MEDICAL SCIENCE SYSTEMS INC, S-3, 1999-07-23

MEDICAL SCIENCE SYSTEMS INC
S-3, 1999-07-23
MEDICAL LABORATORIES

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As filed with the Securities and Exchange Commission on July 23, 1999

Registration No. 333-____

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------
FORM S-3

REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
--------------------

MEDICAL SCIENCE SYSTEMS, INC.
(Exact name of registrant as specified in its charter)

TEXAS 94-3123681
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

100 N.E. LOOP 410, SUITE 820
SAN ANTONIO, TEXAS 78216
(210) 349-6400
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)

--------------------
U. SPENCER ALLEN
CHIEF FINANCIAL OFFICER, SECRETARY AND TREASURER
MEDICAL SCIENCE SYSTEMS, INC.
100 N.E. LOOP 410, SUITE 820
SAN ANTONIO, TEXAS 78216
(210) 349-6400
(Name, address, including zip code, and telephone number,
including area code, of agent for service)

--------------------
Copies of all communications, including all communications
sent to the agent for service, should be sent to:

PHILLIP M. RENFRO, ESQ.
FULBRIGHT & JAWORSKI L.L.P.
300 CONVENT STREET, SUITE 2200
SAN ANTONIO, TEXAS 78205
(210) 270-7172

Approximate date of commencement of proposed sale to the public:
From time to time after the effective date of this Registration Statement.

--------------------

If the only securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, check the following box: |_|

If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box: |X|

If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. |_|

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: |_|

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CALCULATION OF REGISTRATION FEE
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TITLE OF EACH CLASS OF AMOUNT OF SHARES PROPOSED MAXIMUM OFFERING PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE REGISTERED TO BE REGISTERED PRICE PER SHARE(1) AGGREGATE OFFERING PRICE(1) REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMON STOCK, NO PAR VALUE PER
SHARE.............................. 12,000,000(2)(3) $2.40625 $28,875,000 $8,027.25
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL.............................. 12,000,000(2)(3) $2.40625 $28,875,000 $8,027.25
====================================================================================================================================
</TABLE>
(1) Pursuant to Rule 457(c), the proposed maximum offering price per share and
proposed maximum aggregate offering price have been calculated on the basis
of the average of the bid and ask prices of the Common Stock as reported on
the Nasdaq National Market on July 21, 1999.
(2) Represents 11,000,000 shares of Common Stock issuable upon conversion of
Series A Preferred Stock and upon exercise of warrants to purchase
1,000,000 shares of Common Stock.
(3) Pursuant to Rule 416(a), this Registration Statement shall also cover any
additional shares of Common Stock which become issuable by reason of any
stock dividend, stock split, recapitalization or other similar transactions
effected without the receipt of consideration which results in an increase
in the number of the outstanding shares of Common Stock.

The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to Section 8(a), may
determine.
<PAGE>
P R O S P E C T U S

12,000,000 Shares

MEDICAL SCIENCE SYSTEMS, INC.

COMMON STOCK
---------------

This prospectus relates to the public offering, which is not being
underwritten, of up to 12,000,000 shares (the "Shares") of our common stock, no
par value per share ("Common Stock"), which are issuable to the holders of our
Series A Preferred Stock or to the holders of warrants to purchase Common Stock.

The prices at which our shareholders may sell the Shares will be
determined by the prevailing market price for the Shares or in negotiated
transactions. We will not receive any of the proceeds from the sale of the
Shares.

Our Common Stock is traded on The NASDAQ SmallCap Market (the "Nasdaq
Market") and The Boston Stock Exchange under the symbol "MSSI." On July 21,
1999, the last reported sale price for our Common Stock on the Nasdaq Market was
$2.3125 per share.

The holders of the Series A Preferred Stock will acquire their shares of
Common Stock on August 20, 1999, assuming shareholder ratification of the
issuance of the shares of Series A Preferred Stock pursuant to the private
placement we completed in June 1999 and assuming shareholder approval of an
amendment to the Articles of Incorporation of the Company to increase the
authorized shares of Common Stock from 10,000,000 shares to 50,000,000 shares.

This Prospectus is not an offer to sell these securities and is not
soliciting an offer to buy these securities in any state where the offer or sale
is not permitted.

---------------

INVESTING IN THE COMMON STOCK INVOLVES RISKS. YOU SHOULD READ THE "RISK
FACTORS" BEGINNING ON PAGE 3.

---------------

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.

The date of this Prospectus is July 23, 1999.
<PAGE>
AVAILABLE INFORMATION

We have filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-3 under the Securities Act of
1933, as amended (the "Securities Act"), related to the Shares. This Prospectus
is part of that Registration Statement and does not contain all of the
information set forth in the Registration Statement and its exhibits. You may
obtain further information with respect to the Company and the Shares by
reviewing the Registration Statement and the attached exhibits, which you may
read and copy at the following locations of the Commission:
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<CAPTION>
<S> <C> <C>
Public Reference Room New York Regional Office Chicago Regional Office
Judiciary Plaza Seven World Trade Center Citicorp Center
450 Fifth Street, N.W., Rm. 1024 13th Floor 500 West Madison Street, Suite 1400
Washington, D.C. 20549 New York, New York 10048 Chicago, Illinois 60661-2511
</TABLE>
We are subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). Accordingly, we file
reports, proxy statements and other information with the Commission. Such
reports, proxy statements and other information can be inspected and copied at
the locations described above. Copies of such materials can be obtained from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. You may obtain information on the
Public Reference Room of the Commission by calling the Commission at
1-800-SEC-0330. The Commission maintains a Web site that contains the
Registration Statement, reports, proxy statements and other information
regarding the Company at http://www.sec.gov.

We furnish our shareholders with annual reports containing audited
financial statements with a report thereon by our independent public
accountants.

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The Commission allows us to "incorporate by reference" certain information
into this Prospectus. This means that we can disclose important information to
you by referring you to another document we have filed separately with the
Commission. The information incorporated by reference is considered to be a part
of this Prospectus, except for any information that is superseded by other
information that is set forth directly in this document.

The following documents that we have previously filed with the Commission
pursuant to the Exchange Act are hereby incorporated by reference into the
Prospectus:

(1) Our Annual Report on Form 10-KSB/A for the fiscal year ended December
31, 1998.

(2) Our Quarterly Report on Form 10-QSB for the quarter ended March 31,
1999.

(3) Our Current Report on Form 8-K dated June 16, 1999 and filed June 25,
1999 reporting our private placement of Series A Preferred Stock.

(4) The description of our Common Stock contained in Item 1 of our
Registration Statement on Form 8-A dated December 15, 1997.

Medical Science Systems also incorporates by reference additional
documents that may be filed with the Commission between the date of this
Prospectus and the date of completion of the offering of the shares of Common
Stock by the selling shareholders. These include periodic reports, such as
Annual Reports on Form 10-KSB, Quarterly Reports on Form 10-QSB and Current
Reports on Form 8-K, as well as proxy statements.

Documents incorporated by reference are available from us without charge,
excluding all exhibits, except that if we have specifically incorporated by
reference an exhibit in this Prospectus, the exhibit also will be available
without charge. Shareholders may obtain documents incorporated by reference in
this Prospectus by requesting them in writing or by telephone from Medical
Science Systems at the following address:

Medical Science Systems, Inc.
100 N.E. Loop 410, Suite 820
San Antonio, Texas 78216

Attention: Investor Relations
Telephone: 210 349-6400

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You should rely only on the information contained or incorporated by reference
in this Prospectus. We have not authorized anyone to provide you with
information that is different from what is contained in this Prospectus. This
Prospectus is dated July 23, 1999. You should not assume that the information
contained in this Prospectus is accurate as of any date other than that date. In
this Prospectus, the "Company," "Medical Science Systems," "MSS," "we" and "our"
refer to Medical Science Systems, Inc.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Prospectus and the documents incorporated by reference contain
certain forward-looking statements including, without limitation, statements
concerning our expectations of future sales, gross profits, research and
development expenses, selling, general and administrative expenses, product
introductions and cash requirements. Forward-looking statements often, although
not always, include words or phrases such as "will likely result," "expect,"
"will continue," "anticipate," "estimate," "intend," "plan," "project,"
"outlook" or similar expressions. Actual results may vary materially from those
expressed in such forward-looking statements. Factors which could cause actual
results to differ from expectations include those set forth under "Risk
Factors." We cannot be certain that our results of operations will not be
adversely affected by one or more of these factors.

RISK FACTORS

You should carefully examine this entire Prospectus and should give
particular attention to the risk factors set forth below in conjunction with the
other information contained or incorporated by reference in this Prospectus in
evaluating an investment in the Shares.

RECENT DEVELOPMENTS

In June 1999, the Company completed the Private Placement of 2,200,000
shares of Series A Preferred Stock. Upon shareholder approval of a proposal to
amend the Articles of Incorporation of the Company to increase the number of
authorized shares of Common Stock from 10,000,000 shares to 50,000,000 shares
and upon shareholder approval of a proposal to ratify the issuance of the shares
of Series A Preferred Stock issued pursuant to the Private Placement, each
issued and outstanding share of Series A Preferred Stock will be converted into
five (5) shares of Common Stock. The Company anticipates such shareholder
approval at its Annual Meeting of Shareholders scheduled for August 20, 1999.
Upon conversion of the Series A Preferred Stock, the holders of Series A
Preferred Stock will own approximately 68% of the then issued and outstanding
shares of Common Stock.

Following the Private Placement, the Company's Board of Directors consists
of Dr. Phillip R. Reilly, Gary L. Crocker, Kenneth S. Kornman, Thomas A. Moore
and Edward M. Blair, Jr. Dr. Reilly serves as Chairman of the Board of
Directors. Michael G. Newman, Ronald A. LaRosa and Paul J. White each resigned
as directors of the Company upon completion of the Private Placement. Paul J.
White formerly served as President and Chief Executive Officer of the Company,
and now serves as Senior Vice President and General Counsel. A search is being
conducted by the Board of Directors for an individual(s) to serve as President
and Chief Executive Officer of the Company. Until such positions are filled,
Philip R. Reilly will serve as Interim Chief Executive Officer of the Company
and Kenneth S. Kornman will serve as Interim President of the Company.

NO ASSURANCE OF ADDITIONAL NECESSARY CAPITAL

The Company anticipates that its current financial resources will be
adequate to maintain its current and planned operations through January 2001.
Arthur Andersen LLP, the Company's independent auditors, have included in their
report on the financial statements for the year ended December 31, 1998, an
explanatory paragraph with respect to the Company's need for future funding and
have expressed concern with respect to the Company's ability to continue as a
going concern. There can be no assurances that the Company will be able to raise
any additional capital. If additional amounts cannot be raised prior to the
expiration of such time periods, the Company would suffer material adverse
consequences to its business, financial condition and results of operations and
would likely be required to seek protection under the United States Bankruptcy
laws.

The Company's future capital requirements will depend on many factors,
including successful expansion of sales of PST(R), the Company's genetic test
for periodontal disease, and continued scientific progress with its research and
development programs. The continuation of the Company's research and development
activities beyond January 2001 may require substantial additional capital from
private or public sources. There is no assurance that such capital will be
available to the Company on acceptable terms. Furthermore, the market for
publicly-traded stocks of biotechnology companies has been depressed since 1993,
and the competition for equity capital from public and private sources has
intensified among the over 1,000 biotechnology companies in the United States
that are dependent on infusions of capital to fund their operations. The Company
is also engaged from time to time in discussions with several companies
concerning the licensing of certain of the Company's proprietary technologies or
forming strategic

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alliances, which could provide additional sources of funding to the Company as
well as a possible source of equity capital. The Company is unable to predict
the likelihood of completing any such arrangements. There can be no assurance
that the Company will be successful in obtaining additional capital in amounts
sufficient to continue to fund its operations and product development.

NEED FOR SHAREHOLDER APPROVAL

Since the Company is listed on The NASDAQ SmallCap Market, it is subject
to the governance requirements adopted by the NASDAQ. These requirements, among
other things, require listed companies to obtain the consent of their
stockholders to any issuance of securities equaling 20% or more of the entity's
outstanding voting shares if the issuance involves a discount from market or
book value. As of the date the Company completed its Private Placement, the
Company had 5,558,668 shares of Common Stock outstanding; as a result, the
issuance of more than 1,109,693 shares of Common Stock requires such shareholder
approval. In order to complete the Private Placement prior to obtaining
stockholder approval, we offered our Series A Preferred Stock rather than Common
Stock in order to complete the offering without violating the NASDAQ rules. The
Series A Preferred Stock issued in connection with the Private Placement will
not be convertible into Common Stock until required stockholder approvals have
been received to meet the applicable NASDAQ requirement and to amend the
Company's Articles of Incorporation to increase its authorized shares of Common
Stock. UPON OBTAINING STOCKHOLDER APPROVAL OR UPON THE COMPANY BEING DELISTED
FROM THE NASDAQ SMALL CAP STOCK MARKET AND, IN EITHER CASE, UPON THE COMPANY'S
ARTICLES OF INCORPORATION BEING AMENDED TO INCREASE THE COMPANY'S AUTHORIZED
NUMBER OF SHARES OF COMMON STOCK TO A NUMBER GREATER THAN ALL SHARES OF COMMON
STOCK THE COMPANY HAS RESERVED FOR ISSUANCE, INCLUDING THE SHARES RESERVED FOR
ISSUANCE UPON CONVERSION OF THE SERIES A PREFERRED STOCK, EACH SHARE OF THE
SERIES A PREFERRED STOCK WILL AUTOMATICALLY BE CONVERTED INTO FIVE SHARES OF
COMMON STOCK. The Company's annual meeting of shareholders is scheduled to take
place on August 20, 1999, at which the Company will seek shareholder
ratification of the Private Placement and shareholder approval of increasing the
authorized shares of Common Stock. However, the Company cannot give any
assurance that such shareholder ratification and approval will be obtained or
that the Common Stock will not be delisted as a result of a violation of NASDAQ
rules.

INABILITY TO FULLY USE NET OPERATING LOSS CARRYFORWARDS

As a result of the losses incurred in 1997 and 1998, the Company has not
recorded a Federal income tax provision for those years and has recorded a
valuation allowance against all future tax benefits. As of March 31, 1999, the
Company had net operating loss carryforwards of approximately $14,200,000 for
Federal income tax purposes, expiring in varying amounts through the year 2019.
The Company also had a research tax credit of approximately $170,129 at December
31, 1998, that expires in varying amounts through the year 2018. The Company's
ability to use its NOL and credit carryforwards is subject to Section 382 of the
Internal Revenue Code of 1986 (the "Code"). These restrictions provide for
limitations on the Company's utilization of its NOL and credit carryforwards
following a greater than 50% ownership change during the prescribed testing
period. The Company experienced a change in ownership interest in June 1999. The
Company does not believe that this change in ownership significantly impacts the
Company's ability to utilize its net operating loss and tax credit carryforwards
as of March 31, 1999, because the amount of the cumulative annual limitation
during the carryforward period approximates the total amount of net operating
loss and tax credit carryforwards.

INSUFFICIENT AUTHORIZED SHARES OF COMMON STOCK

Our Articles of Incorporation authorize the issuance of up to 10,000,000
shares of Common Stock. Assuming the conversion of the Series A Preferred Stock
issued pursuant to the Private Placement, we will have more shares of Common
Stock that will have either been issued or reserved for issuance pursuant to the
terms of such Series A Preferred Stock or under previously issued options or
warrants or under our stock plans than the Company has authority to issue. As a
result, until such time as our Articles of Incorporation are amended to increase
the authorized number of shares we can issue, we will not have enough authorized
shares of Common Stock to satisfy our obligations with respect to the conversion
of the Series A Preferred Stock or exercise of the warrants issued in connection
with the Private Placement, or warrants or options we have previously granted,
which if exercised by the holders thereof, would result in us breaching the
terms of such options and warrants and resulting in liability to the Company,
which liability could have a material adverse effect on the Company's financial
condition, business and results of operation. To avoid breaching these
covenants, the placement agent for the Private Placement agreed not to exercise
its warrants to purchase 1,000,000 shares of Common Stock, and the Series A
Preferred Stock will not be convertible into Common Stock, until required
shareholder approval has been received to amend the Company's Articles of
Incorporation to increase its authorized shares of Common Stock. The Company has
scheduled its annual meeting of shareholders for August 20, 1999, at which the
Company anticipates receiving such shareholder approval. We cannot give any
assurance that shareholder approval of such amendment to our Articles of
Incorporation will be obtained or that option or warrant holders will not
attempt to exercise such instruments prior to us obtaining approval at such
meeting.

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UNCERTAINTY OF MARKET ACCEPTANCE FOR GENETIC SUSCEPTIBILITY TESTS

The commercial success of our genetic susceptibility tests and those that
we may develop will depend upon their acceptance as medically useful and
cost-effective by patients, physicians, dentists, other members of the medical
and dental community and insurers. Broad market acceptance can be achieved only
with substantial education about the benefits and limitations of such tests. It
is uncertain whether current genetic susceptibility tests or others that we may
develop will gain market acceptance on a timely basis. If patients, dentists and
physicians do not accept our tests, or take a longer time to accept than we
anticipate, then our revenues and profit margins may be reduced and may result
in additional losses.

NEW BUSINESS VENTURE

The securities being offered hereby are subject to the risks inherent in
any new business venture. Although we have operated as a contract research firm
since 1986, we have limited experience and a short history of operations with
respect to marketing and selling susceptibility tests or therapeutics. We have
had only minimal revenues related to the sale of our genetic susceptibility
testing services. With the exception of our periodontal susceptibility test, the
genetic susceptibility tests anticipated to be sold by us have not yet been
finally designed, developed, tested or marketed. Therefore, there can be no
assurance that we will be able to complete development of these genetic
susceptibility tests, that those tests will be accepted in the marketplace, or
that the tests can be sold at a profit. Our business may also be affected
significantly by economic and market conditions over which we have no control.
Consequently, an investment in the Shares is highly speculative. We do not
guarantee any return on an investment in the Shares.

HISTORY OF OPERATING LOSSES; ACCUMULATED DEFICIT; UNCERTAINTY OF FUTURE
PROFITABILITY

We incurred net operating losses of $788,546 in fiscal year 1996,
$4,494,062 in 1997 and $9,508,275 in 1998. As of March 31, 1999, our accumulated
deficit was $16,078,710. Our losses have resulted principally from expenses
incurred in research and development and from selling, general and
administrative expenses. These expenses have exceeded our revenues. We have yet
to generate any significant revenues from the sale of our genetic susceptibility
testing services and there can be no assurance that we will be able to generate
significant revenues in the future. We expect our operating losses to continue
for the near future as our research and development, sales and marketing
activities and operations continue. Our ability to achieve profitability depends
on our ability to develop our sales and marketing capacity and our ability to
successfully market and sell our products and services. It is uncertain when, or
if, we will become profitable.

POSSIBLE NASDAQ DELISTING; LIMITED PUBLIC MARKET FOR COMMON STOCK; POSSIBLE
VOLATILITY OF SECURITIES PRICES

Our Common Stock is currently listed on The NASDAQ SmallCap Market and the
Boston Stock Exchange. If the Company fails to maintain the qualification for
its Common Stock to trade on the NASDAQ SmallCap Market or the Boston Stock
Exchange, its Common Stock could be subject to delisting. The NASDAQ Stock
Market announced increases in the quantitative standards, which became effective
in February 1998, for maintenance of any of (x) $2,000,000 of net tangible
assets, (y) $35,000,000 of market capitalization or (z) $500,000 of net income
for two of the last three years and a minimum bid price per share of $1.00. On
February 3, 1999, we received notice from NASDAQ that we are in violation of
NASDAQ's minimum bid price requirement and that if our Common Stock did not have
a closing bid price of at least $1.00 for ten consecutive trading days during
the 90-day period ending May 3, 1999, our Common Stock was subject to delisting
on May 3, 1999. The Company believes it satisfied this requirement by having a
closing bid price of at least $1.00 for the ten consecutive trading days ending
March 29, 1999; however the Company has not yet received notice from NASDAQ that
such requirement was satisfied. Furthermore, there can be no assurance that our
stock price will maintain such $1.00 minimum bid price. If the market price for
our Common Stock does fall below the $1.00 bid price, our Common Stock could be
subject to delisting from The NASDAQ SmallCap Market.

On April 19, 1999, the Company received an additional notice from the
NASDAQ SmallCap Market indicating that the Company was in violation of NASDAQ's
$2,000,000 minimum net tangible asset requirement. As a result of the Private
Placement, management believes that the Company is in compliance with NASDAQ's
minimum net tangible asset requirement. The Company filed a Current Report on
Form 8-K dated June 25, 1999, containing the Company's pro forma balance sheet
at May 31, 1999, adjusted to reflect the results of the Private Placement. Such
balance sheet reflects net tangible assets in excess of $2,000,000. If the
Company is unable to maintain compliance with NASDAQ's minimum net tangible
asset requirement, the Company would likely be delisted from The NASDAQ SmallCap
Market and may also suffer material adverse consequences to its business,
financial condition and results of operations. Such NASDAQ delisting would also
greatly impair the Company's ability to raise additional necessary capital
through equity or debt financing.

On April 26, 1999, the Company received a letter from NASDAQ expressing
concern regarding the "going concern" opinion of Arthur Andersen LLP, the
Company's independent public accountant, given in Arthur Andersen's

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report contained in the Company's Annual Report on Form 10-KSB. While NASDAQ did
not notify the Company that its Common Stock was subject to delisting due to
such opinion, NASDAQ does have the discretion to so delist the Company's Common
Stock for any number of reasons, including the "going concern" opinion of Arthur
Andersen. Their can be no assurance that the Company will be able to address
this issue in a manner satisfactory to NASDAQ, or that the Company's Common
Stock will not be delisted from The NASDAQ SmallCap Market.

If our shares are not listed as intended, trading, if any, would be
conducted in the over-the-counter market in the so-called "pink sheets" or the
OTC Bulletin Board, which was established for securities that do not meet The
NASDAQ SmallCap Market's listing requirements. Consequently, selling our shares
would be more difficult because smaller quantities of shares could be bought and
sold, transactions could be delayed, and security analysts' and news media's
coverage of our company may be reduced. These factors could result in lower
prices and larger spreads in the bid and ask prices for our shares.

If our shares are not listed on The NASDAQ SmallCap Markets and/or the
Boston Stock Exchange, they may become subject to Rule 15g-9 under the Exchange
Act. That rule imposes additional sales practice requirements on broker-dealers
that sell low-priced securities to persons other than established customers and
institutional accredited investors. For transactions covered by this rule, a
broker-dealer must make a special suitability determination for the purchaser
and have received the purchaser's written consent to the transaction prior to
sale. Consequently, the rule may affect the ability of broker-dealers to sell
our shares and affect the ability of holders to sell our shares in the secondary
market.

The SEC's regulations define a "penny stock" to be any equity security
that has a market price less than $5.00 per share or with an exercise price of
less than $5.00 per share, subject to certain exceptions. The penny stock
restrictions will not apply to our shares if they are listed on The NASDAQ
SmallCap Market or the Boston Stock Exchange and we provide certain price and
volume information on a current and continuing basis, or meet required minimum
net tangible assets or average revenue criteria. We cannot assure you that our
shares will qualify for exemption from these restrictions. If our shares were
subject to the penny stock rules, the market liquidity for the shares could be
adversely affected.

Historically, our Common Stock has experienced low trading volumes. The
market price of the Common Stock also has been highly volatile and it may
continue to be highly volatile as has been the case with the securities of other
public biotechnology companies. Factors such as announcements by the Company or
its competitors concerning technological innovations, new commercial products or
procedures, proposed government regulations and developments or disputes
relating to patents or proprietary rights may substantially affect the market
price of the Company's securities. Changes in the market price of the Common
Stock may bear no relation to the Company's actual operational or financial
results.

COMPETITION

Research in the field of disease predisposing genes and genetic markers is
intense and highly competitive. Genetic research is characterized by rapid
technological change. Our competitors in the United States and abroad are
numerous and include, among others, major pharmaceutical and diagnostic
companies, specialized biotechnology firms, universities and other research
institutions (including those receiving funding from the Human Genome Project).
Many of our potential competitors have considerably greater financial,
technical, marketing and other resources than us. These greater resources may
allow our competitors to discover important genes or genetic markers before us.
If we, in conjunction with the Department of Molecular and Genetic Medicine at
the University of Sheffield, U.K., do not discover disease predisposing genes or
genetic markers associated with increased disease severity, characterize their
function, develop susceptibility tests and related information services based on
such discoveries, obtain regulatory and other approvals, if needed, and launch
such services or products before competitors, then our revenues and earnings
will be reduced or eliminated. In addition, any of the susceptibility tests that
we may develop, including our periodontal susceptibility test, could be made
obsolete by less expensive or more effective tests or methods which may be
developed in the future. We expect competition to intensify in our industry as
technical advances are made and become more widely known.

DIFFICULTY OF DEVELOPING GENETIC SUSCEPTIBILITY TESTS

It is uncertain whether we will be successful in developing and bringing
to market our current portfolio or future tests based on the genetic discoveries
made by us and our collaborators. Even when we discover a genetic marker (i.e.,
a genetic variation or polymorphism associated with increased disease incidence
or severity), additional clinical trials need to be conducted to confirm the
initial scientific discovery and to support the scientific discovery's clinical
utility in the marketplace. The results of a clinical trial could delay, reduce
the test's acceptance or cause our company to cancel a program. Such delays,
reduced acceptance or cancellations would reduce revenues and may result in
losses.

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UNCERTAINTY OF INSURANCE REIMBURSEMENT

Our ability to successfully commercialize existing genetic susceptibility
tests and others that we may develop depends in part on obtaining adequate
reimbursement for such testing services and related treatments from government
and private health care insurers (including health maintenance organizations)
and other third-party payors. Physicians' and dentists' decisions to recommend
genetic susceptibility tests, as well as patients' elections to pursue testing,
are likely to be heavily influenced by the scope and extent of reimbursement for
such tests by third-party payors. Government and private third-party payors are
increasingly attempting to contain health care costs by limiting both the extent
of coverage and the reimbursement rate for new testing and treatment products
and services. In particular, services which are determined to be investigational
in nature or which are not considered "reasonable and necessary" for diagnosis
or treatment may be denied reimbursement coverage. To date, few insurers or
third-party payors have agreed to reimburse patients for genetic susceptibility
tests.

It remains uncertain whether insurers or third-party payors will elect to
provide full reimbursement coverage for the genetic susceptibility tests in the
near future. If adequate reimbursement coverage is not available from insurers
or third-party payors, it is uncertain whether individuals will elect to
directly pay for the test. If both insurers or third-party payors and
individuals are unwilling to pay for the test, then the number of tests
performed will be significantly decreased. Such a scenario would result in
reduced revenues and possible losses.

RELIANCE ON COLLABORATIVE PARTNERS

In 1994 we entered into a strategic alliance with the Section of Molecular
Medicine at Sheffield University, a world leader in the genetic aspects of
common diseases with an inflammatory component. In 1996 we formalized our
relationship by entering into a master agreement (the "Master Agreement"). Under
the terms of the Master Agreement, we will undertake the development and
commercialization of discoveries resulting from the research of the Section of
Molecular Medicine at Sheffield University. In exchange, Sheffield University
will receive a share of the resultant net profits, with the percentage of net
profits for us and Sheffield University agreed upon separately under project
agreements related to each test (each a "Project Agreement"). Our share of the
net profits under such Project Agreements ranges from 60% to 67%. The Master
Agreement may be terminated with or without cause by either party upon
six-months' notice. Although termination does not affect any existing Project
Agreements, any termination would limit or eliminate our access to future
Sheffield University genetic discoveries that fall outside of the scope of our
existing Project Agreements.

The Project Agreements (excluding the agreement covering the periodontal
test which has no fixed termination date) each have a 10-year term, which is
automatically renewed for one-year periods unless terminated by either party
upon a six months' prior notice. The Project Agreements may be terminated: (i)
by mutual agreement, (ii) by either party 30 days after an uncured breach or
default by the other party; (iii) by either party upon certain events of
bankruptcy; and (iv) by our company if Professor Gordon Duff ceases to be an
employee of, or head of the Section of Molecular Medicine at Sheffield
University. In the case of mutual agreement to terminate, or in the case of our
terminating a Project Agreement prior to the end of the 10-year term, net
profits would be reallocated by mutual agreement in light of the continued
responsibilities between the parties. However, Sheffield University's share of
the net profits would not be allowed to fall below ten percent (10%) in such an
instance. If the Master Agreement or any of the Project Agreements were
terminated, we would need to enter into additional collaborative arrangements in
order to continue to build a future pipeline of products.

In the future we may, in order to facilitate the sale of our testing
services and/or products, enter into collaborative selling arrangements with one
or more other persons. It is uncertain whether we will be able to negotiate
acceptable collaborative arrangements in the future or that such collaborative
arrangements will be successful. If we are unable to identify collaborative
partners to sell certain of our services and/or products, we may be forced to
develop an internal sales force to market and sell our services and/or products
in markets where we are not intending on developing a direct selling presence.
Such a process would take more time and potentially cost more. As a result, our
revenues and earnings would be reduced. If we do enter into collaborative
selling arrangements, our success will depend upon the efforts of others and may
be beyond our control. Failure of any collaborative selling arrangement could
result in reduced revenues and possible losses.

UNCERTAIN ABILITY TO PROTECT PROPRIETARY TECHNOLOGY

Our success will partly depend on our ability to obtain patent protection,
both in the United States and in other countries, for our products and services.
In addition, our success will also depend upon our ability to preserve our trade
secrets and to operate without infringing the proprietary rights of third
parties.

We have sixteen (16) patent applications pending, including applications
covering certain of our anticipated genetic susceptibility tests. There can be
no assurance that our patent applications will ever be issued as patents or that
the claims of any issued patents will afford meaningful protection for our
technology or products. Further, others may

7
<PAGE>
develop similar products which test for susceptibility related to some diseases
yet avoid infringing upon, or conflicting with, our anticipated patents. In
addition, there can be no assurance that any patents issued to us will not be
challenged, and subsequently narrowed, invalidated or circumvented.

Our testing services and/or products may also conflict with patents which
have been or may be granted to others. As the biotechnology industry expands and
more patents are filed and issued, the risk increases that our products may give
rise to a declaration of interference by the Patent and Trademark Office, or to
claims of patent infringement by other companies, institutions or individuals.
Such entities or persons could bring legal proceedings against us seeking
damages or seeking to enjoin us from testing, manufacturing or marketing our
products. Patent litigation is costly, and even if we prevail, the cost of such
litigation could have an adverse effect on us. If the other parties in any such
actions are successful, in addition to any liability for damages, we could be
required to cease the infringing activity or obtain a license. It is uncertain
whether any license required would be available to us on acceptable terms, if at
all. Failure by us to obtain a license to any technology that we may require to
commercialize our products could have a material adverse effect on our business,
financial condition, results of operations and cash flows. In addition, there is
considerable pressure on academic institutions and other entities to publish
discoveries in the genetic field. Such a publication by an academic institution
or other entity, prior to our filing of a patent application on such discovery,
may compromise our ability to obtain U.S. and foreign patent protection for the
discovery.

We also rely upon unpatented proprietary technologies. We rely on
confidentiality agreements with our employees, consultants and collaborative
partners to protect such proprietary technology. There can be no assurance that
we can adequately protect our rights in such unpatented proprietary
technologies, that others will not independently develop substantially
equivalent proprietary information or techniques, or otherwise gain access to
our proprietary technologies or disclose such technologies.

The United States Patent and Trademark Office issued new Utility
Guidelines in July 1995 that address the requirements for demonstrating utility,
particularly in inventions relating to human therapeutics. While the guidelines
do not require clinical efficacy data for issuance of patents for human
therapeutics, there can be no assurance that the Patent and Trademark Office's
interpretations of such guidelines, and any changes to such interpretations will
not delay or adversely affect our or our collaborators' ability to obtain patent
protection. The biotechnology patent situation outside the United States is even
more uncertain and is currently undergoing review and revision in many
countries.

TECHNOLOGICAL CHANGES RESULTING IN PRODUCT OBSOLESCENCE

Market acceptance and sales of our testing services could also be
adversely affected by technological change. It is uncertain whether our
competitors will succeed in developing genetic susceptibility tests that
circumvent or are more effective than our technologies or services. Further, it
is uncertain whether such developments would render our or our collaborators'
technology or services less competitive or obsolete. Further, our testing
services could be rendered obsolete as a result of future innovations in the
treatment of gum disease, osteoporosis, coronary artery disease, asthma,
diabetic retinopathy or other disease areas in which we have developments. Such
innovations could have a significant negative impact on our company's ability to
market our services effectively.

LIMITED MARKETING OR SALES EXPERIENCE

Our business strategy is to provide genetic susceptibility testing
services aimed at common diseases that are treatable and preventable. The
commercial introduction of the periodontal susceptibility test at the beginning
of October 1997 represented our first such effort. In preparation for the launch
of the periodontal susceptibility test, we have devoted substantial human and
financial resources to the establishment and staffing of a customer service
support facility and the building of a sales and marketing infrastructure.
However, we have limited experience in developing and commercially marketing
susceptibility testing services. It is uncertain whether our customer service
support facilities and sales and marketing program will achieve efficient,
effective or successful operations. Failure to successfully market such tests
could reduce our revenues and may result in losses.

GOVERNMENT REGULATION

The sampling of blood, saliva or cheek scrapings from patients and
subsequent analysis in a clinical laboratory does not, at the present time,
require FDA or regulatory authority approval outside the U.S. for either the
sampling procedure or the analysis itself. The samples are taken in the
healthcare provider's office, using standard materials previously approved as
medical devices, such as sterile lancets and swabs. The testing procedure itself
is performed in one or more registered, certified clinical laboratories under
the auspices of the Clinical Laboratory Improvement Amendments of 1988 ("CLIA"),
administered by the Health Care Financing Administration. In general, the
federal regulations promulgated pursuant to CLIA governing the approval of
laboratory facilities and applicable state and local regulations governing the
operation of clinical laboratories apply to our subsidiary which operates a
laboratory but not to Medical Science Systems, Inc. Currently our subsidiary
operates an approved CLIA laboratory. Additionally, changes in existing
regulations could require advance regulatory approval of genetic susceptibility
tests which may

8
<PAGE>
result in a substantial curtailment or even prohibition of our activities
without regulatory approval If our tests ever require regulatory approval, the
costs of introduction will increase and marketing and sales may be significantly
delayed.

Although our primary business is to develop genetic susceptibility testing
services, we may also develop or assist others to develop, drugs or other
treatments for the diseases related to our tests. The FDA and comparable
agencies in state and local jurisdictions and in foreign countries impose
substantial requirements upon the manufacturing and marketing of drug products
such as those potentially to be developed by our company or any partner. The
process of obtaining FDA and other required regulatory approvals is lengthy and
expensive. The time required for FDA approvals is uncertain and typically takes
a number of years, depending on the type, complexity and novelty of the product.
We may encounter significant delays or excessive costs in our efforts to secure
necessary approvals or licenses. Because certain of the products likely to
result from our research and development programs involve the application of new
technologies and will be based on new approaches, such products may be subject
to substantial additional review by various governmental regulatory authorities
and as a result, regulatory approvals may be obtained more slowly than for
products using more conventional technologies. There can be no assurance that
FDA approvals will be obtained in a timely manner, if at all. Any delay in
obtaining, or the failure to obtain, such approvals would adversely affect our
ability to generate product or product sales. Even if FDA approvals are
obtained, the marketing and manufacturing of drug products are subject to
continuing FDA and other regulatory review, and later discovery of previously
unknown problems with a product, manufacturer or facility may result in
restrictions on the product or manufacturer, including withdrawal of the product
from the market. Additional governmental regulations may be promulgated which
could delay regulatory approval of our potential products. We cannot predict the
impact of adverse governmental regulation which might arise from future
legislative or administrative action.

We intend to generate product revenues from sales outside of the United
States. Distribution of our testing services or products outside the United
States may be subject to extensive government regulation. These regulations,
including the requirements for approvals or clearance to market, the time
required for regulatory review and the sanctions imposed for violations, vary by
country. It is uncertain whether we will obtain regulatory approvals in such
countries or that we will be required to incur significant costs in obtaining or
maintaining our foreign regulatory approvals. Failure to obtain necessary
regulatory approvals or any other failure to comply with regulatory requirements
could result in reduced revenues and increased losses.

PRODUCT LIABILITY EXPOSURE

Our business exposes us to potential liability risks inherent in the
testing and marketing of medical and dental related services or products. It is
uncertain whether liability claims will be asserted against us. We have product
and professional liability insurance which we believe provides coverage for the
testing and commercial introduction of our genetic susceptibility tests. It is
uncertain whether we will be able to maintain such insurance on acceptable
terms. Any insurance obtained may not provide adequate coverage against
potential liabilities. A liability claim, even one without merit, could result
in significant legal defense costs thereby increasing our expenses, lowering our
earnings and even resulting in losses.

ETHICAL, LEGAL AND SOCIAL IMPLICATIONS OF GENETIC TESTING

The prospect of broadly available genetic testing has raised issues which
are currently being widely discussed by the medical and scientific communities,
as well as other interested groups and organizations, regarding the appropriate
utilization and the confidentiality of information provided by such testing. The
recent movement towards discovery and commercialization of susceptibility tests
for assessing a person's likelihood of developing a chronic disease has also
focused public and legislative attention on the need to protect the privacy of
genetic assessment medical information. With the progression towards more
comprehensive record keeping by health insurers and managed care firms, this
need has led to a number of legal initiatives. The recently enacted federal
health insurance reform law (Health Insurance Portability Act of 1996)
recognizes the comparability of information obtained by genetic means to other
types of personal medical information. The law prohibits insurance companies
from refusing health insurance coverage to individuals on the basis of their
medical history, including "genetic information." This legislation also
prohibits employees from discrimination in hiring practices on the same basis.
This legislation indicates a trend to protect the privacy of patients while
allowing them to be screened for conditions which, can be prevented, reduced in
severity or cured. In the most extreme scenario, governmental authorities could,
for social or other purposes, limit the use of genetic testing or prohibit
testing for genetic susceptibility to certain conditions. For these reasons, we
could experience a delay or reduction in test acceptance. Such a delay or
reduction could reduce our revenues or result in losses.

We are taking a proactive stance in the ethical arena. We have engaged Dr.
Philip Reilly, who is both an M.D. (certified specialist in clinical genetics)
and an attorney, to advise us in the area of genetic testing and its ethical,
legal and clinical utility ramifications. Additionally, we are currently
advising doctors who administer our genetic susceptibility tests to take special
efforts to maintain the confidentiality of the test results. Our intent is to
avoid

9
<PAGE>
information about test results being disclosed to insurers until issues
regarding insurability have been fully analyzed and acted upon by the
appropriate legislative bodies.

DEPENDENCE ON KEY PERSONNEL AND CONSULTANTS

Because of the specialized scientific nature of our business, we are
highly dependent upon our ability to attract and retain qualified management,
scientific and technical personnel. Our company will also be dependent upon the
ability to hire qualified marketing and sales personnel. Competition for
scientific, marketing and sales personnel is intense. Loss of the services of
Dr. Reilly or Dr. Kornman could adversely affect our research and development
programs and susceptibility testing service business and could impede the
achievement of our business objectives. We do not maintain key man life
insurance on any of our personnel.

CONTROL BY EXISTING SHAREHOLDERS

As of June 17, 1999, our directors, executive officers and certain of
their affiliates beneficially owned approximately 42.39% of our outstanding
Common Stock. Assuming conversion of the Series A Preferred Stock, our
directors, executive officers and certain of their affiliates will beneficially
own 22.53% of the then outstanding Common Stock. Accordingly, these
shareholders, individually and as a group, may be able to influence the outcome
of shareholder votes, including votes concerning the election of directors, the
adoption or amendment of provisions in our Amended and Restated Articles of
Incorporation or Amended and Restated By-Laws and the approval of certain
mergers and other significant corporate transactions, including a sale of
substantially all of our assets. Such control by existing shareholders could
have the effect of delaying, deferring or preventing a change in control.

ABSENCE OF DIVIDENDS

We have never paid dividends and do not intend to pay any dividends in the
foreseeable future.

SHARES ELIGIBLE FOR FUTURE SALE

There are outstanding stock options and warrants to purchase an aggregate
of 2,764,389 shares of Common Stock at various exercise prices per share. No
prediction can be made as to the effect, if any, that sales of shares of Common
Stock or the availability of such shares for sale will have on the market prices
prevailing from time to time. The possibility that substantial amounts of Common
Stock may be sold in the public market may adversely affect prevailing market
prices for the Common Stock, and could impair the Company's ability to raise
capital through the sale of its equity securities.

EFFECT OF PREFERRED STOCK AND DIRECTOR REMOVAL PROVISIONS

Our Board of Directors is authorized to issue up to 5,000,000 shares of
Preferred Stock and to determine the price, rights, preferences and privileges
of those shares without any further vote or action by our shareholders. The
rights of the holders of Common Stock will be subject to, and may be adversely
affected by, the rights of the holders of any shares of Preferred Stock that may
be issued in the future. While we have no present intention to issue additional
shares of Preferred Stock, such issuance, while providing desirable flexibility
in connection with possible acquisitions and other corporate purposes, could
have the effect of making it more difficult for a third party to acquire a
majority of our outstanding voting stock. In addition, such Preferred Stock may
have other rights, including economic rights, senior to the Common Stock. As a
result, the issuance of Preferred Stock could decrease the market value of the
Common Stock.

Our Amended and Restated Articles of Incorporation provide that members of
the Board of Directors may be removed only for cause upon the affirmative vote
of holders of at least a majority of the shares of our outstanding capital stock
entitled to vote. Certain other provisions of our Amended and Restated Articles
of Incorporation could also have the effect of delaying or preventing changes of
control or in management. Such a delay or preventive effect could adversely
affect the price of our Common Stock.

THE COMPANY

Medical Science Systems develops and commercializes genetic diagnostic
tests and medical research tools. The Company's efforts are focused on genetic
factors that affect the rate of progression of clinical disease through their
influence on common host systems. The Company's first genetic test, PST(R), a
test predictive of risk for periodontal disease, is currently marketed in the
United States, Europe and Israel. Products under development include tests
predictive of risk for osteoporosis, coronary artery disease, diabetic
retinopathy, asthma, pulmonary fibrosis and

10
<PAGE>
meningitis/sepsis. The Company believes by combining genetic risk assessment
with specific therapeutic strategies, improved clinical outcomes and more
cost-effective management of these common diseases are achieved. MSS also
develops and licenses its medical research tools, including BioFusion(R), to
pharmaceutical companies. BioFusion, a proprietary enabling system for
diagnostic and drug discovery and development, is a computer modeling system
that integrates genetic and other sub-cellular behavior, system functions, and
clinical symptoms to simulate complex diseases. This system allows useful
information to be derived from rapidly increasing databases of gene expression
being generated in companies and academic centers worldwide.

The Company has followed a strategy of working with strategic partners at
the fundamental discovery stage. This strategy has given the Company access to
discoveries while reducing up-front research expenses. Since 1994, the Company
has had a strategic alliance with the Department of Molecular and Genetic
Medicine at Sheffield University in the United Kingdom ("Sheffield"). Under this
alliance, Sheffield has provided to the Company the fundamental discovery and
genetic analysis from Sheffield's research laboratories and the Company has
focused on product development, including clinical trials, and the
commercialization of these discoveries. The Company has entered into multiple
joint development and commercialization project agreements with Sheffield, and
anticipates entering into additional collaborative arrangements with Sheffield
and other parties in the future.

In December 1997, the Company entered into an agreement with Medicadent, a
French corporation ("Medicadent"), to market and sell PST in France. In August
1998, the Company entered into an agreement with H.A. Systems, Ltd. to market
and sell PST in Israel. In March 1999, the Company entered into an agreement
with the Straumann Company to market and sell PST in the United States and
Puerto Rico. In April 1999, the Company entered into an agreement with AlPharma
Inc. to market and sell PST in ten countries in Europe.

The Company has been awarded four U.S. patents, and has sixteen U.S.
patent applications pending. The U.S. Patent & Trademark Office awarded patents
to the Company for its osteoporosis and periodontal disease susceptibility tests
and two patent awards for its biologic modeling technology called BioFusion(R),
which is used by the Company in the discovery, development and commercialization
process.

In November 1997, the Company completed its initial public offering of
Common Stock raising gross proceeds of $16.2 million. The Company utilized the
proceeds of the offering for sales, marketing and commercial operations for its
genetic susceptibility testing business and continued research and
development of new genetic susceptibility tests.

The Company's executive offices are located at 100 N.E. Loop 410, Suite
820, San Antonio, Texas 78216, and its telephone number is 210/349-6400. The
Company was incorporated in Texas in 1986. We maintain a website at
www.medscience.com. On July 21, 1999, the closing bid price of the Common Stock
on The Nasdaq SmallCap Market was $2.3125 per share.

USE OF PROCEEDS

The Shares to be sold pursuant to the Prospectus are owned by shareholders
of the Company. The Company will not receive any of the proceeds from the sale
of the Shares. See "Selling Shareholders."

11
<PAGE>
SELLING SHAREHOLDERS

The table below presents the following information about the number of
shares of the Common Stock of the Company which are owned by the Selling
Shareholders: (i) the number of shares the Selling Shareholders beneficially own
as of the date of this prospectus, (ii) the percentage of the Company's
outstanding shares of Common Stock that the Selling Shareholders beneficially
own prior to the offering, (iii) the number of shares that the Selling
Shareholders are offering under this prospectus, (iv) the number of shares that
the Selling Shareholders will beneficially own after the completion of this
offering and (v) the percentage of the Company's outstanding shares of Common
Stock that the Selling Shareholders will beneficially own after the completion
of the offering.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
BEFORE THE OFFERING AFTER THE OFFERING(1)
---------------------------- ----------------------
NUMBER PERCENTAGE SHARES TO NUMBER PERCENTAGE
NAME OF SHARES OF CLASS(2) BE SOLD OF SHARES OF CLASS
---- ---------- ----------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
Arnold L. Fisher ............................................. 1,800,000(3) 10.25% 1,800,000 -0- -0-
Cathy M. Fine ................................................ 1,606,000(4) 9.15% 1,606,000 -0- -0-
Crocker Enterprises, L.L.C.(5) ............................... 1,100,000(3) 6.26% 1,100,000 -0- -0-
M&H Investments II, L.P. ..................................... 1,000,000(3) 5.70% 1,000,000 -0- -0-
SMR Partners ................................................. 650,000(3) 3.7% 650,000 -0- -0-
William A. & Susan S. Jolly .................................. 530,000(3) 3.02% 530,000 -0- -0-
Steven Fisher ................................................ 500,000(3) 2.85% 500,000 -0- -0-
Europa International, Inc. ................................... 400,000(3) 2.28% 400,000 -0- -0-
Hathaway Partners Investment L.P. ............................ 400,000(3) 2.28% 400,000 -0- -0-
Valor Capital Management L.P. ................................ 400,000(3) 2.28% 400,000 -0- -0-
Ivan C. Fredrickson .......................................... 400,000(3) 2.28% 400,000 -0- -0-
U. Spencer & Linda K. Allen(6) ............................... 326,709(7) 1.80% 200,000 126,709 *
Edward M. Blair, Jr.(8) ...................................... 300,000(3) 1.70% 300,000 -0- -0-
Delta Associates Ltd. ........................................ 270,000(3) 1.53% 270,000 -0- -0-
Jeffrey Tindell .............................................. 200,000(3) 1.14% 200,000 -0- -0-
Ralph Balzano ................................................ 200,000(3) 1.14% 200,000 -0- -0-
Jeffrey Peterson ............................................. 200,000(3) 1.14% 200,000 -0- -0-
Margherita Karo .............................................. 200,000(9) 1.14% 200,000 -0- -0-
IEA Private Investments Ltd. ................................. 190,000(3) 1.08% 190,000 -0- -0-
LuAnne Balzano ............................................... 150,000(3) * 150,000 -0- -0-
William A. Jolly ............................................. 144,000(10) * 144,000 -0- -0-
Jerry Bergson ................................................ 110,000(3) * 110,000 -0- -0-
Edward T. & Julie M. Kennedy ................................. 100,000(3) * 100,000 -0- -0-
Peter & Kathleen Rozsa ....................................... 100,000(3) * 100,000 -0- -0-
Sally Siano .................................................. 100,000(3) * 100,000 -0- -0-
Howard Cooper ................................................ 100,000(3) * 100,000 -0- -0-
Jack Haeflich ................................................ 100,000(3) * 100,000 -0- -0-
Craig B. & Laura S. Costigan ................................. 100,000(3) * 100,000 -0- -0-
Marcuard Cook & Cie. S.A ..................................... 100,000(3) * 100,000 -0- -0-
Joseph E. Sheehan ............................................ 100,000(3) * 100,000 -0- -0-
Joseph E. Sheehan III Trust .................................. 100,000(3) * 100,000 -0- -0-
Zita M. Sheehan Trust ........................................ 100,000(3) * 100,000 -0- -0-
Samuel Zimetbaum ............................................. 50,000(11) * 50,000 -0- -0-
---------- ----------- ---------- --------- ----------
Total ........................................................ 12,126,709 69% 12,000,000 126,709 *
</TABLE>
- ------------
* represents less than 1%

(1) Assumes all shares of Common Stock offered hereby are sold.
(2) Based on 5,558,835 shares of Common Stock of the Company outstanding as of
July 14, 1999, plus 12,000,000 shares of Common Stock issuable upon
conversion of the Series A Preferred Stock and upon exercise of warrants
to purchase 1,000,000 shares of Common Stock.
(3) Represents shares of Common Stock issuable upon conversion of the Series A
Preferred Stock.
(4) Represents 803,000 shares of Common Stock issuable upon conversion of the
Series A Preferred Stock and 803,000 shares of Common Stock issuable upon
exercise of warrants.

12
<PAGE>
(5) Gary L. Crocker, an executive officer of Crocker Enterprises, L.L.C., was
appointed a director of the Company in June 1999.
(6) Mr. Allen serves as Chief Financial Officer, Secretary and Treasurer of
the Company.
(7) Includes 3000 shares of Common Stock held by Mr. Allen's spouse. Mr. Allen
disclaims beneficial ownership of such shares. Includes 106,747 shares of
Common Stock issuable pursuant to options held by Mr. Allen, 10,000 shares
of Common Stock issuable pursuant to warrants held by Mr. Allen and
200,000 shares of Common Stock issuable upon conversion of the Series A
Preferred Stock.
(8) Mr. Blair was appointed a director of the Company in June 1999.
(9) Represents 100,000 shares of Common Stock issuable upon conversion of the
Series A Preferred Stock and 100,000 shares of Common Stock issuable upon
exercise of warrants.
(10) Represents 72,000 shares of Common Stock issuable upon conversion of the
Series A Preferred Stock and 72,000 shares of Common Stock issuable upon
exercise of warrants.
(11) Represents 25,000 shares of Common Stock issuable upon conversion of the
Series A Preferred Stock and 25,000 shares of Common Stock issuable upon
exercise of warrants.

In June 1999, the Company completed a private placement (the "Private
Placement") pursuant to which an aggregate 2,200,000 shares of Series A
Preferred Stock were issued to the Selling Shareholders. In connection with the
Private Placement, the Company issued warrants to purchase up to 1,000,000
shares of Common Stock to some of the Selling Shareholders. Upon ratification of
the Private Placement by the shareholders of the Company and the amendment of
the Company's Articles of Incorporation to increase the number of authorized
shares of Common Stock, each share of Series A Preferred Stock will be converted
into five shares of Common Stock. The Company has scheduled an annual meeting of
its shareholders on August 20, 1999 to obtain such shareholder approval.
Assuming the conversion of the Series A Preferred Stock and the exercise of such
warrants, the Selling Shareholders will hold an aggregate 12,000,000 shares of
Common Stock, which are being offered hereby.

PLAN OF DISTRIBUTION

All 12,000,000 shares of Common Stock being registered hereby are being
registered on behalf of the Selling Shareholders. All of such shares of Common
Stock are to be issued by us upon conversion of the shares of Series A Preferred
Stock issued in the Private Placement and upon exercise of the warrants issued
in connection with the Private Placement. MSS will receive no proceeds from this
offering, except to the extent the holders of the warrants do not exercise such
warrants pursuant to the cashless exercise provision of such warrants. If all of
such warrants are not exercised pursuant to the cashless exercise provision, the
Company will receive $500,000 in proceeds from the exercise of such warrants. As
used herein, the term "Selling Shareholders" includes donees and pledgees
selling Shares received from the Selling Shareholders after the date of this
Prospectus.

The Selling Shareholders will act independently of MSS in making decisions
with respect to the timing, manner and size of each sale. The Selling
Shareholders may choose to sell the Shares from time to time at market prices
prevailing at the time of the sale, at prices related to the then prevailing
market prices or in negotiated transactions, including pursuant to an
underwritten offering or pursuant to one or more of the following methods:

o a block trade in which the broker or dealer so engaged will attempt
to sell the Shares as agent but may position and resell a portion of
the block as principal in order to facilitate the transaction,

o purchases by a broker or dealer as principal and resale by such
broker or dealer for its account pursuant to this prospectus, and

o ordinary brokerage transactions and transactions in which the broker
solicits purchasers.

In connection with the sale of the Shares, the Selling Shareholders may
engage broker-dealers who in turn may arrange for other broker-dealers to
participate. Broker-dealers may receive commissions or discounts from the
Selling Shareholders in amounts to be negotiated immediately prior to the sale.
In addition, underwriters or agents may receive compensation from the Selling
Shareholders or from purchasers of the Shares for whom they may act as agents,
in the form of discounts, concessions or commissions. Underwriters may sell
shares to or through dealers, and such dealers may receive compensation in the
form of discounts, concessions or commissions from the underwriters or
commissions from the purchasers for whom they act as agents. The Selling
Shareholders, underwriters, brokers, dealers and agents that participate in the
distribution of the Shares may be deemed to be underwriters, and any discounts
or commissions received by them from the Selling Shareholders and any profit on
the resale of the Shares by them may be deemed to be underwriting discounts and
commissions under the Securities Act.

At the time a particular offer of Shares is made, to the extent required,
a supplement to this Prospectus will be distributed which will identify and set
forth the aggregate amount of Shares being offered and the terms of the
offering. Such supplement will also disclose the following information:

o the name or names of any underwriters, dealers or agents,

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<PAGE>
o the purchase price paid by any underwriter for Shares purchased from
the Selling Shareholders,

o any discounts, commissions and other items constituting compensation
from the Selling Shareholders and/or MSS, and

o any discounts, commissions or concessions allowed or reallowed or
paid to dealers, including the proposed selling price to the public.

We have agreed to indemnify the Selling Shareholders in certain
circumstances against certain liabilities, including liabilities under the
Securities Act. The Selling Shareholders have agreed to indemnify MSS in certain
circumstances against certain liabilities, including liabilities under the
Securities Act.

Each Selling Shareholder also may resell all or a portion of the Shares in
open market transactions in reliance upon Rule 144 under the Securities Act,
provided he she or it meets the criteria and conforms to the requirements of
such Rule.

The Selling Shareholders and any other persons participating in the sale
or distribution of the Shares being registered hereby will be subject to the
provisions of the Exchange Act and the rules and regulations thereunder,
including Regulation M, to the extent applicable. The foregoing provisions may
limit the timing of purchases and sales of any of the Shares by the Selling
Shareholders or any other such person. This may affect the marketability of the
Shares. The Selling Shareholders also will comply with the applicable prospectus
delivery requirements under the Securities Act in connection with the sale or
distribution of the Shares hereunder.

In order to comply with certain states' securities laws, if applicable,
the Shares will be sold in such jurisdictions only through registered or
licensed brokers or dealers. In certain states, the Shares may not be sold
unless the Shares have been registered or qualified for sale in such state,
unless an exemption from registration or qualification is available and is
obtained.

We will bear all out-of-pocket expenses incurred in connection with the
registration of the Shares, including, without limitation, all registration and
filing fees imposed by the Commission, The Nasdaq Stock Market, Inc. and blue
sky laws, printing expenses, transfer agents' and registrars' fees, and the fees
and disbursements of our outside counsel and independent public accountants. The
Selling Shareholders will bear all underwriting discounts and commissions and
transfer or other taxes.

DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES

Article Eight of the Company's Amended and Restated Articles of
Incorporation ("Article Eight") eliminates the personal liability of a director
to the Company or its shareholders for monetary damages for an act or omission
in a director's capacity as a director, except under certain circumstances.
Directors remain liable for (i) a breach of a director's duty of loyalty to the
Company or its shareholders; (ii) an act or omission not in good faith that
constitutes a breach of duty of that director to the Company or an act or
omission that involves intentional misconduct or a knowing violation of the law;
(iii) a transaction from which a director received an improper benefit, whether
or not the benefit resulted from an action taken within the scope of the
director's office; or (iv) an act or omission for which the liability of a
director is expressly provided for by an applicable statute.

Article Eight further provides that future repeal or amendment of its
terms will not adversely affect any rights of directors existing thereunder with
respect to acts or omissions occurring prior to such repeal or amendment.
Article Eight also incorporates any future amendments to Texas law which further
eliminate or limit the liability of directors.

Article V of the Company's Amended and Restated Bylaws provides that the
Company shall indemnify any person to whom, and to the extent, indemnification
may be granted pursuant to Article 2.02-1 of the Texas Business Corporation Act.

The Company maintains directors' and officers' liability insurance that
covers the directors and officers of the Company.

Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors and officers and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the Company has been
advised that in the opinion of the Commission such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable.

14
<PAGE>
LEGAL MATTERS

The validity of the securities offered hereby will be passed upon by
Fulbright & Jaworski L.L.P., counsel to the Company.

EXPERTS

The consolidated financial statements included in the Company's Annual
Report on Form 10-KSB/A for the fiscal year ended December 31, 1998, and
December 31, 1997, incorporated by reference in this Prospectus have been
audited by Arthur Andersen LLP, independent public accountants, and Singer Lewak
Greenbaum & Goldstein LLP, independent public accountants, respectively, to the
extent and for the periods set forth in their respective reports incorporated
herein by reference, and are incorporated herein in reliance upon the authority
of such firms as experts in giving said reports. Reference is made to Arthur
Andersen LLP's report dated February 19, 1999, which includes an explanatory
paragraph with respect to the uncertainty regarding the Company's ability to
continue as a going concern as discussed in Note 1 to the financial statements
for the year ended December 31, 1998.

15
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN
AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, 12,000,000 SHARES
AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION
OF AN OFFER TO BUY, THE SECURITIES OFFERED HEREBY IN MEDICAL SCIENCE
ANY JURISDICTION TO ANY PERSON TO WHOM IT IS SYSTEMS, INC.
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH
JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE COMMON STOCK
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO ITS DATE.

------------------------------------------ ------------

P R O S P E C T U S
TABLE OF CONTENTS
PAGE
Available Information................................ 2 JULY 23, 1999
Incorporation of Certain Documents
by Reference....................................... 2
Special Note Regarding Forward-Looking
Statements......................................... 3 ------------
Risk Factors......................................... 3
The Company........................................ 10
Use of Proceeds.................................... 11
Selling Shareholders................................. 12
Plan of Distribution................................ 13
Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities....................................... 14
Legal Matters....................................... 15
Experts............................................. 15

============================================================== ===========================================================
</TABLE>
<PAGE>
PART II

ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The estimated expenses in connection with this offering are:

Commission registration fee $8,027.25
Legal fees and expenses* 5,000.00
Miscellaneous* 500.00
Total $13,527.25
==========
--------------------
* Estimated

The Company has agreed to pay all the costs and expenses of this
offering.

ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Article 2.02-1 of the Texas Business Corporation Act provides that any
director or officer of a Texas corporation may be indemnified against judgments,
penalties, fines, settlements and reasonable expenses actually incurred by him
in connection with or in defending any action, suit or proceeding in which he is
a party by reason of his position. With respect to any proceeding arising from
actions taken in his official capacity, as a director or officer, he may be
indemnified so long as it shall be determined that he conducted himself in good
faith and that he reasonably believed that such conduct was in the corporation's
best interests. In cases not concerning conduct in his official capacity as a
director or officer, a director may be indemnified as long as he reasonably
believed that his conduct was not opposed to the corporation's best interests.
In the case of any criminal proceeding, a director or officer may be indemnified
if he had no reasonable cause to believe his conduct was unlawful. If a director
or officer is wholly successful, on the merits or otherwise, in connection with
such a proceeding, such indemnification is mandatory.

The Company's Amended and Restated Articles of Incorporation and Bylaws
provide for indemnification of its present and former directors and officers.
The Company's Bylaws further provide for indemnification of officers and
directors against reasonable expenses actually incurred in connection with the
defense of any such action, suit or proceeding in advance of the final
disposition of the proceeding.

The Amended and Restated Articles of Incorporation of the Company contain
a provision that limits the liability of the Company's directors as permitted
under Texas law. The provision eliminates the liability of a director to the
Company or its shareholders for monetary damages for an act or omission in the
director's capacity as a director. The provision does not affect the liability
of a director for (i) a breach of a director's duty of loyalty to the Company or
its shareholders; (ii) an act or omission not in good faith that constitutes a
breach of duty of that director to the Company or an act or omission that
involves intentional misconduct or a knowing violation of the law; (iii) a
transaction from which a director received an improper benefit, whether or not
the benefit resulted from an action taken within the scope of the director's
office; or (iv) an act or omission for which the liability of a director is
expressly provided by an applicable statute.

Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers or persons controlling the Company
pursuant to the foregoing provisions, the Company has been informed that in the
opinion of the Commission, such indemnification is against public policy as
expressed in the Securities Act and is therefore unenforceable.

The Registrant maintains directors' and officers' liability insurance that
covers the directors and officers of the Registrant.

ITEM 16. EXHIBITS.

EXHIBIT NO. EXHIBIT

5.1 Opinion of Fulbright & Jaworski L.L.P. regarding legality (filed
herewith)

23.1 Consent of Fulbright & Jaworski L.L.P. (contained in Exhibit 5.1)

23.2 Consent of Arthur Andersen LLP (filed herewith)

23.3 Consent of Singer Lewak Greenbaum & Goldstein LLP (filed herewith)

II-1
<PAGE>
24.1 Power of Attorney (included on signature page).

ITEM 17. UNDERTAKINGS.

(a) The undersigned Registrant hereby undertakes:

(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement to include any
material information with respect to the plan of distribution not previously
disclosed in the registration statement or any material change to such
information in the registration statement;

(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial BONA
FIDE offering thereof; and

(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.

(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the Exchange
Act that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial BONA FIDE offering thereof.

(c) The undersigned Registrant hereby undertakes that, insofar as
indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Commission, such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.

II-2
<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant certifies that it has reasonable grounds to believe that it meets
all the requirements for filing on Form S-3 and has duly caused this
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of San Antonio and State of Texas the 23rd day of
July, 1999.

MEDICAL SCIENCE SYSTEMS, INC.

By: /S/ U. SPENCER ALLEN
U. Spencer Allen
Chief Financial Officer, Secretary
and Treasurer

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature
appears below constitutes and appoints Philip R. Reilly and U. Spencer Allen, or
either of them, his true and lawful attorney-in-fact and agent, with full power
of substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to file the same and all
exhibits thereto, and all documents in connection therewith, with the Securities
and Exchange Commission, granting said attorney-in-fact and agent, and each of
them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent or either of them, or their
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.

Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.

SIGNATURE TITLE DATE
- --------- ----- ----

/S/ PHILIP R. REILLY Chairman of the Board and July 23, 1999
Philip R. Reilly Interim Chief Executive Officer
(Principal Executive Officer)

/S/ KENNETH S. KORNMAN Interim President, Chief July 23, 1999
Kenneth S. Kornman Scientific Officer
and a Director

/S/ U. SPENCER ALLEN Chief Financial Officer, July 23, 1999
U. Spencer Allen Secretary and Treasurer
(Principal Financial and
Accounting Officer)

/S/ THOMAS A. MOORE Director July 23, 1999
Thomas A. Moore

/S/ EDWARD M. BLAIR, JR. Director July 23, 1999
Edward M. Blair, Jr.

/S/ GARY L. CROCKER Director July 23, 1999
Gary L. Crocker

II-3
<PAGE>
EXHIBIT INDEX

EXHIBIT NO. EXHIBIT PAGE

5.1 Opinion of Fulbright & Jaworski L.L.P. regarding legality (filed
herewith) II-6

23.1 Consent of Fulbright & Jaworski L.L.P. (contained in Exhibit 5.1) II-6

23.2 Consent of Arthur Andersen LLP (filed herewith) II-7

23.3 Consent of Singer Lewak Greenbaum & Goldstein LLP (filed herewith) II-8

24.1 Power of Attorney (included on signature page). II-3

EXHIBIT 5.1

[FULBRIGHT & JAWORSKI L.L.P. LETTERHEAD]

July 22, 1999

Dear Sirs:

As legal counsel to Medical Science Systems, Inc., a Texas corporation
(the "Company"), we are familiar with the Registration Statement on Form S-3
(the "Registration Statement") to be filed with the Securities and Exchange
Commission on or about July 22, 1999, under the Securities Act of 1933, as
amended, relating to an aggregate of 12,000,000 shares (the "Shares") of Common
Stock, no par value ("Common Stock"), of the Company to be sold by the selling
shareholders listed in the Registration Statement (the "Selling Shareholders").
The Shares will be issued pursuant to the terms of the Series A Preferred Stock
of the Company and upon exercise of warrants (the "Warrants") to purchase
1,000,000 shares of the Company's Common Stock as described in the Registration
Statement.

In connection therewith, we have examined such corporate records,
documents and such questions of law as we have considered necessary or
appropriate for the purposes of this opinion and, upon the basis of such
examination, when issued in accordance with the terms of the Warrant and the
terms of Section 5(b) of the Statement Establishing Relative Rights and
Preferences of the Series A Preferred Stock included in Company's Articles of
Incorporation, as applicable, and with respect to the Warrants, for the
consideration expressed therein, the 12,000,000 shares of Common Stock to be
sold by the Selling Shareholders will be duly and validly authorized, validly
issued, fully paid and nonassessable.

We consent to the filing of this opinion as an exhibit to the Registration
Statement.

Very truly yours,

/s/ FULBRIGHT & JAWORSKI L.L.P.

II-6

EXHIBIT 23.2

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the incorporation by
reference in this Registration Statement of our report dated February 19,1999,
included in Medical Science Systems, Inc.'s Form 10-KSB/A for the year ended
December 31, 1998, and to all references to our firm included in this
Registration Statement.

/s/ARTHUR ANDERSEN LLP

San Antonio, Texas
July 22, 1999

II-7

EXHIBIT 23.3

SINGER LEWAK GREENBAUM & GOLDSTEIN LLP -- [LETTERHEAD]

CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

We hereby consent to the incorporation by reference in this Registration
Statement on Form S-3 of our report, dated March 13, 1998, which appears in the
Annual Report on Form 10-KSB/A of Medical Science Systems, Inc. and subsidiary
for the year ended December 31, 1997. We also consent to the reference to our
Firm under the caption "Experts" in the aforementioned Registration Statement.

/s/ SINGER LEWAK GREENBAUM & GOLDSTEIN LLP
SINGER LEWAK GREENBAUM & GOLDSTEIN LLP

Los Angeles, California
July 22, 1999

II-8