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, 1997
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 7, 1997
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 January 31,
1997 (Unaudited) and July 31, 1996 1-2
(b) Condensed statements of operations and
deficit accumulated during the development
stage for the three months ended January 31,
1997 (Unaudited) and January 31, 1996
(Unaudited), six months ended January 31,
1997 (Unaudited) and January 31, 1996
(Unaudited), and for the period July 28, 1983
(Date of Incorporation) to January 31, 1997
(Unaudited) 3
(c) Condensed statements of cash flows for the
six months ended January 31, 1997 (Unaudited)
and January 31, 1996 (Unaudited), and for the
period July 28, 1983 (Date of Incorporation)
to January 31, 1997 (Unaudited) 4
(d) Notes to condensed financial statements
(Unaudited) 5-6
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations 7-11
PART II -OTHER INFORMATION
Item 5 - Other Information 11
Item 6 - Exhibits and Reports on Form 8-K 11
<PAGE>
PART 1 - FINANCIAL INFORMATION
Item 1 - Financial Statements
Daltex Medical Sciences, Inc.
(A Development Stage Enterprise)
Condensed Balance Sheets
January 31,
1997 July 31,
(Unaudited) 1996(A)
Assets
Current assets:
Cash and cash equivalents $21,863 $49,926
Other receivables 15,319 15,319
Prepaid royalty 60,000 60,000
-------- --------
Total current assets 97,182 125,245
Net plant and equipment, at cost
Patents, net of accumulated amortization of
$134,426 at January 31, 1997
and $134,426 at July 31, 1996 -- --
Other assets, net 3,375 3,375
Deferred royalty costs (note 2) 155,000 185,000
$255,557 $313,620
======== ========
See accompanying notes to condensed financial statements.
(A) Amounts at July 31, 1996 are from audited financial statements.
1
<PAGE>
Daltex Medical Sciences, Inc.
(A Development Stage Enterprise)
Condensed Balance Sheets
<TABLE>
<CAPTION>
January 31,
1997 July 31,
(Unaudited) 1996(A)
<S> <C> <C>
Liabilities and Stockholders' Deficiency
Current liabilities:
Accounts payable & accrued expenses (note 3) $908,004 $885,942
Advance royalty payments (note 2) 165,00 120,000
----------- -----------
Total current liabilities 1,073,004 1,005,942
----------- -----------
Advance royalty payments (note 2) 310,000 370,000
----------- -----------
Stockholders' deficiency:
Common Stock, par value $.01 per share
Authorized 20,000,000 shares; issued
8,632,699 shares at January 31, 1997 and
8,632,600 at July 31, 1996 86,327 86,327
Paid in capital 6,816,369 6,816,369
Deficit accumulated during the
development stage (8,030,143) (7,965,018)
----------- -----------
Total stockholders' deficiency (1,127,447) (1,062,322)
----------- -----------
$255,557 $313,620
=========== ===========
</TABLE>
See accompanying notes to condensed financial statements
(A) Amounts at July 31, 1996 are from audited financial statements.
2
<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,
1997 1996 1997 1996 1997
(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 90 75,000 257 75,000 1,712,818
License fees and royalties 66,282 60,380 126,137 109,604 2,496,233
------------ ------------ ------------ ------------ ------------
Total revenues 66,372 135,380 126,394 184,604 4,717,491
------------ ------------ ------------ ------------ ------------
Expenses incurred in the
development stage:
Cost of sales -- -- -- -- 313,243
Research & development -- 6,400 -- 6,400 3,335,251
General & administrative 96,814 121,469 191,519 226,575 9,099,140
------------ ------------ ------------ ------------ ------------
Total expenses incurred in the
development stage 96,814 127,869 191,519 239,975 12,747,634
------------ ------------ ------------ ------------ ------------
Net income (loss) (30,442) 7,511 (65,125) (48,371) (8,030,143)
------------ ------------ ------------ ------------ ------------
Deficit accumulated during the
development stage:
Beginning of period (7,999,701) (7,888,656) (7,965,018) (7,832,774 --
------------ ------------ ------------ ------------ ------------
End of period $(8,030,143) $(7,881,145) $(8,030,143) $(7,881,145) $(8,030,143)
============ ============ ============ ============ ============
Net loss per common share -- -- (0.01) (0.01) (1.03)
============ ============ ============ ============ ============
Weighted average number of
shares outstanding 8,633,000 8,633,000 8,633,000 8,633,000 7,780,000
============ ============ ============ ============ ============
</TABLE>
See accompanying notes to condensed financial statements.
3
<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,
1997 1996 1997
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C>
Cash flows from operations
Net loss: $(65,125) $(48,371) $(8,030,143)
Non-cash expenses included in net loss:
Depreciation and amortization -- 11,394 310,234
Non-cash compensation charges -- -- 889,130
Abandoned equipment -- -- 53,386
Write-off of patents -- -- 105,221
Write-off of inventory/advance payments -- -- 115,048
Other -- -- 4,499
Changes in current assets & liabilities:
(Increase) in inventory & advance payments -- -- (115,048)
(Increase) decrease in grant & other receivables -- 35,948 (15,319)
(Increase) decrease in deferred royalty costs 30,000 (275,000) (215,000)
Increase (decrease) in accounts payable & accrued expenses 21,882 (190,901) 809,853
Increase (decrease) in advance development & royalty payments (15,000) 550,000 475,000
----------- ----------- -----------
Net cash flows of operations (28,243) 83,070 (5,512,845)
----------- ----------- -----------
Cash flows from investing activities:
Purchase of U.S. government obligations -- -- (8,813,987)
Redeemed U.S. government obligations and other short-term investments -- -- 8,810,987
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 investment activities -- -- (474,816)
----------- ----------- -----------
Cash flow from financing activities:
Proceeds from sale of common stock & warrants, net -- -- 6,009,344
Net increase (decrease) in cash (28,243) -- 21,683
Cash, including certificates of deposit:
Beginning of period 49,926 10,862 --
----------- ----------- -----------
End of period $21,683 $93,932 $21,683
=========== =========== ===========
See accompanying notes to condensed financial statements
4
<PAGE>
NOTES TO CONDENSED FINANCIAL STATEMENTS-January 31, 1997 (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 and Development Phase Payments
In October 1995, the Company and Arrow International, Inc. ("Arrow")
agreed to modify the terms of the existing Arrow License (the "Modified
Arrow License") concerning only 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 Modified Arrow
License, Arrow paid to the Company a one time royalty of $600,000 (in
lieu of the periodic royalty paid to the Company pursuant to the Arrow
License 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 January 31, 1997. After September
1, 2000, the periodic royalty payments provided for in the existing
Arrow License 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 Arrow License (including
Arrow's obligation to make quarterly royalty payments based on sales of
percutaneous sheath introducer ("PSI") units sold, and 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
Modified Arrow License 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 January 31, 1997, the Company received nominal
royalty payments from Arrow based on limited sales of PSI units sold
during this period, and quarterly development phase payments for two
other products which Arrow is developing or has developed incorporating
the Company's antimicrobial technology.
Additionally, in November 1996, the Company received an advanced annual
payment (which was not scheduled to be paid until April 1, 1997) from
W.L. Gore & Associates, Inc. ("Gore"),
5
<PAGE>
another of the Company's sublicensees, in the amount of $45,000.
Included in this amount was $15,000 representing an advance against
annual minimum royalties to be paid to the Company based on sales of
antimicrobially treated hernia patches which have recently been
introduced to the marketplace by Gore, and $30,000 representing
advanced annual development phase payments for two other product
segments also licensed to Gore pursuant to the terms of the May 1992
License Agreement between the Company and Gore.
(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 January
1997, the Company paid the University $2,841.25, representing the
University's 50% share, pursuant to the 1987 License Agreement between
the Company and the University, of sublicense and royalty fees received
by the Company from Arrow during the quarter ended January 31, 1997.
Further, in February 1997, the Company paid the University an
additional $22,500, representing the University's 50% share of the
advanced annual development and royalty payments received by the
Company from Gore as described in note 2 above.
As of January 31, 1997, the Company owes the University $165,706 for
the University's past due share of sublicensing and royalty payments
received by the Company through 1994. Moreover, the Company has been
billed $638,303 as of January 31, 1997 by the University's patent
counsel for patent work undertaken in connection with the Company's
license agreements with the University, 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, 1997 on
the accompanying condensed balance sheets. Included in this amount is
approximately $128,954, representing charges in connection with the
Company's protection of its intellectual property rights through
domestic and foreign patent filings and related matters. Also included
in this amount is approximately $108,560, representing charges in
connection with the two AIDS-related patents and the patent application
for antimicrobially treated condoms which the Company and the
University have agreed in principle to reassign to the University,
because the Company has been unsuccessful in licensing these
technologies to third parties. Finally, approximately $401,000 is
included in this amount, representing charges in connection with the
previously disclosed Patent Interference Proceedings and subsequent
Patent Settlement Agreement. The Company disputes the Company's
responsibility for this $401,000, and the Company and the University
continue attempts to negotiate a settlement. Because the Company has
proposed to reassign the two AIDS-related patents and one patent
application for antimicrobially treated condoms to the University, the
Company has requested that the University credit the Company for the
$108,560 outstanding amount due the University's patent counsel related
to these matters. The University has continued to work with the Company
with respect to these matters and the Company's financial condition and
its relation to the University. Although the Company is continuing its
attempts to resolve these matters, there can be no assurance that the
Company will be successful in reaching a resolution with the
University.
(4) Subsequent Event - License Amendment Agreement
In February 1997, the Company and Gore entered into a License Amendment
Agreement, dated as of January 1, 1997, clarifying the specific product
and market application segments set forth
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<PAGE>
in the existing license agreement entered into by the Company and Gore
in May 1992. The Company and Gore have also agreed to a royalty rate of
5% for any product that does not otherwise fit within the royalty
scheme set forth in Schedule 1 to the License Amendment Agreement. All
other terms and conditions set forth in the existing 1992 license
agreement remain in full force and effect.
(5) Other Income
In February 1997, the Company received $50,000 from Gore in
consideration for the Company's cooperation with respect to the License
Amendment Agreement described in note 4 above, and to help fund the
payment of legal and filing costs incurred by the Company in connection
with such Agreement.
Item 2
Management's Discussion and Analysis of
Financial Condition and Results of Operations
The following discussion contains forward looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995
relating to the Company's plans with respect to its continually deteriorating
financial condition. Actual results could differ materially from management's
plans and there can be no assurance that the Company will be successful in its
plan (i) to sell or license the rights to certain applications of its
antimicrobial technology, (ii) to sell all or substantially all of its assets,
(iii) to negotiate the forgiveness of certain debt owed to the University or
(iv) to continue as a going concern.
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. 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 1997, as well as in
fiscal 1996, the Company had no sales of any of its technologies or its
antimicrobial medical gloves. See "Item 1. Business" of the Company's Annual
Report on Form 10-K for the fiscal year ended July 31, 1996 for a discussion of
the dispute with the University concerning the license for the antimicrobial
glove technology, and a discussion of the terms of the Patent Settlement
Agreement dates as of January 1, 1995 among the Company, the University, Arrow
and Becton Dickinson.
Given the continually deteriorating financial condition of the
Company, the Board of Directors of the Company has authorized Bruce Hausman,
President and Chief Executive Officer of the Company, to negotiate the sale of
the Company's rights to various applications of the antimicrobial technology to
certain sublicensees of the Company. These applications constitute substantially
all of the assets of the Company. In the event that the Company is successful in
selling substantially all of its
7
<PAGE>
assets, the Company will either endeavor to sell the remaining corporate shell
to a third party or to liquidate any remaining assets. The Company has not
entered into any agreement to date for the sale of its rights to the
antimicrobial technology or any other assets, and there can be no assurance that
the Company will be successful in entering into such agreement.
In the event that the Company is unsuccessful in negotiating a
sale of its rights to the antimicrobial technology, the Company may seek to
transfer this technology back to the University in exchange for the forgiveness
by the University of all of the outstanding amounts owed by the Company to the
University.
During the second quarter of fiscal 1997 and for the fiscal
years ended July 31, 1996 and 1995, the Company received revenues principally
from royalty payments and development fees pursuant to two licenses with Arrow
and Gore, sublicensees of applications of the Company's antimicrobial medical
technology, and the one-time royalty payment from Arrow, both discussed below.
Additionally, the Company received advanced royalty and development payments
from one of its sublicensees during the quarter ended January 31, 1997.
In October 1995, the Company received a one-time royalty
payment of $600,000 from Arrow, of which 50% was paid in November 1995 to the
University pursuant to the 1987 License Agreement between the Company and the
University. Additionally, 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. See "-Results of Operations" and "-Liquidity and Capital Resources."
The Company will continue to receive development phase
payments on the other products incorporating the Company's antimicrobial
technology which the Company's sublicensees are developing or have developed
which have not yet received clearance from the U.S. Food and Drug Administration
("FDA"), or have not yet reached the marketplace, as well as quarterly royalty
payments from Arrow based on sales of PSI units and annual minimum royalty
payments from Gore based on one product segment which has recently reached the
marketplace. 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 will also continue to receive annual minimum royalty
payments from Gore for the first three years of sales based on sales of one
product segment which has received FDA clearance and has very recently been
introduced to the marketplace. The minimum annual royalty payment is equal to
the annual development payment the Company had been receiving for such product
segment. Such minimum annual royalties payable to the Company by Gore are
subject to the terms and conditions set forth in the existing May 1992 License
Agreement between the Company and Gore. As a result of the Company's receipt in
November 1996 of an advance annual minimum royalty payment of $15,000 (described
in note 2 above), annual development phase payments from Gore for the product
segment which has recently been introduced to the marketplace have been replaced
by royalty payments. 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 January 31, 1997
Revenues for the quarter ended January 31, 1997 totaled
$66,372, a decrease of 51% from the $135,380 in revenues during the
corresponding period in fiscal 1996. This decrease in revenues was due to the
fixed royalties earned during the quarter ended January 31, 1997 as a result of
the
8
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Modified Arrow License between Arrow and the Company (see note 2 to the
financial statements), the Company's receipt in November 1995 of the one-time
payment 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, and to a lesser extent, the replacement of
quarterly development payments with nominal royalty payments from Arrow based on
sales of PSI units. Revenues from licensing fees in the second quarter of fiscal
1997 were $5,000, a decrease of 33.3% from the $7,500 in licensing fees recorded
in the corresponding period in fiscal 1996 as a result of the replacement of one
development phase payment with nominal royalty payments. Revenues from royalties
were $61,282, an increase of 104% over the $30,000 in royalty payments received
during the second quarter of fiscal 1996 as a result of a $30,600 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 of $682, of
which 50% was paid to the University on January 9, 1997, related to sales of PSI
units. Included in revenues from royalties is $30,000 representing royalties
earned for the quarter ended January 31, 1997, which is derived from the
$600,000 advance royalty payment received by the Company from Arrow in October
1995. (See notes 2 and 3 above.) The unearned portion of $430,000 is reflected
as deferred revenue in the liability section and the remaining $215,000 of the
$300,000 paid to the University is reflected as deferred royalty costs in the
assets section of the balance sheets. Also included in deferred revenues is
$45,000 representing advanced annual development phase and royalty payments
received from Gore described in note 2 above, which will be recorded as income
in the third quarter of fiscal 1997.
Although the Company had no sales of its antimicrobial gloves
in the current quarter or during the fiscal year to date, there were no glove
sales in the corresponding period of fiscal 1996 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 FDA.
Expenses incurred during the three months ended January 31,
1997 totaled $96,814, a decrease of 24.5% from the $127,869 of expenses incurred
in the three months ended January 31, 1996 primarily due to the reduction of
legal costs incurred by the Company in connection with the protection of its
intellectual property rights.
The Company sustained a net loss of $30,442 for the quarter
ended January 31, 1997, as compared to a recorded net income of $7,511 in the
corresponding period in fiscal 1996. This difference is due to the Company's
receipt in November 1995 of the one-time payment 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.
Results of Operations for the Six Months Ended January 31, 1997
Revenues for the six months ended January 31, 1997 totaled
$126,394, a decrease of 31.5% from revenues of $184,604 in the corresponding
period last year. This decrease in revenues was due to the fixed royalties
earned for the first six months of fiscal 1997 as a result of the Modified Arrow
License between the Company and Arrow (see note 2 to the financial statements),
the Company's receipt in November 1995 of the one-time payment 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, and to a lesser extent, the replacement of quarterly development
payments with
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<PAGE>
nominal royalty payments from Arrow based on sales of PSI units. In addition,
revenues included $30,600 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.
Expenses incurred during the six months ended January 31, 1997
totaled $191,519, a decrease of 20.2% from the $239,975 of expenses incurred in
the six months ended January 31, 1996. 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. This decrease was
partially offset by payments totaling $30,600 made by the Company to another
party to the Patent Settlement Agreement, as discussed above.
The Company sustained a net loss of $65,125 for the six months
ended January 31, 1997, an increase of 34.6% over the net loss of $48,371 in the
corresponding period in 1996. The increase in the net loss for the six month
period is due primarily to the aforementioned factors.
Liquidity and Capital Resources
At January 31, 1997, the Company had a working capital deficit
of approximately $976,000, which represented an increase of approximately
$96,000 in such deficit from July 31, 1996. During the six months ended January
31, 1997, the Company had a decrease of $28,243 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 January 31, 1997, the Company had cash
and cash equivalents of $21,683.
In November 1996, the Company received advance royalty and
development phase payments from Gore as described in note 2 above.
The Company currently owes the University $165,706 (see notes
2 and 3 to the financial statements). It is expected that future cash flows will
be substantially less than reported revenues due to the one time advance royalty
payment from Arrow. The Company is currently negotiating with certain of its
sublicensees for the sale of the Company's rights to various applications of the
antimicrobial technology. In the event that the Company is successful in selling
its rights to this technology, the Company would use the funds received from
such sale to satisfy its outstanding financial obligations, including amounts
owed to the University and the University's patent counsel. There can be no
assurance, however, that the Company will be successful in selling its rights to
the antimicrobial technology to a third party.
In the event that the Company is unsuccessful in negotiating a
sale of its rights to the antimicrobial technology, the Company may seek to
transfer this technology back to the University in exchange for the forgiveness
by the University of all of the outstanding amounts owed by the Company to the
University.
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The Company is still in the development stage, and its
business operations have only generated a nominal amount of revenues to date.
There can be no assurance that the Company will be successful in raising
additional funds or that the Company will continue as a going concern. The
report of the Company's independent auditors on the Company's financial
statements for the fiscal years ended July 31, 1996, 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, 1996, 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, the Company is attempting to
sell its rights to various applications of the antimicrobial technology, as
discussed above. In any event, the Company is continuing its 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. Furthermore, the Company will continue its attempts to curtail
expenditures. There can be no assurance that the Company will be successful in
any of the foregoing.
In the event that the Company is unsuccessful in its attempt
to sell its rights to the antimicrobial technology or to transfer such
technology to the University, the Company does not have any other plans to raise
additional capital and there can be no assurance that it will be able to
continue as a going concern or avoid liquidation, even with further cost-cutting
measures.
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 had, 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") had 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
prophylactic effect, thus constituting a new intended use. The ODE had 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.
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, made a
presentation, on the Company's behalf, concerning the Company's gloves before
the FDA's Independent 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. Since the
March 11, 1996 meeting, the Company and Dr. Modak have remained in contact with
the ODE, particularly with Mr. Terrell Cunningham, Nurse Consultant of the ODE.
11
<PAGE>
By letter dated February 27, 1997, the Company was informed by
Mr. Ulatowski of the ODE that, should the Company wish to continue with its
efforts to bring its antimicrobial gloves to market, the ODE recommends that the
Company submit a new 510(k), with the focus of the submission directed at the
recommendations outlined in Mr. Ulatowski's letter relating to certain labeling
claims and additional testing.
At present, the Company does not have sufficient financial
resources to fund additional clinical testing and to prepare the new 510(k)
submission necessary to ready its antimicrobial gloves for the marketplace.
However, should the Company's financial condition improve, the Company would
spend some of these funds on additional testing and preparation of the new
510(k) submission. There can be no assurance that, even if the Company makes a
new 510(k) submission in accordance with Mr. Ulatowski's February 27, 1997
letter and conducts the additional testing suggested therein, that the Company
will obtain FDA clearance to market its antimicrobial latex gloves.
PART II - OTHER INFORMATION
Item 5 - Other Information
(a) Negotiations with Arrow to Increase Fields of Application in Existing
License Agreement
The Company is currently negotiating with Arrow with respect to
increasing the Fields of Application for the sublicense granted by the
Company to Arrow. Arrow may make an additional payment to the Company
in consideration therefor. However, there can be no assurance that the
Company and Arrow will reach agreement with respect to this matter.
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,
1997.
12
<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 17, 1997 By: /s/ Bruce Hausman, Esq.
BRUCE HAUSMAN, ESQ.
President and Chief Executive Officer
Date: March 17, 1997 By: /s/ Herbert J. Mitschele, Jr.
HERBERT J. MITSCHELE, JR.
Treasurer, Secretary
and Chief Financial Officer
13
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