SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For quarter ended April 30, 1996
Commission File Number 0-14026
DALTEX MEDICAL SCIENCES, INC.
(Exact Name of Registrant As Specified In Its Charter)
Delaware 13-3174562
(State of Incorporation) (IRS Employer Identification No.)
50 Kulick Road
Fairfield, New Jersey 07004
(Address of Principal Executive Offices)
(201) 227-5066
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ___
Indicate the number of shares outstanding of each of the registrant's
classes of Common Stock, as of the latest practicable date.
Class Outstanding at June 3, 1996
Common Stock par value $.01 8,632,699
per share
<PAGE>
DALTEX MEDICAL SCIENCES, INC.
INDEX
Page
PART 1 - FINANCIAL INFORMATION
Item 1 - Financial Statements
(a) Condensed balance sheets as of April 30, 1996
(Unaudited) and July 31, 1995 3-4
(b) Condensed statements of operations and deficit
accumulated during the development stage for the
three months ended April 30, 1996 (Unaudited) and
April 30, 1995 (Unaudited), nine months ended
April 30, 1996 (Unaudited) and April 30, 1995
(Unaudited), and for the period July 28, 1983
(Date of incorporation) to April 30, 1996
(Unaudited) 5
(c) Condensed statements of cash flows for the nine
months ended April 30, 1996 (Unaudited) and April
30, 1995 (Unaudited), and for the period July 28,
1983 (Date of Incorporation) to April 30, 1996
(Unaudited) 6
(d) Notes to condensed financial statements
(Unaudited) 7-8
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-15
PART II - OTHER INFORMATION
Item 5 - Other Information 15-16
Item 6 - Exhibits and Reports on Form 8-K 16
2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Daltex Medical Sciences, Inc.
(A Development Stage Enterprise)
Condensed Balance Sheets
<TABLE>
<CAPTION>
April 30,
1996 July 31,
(Unaudited) 1995 (A)
Assets
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 76,403 $ 10,862
Other receivables -- 43,448
-------- --------
76,403 54,310
Net plant and equipment, at cost -- 2,568
Patents, net of accumulated amortization of
$151,161 at April 30, 1996
and $115,677 at July 31, 1995 4,697 18,569
Other assets, net 3,375 3,375
Deferred royalty costs (note 2) 260,000 --
-------- --------
$344,475 $ 78,822
======== ========
See accompanying notes to condensed financial statements.
<FN>
(A) Amounts at July 31, 1995 are from audited financial statements.
</FN>
</TABLE>
3
<PAGE>
Daltex Medical Sciences, Inc.
(A Development Stage Enterprise)
Condensed Balance Sheets
<TABLE>
<CAPTION>
April 30,
1996 July 31,
(Unaudited) 1995 (A)
<S> <C> <C>
Liabilities and Stockholders' Deficiency
Current liabilities:
Accounts payable (note 3) $ 810,511 $ 954,727
Accrued expenses 19,515 54,173
----------- -----------
Total current liabilities 830,026 1,008,900
----------- -----------
Advance royalty payments (note 2) 520,000 --
----------- -----------
Stockholders' deficiency:
Common stock, par value $.01 per share
Authorized 20,000,000 shares; issued
8,632,699 shares at April 30, 1996 and
8,632,699 at July 31, 1995 86,327 86,327
Paid in capital 6,816,369 6,816,369
Deficit accumulated during the
development stage (7,908,247) (7,832,774)
----------- -----------
Total stockholders' deficiency (1,005,551) (930,078)
----------- -----------
$ 344,475 $ 78,822
=========== ===========
See accompanying notes to condensed financial statements.
<FN>
(A) Amounts at July 31, 1995 are from audited financial statements.
</FN>
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
Daltex Medical Sciences, Inc.
(A Development Stage Enterprise)
Statements of Operations & Deficit
Accumulated During the Development Stage
For The Period
July 28, 1983
Three Months Three Months Nine Months Nine Months (Date of
Ended Ended Ended Ended Incorporation)
April 30, April 30, April 30, April 30, To Apr. 30,
1996 1995 1996 1995 1996
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Revenues:
Sales - Patents & related
technology $-- $-- $-- $-- $300,000
Sales - Gloves -- -- -- -- 208,440
Interest and other income
(note 4) 199 -- 75,199 -- 1,712,273
License fees & royalties 104,706 88,983 214,310 170,654 2,296,438
--------- --------- --------- --------- ---------
Total revenues 104,905 88,983 289,509 170,654 4,517,151
--------- --------- --------- --------- ---------
Expenses incurred in the development
stage:
Cost of sales -- -- -- -- 313,243
Research & development -- -- 6,400 -- 3,335,251
General & administrative 132,007 197,869 358,582 429,299 8,776,904
--------- --------- --------- --------- ---------
Total expenses incurred in
the development stage 132,007 197,869 364,982 429,299 12,425,398
--------- --------- --------- --------- ---------
Net income (loss) (27,102) (108,886) (75,473) (258,645) (7,908,247)
--------- --------- --------- --------- ---------
Deficit accumulated during the
development stage:
Beginning of period (7,881,145) (7,470,050) (7,832,774) (7,320,291) --
--------- --------- --------- --------- ---------
End of period $ (7,908,247) $ (7,578,936) $ (7,908,247) $ (7,587,936) $ (7,908,247)
============ ============ ============ ============ ============
Net loss per common share -- (0.01) (0.01) (0.03) (1.03)
============ ============ ============ ============ ============
Weighted average number of
shares outstanding 8,633,000 8,633,000 8,633,000 8,633,000 7,647,000
============ ============ ============ ============ ============
</TABLE>
See accompanying notes to condensed financial statements.
5
<PAGE>
Daltex Medical Sciences, Inc.
(A Development Stage Enterprise)
Condensed Statements of Cash Flows
<TABLE>
<CAPTION>
For the Period
July 28, 1983
(Date of
Incorporation)
April 30, April 30, to April 30,
1996 1995 1996
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C>
Cash flows from operations:
Net loss: $ (75,473) $ (258,645) $(7,908,247)
Non-cash expenses included in net loss:
Depreciation and amortization 16,440 17,145 305,537
Non-cash compensation charges -- 60,601 889,130
Abandoned equipment -- -- 53,386
Write-off of patents -- -- 105,221
Write-off of inventory/advance payments -- -- 115,048
Provision for write-off/due from officer -- (60,601) --
Other -- -- 6,821
Changes in current assets & liabilities:
(Increase) in inventory & advance payments -- -- (115,048)
Decrease in grant & other receivables 43,448 -- --
(Increase) in deferred royalty costs (260,000) -- (260,000)
Increase (decrease) in accounts payable (144,216) 211,925 810,511
Increase (decrease) in accrued expenses (34,658) 6,106 19,515
Increase in advance development & royalty payments 520,000 35,000 520,000
----------- ----------- -----------
Net cash flows of operations 65,541 11,531 (5,458,126)
----------- ----------- -----------
Cash flows from investing activities:
Purchase of U.S. government obligations -- -- (8,813,987)
Redeemed U.S. government obligations and
other short-term investments -- -- 8,810,988
Purchase of equipment & furniture -- -- (159,370)
Purchase of patent & trademark -- -- (171,750)
(Increase) decrease in due from officer & stockholder -- -- (110,601)
(Purchase) sale of other assets -- -- (30,095)
----------- ----------- -----------
Net cash flows of investing activities -- -- (474,815)
----------- ----------- -----------
Cash flow from financing activities:
Proceeds from sale of common stock & warrants - net -- -- 6,009,344
Net increase (decrease) in cash 65,541 11,531 76,403
Cash, including certificates of deposit:
Beginning of period 10,862 27,090 --
----------- ----------- -----------
End of period $ 76,403 $ 38,621 $ 76,403
=========== =========== ===========
</TABLE>
See accompanying notes to condensed financial statements.
6
<PAGE>
NOTES TO CONDENSED FINANCIAL STATEMENTS-April 30, 1996 (Unaudited)
(1) Basis of Presentation
The unaudited condensed financial statements have been prepared from
the books and records of Daltex Medical Sciences, Inc. (the "Company") in
accordance with generally accepted accounting principles for interim
financial information pursuant to Rule 10-01 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair presentation
have been included. Interim results are not necessarily indicative of the
results that may be expected for the fiscal year.
(2) Advance Royalty Payments
In October 1995, the Company and Arrow International, Inc. ("Arrow")
agreed to modify the terms of the existing license agreement between the
Company and Arrow concerning those license fees payable to the Company by
Arrow for antimicrobially treated multi-lumen central venous catheters
(exclusive of the silicone Hickman/Broviac type, implantable port or
peripherally inserted central venous catheters). During the quarter ended
October 31, 1995 and pursuant to the modification to the license agreement,
Arrow paid to the Company a one-time royalty of $600,000 (in lieu of the
periodic royalty to be paid to the Company for such catheters) for the
period August 31, 1995 through September 1, 2000, of which 50% was paid to
Columbia University (the "University") in November 1995 pursuant to the
terms of a 1987 license agreement between the Company and the University.
Revenue, as well as the expense for the amounts paid to the University,
will be recognized each quarter through September 1, 2000 in equal amounts,
and accordingly, $30,000 of revenue and $15,000 of related expense were
recognized during the quarter ended April 30, 1996. After September 1,
2000, the periodic royalty payments provided for in the existing license
agreement with respect to the antimicrobially treated multi-lumen central
venous catheters will resume and will be adjusted to reflect increases in
the Consumer Price Index through September 1, 2000. All other terms and
conditions of the existing license agreement (including Arrow's obligation
to make quarterly development phase payments for those products Arrow is
developing or has developed incorporating the Company's antimicrobial
technology), except those terms modified by the Patent Settlement Agreement
of January 1, 1995, remain in full force and effect. In addition, the
modification to the license agreement does not modify or alter the terms of
the Patent Settlement Agreement. For a discussion of the Patent Settlement
Agreement and the resolution of the Patent Interference Proceedings, see
"Item 3. Legal Proceedings" of the Company's Annual Report on Form 10-K for
the fiscal year ended July 31, 1995.
During the quarter ended April 30, 1996, the Company received from
Arrow a nominal royalty payment based on limited sales of percutaneous
sheath introducer systems ("PSI"), which Arrow has recently introduced to
the marketplace.
7
<PAGE>
(3) License Agreement and Research Agreement
The Company currently has various license agreements and research
agreements with the University related to certain antimicrobial
technologies (see "Management's Discussion and Analysis of Financial
Condition and Results of Operations"). In this capacity, in November 1995
the Company paid the University a total amount of $385,841: $300,000
(representing the University's 50% share of the one-time royalty the
Company received from Arrow described in note 2 above), $34,289
(representing the remaining balance due the University pursuant to a
research agreement based on an invoice received from the University),
$48,071 (representing the University's 50% share of sublicense and royalty
fees received by the Company between April 30 and October 12, 1995 from
Arrow), and $3,481 (representing royalties owed the University, pursuant to
a 1987 license agreement and an agreement in principle, based on net sales
of the Company's antimicrobial examination gloves sold in 1991, 1992 and
1993 which the Company had been reserving in accrued expenses). In January
1996 the Company paid the University $6,400 for the antimicrobial coating
and evaluation of samples of tracheal suction catheters for a leading
medical device manufacturer who has expressed interest in a possible
licensing arrangement with the Company. The device manufacturer is
currently evaluating such coated product samples.
During the quarter ended April 30, 1996, the Company made payments to
the University totalling $28,866 representing the University's 50% share of
development fees and royalty payments received by the Company during the
current quarter pursuant to two licenses with sublicensees of applications
of the Company's antimicrobial medical technology.
As of April 30, 1996, the Company still owes the University $165,706
for the University's past due share of sublicensing and royalty payments
received by the Company through 1994. Further, the Company has been billed
$629,941 as of April 30, 1996 by the University's patent counsel for patent
work undertaken in connection with the Company's license agreements with
the University and costs incurred in connection with the Patent
Interference Proceedings and subsequent Patent Settlement Agreement,
although the Company is currently disputing a substantial portion of these
legal fees. All of these amounts are included in accounts payable at April
30, 1996 on the accompanying condensed balance sheets. The Company is
continuing its attempts to resolve these matters with the University but
there can be no assurance that the Company will be successful in reaching a
resolution.
(4) Other Income
In November 1995, the Company received $75,000 from Arrow to help fund
the payment of legal costs incurred by the Company in connection with the
Patent Interference Proceedings and the Patent Settlement Agreement.
8
<PAGE>
Item 2
Management's Discussion and Analysis of
Financial Condition and Results of Operations
The Company is in the development stage and has been principally engaged in
research and development activities with the objective of developing and
commercializing certain cost-reducing medical device and pharmaceutical
technologies. Since March 1, 1994, the Company has engaged in extremely limited
research and development efforts. The Company incurred a research and
development expense during the second quarter of fiscal 1996, in the amount of
$6,400, for the antimicrobial coating and evaluation of samples of tracheal
suction catheters performed at the University in connection with possible
licensing arrangements. The Company will continue to restrict its research and
development efforts unless and until the Company can develop positive cash flow
from its more fully developed technologies or raise additional financing. There
can be no assurance that the Company will be able to develop or commercialize
any of its product technologies in the future. Future revenues of the Company
may be limited. Such commercialization activities may not result in sales of
products on a profitable basis, and the Company may not have sufficient funds
available to complete its research and development program, pursue applications
for necessary regulatory clearances and approvals, prosecute its intellectual
property rights, or remain in business while any products which may be developed
from its technologies are marketed or are readied for the marketplace.
In an effort to commercialize its more fully developed technologies, the
Company focused from 1990 to March 1994 its research, development and
commercialization efforts principally on its infection-reducing, antimicrobial
technologies, including the manufacture and marketing through distributors of
the Company's antimicrobial gloves and the licensing of other applications of
the antimicrobial technology to larger companies. In the first three quarters of
fiscal 1996, as well as in fiscal 1995 and 1994, the Company had no sales of any
of its technologies or its antimicrobial medical gloves. The Company maintains
its belief that such lack of glove sales continues to be due to the difficulty
it faces as a small company with extremely limited resources in introducing and
marketing a new product internationally without the benefit of a domestic sales
base or regulatory clearance by the U.S. Food and Drug Administration ("FDA").
See "Regulatory Developments." During the first three quarters of fiscal 1996,
and for fiscal 1995 and 1994, the Company received revenues from royalty
payments and development fees pursuant to two licenses with sublicensees of
applications of the Company's antimicrobial medical technology in addition to
the one-time royalty payment discussed below.
In the first quarter of fiscal 1996 the Company received a one-time
prepayment of periodic royalty payments pursuant to an October 1995 modification
to its license agreement with Arrow. Such advance essentially represented
royalty payments due to the Company from Arrow based on sales of antimicrobially
treated multi-lumen central venous catheters for the period September 1, 1995
through September 1, 2000. It is expected that future cash flows will be
substantially less than reported revenues for such period due to this payment,
as reflected in this quarter's financial statements and as discussed in note 2
to the financial statements. In the third quarter of fiscal 1996 the Company
received a nominal royalty payment from Arrow based on limited sales of PSI,
which Arrow has recently begun marketing. The Company may continue to receive
future royalty payments from
9
<PAGE>
Arrow based on sales of PSI systems and will continue to receive development
phase payments from Arrow and another of the Company's sublicensees for other
products incorporating the Company's antimicrobial technology. As a result of
the introduction of the PSI to the marketplace, quarterly development phase
payments from Arrow have been reduced from $7,500 to $5,000, which will be
partially offset by royalty payments related to such product. The Company is
unable to assess at this time whether and to what extent such royalty payments
will increase in the future.
Results of Operations for the Three Months Ended April 30, 1996
Revenues for the quarter ended April 30,1996 totalled $104,905, an increase
of 17.9% over the $88,983 in revenues during the corresponding period in fiscal
1995. Revenues from licensing fees in the third quarter of fiscal 1996 were
$50,000, a slight decrease from the $52,500 in licensing fees recorded in the
corresponding period in fiscal 1995 due to the elimination of one development
phase payment. Revenues from royalties were $54,706, an increase of 50% over the
$36,483 in royalty payments received during the third quarter of fiscal 1995 as
a result of a $24,471 payment made by Arrow to the Company pursuant to the
Patent Settlement Agreement which provides for certain royalties to be paid by
Arrow to the Company and for such royalties to be paid by the Company to another
party to such Patent Settlement Agreement and a slight increase in royalty
payments from Arrow related to the introduction of the PSI to the marketplace.
Also included in revenues from royalties is $30,000 representing royalties
earned for the quarter ended April 30, 1996, which is derived from the $600,000
advance royalty payment received by the Company from Arrow. The unearned portion
of $520,000 is reflected as deferred revenue in the liability section and the
remaining $260,000 of the $300,000 paid to the University is reflected as
deferred royalty costs in the assets section of the balance sheets. (See notes 2
and 3 to the financial statements.) Although the Company had no sales of its
antimicrobial gloves in the current quarter, there were no glove sales in the
corresponding period of fiscal 1995 either.
Expenses incurred during the three months ended April 30, 1996 totalled
$132,007, a decrease of 33.3% from the $197,869 of expenses incurred in the
three months ended April 30,1995 primarily due to the reduction of legal
expenses related to the resolution of the Patent Interference Proceedings, which
reduction was slightly offset by the $24,47l paid by the Company to one party to
the Patent Settlement Agreement, as discussed above.
The Company sustained a net loss of $27,102 for the quarter ended April 30,
1996, a decrease of 75% from the net loss of $108,886 in the corresponding
period in fiscal 1995 due primarily to the reduction of legal expenses as
described above.
Results of Operations for the Nine Months Ended April 30,1996
Revenues for the nine months ended April 30, 1996 totalled $289,509, an
increase of 70% over revenues of $170,654 in the corresponding period last year.
This increase in revenues was the result of the receipt of $75,000 from Arrow as
described in note 4 to the financial statements, offset slightly by the
elimination of one development phase payment. In addition, revenues included
$47,351 as a result of the Patent Settlement Agreement which provides for
certain royalties to be paid by Arrow to the Company and, in turn, paid by the
Company to another party to such agreement, as discussed above.
10
<PAGE>
Expenses incurred during the nine months ended April 30, 1996 totalled
$364,982, a decrease of 15% from the $429,299 of expenses incurred in the nine
months ended April 30, 1995. This decrease was due primarily to the reduction in
legal costs incurred by the Company in connection with the Company's protection
of its intellectual property rights due to the settlement of the Patent
Interference Proceedings as a result of the execution of the Patent Settlement
Agreement, and to a lesser extent, the fixed royalties earned for the first nine
months of fiscal 1996 as a result of the modification to the license agreement
between the Company and Arrow. (See note 2 to the financial statements.) This
decrease was partially offset by payments totalling $47,351 made by the Company
to another party to the Patent Settlement Agreement, as discussed above.
The Company sustained a net loss of $75,473 for the nine months ended April
30, 1996, a decrease of 71% from the net loss of $258,645 in the corresponding
period in 1995. The decrease in net loss for the nine month period is due
primarily to the Company's receipt in the first quarter of 1996 of a one-time
advance royalty payment of $600,000 from Arrow and the Company's receipt of
$75,000 from Arrow, as discussed in notes 2 and 4 to the financial statements,
respectively.
Liquidity and Capital Resources
At April 30, 1996, the Company had a working capital deficit of
approximately $753,000, which represented a decrease of approximately $202,000
in such deficit from July 31, 1995. During the nine months ended April 30, 1996,
the Company had an increase of $65,541 in cash flows from operations principally
due to the receipt in October 1995 of the one-time advance royalty payment of
$600,000 from Arrow which enabled the Company to reduce its outstanding accounts
payable, and the one-time receipt from Arrow in November 1995 of $75,000 to help
fund the payment of legal costs incurred by the Company in connection with the
Patent Interference Proceedings and the Patent Settlement Agreement. It is
expected that future cash flows will be substantially less than reported
revenues due to the one-time advance royalty payment from Arrow. As a result of
the aforementioned payments to the University, payments to legal counsel
associated with corporate and intellectual property matters, and costs
associated with general operations, at April 30, 1996, the Company had cash and
cash equivalents of $76,403.
The Company currently owes the University $165,706 (see notes 2 and 3 to
the financial statements), and as of April 30, 1996, the Company has been billed
$629,941 by the University's patent counsel for patent work undertaken in
connection with the Company's license agreements with the University and costs
incurred in connection with the Patent Interference Proceedings and Patent
Settlement Agreement, although the Company is currently disputing a substantial
portion of these legal fees. As described in note 3 to the financial statements,
the Company is attempting to continue to have discussions with the University to
attempt to resolve several issues including the license for the antimicrobial
glove technology and the aforementioned legal fees. There can be no assurance
that the Company will be able to resolve these matters. For a discussion of the
dispute with the University, see "Item 1 - Business Product Technologies
Licenses with the University" in the Company's Annual Report on Form 10-K for
the year ended July 31, 1995. The Company had been reserving royalties due the
University consistent with the terms of the written license agreement for the
antimicrobial glove technology which had been negotiated between the parties
based upon an agreement in principle. In November 1995, the Company paid the
University $3,481 representing such reserved royalties under this license based
on net sales of the Company's antimicrobial
11
<PAGE>
examination gloves sold prior to February 1993. If the Company is unable to
settle the dispute with the University over the license agreement, the Company
may not be entitled to sell its antimicrobial medical gloves or sublicense the
antimicrobial glove technology in the future.
The Company is exploring a number of ways to pay the outstanding amounts
due the University, including loans, raising of additional capital through
various equity offerings, private placements, possible mergers with
revenue-producing entities, and further acceleration of royalty and development
fee payments from sublicensees as well as from sales of antimicrobial gloves.
The Company is still in the development stage, and its business operations
have only generated a nominal amount of revenues to date. The report of the
Company's independent auditors on the Company's financial statements for the
fiscal years ended July 31, 1995 and 1994 included an explanatory paragraph
which stated that the Company's recurring losses and working capital and total
stockholders' deficits raised substantial doubt about the Company's ability to
continue as a going concern and precluded the expression of an opinion on the
Company's financial statements as of and for the years ended July 31, 1995 and
1994. The financial statements did not include any adjustments that might result
from the outcome of that uncertainty. Because of the continued working capital
deficit, management's plan is to continue attempts to resolve the dispute with
the University over the license for the antimicrobial glove technology and legal
fees billed to the Company by the University's patent counsel, in order to
attempt to raise additional capital, while attempting to develop, market,
license and sell its products, including its antimicrobial latex surgical and
examination gloves, and to establish positive cash flow for the Company. The
Company is exploring a number of ways of raising additional capital, including
loans, various equity offerings, private placements, mergers with
revenue-producing entities, as well as from sales of antimicrobial gloves.
Furthermore, the Company will continue its attempts to curtail expenditures.
In an attempt to raise additional capital in order to continue to pursue
potential acquisition and/or merger possibilities, including a sale of the
Company, in April 1996, the Company extended the expiration dates of its Class A
and Class B Warrants. The expiration date of the Company's Class A Warrants was
extended from April 30, 1996 to 5:00 p.m. (New York City time) on April 30,
1997; the exercise price of the Class A Warrants remains $0.25. The expiration
date of the Company's Class B Warrants was extended from April 30, 1997 to 5:00
p.m. (New York City time) on October 31, 1997; the exercise price of the
Company's Class B Warrants remains $1.00. Under Federal securities laws, the
Company is unable to accept the exercise of any Class A or Class B Warrants
until such time, if any, as the Company's independent auditors may express an
opinion on the Company's financial statements without a disclaimer, as discussed
above. At such time, if any, as the Company may accept such exercise, the
Company intends to use any proceeds received from the exercise of its Class A
and Class B Warrants for working capital, general corporate purposes and, if
possible, the reinitiation of its research and development efforts.
The Company does not have any commitments to raise additional capital, and
there can be no assurance that it will be able to obtain any such commitments or
raise additional capital in the future, particularly in light of the disclaimer
opinion discussed above. If (i) there are no antimicrobial glove sales, (ii)
there is no significant increase in license fees or royalties from sales of
sublicensed products, (iii) the Company is unsuccessful in raising additional
capital during the remainder of fiscal year 1996, or (iv) the University revokes
licenses granted to the Company, the Company may not be
12
<PAGE>
able to continue as a going concern, even with further cost-cutting measures. To
meet its long-term liquidity requirements, the Company must also generate
sufficient income through operations or obtain additional financing as to which
there can be no assurance. If the Company raises sufficient additional capital,
the Company plans to continue to (i) seek increased revenue-producing
opportunities through the search for additional license and patent purchase
agreements involving corporate technology, (ii) attempt to obtain U.S.
regulatory clearance to market certain products, such as its antimicrobial latex
gloves, directly or through distributors to end users, (iii) investigate merger,
joint venture or acquisition possibilities with a suitable entity whose business
may be complementary to that of the Company, and (iv) explore the possibility of
a sale of the Company or a sale of some or all of its assets.
By letter dated October 17, 1995, Beiersdorf AG of Hamburg, Germany
("Beiersdorf") informed the Company that it was abandoning the projects for
developing products under the two German patents Beiersdorf had acquired from
the Company pursuant to the previously disclosed 1992 Patent Purchase Agreement.
Consequently, the Company is not entitled to any further payment under the 1992
agreement. Further, under the terms of the 1992 agreement, the Company had the
right to repurchase the subject patents together with certain subject matter as
defined in the agreement. The repurchase price consisted of the $300,000
non-refundable cash payment the Company had received from Beiersdorf plus legal
and clinical development costs of approximately $100,000 representing
Beiersdorf's out-of-pocket expenses. The Company received another letter from
Beiersdorf on May 8, 1996 inquiring whether the Company wished to accept the
offer of repurchase. By letter dated May 14, 1996, the Company informed
Beiersdorf of the Company's decision to decline the offer to repurchase such
patents, since the Company has been unable to find a pharmaceutical company
interested in further pursuing the technology, and the Company does not
presently have the financial resources required for such repurchase.
The Company's patent counsel was notified by letter dated May 16, 1996 from
the Canadian Patent Office, that the patent for "Methods and Agents for the
Prophylaxis of Atopy" would be allowed. Additionally, the Company's patent
counsel received notification dated May 29, 1996 from the U.S. Patent and
Trademark Office allowing the U.S. case for such patent with certain claims.
Subsequently, the Company and its U.S. patent counsel have contacted Beiersdorf
concerning these matters. By letter dated May 23, 1996, the Company informed
Beiersdorf of the estimated costs associated with the filing of the patent and
agreed to cover such costs, if Beiersdorf decided not to. Beiersdorf responded
by letter to the Company's patent counsel instructing such counsel to advise the
U.S. Patent Examiner to issue the U.S. patent, with Beiersdorf's indication that
the Company cover any related costs.
Regulatory Developments
In May 1989, the Company filed a pre-market 510(k) notification seeking
consent to market its antimicrobial latex examination gloves. Since this initial
510(k) submission, the Company has, from 1991 to 1993, amended and resubmitted
the 510(k) several times in an effort to obtain a determination of "substantial
equivalence" to previously marketed latex examination gloves. The FDA Office of
Device Evaluation ("ODE") has notified the Company, in response to each of these
submissions, that the Company's antimicrobial latex examination gloves are not
"substantially equivalent" since the gloves have a new indication for an
examination glove which may affect the
13
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prophylactic effect, thus constituting a new intended use. The ODE has further
stated that no accepted scientific methods presently exist for assessment of the
effectiveness of antiviral activity for topical antimicrobials, particularly
under glove-use conditions, among other grounds for denying market clearance.
In its submissions, the Company has proposed revised labeling claims to be
consistent with what the Company believes is "substantially equivalent" labeling
based on FDA precedent. Moreover, the Company has submitted test results that
the Company considers to demonstrate an appropriate method for, and significant
effectiveness at, inactivating certain viruses and other fluid borne pathogens
by the antimicrobial latex examination glove, under conditions of expected use
of the product. The Company's test results are also believed to demonstrate user
safety under the expected conditions of use of the antimicrobial latex
examination gloves.
From 1993 to date, the Company had several meetings with various
representatives at the FDA's offices and continues its written correspondence
and discussions with the FDA and the ODE regarding the issues raised by the ODE
concerning the Company's antimicrobial gloves.
In response to its most recent submission made on September 13, 1995, on
September 26, 1995, Mr. Timothy Ulatowski of the ODE informed the Company that
the Company was invited to make a presentation concerning the Company's
examination gloves before the FDA's independent General Hospital Panel.
On March 11, 1996, Dr. Shanta M. Modak of the Department of Surgery,
Columbia University, where the antimicrobial glove technology was developed, and
Dr. Louis R.M. Del Guercio, the Company's Chairman, who attended the meeting on
the Company's behalf, each made a presentation before the Advisory Committee,
General Hospital and Personal Use Devices Panel, Center for Devices and
Radiological Health. Mr. Lester Sampath, also of the Department of Surgery,
Columbia University, was there as an observer. The Panel acts in an advisory
capacity and makes recommendations to the FDA regarding whether or not certain
device submissions should receive FDA clearance to be marketed. While the Panel
did not make any recommendation to the FDA at the March 11, 1996 meeting, the
Panel voted to accept a previously distributed opinion of an independent
consultant indicating that the Company's examination gloves do not have a
positive impact on disease control. The Company expects to receive written
notice of the FDA's decision regarding the Company's examination gloves, but has
not yet received such notice.
At present, the Company does not have sufficient financial resources to
fund additional clinical testing, if such clinical testing is required. However,
should the Company's financial condition improve, the Company would spend some
of these funds on additional testing. There can be no assurance that, even with
additional testing, if such testing is required, that the Company will obtain
FDA clearance to market its antimicrobial latex gloves.
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PART II - OTHER INFORMATION
Item 5 - Other Information
(a) Granting of European Patent for "Treatment of Aged Skin With Oral
13-Cis-Retinoic Acid" Survives Period of Possible Opposition Without
Challenge
On February 14, 1996, the Company received written notification from
patent counsel that the decision in March 1995 by the European Patent
Office, allowing the claims in the European Patent Application covering the
"Treatment of Aged Skin With Oral 13-Cis-Retinoic Acid" which was published
in the European Patent Bulletin of March 22, 1995, survived the nine month
period of possible opposition by third parties without any challenge.
Accordingly, the grant of the above patent is now complete. The Company
continues to seek potential licensees or purchasers of the aging-related
skin disorder treatment technology in Europe; however, there can be no
assurance that the Company will be successful in licensing or selling the
technology to others.
(b) Research Gift
By letter dated February 8, 1996, the Company has agreed that it will
support the research efforts directed by Dr. Shanta Modak, Department of
Surgery of Columbia University. Accordingly, the Company has made a
commitment to make a research gift in the amount of $20,000 to Dr. Modak's
laboratory, subject to certain conditions described below, in recognition
of the consultation service and assistance by Dr. Modak and her colleagues
in support of the Company's efforts in continuing to obtain clearance from
the FDA to market the Company's antimicrobial gloves. This research gift
will be paid upon the first to occur of the following: (i) the Company's
receipt of clearance from the FDA to market its antimicrobial gloves; or
(ii) the Company successfully enters into a business venture with a revenue
producing company related to production and sales of such antimicrobial
gloves. Such gift has no bearing or effect on prior royalty or other
payment arrangements between the Company and the University.
(c) Grant of Stock Options
At a special meeting of the Board of Directors of the Company held on
March 6, 1996, the Board of Directors granted a non-qualified option to
Bruce Hausman to purchase 250,000 shares of Common Stock of the Company at
an exercise price of $0.09 per share, based on the current market price, in
lieu of cash compensation for Mr. Hausman's services as President and Chief
Executive Officer of the Company since May 1995.
(d) Grant of Stock
On March 6, 1996, the Board of Directors of the Company granted
Lieberman & Nowak, LLP 50,000 shares of Common Stock in recognition of the
valued services provided by Lieberman & Nowak to the Company for several
years. The Company has recorded an
15
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expense of $2,250 in the third quarter of fiscal 1996 representing the
estimated fair market value of such shares on the date of grant.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended April 30,
1996.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DALTEX MEDICAL SCIENCES, INC.
Date: June 13,1996 By: /s/Bruce Hausman, Esq.
BRUCE HAUSMAN, ESQ.
President and Chief Executive
Officer
Date: June 13, 1996 By: /s/ Herbert J. Mitschele, Jr.
HERBERT J. MITSCHELE, JR.
Treasurer, Secretary,
and Chief Financial Officer
17
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