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 January 31, 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 March 5, 1996
Common Stock par value $.01 8,632,699
per share
<PAGE>
DALTEX MEDICAL SCIENCES, INC.
INDEX
Page
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
(a) Condensed balance sheets as of January
31, 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 January 31, 1996 (Unaudited) and
January 31, 1995 (Unaudited), six months
ended January 31, 1996 (Unaudited) and
January 31, 1995 (Unaudited), and for
the period July 28, 1983 (Date of
Incorporation) to January 31, 1996
(Unaudited) 5
(c) Condensed statements of cash flows for
the six months ended January 31, 1996
(Unaudited) and January 31, 1995
(Unaudited), and for the period July 28,
1983 (Date of Incorporation) to January
31, 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 8-13
PART II - OTHER INFORMATION
Item 5 - Other Information 14
Item 6 - Exhibits and Reports on Form 8-K 15
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Daltex Medical Sciences, Inc.
(A Development Stage Enterprise)
Condensed Balance Sheets
<TABLE>
<CAPTION>
January 31,
1996 July 31,
(Unaudited) 1995 (A)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 93,932 $ 10,862
Other receivables 7,500 43,448
-------- --------
101,432 54,310
Net plant and equipment, at cost 422 2,568
Patents, net of accumulated amortization
of $124,925 at January 31, 1996
and $115,677 at July 31, 1995 9,321 18,569
Other assets, net 3,375 3,375
Deferred royalty costs (note 2) 275,000 --
-------- --------
$389,550 $ 78,822
======== ========
</TABLE>
See accompanying notes to condensed financial statements.
(A) Amounts at July 31, 1995 are from audited financial statements.
3
<PAGE>
Daltex Medical Sciences, Inc.
(A Development Stage Enterprise)
Condensed Balance Sheets
<TABLE>
<CAPTION>
January 31,
1996 July 31,
(Unaudited) 1995 (A)
<S> <C> <C>
Liabilities and Stockholders' Deficiency
Current liabilities:
Accounts payable (note 3) $ 770,751 $ 954,727
Accrued expenses (note 3) 47,248 54,173
----------- -----------
Total current liabilities 817,999 1,008,900
----------- -----------
Advance royalty payments (note 2) 550,000 --
----------- -----------
Stockholders' deficiency:
Common stock, par value $.01 per share
Authorized 20,000,000 shares; issued
8,632,699 shares at January 31, 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 (7,881,145) (7,832,774)
Total stockholders' deficiency (978,449) (930,078)
----------- -----------
$ 389,550 $ 78,822
=========== ===========
</TABLE>
See accompanying notes to condensed financial statements.
(A) Amounts at July 31, 1995 are from audited financial statements.
4
<PAGE>
Daltex Medical Sciences, Inc.
(A Development Stage Enterprise)
Statements of Operations & Deficit
Accumulated During the Development Stage
<TABLE>
<CAPTION>
For the Period
July 28, 1983
Three Months Three Months Six Months Six Months (Date of
Ended Ended Ended Ended Incorporation)
January 31, January 31, January 31, January 31, To January 31,
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) 75,000 -- 75,000 -- 1,712,074
License fees & royalties 37,500 40,352 86,724 81,671 2,168,852
------------ ------------ ------------ ------------ ------------
Total revenues 112,500 40,352 161,724 81,671 4,389,366
------------ ------------ ------------ ------------ ------------
Expenses incurred in the development stage:
Cost of sales -- -- -- -- 313,243
Research & development 6,400 -- 6,400 -- 3,335,251
General & administrative 98,589 78,672 203,695 231,430 8,622,017
------------ ------------ ------------ ------------ ------------
Total expenses incurred in the
development stage: 104,989 78,672 210,095 231,430 12,270,511
------------ ------------ ------------ ------------ ------------
Net income (loss) 7,511 (38,320) (48,371) (149,759) (7,881,145)
------------ ------------ ------------ ------------ ------------
Deficit accumulated during the development stage:
Beginning of period (7,888,656) (7,431,730) (7,832,774) (7,320,291) --
------------ ------------ ------------ ------------ ------------
End of period $ (7,881,145) $(7,470,050)$ (7,881,145) $ (7,470,050) $ (7,881,145)
============ ============ ============ ============ ============
Net loss per common share -- (.01) (.01) (.02) (1.03)
============ ============ ============ ============ ============
Weighted average number of
shares outstanding 8,633,000 8,633,000 8,633,000 8,633,000 7,635,000
============ ============ ============ ============ ============
</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)
January 31, January 31, to January 31,
1996 1995 1996
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C>
Cash flows from operations: ............................... $ (48,371) $ (149,759) $(7,881,145)
Net loss:
Non-cash expenses included in net loss:
Depreciation and amortization .................... 11,394 11,430 300,491
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 ............ 35,948 -- (7,500)
(Increase) in deferred royalty costs ............. (275,000) -- (275,000)
Increase (decrease) in accounts payable .......... (183,976) 113,512 770,751
Increase (decrease) in accrued expenses .......... (6,925) (3,125) 47,248
Increase in advance development & royalty payments 550,000 35,148 550,000
----------- ----------- -----------
Net cash flows of operations ................. 83,070 7,206 (5,440,597)
----------- ----------- -----------
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 flows from financing activities:
Proceeds from sale of common stock & warrants - net ... -- -- 6,009,344
----------- ----------- -----------
Net increase (decrease) in cash ........................... 83,070 7,206 93,932
Cash, including certificates of deposit:
Beginning of period ................................... 10,862 27,090 --
----------- ----------- -----------
End of period ......................................... $ 93,932 $ 34,296 $ 93,932
=========== =========== ===========
</TABLE>
See accompanying notes to condensed financial statements.
6
<PAGE>
NOTES TO CONDENSED FINANCIAL STATEMENTS - January 31, 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 only those license fees payable to the Company
by Arrow for antimicrobially treated multi-lumen central venous catheters
(exclusive of 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 has paid to the Company a one-time royalty of $600,000 (in lieu of
the periodic royalty paid to the Company) 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 January 31, 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, including the percutaneous
sheath introducer system, Arrow 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.
(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
7
<PAGE>
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.
As of January 31, 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
$601,489 as of January 31, 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
January 31, 1996 on the accompanying condensed balance sheets. The Company
is attempting 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.
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 engaged in extremely limited
research and development efforts. The Company incurred a research and
development expense during the quarter ended January 31, 1996, in the amount of
$6,400, for the antimicrobial coating and evaluation of samples of tracheal
suction catheters. 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
8
<PAGE>
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 had 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 two quarters of
fiscal 1996, as well as in fiscal 1995, the Company had no sales of any of its
technologies or its antimicrobial medical gloves. During the first and second
quarters of fiscal 1996 and for the fiscal years ended July 31, 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 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. The Company will continue to receive development
phase payments on the other products incorporating the Company's antimicrobial
technology which Arrow is developing or has developed, including an
antimicrobially treated percutaneous sheath introducer system which has received
regulatory clearance to be marketed but has not yet reached the marketplace.
However, there can be no assurance that Arrow will be successful in marketing
such percutaneous sheath introducer system.
Results of Operations for the Three Months Ended January 31, 1996
Revenues for the quarter ended January 31, 1996 totalled $112,500, an
increase of 178% over the $40,352 in revenues during the corresponding period in
fiscal 1995. This increase in revenue is due to the Company's receipt of $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 as discussed in note 4 to the financial statements. Revenues from
licensing fees in the second quarter of fiscal 1996 were $7,500, the same as
those recorded in the corresponding period during the last year. Revenues from
royalties were $30,000, a decrease of 8.7% from the $32,852 in royalty payments
received during the second quarter of fiscal 1995. The $30,000 in revenues from
royalties represents royalties earned for the quarter ended January 31, 1996,
which is derived from the $600,000 advance royalty payment received by the
Company from Arrow. The unearned portion of $550,000 is reflected as deferred
revenue in the liability 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. 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 Proceedings."
9
<PAGE>
Expenses incurred during the three months ended January 31, 1996 totalled
$104,989, an increase of 33.5% over the $78,672 of expenses incurred in the
three months ended January 31, 1995 primarily due to $15,000 of amortization of
the deferred royalty costs paid to the University in November 1995. Included in
expenses was $6,400 paid to the University in research and development costs
associated with the antimicrobial coating and evaluation of certain product
samples for a potential licensee. Expenses consisted primarily of legal costs
associated with the Company's prosecution and maintenance of its intellectual
property rights and payments due the University pursuant to certain license
agreements. General and administrative expenses for the quarter totalled
$98,589, an increase of 25.3% over the $78,672 of expenses incurred in the
corresponding period last year.
The Company recorded net income for the quarter of $7,511 due primarily to
the Company's receipt of $75,000 from Arrow as described in note 4 to the
financial statements.
Results of Operations for the Six Months Ended January 31, 1996
Revenues for the six months ended January 31, 1996 totalled $161,724, an
increase of 98% over revenue of $81,671 in the corresponding period last year.
This increase was the result of the receipt of $75,000 from Arrow as described
in note 4 to the financial statements.
Expenses incurred during the six months ended January 31, 1996 totalled
$210,095, a decrease of 9.2% from the $231,430 of expenses incurred in the six
months ended January 31, 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 and second quarters 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.)
The Company sustained a net loss of $48,371 for the six months ended
January 31, 1996, a decrease of 67.7% from the net loss of $149,759 in the
corresponding period in 1995. The decrease in net loss for the six 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 January 31, 1996, the Company had a working capital deficit of
approximately $717,000, which represented a decrease of approximately $237,000
in such deficit from July 31, 1995. During the six months ended January 31,
1996, the Company had an increase of $83,070 in cash flows from operations
principally due to the 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, and 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. It
is expected that future cash flows will be substantially less than reported
revenues due to this one-time advance royalty payment. 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 January 31, 1996, the Company had cash and cash
equivalents of $93,932.
10
<PAGE>
The Company currently owes the University $165,706 (see notes 2 and 3 to
the financial statements), and as of January 31, 1996, the Company has been
billed $601,489 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 continuing 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 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. In
light of the recent payments to the University discussed in note 3 to the
financial statements, the University has agreed to work with the Company through
July 1996 with respect to the Company's financial condition and its relation to
the University.
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 to attempt 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 November 1995, the Company extended the expiration dates of its
Class A and Class B Warrants and reduced the exercise price of its Class B
Warrants. The expiration date of the Company's Class A Warrants was extended
from December 31, 1995 to 5:00 p.m. (New York City time) on April 30, 1996; the
exercise price of the Class A Warrants
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had been reduced from $3.25 to $0.25 in September 1995. The expiration date of
the Company's Class B Warrants was extended from December 31, 1996 to 5:00 p.m.
(New York City time) on April 30, 1997. In addition, effective November 28,
1995, the exercise price of the Company's Class B Warrants was reduced to $1.00.
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. 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 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 has the
right to repurchase the subject patents together with certain subject matter as
defined in the agreement. The repurchase price would consist 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 has until April 17, 1996 to
exercise its right to repurchase. At the present time, the Company does not
anticipate exercising its right to repurchase the patents and related technology
from Beiersdorf.
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 will
record an 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.
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
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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 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 glove.
From 1993 through December 1994, the Company had several meetings with
various representatives at the FDA's offices and continued its written
correspondence and discussions with the FDA and the ODE regarding the issues
raised by the ODE concerning the Company's antimicrobial gloves.
On August 17, 1995, Mr. Timothy Ulatowski of the ODE sent to Dr. Del
Guercio, Chairman of the Company Board of Directors, a copy of a memorandum sent
by Albert T. Sheldon, Jr., Ph.D., Supervisory Microbiologist, Division of
Anti-Infective Drug Products, to Mr. Ulatowski concerning the Company's gloves.
On September 13, 1995, Dr. Del Guercio sent to Mr. Ulatowski a response to Dr.
Sheldon's memorandum prepared on the Company's behalf by Dr. Modak and Mr.
Sampath with the assistance of an FDA consultant. On September 26, 1995, Mr.
Ulatowski informed Dr. Del Guercio that pursuant to this most recent submission
of data, the Company would be invited to make a presentation concerning the
Company's glove before the FDA's independent General Hospital Panel.
Dr. Shanta M. Modak of the Department of Surgery, Columbia University,
where the antimicrobial glove technology was developed, and Dr. Del Guercio
attended a meeting, on the Company's behalf, of the Advisory Committee, General
Hospital and Personal Use Devices Panel, Center for Devices and Radiological
Health on March 11, 1996; 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.
Drs. Del Guercio and Modak each made a presentation before the Panel and
responded to certain questions. The Company expects to receive notice of the
FDA's decision regarding the Company's examination gloves within the next few
weeks. While the Panel did not make any recommendation to the FDA at the meeting
on March 11, 1996, 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.
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,
13
<PAGE>
even with additional testing, if such testing is required, that the Company will
obtain FDA clearance to market its antimicrobial latex gloves.
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 conditional research gift in the
amount of $20,000 to Dr. Modak's laboratory 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 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.
14
<PAGE>
(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 will record an 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
January 31, 1996.
15
<PAGE>
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: March 18, 1996 By: /s/ Bruce Hausman, Esq.
------------------------
BRUCE HAUSMAN, ESQ.
President and Chief Executive Officer
Date: March 18, 1996 By: /s/ Herbert J. Mitschele, Jr.
------------------------------
HERBERT J. MITSCHELE, JR.
Treasurer and Chief Financial Officer
16
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