23,                2004, and incorporated herein by reference).                                                                                                                                               |
|       |   |        |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|       | 4      | .4          |   | Amendment                to Certificate of Designations of Preferences and Rights of Series                A                Convertible Preferred Stock of Medical Discoveries, Inc. (filed as                Exhibit                4.2 to Registration Statement No. 333-121635 filed on Form SB-2 on                December 23, 2004, and incorporated herein by                reference).                                                                                                                   |
|       |
|       | 10     | .1          |   | 2002                Stock Incentive Plan adopted by the Board of Directors as of July 11,                2002 (filed as Exhibit 10.5 to the Company’s Quarterly Report on                Form 10-QSB for the quarter ended June 30, 2002, and                incorporated herein by reference).                                                                                                                                                                                         |
|       |   |        |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|       | 10     | .2          |   | Subscription                Agreement dated October 18, 2004 among Monarch Pointe Fund, Ltd.,                Mercator                Advisory Group, LLC, and Medical Discoveries, Inc. (filed as Exhibit                10.2                to Amendment No. 2 to Registration Statement No. 333-121635 filed                on form                SB-2 on June 2, 2005, and incorporated herein by                reference).                                                                                  |
|       |   |        |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|       | 10     | .3          |   | Subscription                Agreement dated December 3, 2004 among Mercator Momentum Fund, LP,                Mercator Momentum Fund III, LP, Mercator Advisory Group, LLC, and                Medical                Discoveries, Inc. (filed as Exhibit 10.3 to Amendment No. 2 to                Registration Statement No. 333-121635 filed on form SB-2 on June                2, 2005,                and incorporated herein by                reference).                                                 |

|   |     |     |   |                                                                                                                                                                                                                                                                                                                                                         |
|--------|----------|----------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | 10       | .4       |   | Employment                Agreement dated March 1, 2005 between Medical Discoveries, Inc. and                Judy                M. Robinett. (filed as Exhibit 10.4 to Amendment No. 3 to Registration                Statement No. 333-121635 filed on Form SB-2 on October 13, 2005,                and                incorporated herein by reference). |
|   |     |     |   |                                                                                                                                                                                                                                                                                                                                                         |
|   | 10       | .5  |   | Definitive                Master Agreement, dated as of July 29, 2006, by and between MDI Oncology,                Inc. and Eucodis Forschungs und Entwicklungs GmbH (filed as Exhibit                10.1                to the Company’s Current Report on Form 8-K filed August 3, 2006, and                incorporated herein by reference).      |
|   |     |     |   |                                                                                                                                                                                                                                                                                                                                                         |
|   | 31       | .1       |   | Rule 13a-14(a)                Certification, as adopted pursuant to Section 302 of the                Sarbanes-Oxley Act of 2002.*                                                                                                                                                                                                                 |
|   |     |     |   |                                                                                                                                                                                                                                                                                                                                                         |
|   | 31       | .2       |   | Rule 13a-14(a)                Certification, as adopted pursuant to Section 302 of the                Sarbanes-Oxley Act of 2002.*                                                                                                                                                                                                                 |
|   |     |     |   |                                                                                                                                                                                                                                                                                                                                                         |
|   | 32       | .1       |   | Certification                pursuant to 18 U.S.C. Section 1350, as adopted pursuant to                Section 906 of the Sarbanes-Oxley Act of 2002.*                                                                                                                                                                                        |
|   |     |     |   |                                                                                                                                                                                                                                                                                                                                                         |
|   |  32 | .2       |   | Certification                pursuant to 18 U.S.C. Section 1350, as adopted pursuant to                Section 906 of the Sarbanes-Oxley Act of                2002.*                                                                                                                                                                         |

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

----

**SIGNATURES**

|                                      |                                                 |                                                |
|-------------------------------------------|------------------------------------------------------|-----------------------------------------------------|
|                                      | MEDICAL                DISCOVERIES, INC.             |
|                                 |                                            |                                           |
| Date: November              14, 2006 | By:                                        | /s/ JUDY              M.              ROBINETT |
|                                      | Judy                M. Robinett                      |
|                                      | President                and Chief Executive Officer |

----

**INDEX      TO EXHIBITS**

|       |     |        |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|------------|----------|-------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **Number** |     | **Exhibit** |
|       |     |        |
|       | 2        | .1          |   | Sale                and Purchase Agreement between Attorney Hinnerk-Joachim Müller as                liquidator of Savetherapeutics AG i.L. and Medical Discoveries, Inc.                regarding the purchase of the essential assets of Savetherapeutics                AG i.L.                (filed as Exhibit 2.1 to the Company’s Annual Report on Form 10-KSB for                the fiscal year ended December 31, 2004, and incorporated herein                by                reference). |
|       |
|       | 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).                                                                                                                                                                                                                                                           |
|       |
|       | 4        | .1          |   | Registration                Rights Agreement dated October 18, 2004 among Monarch Pointe Fund,                Ltd., Mercator Advisory Group, LLC and Medical Discoveries,                Inc. (filed                as Exhibit 4.1 to the Company’s Annual Report on Form 10-KSB for the                fiscal year ended December 31, 2004, and incorporated herein by                reference).                                                                                                |
|       |
|       | 4        | .2          |   | Registration                Rights Agreement dated December 3, 2004 among Mercator Momentum Fund,                LP, Mercator Momentum Fund III, LP, Mercator Advisory Group, LLC and                Medical Discoveries, Inc. (filed                as Exhibit 4.2 to the Company’s Annual Report on Form 10-KSB for the                fiscal year ended December 31, 2004, and incorporated herein by                reference).                                                          |
|       |     |        |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|       | 4        | .3          |   | Certificate                of Designations of Preferences and Rights of Series A Convertible                Preferred Stock of Medical Discoveries, Inc. (filed as Exhibit 4.1                to                Registration Statement No. 333-121635 filed on Form SB-2 on December                23,                2004, and incorporated herein by reference).                                                                                                                                               |
|       |     |        |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|       | 4        | .4          |   | Amendment                to Certificate of Designations of Preferences and Rights of Series                A                Convertible Preferred Stock of Medical Discoveries, Inc. (filed as                Exhibit                4.2 to Registration Statement No. 333-121635 filed on Form SB-2 on                December 23, 2004, and incorporated herein by                reference).                                                                                                                   |
|       |
|       | 10       | .1          |   | 2002                Stock Incentive Plan adopted by the Board of Directors as of July 11,                2002 (filed as Exhibit 10.5 to the Company’s Quarterly Report on                Form 10-QSB for the quarter ended June 30, 2002, and                incorporated herein by reference).                                                                                                                                                                                         |
|       |     |        |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|       | 10       | .2          |   | Subscription                Agreement dated October 18, 2004 among Monarch Pointe Fund, Ltd.,                Mercator                Advisory Group, LLC, and Medical Discoveries, Inc. (filed as Exhibit                10.2                to Amendment No. 2 to Registration Statement No. 333-121635 filed                on form                SB-2 on June 2, 2005, and incorporated herein by                reference).                                                                                  |
|       |     |        |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|       | 10       | .3          |   | Subscription                Agreement dated December 3, 2004 among Mercator Momentum Fund, LP,                Mercator Momentum Fund III, LP, Mercator Advisory Group, LLC, and                Medical                Discoveries, Inc. (filed as Exhibit 10.3 to Amendment No. 2 to                Registration Statement No. 333-121635 filed on form SB-2 on June                2, 2005,                and incorporated herein by reference).                                                                |
|       |     |        |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|       | 10       | .4          |   | Employment                Agreement dated March 1, 2005 between Medical Discoveries, Inc. and                Judy                M. Robinett. (filed as Exhibit 10.4 to Amendment No. 3 to Registration                Statement No. 333-121635 filed on Form SB-2 on October 13, 2005,                and                incorporated herein by reference).                                                                                                                                                      |
|       |     |        |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|       | 10       | .5     |   | Definitive                Master Agreement, dated as of July 29, 2006, by and between MDI Oncology,                Inc. and Eucodis Forschungs und Entwicklungs GmbH (filed as Exhibit                10.1                to the Company’s Current Report on Form 8-K filed August 3, 2006, and                incorporated herein by reference).                                                                                                                                                           |
|       |     |        |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|       | 31       | .1          |   | Rule 13a-14(a)                Certification, as adopted pursuant to Section 302 of the                Sarbanes-Oxley Act of 2002.*                                                                                                                                                                                                                                                                                                                                                                      |
|       |     |        |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|       | 31       | .2          |   | Rule 13a-14(a)                Certification, as adopted pursuant to Section 302 of the                Sarbanes-Oxley Act of 2002.*                                                                                                                                                                                                                                                                                                                                                                      |
|       |     |        |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|       | 32       | .1          |   | Certification                pursuant to 18 U.S.C. Section 1350, as adopted pursuant to                Section 906 of the Sarbanes-Oxley Act of 2002.*                                                                                                                                                                                                                                                                                                                                             |
|       |     |        |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|       |  32 | .2          |   | Certification                pursuant to 18 U.S.C. Section 1350, as adopted pursuant to                Section 906 of the Sarbanes-Oxley Act of                2002.*                                                                                                                                                                                                                                                                                                                              |

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