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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 Form 10-QSB
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2006
 o
    
    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.
  Utah
    
    87-0407858(State or other jurisdiction of
incorporation or organization)
    
    (I.R.S. Employer
Identification No.)
  
   
   
  þ o
 o þ
   o þ




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##### 



PART IFINANCIAL INFORMATIONITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
    
    
    3ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
    
    
    10ITEM 3. CONTROLS AND PROCEDURES
    
    
    12PART IIOTHER INFORMATIONITEM 6. EXHIBITS
    
    
    14SIGNATURES
    
    
    15INDEX TO EXHIBITS
    
    
    16EXHIBIT 21EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2
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PART I
 FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
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MEDICAL DISCOVERIES, INC. AND SUBSIDIARIES
 March 31,
    
    
    December 31,2006
    
    
    2005ASSETSCURRENT ASSETSCash
    
    $
    106,589
    
    
    $
    654,438Total Current Assets
    
    
    106,589
    
    
    
    654,438Note receivable
    
    
    303,475
    
    
    
    296,050Property and equipment, net
    
    
    75,621
    
    
    
    80,635TOTAL ASSETS
    
    $
    485,685
    
    
    $
    1,031,123LIABILITIES AND STOCKHOLDERS DEFICITCURRENT LIABILITIESAccounts payable
    
    $
    2,425,462
    
    
    $
    2,608,783Accrued interest payable
    
    
    245,208
    
    
    
    237,836Notes payable
    
    
    56,000
    
    
    
    56,000Convertible notes payable
    
    
    193,200
    
    
    
    193,200Research and development obligation
    
    
    606,950
    
    
    
    592,100Financial instrument
    
    
    3,979,373
    
    
    
    2,859,596Total Current Liabilities
    
    
    7,506,193
    
    
    
    6,547,515TOTAL LIABILITIES
    
    
    7,506,193
    
    
    
    6,547,515STOCKHOLDERS DEFICITPreferred stock, Series A,
convertible; no par value; 42,000 shares authorized; 41,800 and
42,000 shares issued and outstanding, respectively; (aggregate liquidation preference of
$4,180,000 and $4,200,000, respectively)
    
    
    514,612
    
    
    
    523,334Common stock, no par value; 250,000,000 shares authorized; 107,922,148 and 107,679,724
shares issued and outstanding, respectively
    
    
    15,220,617
    
    
    
    15,211,895Additional paid-in capital
    
    
    1,056,020
    
    
    
    988,670Deficit accumulated prior to the development stage
    
    
    (1,399,577
    )
    
    
    (1,399,577
    )Deficit accumulated during the development stage
    
    
    (22,412,180
    )
    
    
    (20,840,714
    )Total Stockholders Deficit
    
    
    (7,020,508
    )
    
    
    (5,516,392
    )TOTAL LIABILITIES AND STOCKHOLDERS DEFICIT
    
    $
    485,685
    
    
    $
    1,031,123
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MEDICAL DISCOVERIES, INC. AND SUBSIDIARIES
 From Inceptionof theDevelopment StageFor the Three
    
    
    on November 20, 1991Months Ended
    
    
    ThroughMarch 31,
    
    
    March 31,2006
    
    
    2005
    
    
    2006REVENUES
    
    $
    
    
    
    $
    
    
    
    $
    157,044COST OF GOODS SOLD
    
    
    
    
    
    
    
    
    
    
    14,564GROSS PROFIT
    
    
    
    
    
    
    
    
    
    
    142,480OPERATING EXPENSESGeneral and administrative
    
    
    345,520
    
    
    
    251,996
    
    
    
    17,400,517Research and development
    
    
    92,583
    
    
    
    1,551,986
    
    
    
    5,813,782Inventory write-down
    
    
    
    
    
    
    
    
    
    
    96,859Impairment loss
    
    
    
    
    
    
    
    
    
    
    9,709License fees
    
    
    
    
    
    
    
    
    
    
    1,001,500Total Expenses
    
    
    438,103
    
    
    
    1,803,982
    
    
    
    24,322,367LOSS FROM OPERATIONS
    
    
    (438,103
    )
    
    
    (1,803,982
    )
    
    
    (24,179,887
    )OTHER INCOME (EXPENSES)Unrealized gain (loss) on financial instrument
    
    
    (1,119,777
    )
    
    
    (142,262
    )
    
    
    1,180,414Interest income
    
    
    1,211
    
    
    
    5,564
    
    
    
    56,509Interest expense
    
    
    (7,372
    )
    
    
    (15,898
    )
    
    
    (1,163,073
    )Foreign currency transaction gain (loss)
    
    
    (7,425
    )
    
    
    19,900
    
    
    
    49,055Gain on forgiveness of debt
    
    
    
    
    
    
    
    
    
    
    1,431,889Other income
    
    
    
    
    
    
    
    
    
    
    905,112Total Other Income (Expenses)
    
    
    (1,133,363
    )
    
    
    (132,696
    )
    
    
    2,459,906NET LOSS
    
    
    (1,571,466
    )
    
    
    (1,936,678
    )
    
    
    (21,719,981
    )Preferred stock dividend from
beneficial conversion feature
    
    
    
    
    
    
    
    
    
    
    (692,199
    )NET LOSS APPLICABLE TO
COMMON SHAREHOLDERS
    
    $
    (1,571,466
    )
    
    $
    (1,936,678
    )
    
    $
    (22,412,180
    )BASIC AND DILUTED LOSS PER
COMMON SHARE
    
    $
    (0.01
    )
    
    $
    (0.02
    )WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING
    
    
    107,895,212
    
    
    
    106,506,793
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MEDICAL DISCOVERIES, INC. AND SUBSIDIARIES
 From InceptionFor the Three
    
    
    of theMonths Ended
    
    
    Development StageMarch 31,
    
    
    on November 20, 19912006
    
    
    2005
    
    
    Through March 31, 2006CASH FLOWS FROM OPERATING ACTIVITIESNet Loss
    
    $
    (1,571,466
    )
    
    $
    (1,936,678
    )
    
    $
    (21,719,981
    )Adjustments to reconcile net loss to net cash used by operating activities:Foreign currency transaction (gain) loss
    
    
    7,425
    
    
    
    (19,900
    )
    
    
    (49,055
    )Gain on debt restructuring
    
    
    
    
    
    
    
    
    
    
    (1,431,889
    )Common stock issued for services
    
    
    
    
    
    
    18,750
    
    
    
    4,267,717Commitment for research and development obligation
    
    
    
    
    
    
    665,700
    
    
    
    665,700Unrealized (gain) loss on financial instrument
    
    
    1,119,777
    
    
    
    142,262
    
    
    
    (1,180,414
    )Depreciation
    
    
    5,014
    
    
    
    
    
    
    
    113,800Reduction of escrow receivable from
research and development
    
    
    
    
    
    
    
    
    
    
    272,700Stock options and warrants granted for services
    
    
    67,350
    
    
    
    
    
    
    
    4,878,603Reduction of legal costs
    
    
    
    
    
    
    
    
    
    
    (130,000
    )Write-off of subscriptions receivable
    
    
    
    
    
    
    
    
    
    
    112,500Impairment of loss on assets
    
    
    
    
    
    
    
    
    
    
    9,709Loss on disposal of equipment
    
    
    
    
    
    
    
    
    
    
    30,364Write-off of receivable
    
    
    
    
    
    
    
    
    
    
    245,065Note payable issued for litigation
    
    
    
    
    
    
    
    
    
    
    385,000Changes in operating assets and liabilitiesIncrease in accounts receivable
    
    
    
    
    
    
    
    
    
    
    (7,529
    )Increase (decrease) in accounts payable
    
    
    (183,321
    )
    
    
    (84,904
    )
    
    
    2,280,865Increase in accrued expenses
    
    
    7,372
    
    
    
    15,898
    
    
    
    645,291Net Cash Used by Operating Activities
    
    
    (547,849
    )
    
    
    (1,198,872
    )
    
    
    (10,611,554
    )CASH FLOWS FROM INVESTING ACTIVITIESIncrease in deposits
    
    
    
    
    
    
    
    
    
    
    (51,100
    )Purchase of equipment
    
    
    
    
    
    
    
    
    
    
    (221,334
    )Issuance of note receivable
    
    
    
    
    
    
    
    
    
    
    (313,170
    )Payments received on note receivable
    
    
    
    
    
    
    
    
    
    
    130,000Net Cash Used by Investing Activities
    
    
    
    
    
    
    
    
    
    
    (455,604
    )CASH FLOWS FROM FINANCING ACTIVITIESIssuance of common stock, preferred stock and warrants for cash
    
    
    
    
    
    
    2,902,000
    
    
    
    10,033,845Contributed equity
    
    
    
    
    
    
    
    
    
    
    131,374Proceeds from notes payable
    
    
    
    
    
    
    
    
    
    
    1,336,613Payments on notes payable
    
    
    
    
    
    
    
    
    
    
    (801,287
    )Proceeds from convertible notes payable
    
    
    
    
    
    
    
    
    
    
    571,702Payments on convertible notes payable
    
    
    
    
    
    
    
    
    
    
    (98,500
    )Net Cash Provided by Financing Activities
    
    
    
    
    
    
    2,902,000
    
    
    
    11,173,747NET INCREASE (DECREASE) IN CASH
    
    
    (547,849
    )
    
    
    1,703,128
    
    
    
    106,589CASH AT BEGINNING OF PERIOD
    
    
    654,438
    
    
    
    1,455,397
    
    
    
    CASH AT END OF PERIOD
    
    $
    106,589
    
    
    $
    3,158,525
    
    
    $
    106,589
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MEDICAL DISCOVERIES, INC. AND SUBSIDIARIES
 For the ThreeMonths EndedMarch 31,2006
    
    
    2005SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATIONInitial valuation of financial instrument
    
    $
    
    
    
    $
    6,279,829Conversion of preferred stock to common stock
    
    $
    8,722
    
    
    $
    
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MEDICAL DISCOVERIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Unaudited Condensed Consolidated Financial Statements
 Note 1  Basis of Presentation
 Unaudited Interim Consolidated Financial Statements
  Loss Per Common Share
  Stock Based Compensation and Restatement
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Note 2  Going Concern Considerations
  Note 3  Preferred Stock, Financial Instrument, and Options
    Note 4  Related Party Transactions
      
 
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Note 5  Other Significant Transactions
 SaveCream Asset Purchase
     
  
 
 ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
   Overview
  - 10 -




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Recent Events
 Cystic Fibrosis IND.
  Results of Operations
 Revenues and Gross Profit 
 Operating Expenses and Operating Loss
 Other Income/Expense and Net Loss 
 - 11 -




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Future Expectations
 Liquidity and Capital Resources
   Off-Balance Sheet Arrangements
  Cautionary Statement for Forward Looking Information
   - 12 -




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ITEM 3. CONTROLS AND PROCEDURES
   - 13 -




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PART II
 OTHER INFORMATION
 
 ITEM 6. EXHIBITS
  Number
    
    Exhibit2.1
    
    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.
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Number
    
    Exhibit333-121635 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).21
    
    Subsidiaries.*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. - 15 -




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SIGNATURES
  MEDICAL DISCOVERIES, INC./S/ JUDY M. ROBINETTJudy M. RobinettDate: May 15, 2006
    
    
    
    President and Chief Executive Officer
 - 16 -




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INDEX TO EXHIBITS
 Number
    
    Exhibit2.1
    
    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).21
    
    Subsidiaries.*
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Number
    
    Exhibit31.1
    
    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. - 18 -