<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (NO FEE REQUIRED)
For the fiscal year ended July 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from ___________to _________
Commission File Number: 0-14026
Daltex Medical Sciences, Inc.
(Exact name of Registrant as specified in its charter)
Delaware 13-3174562
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
7777 Glades Road, Boca Raton, Florida 211 33434
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (561) 470-6005
Securities registered pursuant to Section 12(b) of the Act:
Title of each Class Name of each exchange on which registered
- ------------------- -----------------------------------------
None Not Applicable
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
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Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of Registrant's knowledge, in definitive proxy of
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-K. [ ]
State the issuer's revenues for its most recent fiscal year $272,138 for the
year ended July 31, 1998
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State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of a specified date within the past 60
days. The aggregate market value of the voting stock held by non-affiliates
computed at the closing bid price for which the Company's common stock at
reported on the NASD OTC Bulletin Board November 9, 1998 is approximately
$47,716.
State the number of shares outstanding of each of the issuer's class of
common equity, as of the latest practicable date. As of November 9, 1998,
8,632,699 shares of Common Stock are issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
If the following documents are incorporated by reference, briefly
describe them and identify the part of the Form 10-KSB into which the document
is incorporated: (1) any annual report to security holders; (2) any proxy or
information statement; and (3) any prospectus filed pursuant to Rule 424(b) of
the Securities Act of 1933 ("Securities Act"). Not Applicable.
Transitional Small Business Disclosure Form (check one):
Yes No X
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
Daltex Medical Sciences, Inc. (the "Company"), incorporated on
July 28, 1983 in the State of Delaware, was a pharmaceutical and medical device
company. The business objectives of the Company was to identify, develop and
market certain medical device and pharmaceutical product technologies designed
to reduce the cost of specific diagnostic tests or therapeutic treatments and to
increase the accuracy, efficacy and/or safety of these tests and treatments in
hospital and home health care environments. Effective April 30, 1998, the
Company, by entering into a Settlement and Mutual Release Agreement from
Columbia University, substantially terminated all operations and currently
remains as a shell corporation seeking an acquisition candidate.
The Company owned or had rights to a variety of medical
device and pharmaceutical technologies, including, (i) antimicrobial
materials, compounds and processes to treat venous catheters, vascular grafts,
surgical and other implants, wound dressings and disposable gloves to prevent
or reduce infection and to inhibit the transmission of infectious diseases,
(ii) nutritional supplements for prevention of atopic diseases, (iii) skin
care pharmaceutical technologies, both ethical and over-the-counter, and (iv)
a mapping and potential screening system, based on ultrasound technology, for
the location and early diagnosis of breast cancer. See "Product Technologies."
Of the foregoing technologies, during the fiscal year ended
July 31, 1998, the Company had concentrated its efforts on (i) extremely limited
research and development activities in the field of antimicrobial technology,
while continuing to seek suitable partners to further commercialize its
antimicrobial technologies, (ii) protecting and enhancing its intellectual
property rights in antimicrobial technology and in an invention concerning the
prevention of atopic diseases, (iii) attempts to market and sell its
antimicrobial disposable examination and surgeons' gloves outside the United
States, and (iv) attempts to obtain clearance in the United States from the
United States Food and Drug Administration ("FDA") for the sale of such gloves.
While in certain limited cases the Company had directly
marketed its products to end users, the Company had, in the past, entered into
licensing agreements or distribution arrangements for the marketing and
distribution of its products and manufacturing agreements with third parties.
The Company had definitive license agreements and cooperative development
agreements for the research, development and commercialization and/or the
production of prototypes with respect to the following technologies: (i) the
application of the antimicrobial materials to make polyurethane-based
cardiovascular catheters, related devices and wound drains and (ii) the
application of the antimicrobial materials to seven medical implant product
areas.
The Company is continuing to actively explore mergers with
revenue-producing entities, and a sale of the Company's Common Stock or assets.
However, to date the Company has received no commitments for a sale or merger of
the Company and there can be no assurance that the Company's attempts to sell or
merge the Company will be successful or that the Company will be able to
continue as a going-concern.
<PAGE>
TECHNOLOGY LICENSING ARRANGEMENTS
(i) Antimicrobial Products
(1) Catheters and Cardiovascular Products. Pursuant to a
definitive license agreement entered into in March 1991 (the "Arrow License")
with Arrow International, Inc. ("Arrow"), a leading manufacturer and marketer of
catheters and cardiovascular products, the Company had sublicensed to Arrow
certain applications of its antimicrobial technology that had been licensed by
the Company from Columbia University (the "University"). See "Product
Technologies - Licenses With the University." Pursuant to the Arrow License,
Arrow was obligated to pay periodic royalties, including minimum annual
royalties, to the Company based upon units sold in several product applications
which incorporate the Company's antimicrobial technology and quarterly
development phase payments for product applications not yet offered for sale.
The term of the Arrow License was the longer of the life of any issued patent
which has claims covering one or more of the product applications or ten years.
In January 1991, Arrow introduced to the market, pursuant to a 510(k)
notification filed with the FDA, its first antimicrobial product, a multi-lumen
central venous catheter with antiseptic surface, incorporating the Company's
antimicrobial technology. Clinical tests sponsored by Arrow demonstrate that the
treated catheter surface provides significant inhibition of organisms associated
with hospital-based infections without side effects, such as toxicity or
thrombogenicity. In December 1994, Arrow reported to the Company that it had
received FDA clearance to market a second antimicrobial product, the
percutaneous sheath introducer system ("PSI"), incorporating the antimicrobial
technology which the Company had licensed to Arrow. In January 1996, Arrow
introduced the PSI to the marketplace. Since that time, the Company had received
nominal quarterly royalty payments based on limited sales of the newly marketed
PSI, instead of quarterly development fees related to this product.
In October 1995, the Company and 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. Pursuant to the Modified Arrow
License, Arrow paid the Company a one-time royalty of $600,000 for the period
August 31, 1995 through September 1, 2000, of which 50% was paid in November
1995 to the University pursuant to the 1987 License Agreement (as hereinafter
defined), for a multi-lumen central venous catheter with antiseptic surface
(exclusive of silicone Hickman/Broviac type, implantable port or peripherally
inserted central venous catheters) in lieu of the periodic royalty currently
paid pursuant to the Arrow License. All other terms and conditions of the Arrow
License (including Arrow's obligation to make quarterly royalty payments based
on sales of PSI units sold, and quarterly development phase payments to the
Company for those products Arrow has developed incorporating the Company's
antimicrobial technology, once they have received regulatory clearance and have
reached the marketplace), except those terms modified by the Patent Settlement
Agreement of January 1, 1995, remained in full force and effect. In addition,
the Modified Arrow License did not modify or alter the terms of the Patent
Settlement Agreement.
<PAGE>
In fiscal 1997, the Company received periodic royalties and
development fees under the Arrow License. In addition, in June 1997 the Company
received a $100,000 payment as consideration for the second modification license
agreement to the original license agreement of which 50% was paid to the
University for its share. 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. Effective April 30, 1998, the Company, by entering into a Settlement
and Mutual Release Agreement from the University, substantially terminated all
operations and currently remains as a shell corporation seeking an acquisition
candidate. In connection with the Settlement and Mutual Release Agreement, the
Company executed mutual releases with the University, its sublicences and Becton
Dickinson and Company ("Becton Dickinson")
Pursuant to the Patent Settlement Agreement, the Arrow License
had been amended to a coexclusive grant of a sublicense to Arrow and Becton
Dickinson, on a royalty bearing basis, with respect to two applications of the
antimicrobial technology for the manufacture, use and sales of IV catheters and
peripherally inserted central venous catheters. As amended pursuant to the terms
of the Patent Settlement Agreement, this coexclusive sublicense entitled Becton
Dickinson to receive additional royalties Arrow has agreed to pay to the Company
based on sales of antimicrobially treated central venous catheters. Under the
Patent Settlement Agreement, Arrow alone retains the exclusive right to
manufacture and sell antimicrobially treated central venous catheters
incorporating the antimicrobial technology already sublicensed to Arrow by the
Company. Becton Dickinson had also agreed to license to the Company, on a
royalty bearing basis, one of its patents with the right to sublicense it to
others. The Patent Settlement Agreement allowed the Company the opportunity to
continue to seek sublicensees of applications of the antimicrobial technology
licensed from the University, other than those applications governed by the
terms of the Patent Settlement Agreement.
(2) Medical Implants. Pursuant to the terms of a definitive
license agreement entered into in May 1992, a leading manufacturer of medical
implants had been testing the Company's antimicrobial technology with a range of
medical implant products in seven product areas not previously licensed to
others. Pursuant to this agreement, the manufacturer was obligated to pay
royalties, including minimum annual royalties once commercialized, to the
Company based upon units sold within three market segments in product
applications incorporating the Company's antimicrobial technology. The Company
received non-refundable annual development fees in advance for product
applications not yet offered for sale, covering products following the premarket
notification procedure or until an investigational device exemption ("IDE") is
delivered to the FDA for those products using the premarket approval ("PMA")
regulatory procedure. Development fees due for products using the PMA procedure
were to resume two years after delivery of the PMA to the FDA until final FDA
approval has been obtained. The term of the license agreement was for the life
of any issued patent licensed to the manufacturer under the agreement with
claims covering one or more of the licensed product applications, unless earlier
terminated by the manufacturer in its sole discretion or by the Company due to
the manufacturer's failure to cure a default in the fulfillment of its
obligations under the agreement. In October 1994, the manufacturer informed the
Company that it had received FDA clearance to market one application of the
antimicrobial technology to an implanted medical device. The minimum annual
royalty for this market segment was equal to the development fee. In October
1995, the manufacturer informed the Company that pursuant to the 510(k)
notification procedure, it had received FDA clearance in April 1995 to market
two additional implanted medical device products incorporating the Company's
antimicrobial technology. With the recently received FDA clearance of these two
additional products, the manufacturer advised the Company that it decided to
shift its market introduction efforts to these two newly approved medical
devices, and is currently working on a protocol for a clinical trial involving
six surgical centers. The manufacturer had advised the Company that it had
entered the marketplace with respect to one of these products. Based upon the
regulatory success to date, the manufacturer had also begun work on some basic
product performance models involving another product application incorporating
the Company's antimicrobial technology on a limited basis until a product
specification is developed and preliminary testing is complete.
As part of the Settlement and Mutual Release Agreement the
Sublicences between Arrow and the Sublicensee of the Medical Implants were
transferred and assigned to the University.
<PAGE>
PRODUCT TECHNOLOGIES
The Company, until March 1, 1994, focused its extremely
limited research and development and commercialization activities on the
following medical technologies, which were in varying stages of research and/or
development or commercialization and the rights to which have been obtained.
Pharmaceuticals
(i) Antimicrobial (Antibacterial) Compounds, Processes and Materials
for Reduction of Infection in Vascular Grafts, Surgical and Other
Implants and Inhibiting Infectious Diseases
The late Dr. Charles L. Fox, Jr., a former Director of the
Company and a former member of its Scientific Advisory Board, Dr. Keith
Reemtsma, a member of the Company's Scientific Advisory Board, and Dr. Shanta
Modak are the inventors of certain antimicrobial processes and materials for
reducing infection in vascular grafts, surgical sutures, various surgical or
other implants, including heart valves, artificial joints and bones, indwelling
catheters, disposable gloves and certain contraceptive devices. The Company held
exclusive worldwide commercial licenses, including sublicensing rights, to the
patented and patent-pending antimicrobial technology originally developed at the
University. The Company had entered into certain licensing agreements,
development agreements and letters of intent described above with respect to
these processes and materials.
Licenses with the University. Pursuant to an agreement
executed in January 1985 with the University (of which Dr. Fox was and Drs.
Reemtsma and Modak are affiliates), the Company: (a) agreed to fund research and
development with respect to the Company's antimicrobial processes and materials
in an amount equal to $175,000 per annum for two years; (b) granted a $50,000
fellowship to the University in connection with such research and development
program; (c) issued to the University 18,750 shares of Common Stock and (d)
agreed to pay a royalty to the University based on the net sales price of any
products resulting from the sponsored research, in an amount equal to 50% of the
royalty received from sublicensees, if any, or, if there are no sublicensees, a
royalty to be determined by an independent fairness opinion from a qualified
expert who is mutually acceptable to the University and the Company based in
part upon a marketing plan prepared by the Company, payable for the life of any
patents issued in connection with such sponsored research. If any invention
resulting from such research was not patentable, the royalty would have been
payable for ten years at one-half the royalty rate for patentable inventions
determined by such opinion. The research term under the agreement was extended
on a no-cost basis by the parties until June 1987 and is now completed.
<PAGE>
Two U.S. patents issued in January 7, 1986 and April 8, 1986,
respectively, were covered under such agreement of January 1985. In December
1985, the University granted the Company a second license for exclusive
worldwide rights to commercially exploit the subject matter under a third U.S.
patent issued in September 1986. Two inventions arose during the course of the
Company-sponsored research described above; an invention by the late Dr. Fox and
Dr. Modak relating to the use of silver sulfadiazine alone or in combination
with other agents in compositions or on articles, such as condoms, to inhibit
the transmission of the AIDS virus, HBV and other sexually transmitted diseases
(the "AIDS-related invention"); and anti-infective gloves and other medical
devices invented by the late Dr. Fox and Dr. Modak and later by Dr. Modak and
Dr. Lester Sampath (also affiliated with the University) (the "Device
Invention").
In December 1987, the Company was granted a third license by
the University under U.S. patent application Serial No. 018,624 filed in
February 1987, entitled "Method of Inhibiting the Transmission of the AIDS
Virus," and paid the University a total of $50,000 as an initial license fee for
the exclusive worldwide commercial exploitation of the original AIDS-related and
Device Inventions described above ("1987 License Agreement"). On May 10, 1989,
this license was amended by written amendment to include for no additional fee,
a U.S. patent application entitled "Method of Preparing an Infection Resistant
Medical Device." As amended, the 1987 License Agreement included not only the
two specifically mentioned patent applications, but further included "any
patents included thereon, and any foreign counterparts thereof, including any
continuations, continuations-in-part, divisions, additions, reissues, and
extensions thereof." The University had agreed in principle at that time to
include the newest device application on the antiviral glove under the license
agreement without requiring the payment of an additional fee.
The original AIDS-related invention was claimed under U.S.
patent application, entitled "Method of Inhibiting the Transmission of AIDS
Virus" but was later abandoned in favor of the expanded AIDS-related
continuation-in-part application filed in October 1988, which resulted in a
patent issued in August 1990. Additionally, in June 1991, another AIDS-related
continuation-in-part application Serial No. 678,260 entitled "Composition for
Inhibiting Transmission of Hepatitis B Virus" was filed, and resulted in an
issued patent in August 1994.
<PAGE>
However, since the Company had been unsuccessful in licensing
to third parties two of the issued patents and one patent application of the
AIDS-related invention, the Company and the University had agreed, that the
Company reassign such patents and patent application to the University. The
Company and the University negotiated a settlement of legal fees charged to the
Company by the University's patent counsel for the prosecution and maintenance
of the two issued patents and the patent application.
The original Device Invention was claimed under U.S. patent
application, Serial No. 154,920, entitled "Method of Preparing an
Infection-Resistant Medical Device" filed in February 1988, but was later
abandoned in favor of a continuation-in-part patent application filed in October
1988 entitled "Infection-Resistant Compositions, Medical Devices and Surfaces
and Methods for Preparing Same," which resulted in issued U.S. Patent No.
5,019,096 (the "Omnibus Patent"). The Omnibus Patent covered not only
infection-resistant medical gloves, but also covered other infection-resistant
medical devices, such as catheters and wound dressings. Another
continuation-in-part application to the Omnibus Patent was later filed on July
18, 1990 (Serial No. 555,093) which resulted in U.S. Patent No. 5,133,090 (the
"Glove" patent), which specifically covered antiviral gloves.
The terms of the third license agreement were the same as in
the foregoing licenses with the University, except that the Company and the
University was to receive 45% and 55%, respectively, of any sublicensing revenue
after the Company had received net revenues from its sublicensees of $3 million.
In February 1989, the Company reached an agreement in principle with the
University to modify the sublicensing fee-sharing arrangement under the third
license of December 1987 to a scaled percentage arrangement, based on net
revenues received from sublicensees.
As stated above, the Device Invention was claimed in U.S.
patent application Serial No. 154,920 filed in February 1988 which was later
abandoned in favor of the expanded continuation-in-part application Serial No.
258,189 filed in October 1988. The second of these applications matured into
the Omnibus Patent dated May 28, 1991 described above, claiming part of the
subject matter with the remainder of the subject matter being the subject of a
further continuation application filed in order to provoke an interference
with two issued U.S. patents. Three interference proceedings were officially
declared on March 17, 1994. The first involved the continuation application
and U.S. Patent No. 4,925,668, assigned to Becton Dickinson; the second
involved the continuation application and U.S. Patent No. 4,999,210, assigned
to Becton Dickinson; and the third involved the continuation application and
U.S. Patent No. 5,013,306, assigned to Becton Dickinson. The third
interference was dissolved at the request of the University on the grounds
that the invention defined by the interference counts was not disclosed in the
continuation application.
The Company, the University, Becton Dickinson and Arrow (a
sublicensee of the Company having rights to certain patents licensed from the
University to the Company) entered into a Patent Settlement Agreement dated as
of January 1, 1995 settling all disputes among the parties over the rights to
the patents involved in the Interference Proceedings.
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 pursuant to the Modified Arrow
License described above), $34,289 (representing the remaining balance due the
University pursuant to a research agreement), $48,071 (representing the
University's 50% share of sublicense and royalty fees received by the Company
from Arrow between April 30 and October 12, 1995), and $3,481 (representing
royalties owed the University, pursuant to the 1987 license agreement and the
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).
<PAGE>
The Company owed the University $176,605 for its
share of sublicensing and royalty payments the Company had received from its
sublicensees. In addition, the University claimed that the Company had an
outstanding balance of $5,711 pursuant to the Research Agreement; although, as
stated above, in November 1995 the Company paid the University $34,289
representing the amount invoiced by the University for work completed under such
Agreement. The Company and the University have negotiated a resolution of this
matter.
The Company had been billed $661,005 by the University's
patent counsel. Included in this amount was approximately $138,445, 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 was 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 had agreed
in principle to reassign to the University, due to the fact that the Company had
been unsuccessful in licensing these technologies to third parties. Finally,
approximately $414,000 is included in this amount, representing charges in
connection with the previously disclosed Patent Interference Proceedings and
subsequent Patent Settlement Agreement. Effective April 30, 1998, the Company
agreed to pay $70,000 to the University over a one year period and to reassign
and transfer back to the University all of its rights, title and interest as the
University's licensee to certain proprietary rights, pursuant to certain
licenses agreements with the University.
COMPETITION
Effective April 30, 1998, the Company, by entering into a
Settlement and Mutual Release Agreement from Columbia University, substantially
terminated all operations and currently remains as a shell corporation.
PROPRIETARY INFORMATION
The Company owns one patent in each of Canada and Europe for
the oral retinoid for the treatment of age-related skin disorders and one patent
for the silver or zinc sulfadiazine toothpaste. The technology underlying the
patent for the silver or zinc sulfadiazine toothpaste had been the subject of
the Company's research and development efforts relating to antimicrobial
products and, combined with various enhancements, had led to several additional
patents with respect to which the Company holds exclusive licenses. The
sulfadiazine toothpaste patent is dated December 17, 1985; the aged skin
treatment Canadian and European patents are dated February 1, 1994 and April 5,
1995, respectively. Each of the patents not abandoned is or was effective for 17
years, and the currently effective patents will expire between 2002 and 2011. As
a result, there can be no assurance that the Company or its licensees or
purchasers of its patents will be able to develop products from these patented
technologies in a timely manner to take advantage of these patent rights. There
can be no assurance that the Company will develop a commercially marketable
product from any of these patents or that other entities will not assert claims
with respect to any of the Company's technologies or products which are covered
by such patents.
At present, the Company does not have sufficient financial
resources to fund any clinical testing, if such clinical testing is required.
<PAGE>
RESEARCH AND DEVELOPMENT
The Company's primary business had been, since its inception,
research and development. However, effective March 1, 1994, due to the Company's
financial condition, the Company's research and development activities had been
discontinued.
MANUFACTURING AND MARKETING
The Company does not own any facilities for the manufacture of
any of the products that the Company has developed.
GOVERNMENTAL REGULATION
All of the technologies involved in the Company's projects
involve products which were subject to substantial federal and state regulation.
The products must all comply with the requirements of the Federal Food, Drug and
Cosmetic Act (the "Act") administered by the FDA, as well as similar laws in
certain foreign countries in which the Company's products are sold.
EMPLOYEES
Bruce Hausman, Esquire, currently serves as President, Chief
Executive Officer and a director.
ITEM 2. DESCRIPTION OF PROPERTIES
In November 1997 the Company vacated its office facilities.
Its current mailing address is 7777 Glades Road #211, Boca Raton, FL 33434.
ITEM 3. LEGAL PROCEEDINGS
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
<PAGE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
IDENTIFICATION OF PRINCIPAL MARKET
The Company's Common Stock is currently listed on the National
Association of Securities Dealers, Inc. ("NASD") OTC Bulletin Board. The Common
Stock is traded on the over-the-counter market on the ("Nasdaq"), under the
symbol "DLTX" .
The following tables set forth the range of high- and low-bid
prices for the Company's Common Stock for each quarterly period beginning August
1, 1996 as reported by the NASD OTC Bulletin Board. The following
over-the-counter market quotations reflect inter-dealer prices, without retail
markup, markdown or commission, and may not necessarily represent actual
transactions.
Fiscal 1997
High Low
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Common Stock
1st Quarter Ended October 31, 1996 .04 .03
2nd Quarter Ended January 31, 1997 .04 .03
3rd Quarter Ended April 30, 1997 .04 .02
4th Quarter Ended July 31, 1997 .03 .02
Fiscal 1998
Common Stock
1st Quarter Ended October 31, 1997 .14 .125
2nd Quarter Ended January 31, 1998 .125 .08
3rd Quarter Ended April 30, 1998 .125 .07
4th Quarter Ended July 31, 1998 .09 .04
In April 1997, the Company extended the expiration date of its
Class A and Class B Warrants. The expiration date of the Company's Class A
Warrants was extended to December 31, 1997. The expiration date of the Company's
Class B Warrants was extended from April 30, 1997 to December 31, 1997 and both
warrants have now expired.
HOLDERS OF COMMON EQUITY
The approximate number of holders of record of Common Stock of
the Company, as of November 9, 1998, was as follows:
Class Number of Holders
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Common Stock 459
$.01 par value
DIVIDEND HISTORY
The Company has not paid or declared any dividends, cash or
otherwise, since its inception in 1983. Management of the Company has no
intention of paying cash dividends in the foreseeable future.
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
GENERAL
The following discussion regarding the Company and its
business and operations contains "forward-looking statements" within the meaning
of Private Securities Litigation Reform Act 1995. Such statements consist of any
statement other than a recitation of historical fact and can be identified by
the use of forward-looking terminology such as "may," "expect," "anticipate,"
"estimate" or "continue" or the negative thereof or other variations thereon or
comparable terminology. The reader is cautioned that all forward-looking
statements are necessarily speculative and there are certain risks and
uncertainties that could cause actual events or results to differ materially
from those referred to in such forward looking statements. The Company does not
have a policy of updating or revising forward-looking statements and thus it
should not be assumed that silence by management of the Company over time means
that actual events are bearing out as estimated in such forward looking
statements.
The Company had been principally engaged in research and
development activities with the objective of developing and commercializing
certain cost-reducing medical device and pharmaceutical technologies. In 1984,
the Company successfully completed an initial public offering to raise working
capital. Since that time, management of the Company had been working on a number
of development projects which involved experimental and unproven technologies.
Since March 1, 1994 and continuing to date, research and development efforts
have been substantially discontinued, or in most cases put on hold. In fiscal
1998 and 1997, the Company did not have any sales of its technologies or its
antimicrobial medical gloves. During this period, 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.
Effective April 30, 1998, the Company, by entering into a Settlement and Mutual
Release Agreement with Columbia University (a creditor), substantially
terminated all operations and currently remains as a shell corporation.
The report of the Company's independent auditors on
the Company's financial statements includes an explanatory paragraph which
states that the Company's recurring losses and working capital and total
stockholders' deficits raise substantial doubt about the Company's ability to
continue as a going concern and precludes and has precluded the expression of an
opinion on the Company's financial statements as of and for the years ended July
31, 1998 and 1997. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty. Because of the continued
working capital deficit, management's plan in order to continue in operation for
the next year is to continue to attempt to raise additional capital.
Furthermore, the Company has curtailed expenditures to the extent possible. The
Company does not have any commitments to raise additional capital in the future,
and there can be no assurance that the Company will be successful in any of its
capital-raising efforts or that the Company can avoid liquidation.
<PAGE>
In May 1997, the Company entered in to a second
license modification agreement with a manufacturer and marketer of catheters and
cardiovascular supplies. In connection with the modifications the Company
received a one-time, non-refundable, non-creditable fee of $100,000 of which
$50,000 was paid to a university. Revenue, as well as the expense for the
amounts paid to the university, were recognized ratably over the term of the
agreement. In consideration for this fee the Company waived development fees and
minimum annual royalties due on products sold by the licensee for the specific
products added to the agreement under the second license modification for a
period of three years. After three years the licensee shall pay development fees
of $2,500 per quarter payable in advance during the development phase. After
such time as a sale is made the licensee shall pay a running royalty as defined
by the agreement, and at a minimum $2,500 payable quarterly in advance.
Effective April 30, 1998, the Company, by entering
into a Settlement and Mutual Release Agreement with Columbia University , the
Company reassigned and transferred back to Columbia University all of the above
mentioned licensee agreements.
The discussion below should be reviewed together with
the Company's Financial Statements and the Notes thereto.
RESULTS OF OPERATIONS
For the years ended July 31, 1998 and 1997, the Company's
principal sources of revenue have consisted of license fees, royalties, sale of
patents and grants. The Company plans to attempt to raise additional capital to
fund operations in fiscal 1999.
During the fiscal years ended July 31, 1998 and 1997 revenues
from license fees and royalties were $270,138 and $317,711, respectively. All of
the Company's revenues in fiscal years 1998 and 1997 were derived from license
fees and royalties received from its two sublicensees.
Operating expenses for the year ended July 31, 1998 and 1997
consisted principally of general and administrative expenses. General and
administrative expenses in the fiscal years ended July 31, 1998 and 1997 were
$265,969 and $370,289, respectively. General and administrative expenses have
decreased by $104,320 from 1997 to 1998 due to continuing inactivity of the
Company. The Company expects this trend to continue thru 1999.
The Company realized an extraordinary gain of
$871,760 for the year ended July 31, 1998 from the Settlement and Mutual Release
Agreement entered into with Columbia University. The gain reflected the release
of certain obligations that had accrued to Columbia University and their legal
counsel related to certain licensing agreements.
The Company had net income of $877,929 for the year
ended July 31, 1998 compared to a net loss of $2,232 for the fiscal year ended
July 31, 1997, a significant increase due to the extraordinary gain realized
from the settlement agreement entered into with Columbia University.
LIQUIDITY AND CAPITAL RESOURCES
At July 31, 1998, the Company had cash and cash equivalents of
approximately $22,495, representing a decrease of approximately $1,000 over the
July 31, 1997 balance of cash and cash equivalents. During the year ended July
31, 1998, the Company used net cash for operations of $40,627 during 1998 as
compared to $26,404 in 1997. This change in cash flows from operations was
primarily due to a net reduction in advance royalty payments. In addition, the
Company had a working capital deficit of $186,625 as of July 31, 1998.
<PAGE>
Management has continued to curtail expenditures in many areas,
including discretionary expenditures, in order to stay in business and to focus
the Company's extremely limited resources in what it believes are the most
promising areas of the Company's business in the near term. However, there can
be no assurance that the Company will have sufficient funds to carry out these
plans or to remain in business. In addition, further cost saving measures may be
impossible and cost savings measures may have an adverse effect on the Company's
future operations. If the Company is unsuccessful in raising additional capital
during fiscal year 1999, the Company may be unable 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 required, as to which there can be
no assurance. However, there can be no assurance that the Company will be
successful in meeting its immediate or long-term liquidity requirements or that
the Company can continue as a going-concern.
ITEM 7. FINANCIAL STATEMENTS
The financial statements required to be filed pursuant to this Item 8
are appended to this Report on Form 10-KSB. A list of the financial statements
filed herewith is found at "Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K."
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
IDENTIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS, PROMOTORS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The following table sets forth certain information with
respect to each of the present directors and executive officers of the Company.
Name Age Since Position with the Company
- ---- --- ----- -------------------------
Louis R.M. Del Guercio, M.D. 69 1983 Chairman of Board, Director,
Member of Executive Committee
C. Lawrence Rutstein 54 1997 Director
Herbert J. Mitschele, Jr. 69 1983 Secretary, Treasurer, Chief
Financial Officer, Director,
Member of Executive Committee
Bruce Hausman, Esq. 68 1993 President, Chief Executive
Officer, Director, Member of the
Executive Committee
<PAGE>
All directors hold office until the next annual meeting of
stockholders of the Company or until their successors are elected and quality.
Due to its extremely limited financial resources, the Company has not held an
annual meeting of stockholders since July 1991. Executive officers hold office
until their successors are elected and qualified, subject to earlier removal by
the Board of Directors. See "Item 11. Executive Compensation" and "Item 12.
Security Ownership of Certain Beneficial Owners and Management."
The principal occupations and business experience of each
director and executive officer are as follows:
Louis R.M. Del Guercio, M.D. - Dr. Del Guercio is a Professor
and the Chairman of the Department of Surgery at New York Medical College and
Chief of Surgery at Westchester County Medical Center. He is also a Consultant
in Surgery to ten hospitals in New York and Connecticut. Dr. Del Guercio has
served on a number of national public advisory committees concerned with health
care issues. He is a Colonel in the U.S. Army Reserves. Dr. Del Guercio's
publications include three books and over 300 scientific articles. Dr. Del
Guercio received his B.S. in 1949 from Fordham University and his M.D. in 1953
from Yale University School of Medicine.
C.Lawrence Rutstein - Mr. Rutstein joined the Company's Board
of Directors in December 1997. Between May 1997 and June 1998 Mr. Rutstein had
served as Chairman, CEO and president of Regenesis Holdings Corporation (RGNS).
Since 1995 he also served as president of CapQuest Partners, Inc. a company
which has made several investments in emerging software companies. A Harvard Law
School graduate, Mr. Rutstein has practiced corporate, banking and securities
law in Philadelphia, Pennsylvania. Mr. Rutstein previously served as Chief
Counsel to the Pennsylvania Department of Banking from 1971 to 1972, and served
as Resident Counsel to a major Philadelphia bank. From 1989 to 1991 he served as
Chairman of the Board of Cedar Group, Inc., a Nasdaq listed importer and
distributor of fasteners. From 1992 until 1994 he was a General Partner of the
Memphis Chicks AA baseball club and during 1995 he was chairman of the
Rittenhouse Group, Inc., a private consulting company. Mr. Rutstein currently
serves on the board of directors of Packquistion Corp. and Future Graph, Inc.,
privately held companies and Coventry Industries Corp., a NASDAQ smallcap
company.
Herbert J. Mitschele, Jr. - Mr. Mitschele was Chairman of the
Board of Robert J. Baer, Inc., a family-owned, ready-mix concrete company
headquartered in Roseland, New Jersey, until his retirement in August, 1993.
This company has two other divisions: Baer Enterprises, Inc., a real estate and
trucking company, and Baer Aggregates, a quarrying company. Mr. Mitschele is
owner and President of Ambassador Arabian Farms, Inc., a horse breeding company.
He is a former director of Livingston National Bank and First Jersey National
West, banking institutions, and a director of Health Full-Life, a health
maintenance organization. Mr. Mitschele graduated from Fordham University with a
B.S. degree in Political Science and Administration in 1951.
Bruce Hausman, Esq. - On May 18, 1995, the Board of Directors
of the Company appointed Bruce Hausman, Esq., a director and member of the
Executive Committee since December 1993, to serve as President and Chief
Executive Officer. Mr. Hausman served as Principal Executive Officer for Belding
Heminway Company, Inc., a textile manufacturer and distributor from May 1992 to
July 1993. He was Senior Vice President of Belding Heminway Company, Inc. from
February 1988 to May 1992. He had served as a director of Plastigone
Technologies, Inc., a biodegradable plastics manufacturing company, from August
1992 until September 1997, and was a director of Circa Pharmaceuticals Inc. from
June 1990 until July 13, 1995, when Circa merged with Watson Pharmaceuticals,
Inc. Mr. Hausman also serves as an honorary trustee of Beth Israel Medical
Center in New York and an honorary trustee of the Schnurmacher Nursing Home, a
division of Beth Israel Medical Center, and was formerly chairman of its quality
assurance committee. Mr. Hausman received his Bachelor of Arts in Economics from
Brown University in 1951, his Master of Science from the School of Business of
the University with a major in Management and Marketing in 1952 and his Juris
Doctor from New York Law School in 1979.
COMMITTEES OF THE BOARD
All members of the Company's Board of Directors serve on the
Executive Committee. The Executive Committee, which has the plenary powers of
the full Board of Directors, held executive sessions during certain meetings of
the Board of Directors in fiscal 1998.
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth information concerning the
compensation received by the current Chief Executive Officer of the Company and
the former President and Chief Operating Officer of the Company.
<TABLE>
<CAPTION>
Long Term Compensation
Annual Compensation Awards Payouts
Name and Other Annual All Other
Principal Position Year Salary ($) Bonus($) Compensation($) Options (#) Compensation
($)(1)
<S> <C> <C> <C> <C> <C> <C>
1998 -- -- -- -- --
1997 -- -- -- 250,000(2) --
Bruce Hausman 1996 -- -- -- -- --
President, Chief Executive
Officer, Director and
Member of the Executive
Committee
</TABLE>
(1) Does not include benefits generally available to all employees.
(2) 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 an aggregate of 250,000 shares of Common Stock of the
Company at an exercise price of $0.09 per share, based on the current
market price at that time, in lieu of cash compensation for Mr. Hausman's
services as President and Chief Executive Officer of the Company since May
1995.
The following table sets forth information concerning the
exercise of stock options granted to the former and current executive officers
named in the table.
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year End Option
Values
<TABLE>
<CAPTION>
Value of
Number of Unexercised
Unexercised In-the-Money
Options Options
at at
FY/End (#) FY/End ($)
Shares Acquired Exercisable/ Exercisable/
Name on Exercise (#) Value Realized ($) Unexercisable Unexercisable(1)
<S> <C> <C> <C> <C>
Bruce Hausman -- -- 500,000(2)(3) --
Harvey S. S. Miller -- -- 275,000(4) $2,750
</TABLE>
(1) Based on a market price of $0.12 as of October 20, 1995.
(2) Pursuant to a November 1993 consulting agreement, Mr. Hausman received
non-qualified stock options to purchase 250,000 shares of the Company's
Common Stock at an exercise price of $0.13 per share.
(3) 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 an aggregate of 250,000 shares of Common Stock of the
Company at an exercise price of $0.09 per share, based on the current
market price at that time, in lieu of cash compensation for Mr. Hausman's
services as President and Chief Executive Officer of the Company since May
1995.
(4) On September 2, 1992, the Company granted Mr.Miller a non-qualified stock
option to purchase an aggregate of 275,000 shares of Common Stock at an
exercise price of $0.01 per share exercisable through September 2, 2002.
<PAGE>
OTHER ARRANGEMENTS
In November 1993, the Company entered into a consulting
arrangement with Mr. Bruce Hausman, in connection with which Mr. Hausman agreed
to serve as a member of the Company's Board of Directors and Executive
Committee. Mr. Hausman has received compensation consisting of non-qualified
stock options to purchase an aggregate of 250,000 shares of the Company's Common
Stock at an exercise price of $0.13 per share. Mr. Hausman is also eligible to
receive a cash bonus of up to $60,000 to be granted solely within the discretion
of the Board of Directors of the Company as the Company's cash flow permits or
upon a change of control of the Company. On May 18, 1995, the Board of Directors
appointed Mr. Hausman to serve as President and Chief Executive Officer of the
Company. Mr. Hausman receives reimbursement of his reasonable expenses incurred
in the conduct of the Company's business. On December 23, 1997 the Board of
Directors approved repricing of this option to $.03 per share.
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 an aggregate of 250,000 shares of Common Stock of the
Company at an exercise price of $0.09 per share, based on the current market
price at that time, in lieu of cash compensation for Mr. Hausman's services as
President and Chief Executive Officer of the Company since May 1995. On December
23, 1997 the Board of Directors approved repricing of this option to $.03 per
share.
<PAGE>
Mr. Miller's qualified, incentive stock options to purchase an
aggregate of 50,000 shares of Common Stock at an exercise price of $0.72,
automatically terminated in accordance with their terms on March 7, 1995, three
months after Mr. Miller's resignation. Mr. Miller currently holds nonqualified
stock options, due to expire in September 2002, to purchase an aggregate of
275,000 shares of Common Stock at an exercise price of $0.01. Such nonqualified
options were not affected by Mr. Miller's resignation or the forgiveness of his
loan owed to the Company. See Note 7 to Notes to Financial Statements.
Compensation of Directors
Non-salaried members of the Board of Directors are normally
entitled to receive a fee of $2,000 per year. The annual fee includes
compensation for attendance in person of up to four Board of Directors meetings
in any fiscal year, plus $500 for attending in person any Board of Directors
meetings in excess of four such meetings in any one fiscal year. During the
fiscal year ended July 31, 1998, no annual fees for service on the Board of
Directors were paid to any Director, regardless of eligibility to receive such
fees. Non-salaried Directors also are entitled to receive $300 for attendance at
each meeting of a Committee of the Board of Directors. On January 25, 1989, all
members of the Executive Committee eligible to receive compensation for
attendance at Executive Committee meetings agreed to waive all fees for
attendance at such meetings. Such waiver of fees for attendance has continued to
date. For a discussion of certain compensation paid to certain Directors see
"Other Arrangements."
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information, as of
November 9, 1998 with respect to holdings of the Company's Common Stock by each
person known by the Company to be the beneficial owner of more than 5% of the
total number of shares of Common Stock outstanding as of such date. Each
beneficial owner has sole voting and investment power with respect to the shares
set forth opposite his name in the following table, except as otherwise
disclosed in the footnotes to the table or in the paragraph following the table:
Amount and
Nature of Percentage of
Name and Address Beneficial Outstanding
of Beneficial Owner Ownership(1) Shares
James O. Leonard
18 Kings Lane
St. Simons Island, Georgia 31522 808,300 9.36%
Louis R.M. Del Guercio, M.D.
14 Pryer Lane
Larchmont, New York 10538 734,300 8.51%
W. David and Venus Anthony
20 Kristen Court
Towaco, New Jersey 07082 1,072,500 12.42%(2)
Herbert J. Mitschele, Jr.
141 Daly Road
Far Hills, New Jersey 07931 458,400(3) 5.31%
(1) Reflects sole voting and investment power unless otherwise indicated.
(2) The amount and nature of beneficial ownership is based on information
contained in a Schedule 13D filed by Mr. Anthony, a copy of which was
received by the Company on September 8, 1993, and information received
orally from Mr. Anthony on November 13, 1996.
(3) Includes 66,400 shares of Common Stock beneficially owned by Robert J.
Baer, Inc., of which Mr. Mitschele is a control person, and 4,000 shares of
Common Stock beneficially owned jointly by Mr. Mitschele and his wife. The
above table does not include: an aggregate of 6,000 shares of Common Stock
beneficially owned by trusts of which Mr. Mitschele's daughters are the
beneficiaries and his wife is the trustee. Mr. Mitschele disclaims
beneficial ownership of such shares held in trust.
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth, as of November 9, 1998, the
number of shares of Common Stock of the Company beneficially owned by each
current director and by all current directors and officers as a group.
Number of
outstanding shares
of Common Stock Percentage of
beneficially outstanding
Name Age owned (1) Shares
Louis R.M. Del Guercio, M.D. 69 734,300 8.51%
Herbert J. Mitschele, Jr. 69 458,400(2) 5.31%
Bruce Hausman, Esq. 68 505,000(3) 5.85%
All Directors and Executive 1,687,700(1)(2)(3) 19.55%
Officers as a group(3)
(4 persons)
- - ------
1. Sole voting and investment power unless otherwise indicated.
2. Includes 66,400 shares of Common Stock beneficially owned by Robert J.
Baer, Inc. of which Mr. Mitschele is a control person, and 4,000 shares of
Common Stock, beneficially owned jointly by Mr. Mitschele and his wife.
Does not include an aggregate of 6,000 shares of Common Stock beneficially
owned by trusts of which Mr. Mitschele's daughters are the beneficiaries
and his wife is the trustee. Mr. Mitschele disclaims beneficial ownership
of such shares held in trust.
3. This figure includes 5,000 shares owned by Bruce Hausman through a Keough
Plan Account and options to purchase an aggregate of 500,000 shares of
Common Stock of the Company, which options are currently exercisable.
<PAGE>
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires
the Company's directors and executive officers, and persons who own more than
ten percent of a registered class of the Company's equity securities, to file
with the SEC initial reports of ownership and reports of changes in ownership of
Common Stock and other equity securities of the Company. Officers, directors and
greater than ten-percent shareholders are required by SEC regulation to furnish
the Company with copies of all Section 16 (a) forms they file.
To the Company's knowledge, based solely on review of the
copies of such reports furnished to the Company, all Section 16(a) filing
requirements applicable to Herbert Mitschele and Louis DelGuercio were timely
filed.
The Company has been advised that David and Venus Anthony have
purchased an additional 78,000 shares of Common Stock during fiscal year 1996;
however, the Company believes that, to date, no Schedule 13D has been filed on
behalf of David and Venus Anthony relating to these shares.
Bruce Hausman was untimely with respect to the filing of his
Form 5 on which he reported his receipt in March 1996 of options to purchase an
aggregate of 250,000 shares of Common Stock. The applicable Form 5 was filed in
October 1996. Mr. Hausman's receipt of stock options was the only reportable
event for Mr. Hausman in fiscal 1996.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
TRANSACTIONS WITH MANAGEMENT AND OTHERS
The Company had purchased a number of patents and related
know-how and rights to products from officers and directors of the Company and
may be required to make royalty payments as further described below. Since the
development of the products using such patents and rights is still uncertain,
the Company does not know the value of such agreements. All efforts to market or
develop has been discontinued.
The Company has been advised that none of the members of its
Board of Directors who is affiliated with universities or research institutions
which may receive research funding or fellowship grants from the Company will
derive any direct payments from any such funding or fellowship. However, certain
of such persons may be deemed to derive indirect benefits from the Company's
funding of the research programs described herein to the extent of their
involvement in such research programs. Any such indirect benefits are to be
distinguished from royalties which the Company has agreed, or will in the future
agree, to pay to certain of such persons from the commercial exploitation of the
products resulting from any such research which is described above.
The Company has adopted a policy that no officer, director or
affiliate may engage in any transactions with the Company or any of its
subsidiaries unless such transactions have been approved by a majority of the
Company's directors who have no interest in the transactions. The Company
anticipates that all related party transactions will be on terms and conditions
at least as favorable to the Company as the Company could obtain in dealing with
unrelated parties.
<PAGE>
PART IV
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
See Index to Financial Statements attached hereto.
(a) The following documents are filed as part of this report.
Exhibit No. Description
3.1(b) Certificate of Incorporation of the Company, as amended.
3.2(a) By-laws of the Company.
4.1(a) Underwriter's Option.
4.2(a) Warrant Agreement among Continental Stock Transfer and Trust
Company, the Underwriter and the Company.
4.3(b) Form of Warrant Exercise Fee Agreement among Continental Stock
Transfer and Trust Company, the Underwriter and the Company.
9.1(a) Shareholders Agreement among Herbert Mitschele, Anthony J. Crincoli,
XOIL Energy Resources, Inc., Harvey S. Shipley Miller, Eric W.
Goldman, Dr. Louis R.M. Del Guercio and Anthony W. Szabo, dated as
of March 19, 1984.
10.8(a) Restricted Stock Purchase Agreement Respecting Shares of Common Stock
with Harvey S.S. Miller and Eric W. Goldman, dated as of March 19,
1984.
10.9(a) Restricted Stock Purchase Agreement Respecting Shares of Class A Stock
with Harvey S.S. Miller and Eric W. Goldman, dated as of March 19,
1984.
10.10(a) Restated and Amended Restricted Stock Agreement of Dr. Abraham
Gelbart, dated March 19, 1984.
10.11(a) Schedule of Restricted Stock and Restated and Amended Restricted Stock
Agreements substantially identical in all material respects to Exhibit
10.10.
10.12(a) Employee Stock Option and Stock Appreciation Plan.
10.13(a) Agreement with New York Medical College concerning development of the
Roentgen Densitometer, dated May 3, 1984.
10.14(a) Amendment No. 1 to Restricted Stock Purchase Agreement respecting
shares of Common Stock with Harvey S.S. Miller and Eric W. Goldman,
dated as of July 12, 1984.
<PAGE>
10.15(c) Research Agreement with New York Medical College, dated July 3, 1985,
concerning diagnostic hit for rheumatology.
10.16(c) Research and License Agreement with the University, dated January 11,
1985, with respect to antimicrobial compounds.
10.17(c) Correspondence with Drexel University, dated August 6, 1985, with
respect to the breast cancer diagnostic system.
10.18(c) Agreement with NEA Tech, dated July 1, 1985, with respect to the
infusion pump.
10.19(d) Form of stock option agreement with Dr. Albert M. Kligman.
10.20(d) Letter Agreement with Dr. Albert M. Kligman, dated September 12, 1986,
with respect to his membership on the Scientific Advisory Board.
10.21(b) Assignment of certain proprietary rights by Dr. Albert M. Kligman,
dated February 4, 1987, regarding acne and wart medication.
10.22(b) Assignment of certain proprietary rights by Dr. Albert M. Kligman,
dated February 10, 1987, regarding skin moisturizers.
10.23(b)* Assignment of certain proprietary rights by Dr. Albert M. Kligman,
dated January 22, 1987, regarding certain compounds.
10.24(b) Letter Agreement with Dr. Vincent J. Cristofalo, dated May 20, 1987,
with respect to his membership on the Scientific Advisory Board.
10.25(b) Letter Agreement with Dr. Charles L. Fox., Jr., dated April 2, 1987.
10.26(b) Form of agreement with The Equity Group, Inc., a financial public
relations firm.
10.27(h) Employment Agreement with James O. Leonard, dated December 1, 1988.
10.28(h) Stock Option Agreement with James O. Leonard, dated December 1, 1988.
10.29(i) Letter Agreement with D.H. Blair & Co., Inc., dated July 14, 1989.
10.30(i) Form of Amendment No. 3 to Warrant Agreement with Continental Stock
Transfer and Trust Company, dated as of July 23, 1990.
10.31(i) Lease Agreement with I.C.E. Associates, dated May 24, 1989.
10.32(i) Stock Option Agreement with Dr. Baruch S. Blumberg, dated April 25,
1989.
10.33(i) Stock Option Agreement with Lester Sampath, dated April 25, 1989.
10.34(i) Stock Option Agreement with Dr. Charles L. Fox, Jr., dated April 25,
1989.
<PAGE>
10.35(i) Stock Option Agreement with Dr. Shanta Modak, dated April 25, 1989.
10.36(i) Stock Option Agreement with Dr. Shanta Modak, dated April 25, 1989.
10.37(i) Stock Option Agreement with Dr. Irving Millman, dated April 25,
1989.
10.38(i) Stock Option Agreement with Dr. Albert M. Kligman, dated April 25,
1989.
10.39(i) Stock Option Agreement with Dr. Gerd Plewig, dated April 25, 1989.
10.40(j) Arrow License Agreement, dated March 28, 1991.
10.41(k) Letter of Intent with Bio Med Sciences, Inc., dated November 13, 1991.
10.42(k) Extension to Letter of Intent with Bio Med Sciences, Inc., dated
February 6, 1992.
10.43(k)* License Agreement with Licensee dated May, 1992.
10.44(k) Lease Extension Agreement with ICE Associates, dated May, 1992.
10.45(k) Nondisclosure, Confidentiality and Non-Circumvention Agreement with
Oxymedyca, Inc., dated June 22, 1992.
10.46(k)* Patent Purchase Agreement with Beiersdorf AG, dated August 21, 1992.
10.47(k)* Option Agreement with Beiersdorf AG, dated August 24, 1992.
10.48(k) Amendment No. 3 to the Warrant Agreement with Continental Stock
Transfer and Trust Company, dated August 27, 1992.
10.49(k) Letter Agreement with Dr. Med. Bodo Melnik, dated September 23,
1992.
10.50(k) Non-qualified Stock Option Agreement with Dr. Med. Bodo Melnik,
dated September 23, 1992.
10.51(k) Agreement with Shanta Modak, Ph.D. and the University, dated October
16, 1992.
10.52(k) Letter Agreement with Dr. Med. Gerd Plewig, dated September 23,
1992.
10.53(l) Non-qualified Stock Option Agreement with Harvey S.S. Miller, dated as
of September 2, 1992.
10.54(l) Amendment No. 3 to the Warrant Agreement with Continental Stock
Transfer and Trust Company, dated August 31, 1993.
10.55(m) Lease Extension Agreement with ICE Associates, dated June 1994.
10.56(l) Purchase Order and Manufacturing Agreement with Sime Health Limited,
dated November 25, 1992.
<PAGE>
10.57(l) Agreement with Bruce Hausman, dated November 10, 1993.
10.58(m) Research Agreement dated as of March 1, 1993 between Daltex Medical
Sciences, Inc. and the University.
10.59(m) Amendment No. 5 to the Warrant Agreement with Continental Stock
Transfer and Trust Company, dated September 1, 1994.
10.60(m) Non-Qualified Stock Option Agreement with Dr. Abraham Gelbart, dated
December 10, 1993.
10.61(m) Non-Qualified Stock Option Agreement with Diane Fritz, dated December
10, 1993.
10.62(n) Patent Settlement Agreement among Daltex Medical Sciences, Inc., The
Trustees of the University, Becton Dickinson and Company and Arrow
International, Inc. dated as of January 1, 1995.
10.63(p) Amendment No. 6 to the Warrant Agreement with Continental Stock
Transfer and Trust Company, dated as of September 5, 1995.
10.64(p) Modified License Agreement between Daltex Medical Sciences, Inc. and
Arrow International, Inc. dated as of October 27, 1995.
10.65(o) Lease Extension Agreement with ICE Associates, dated June 1995.
10.66(q) Amendment No. 7 to the Warrant Agreement with Continental Stock
Transfer and Trust Company, dated as of November 28, 1995.
10.67 Lease Extension Agreement with ICE Associates, dated June 1996.
10.68 Non-Qualified Stock Option Agreement between the Company and Bruce
Hausman dated as of March 6, 1996.
28.1(b) Incentive Stock Option Plan, as amended.
(a) Reference is made to the exhibits to Form S-1 Registration Statement
(File No. 2-90089) which became effective on September 26, 1984.
(b) Reference is made to the exhibits to the Post-Effective Amendment No.
2 to Form S-1 Registration Statements (File Nos. 2-90089 and 2-93465)
which was filed on August 3, 1987.
(c) Reference is made to the exhibits to the Form 10-K filed on October
28, 1985.
(d) Reference is made to exhibits to the Form 10-K filed on November 11,
1986.
(e) Reference is made to the exhibits to the Post-Effective Amendment No.
3 to Form S-1 Registration Statements (File Nos. 2-90089 and 2-93465)
which became effective on September 14, 1987.
(f) Reference is made to the exhibits to the Annual Report on Form 10-K
for the fiscal year ended July 31, 1988.
(g) Reference is made to the exhibits to the Form 10-Q for the quarter
ended October 31, 1987.
<PAGE>
(h) Reference is made to the exhibits to the Form 10-Q for the quarter
ended January 31, 1989.
(i) Reference is made to exhibits to the Annual Report on Form 10-K for
the fiscal year ended July 31, 1989.
(j) Reference is made to the exhibits to the Form 10-K for the fiscal year
ended July 31, 1991.
(k) Reference is made to the exhibits to the Form 10-K for the fiscal year
ended July 31, 1992.
(l) Reference is made to the exhibits to the Form 10-K for the fiscal year
ended July 31, 1993.
(m) Reference is made to the exhibits on Form 10-K for the fiscal year
ended July 31, 1994.
(n) Reference is made to the exhibit to the Form 8-K filed on June 30,
1995.
(o) Reference is made to the exhibit to the Form 10-Q for the quarter
ended April 30, 1995 filed on June 14, 1995.
(p) Reference is made to the exhibits to the Form 10-K for the fiscal year
ended July 31, 1995.
(q) Reference is made to the exhibits to the Form 10-Q for the quarter
ended October 31, 1995.
* The Registrant has requested confidential treatment from the
Securities and Exchange Commission for this document, and,
accordingly, has filed this document with the Securities and Exchange
Commission.
Reports of the Company on Form 8-K for the fiscal quarter ended July 31, 1998
On July 20, 1998 the Company filed a Form 8-K to discuss the
Settlement and Mutual Release Agreement with the Trustees of Columbia
University.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Company has caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
DALTEX MEDICAL SCIENCES, INC.
By: /s/ Bruce Hausman, Esq.
------------------------------------------
Bruce Hausman, Esq.
President & Chief Executive Officer
Dated: November 11, 1998
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the Company and in the capacities and on the dates indicated.
Signature Title Date
/s/ Dr. Louis R.M. Del Guercio Director, Chairman November 11, 1998
- --------------------------------- Board of Directors
Dr. Louis R.M. Del Guercio
/s/ Bruce Hausman, Esq. President, Chief November 11, 1998
- --------------------------------- Executive Officer
Bruce Hausman, Esq.
/s/ C. Lawrence Rutstein Director, November 11, 1998
- ---------------------------------
C. Lawrence Rutstein
/s/Herbert J. Mitschele, Jr. Director, Secretary, November 11, 1998
- ---------------------------------- Treasurer, Chief
Herbert J. Mitschele, Jr. Financial Officer
<PAGE>
DALTEX MEDICAL SCIENCES, INC.
TABLE OF CONTENTS
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS F-1
FINANCIAL STATEMENTS:
Balance Sheets at July 31, 1998 and 1997 F-2
Statements of Operations F-3
Years ended July 31, 1998 and 1997
Statements of Stockholders' Deficit F-4
Years ended July 31, 1998 and 1997
Statements of Cash Flows F-5
Years ended July 31, 1998 and 1997
Notes to Financial Statements F-6
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Stockholders
Daltex Medical Sciences, Inc.
We have audited the balance sheet of Daltex Medical Sciences, Inc. as of July
31, 1998 and 1997 and the related statements of operations, stockholders deficit
and cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to report on
these financial statements based on the results of our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion the financial statements referred to above present fairly, in all
material respects, the financial position of Daltex Medical Sciences, Inc. as of
July 31, 1998 and 1997 and the results of operations and its cash flows for the
years ended July 31, 1998 and 1997 in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming that Daltex
Medical Sciences, Inc. will continue as a going concern. As discussed in note 2
to the financial statements, the Company has suffered recurring losses from
operations and has working capital and total stockholders' deficiencies at July
31, 1998 and 1997. Furthermore, at July 31, 1998 and 1997 the Company could not
demonstrate that it had sufficient liquidity to meet its routine operating costs
for the next year. These circumstances raise substantial doubt about the
entity's ability to continue as a going concern. Management's plans in regard to
these matters are described in note 2. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
/s/ Margolies, Fink and Wichrowski
Pompano Beach, Florida
October 15, 1998
F-1
<PAGE>
DALTEX MEDICAL SCIENCES, INC.
BALANCE SHEETS
JULY 31, 1998 AND 1997
ASSETS
1998 1997
----------- -----------
Current assets:
Cash and cash equivalents (Note 1) $ 22,495 $ 23,522
Accounts receivable - other 19,895
Prepaid royalty -- 85,000
----------- -----------
Total current assets 22,495 128,417
----------- -----------
Office equipment (net of accumulated
depreciation) (Notes 1 and 3) -- --
Patents, net of accumulated amortization -- --
Prepaid royalty -- 143,750
Other assets -- 3,375
----------- -----------
$ 22,495 $ 275,542
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Note payable (Note 5) $ 70,000 $
Accounts payable and accrued expenses (Note 6) 99,520 882,596
Loans payable (Note 7) 39,600
Advanced royalty payments -- 170,000
----------- -----------
Total current liabilities 209,120 1,052,596
----------- -----------
Advanced royalty payments -- 287,500
-----------
Stockholders' deficit (Note 8)
Preferred stock, $1 par value,
authorized 1,000,000 shares, 0 shares issued -- --
Common stock, $.01 par value;
authorized 20,000,000 shares; 8,632,699,
shares issued and outstanding 86,327 86,327
Additional paid-in capital 6,816,369 6,816,369
Retained deficit (7,089,321) (7,967,250)
----------- -----------
Total stockholders' deficit (186,625) (1,064,554)
----------- -----------
$ 22,495 $ 275,542
=========== ===========
The accompanying notes are an
integral part of these financial statements
F-2
<PAGE>
DALTEX MEDICAL SCIENCES, INC.
STATEMENTS OF OPERATIONS
YEARS ENDED JULY 31, 1998, AND 1997
1998 1997
----------- -----------
Revenues:
License fees, grants and royalties $ 270,138 $ 317,711
Interest and other income 2,000 50,346
----------- -----------
272,138 368,057
----------- -----------
Expenses:
General and administrative expenses 265,969 370,289
----------- -----------
Income from operations before extraordinary item 6,169 (2,232)
Extraordinary item:
Gain on settlement and mutual release agreement
of debt (net of income taxes of $348,200 and
utilization of net operating loss carryforward) 871,760 --
----------- -----------
Net income (loss) $ 877,929 $ (2,232)
=========== ===========
Net income (loss) per share information: (Note 1)
Basic:
Net income (loss) before extraordinary item $ .00 $ (.00)
=========== ===========
Extraordinary item $ .10 $ (.00)
=========== ===========
Net income (loss) per share $ .10 $ (.00)
=========== ===========
Weighted average number of common shares 8,633,000 8,633,000
=========== ===========
Diluted:
Net income loss before extraordinary item $ .00 $ (.00)
=========== ===========
Extraordinary item $ .10 $ (.00)
=========== ===========
Net income (loss) per share $ .10 $ (.00)
=========== ===========
Weighted average number of common shares 8,633,000 8,633,000
=========== ===========
The accompanying notes are an
integral part of these financial statements
F-3
<PAGE>
DALTEX MEDICAL SCIENCES, INC.
STATEMENTS OF STOCKHOLDERS DEFICIT
YEARS ENDED JULY 31, 1998, AND 1997
<TABLE>
<CAPTION>
Common Stock Additional
Number of Par paid-in Retained
Shares value capital deficit Total
<S> <C> <C> <C> <C> <C>
Balance, July 31, 1996 8,632,699 $ 86,327 $ 6,816,369 $ (7,965,018) $ (1,062,322)
Net loss year ended,
July 31, 1997
- - - (2,232) (2,232)
--------- ------------- ------------ ------------ ------------
Balance, July 31, 1997 8,632,699 86,327 6,816,369 (7,967,250) (1,064,554)
Net income year ended,
July 31, 1998 - - - 877,929 877,929
--------- ------------- ------------ ------------ ------------
Balance, July 31, 1998 8,632,699 $ 86,327 $ 6,816,369 $ (7,089,321) $ (186,625)
========= ============= ============ ============ ============
</TABLE>
The accompanying notes are an
integral part of these financial statements
F-4
<PAGE>
DALTEX MEDICAL SCIENCES, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED JULY 31, 1998 AND 1997
1998 1997
--------- ---------
Cash flows from operating activities:
Net income (loss) $ 877,929 $ (2,232)
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Gain on settlement and mutual (871,760)
Changes in assets and liabilities:
Accounts receivable (4,576)
Prepaid royalty 16,250
Accounts payable accrued expenses (46,796) (3,346)
Advance royalty payments -- (32,500)
--------- ---------
Net cash used in operations: (40,627) (26,404)
--------- ---------
Cash flows provided by financing activities:
Increase in other liabilities 39,600 --
---------
Net cash provided by financing activities 39,600 --
---------
Net decrease in cash and cash equivalents (1,027) (26,404)
Cash and cash equivalents, beginning of period 23,522 49,926
--------- ---------
Cash and cash equivalents, end of period $ 22,495 $ 23,522
========= =========
Supplemental disclosure of non-cash
investing and financing activities:
Gain on settlement and mutual
release agreement of debt $ 871,760 $ --
========= =========
The accompanying notes are an
integral part of these financial statements
F-5
<PAGE>
DALTEX MEDICAL SCIENCES, INC.
Notes to Financial Statements
1. Summary of Significant Accounting Policies
(a) Organization
Daltex Medical Sciences, Inc. (the "Company") was organized under the laws of
the State of Delaware on July 28, 1983, primarily to engage in research and
development activities with the objective of developing and commercializing
certain cost-reducing medical device and pharmaceutical technologies.
Since inception, the Company has been engaged in organizational activities,
including recruitment of officers, employees and members of its Scientific
Advisory Board ("SAB"); research and development of medical device and
pharmaceutical products, including the testing of prototypes; securing or
attempting to secure rights to medical device and pharmaceutical product
technologies; licensing, selling and attempting to license certain technologies
to domestic and foreign companies; and marketing or attempting to market certain
antimicrobial device technology. From inception through July 31, 1997 the
Company was a development stage enterprise.
Effective April 30, 1998, the Company, by entering into a settlement and mutual
release agreement with Columbia University (a creditor), substantially
terminated all operations and currently remains as a shell corporation.
(b) Office Equipment
Office equipment was stated at cost. As of July 31, 1998, all such equipment has
been fully depreciated and amortized. Depreciation and amortization of office
equipment was computed using the straight-line method over the estimated useful
lives of the respective assets or over the shorter of the lease term or
estimated useful life. Maintenance and repairs were charged to operations as
incurred, while renewals and improvements are capitalized.
(c) Cash and Cash Equivalents
The Company considers securities with maturities of three months or less, when
purchased, to be cash equivalents. The carrying amount approximates fair value
due to the short-term nature of these instruments.
(d) Financial Instruments
The carrying values of the Company's financial instruments at July 31, 1998
approximate their estimated fair values.
F-6
<PAGE>
DALTEX MEDICAL SCIENCES, INC.
Notes to Financial Statements
1. Summary of Significant Accounting Policies, cont.
(e) Net Loss Per Common Share
In 1998, the Company adopted SFAS No. 128, ("Earnings Per Share"), which
requires the reporting of both basic and diluted earnings per share. Basic net
loss per share is determined by dividing loss available to common shareholders
by the weighted average number of common shares outstanding for the period.
Diluted loss per share reflects the potential dilution that could occur if
options or other contracts to issue common stock were exercised or converted
into common stock, as long as the effect of their inclusion is not
anti-dilutive.
(f) Revenue Recognition
Contract revenue under license agreements have been recognized as earned in
accordance with the terms of the related agreements. Payments due under research
grants are recognized as revenue as the related research expenses are incurred
and in accordance with the specific terms of the respective grants. Payments
received in advance of performance under license agreements and research grants
have been deferred and recognized as revenue when earned.
(g) Research and Development Costs
All research and development costs have been expensed as incurred.
(h) Patents
Patent costs were amortized over a maximum of 17 years or the remaining useful
life, whichever was shorter. The patents were fully amortized at July 31, 1997.
(i) Income Taxes
The Company utilizes Statement of Financial Accounting Standards No. 109 ("FAS
109"), Accounting for Income Taxes. FAS 109 requires the asset and liability
method of accounting for deferred tax assets and liabilities. Such assets and
liabilities are recognized for the estimated future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and the benefits
arising from the realization of operating loss and tax credit carryforwards.
Deferred tax assets and liabilities are measured using enacted tax rates in
effect for the year in which those temporary differences are expected to be
recovered or settled. Under FAS 109, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized into income during the period
that includes the enactment date of the tax rate change.
F-7
<PAGE>
DALTEX MEDICAL SCIENCES, INC.
Notes to Financial Statements
1. Summary of Significant Accounting Policies, cont.
(j) Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingencies at the date of the financial statements. Estimates also affect the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
2. Going Concern
The accompanying financial statements have been prepared on a going concern
basis which contemplates the continuation of operations, realization of assets
and liquidation of liabilities in the ordinary course of business. The Company
has accumulated a deficit as of July 31, 1998 of $7,089,321. As of July 31, 1998
and 1997, the Company has $22,495 and $23,522, respectively, in cash and cash
equivalents, working capital deficits of $186,625 and $924,179, respectively,
and total stockholders' deficiencies of $186,625 and $1,064,554, respectively.
The limited current cash balances and significant financial obligations raise
substantial doubt that the Company will be able to meet its routine operating
costs for all of fiscal 1999. These factors raise substantial doubt about the
Company's ability to continue as a going concern. The financial statements do
not include any adjustments that might result should the Company be unable to
continue as a going concern.
Management's plan in order to continue for the next year is to actively explore
a number of ways of raising additional capital, including loans, equity
offerings, private placements, mergers with revenues producing entities, and a
sale of the Company's common stock or assets. To date, the Company has received
no commitments for a sale or merger of the Company, and there can be no
assurance that the Company's attempt to sell or merge the Company to raise
additional capital will be successful.
F-8
<PAGE>
DALTEX MEDICAL SCIENCES, INC.
Notes to Financial Statements
3. Office Equipment
Office equipment at July 31, 1998 and 1997 consists of the following:
1998 1997
---- ----
Office and laboratory equipment $ $ 28,658
Furniture and fixtures -- 27,667
-------- ----------
56,325
Less accumulated depreciation -- (56,325)
-------- ----------
$ -- $ --
======== ==========
The Company sold its office furniture and fixtures for $2,000 in conjunction
with vacating its corporate headquarters in November 1997, and has abandoned any
remaining laboratory equipment.
4. Accounts receivable - other
Other receivables at July 31, 1997 include certain license payments due the
Company at fiscal year end, and payment was received during 1998.
5. Notes payable
In connection with the Company entering into a settlement and mutual release
agreement with Columbia University (a creditor), the Company agreed to pay
$15,000 plus sign a non-interest bearing note in the amount of $55,000. The note
requires monthly payments of $5,000 per month beginning August 31, 1998.
6. Accounts payable and accrued expenses
Accounts payable and accrued expenses consist of the following:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Accounts payable and accrued expenses - trade $ 39,520 $ 44,986
Accounts due Columbia and counsel 837,610
Accrued compensation to officer 60,000 --
---------- -----------
$ 99,520 $ 882,596
========== ===========
</TABLE>
F-9
<PAGE>
DALTEX MEDICAL SCIENCES, INC.
Notes to Financial Statements
7. Loans payable
During the year ended July 31, 1998, the Company borrowed $39,600, from
unrelated third parties on an unsecured basis. From the amount borrowed $17,100
accrues interest at 8%, and was repaid in September 1998, $22,500 is
non-interest bearing, and will be used to acquire common and preferred stock of
the Company in the subsequent period. (see note 14)
8. Capital Stock
At July 31, 1998 and 1997, the Company's authorized capital stock consisted of
1,000,000 shares of Preferred Stock, par value $1.00 per share (none of which
has been issued), and 20,000,000 shares of common stock, par value $.01 per
share. The holders of the Preferred Stock would have voting rights, dividend
rights and conversion rights as authorized by the Board of Directors (the Board)
upon issuance of such Preferred Stock..
On March 6, 1996, the Board agreed to issue a law firm 50,000 shares of Common
Stock in recognition of valued cooperation over the past several years. Such
shares were not issued as of July 31, 1998.
At July 31, 1998, 915,500 shares of the Company's common stock is reserved as
potentially issuable under the Company's stock option plan.
9. Stock Options
At July 31, 1998 the Company only has nonqualified stock options outstanding.
The option price when issued generally at fair market value is established by a
committee appointed by the Board of Directors. Under the Plan, no options may be
exercisable after ten years from the date of grant. Common shares under option
for the year ended July 31, 1998 are summarized as follows:
Nonqualified Options
--------------------
Shares Wtd. Ave. Price
------ ---------------
Outstanding at July 31, 1996 1,415,500 .11
Granted
Exercised
-
Outstanding at July 31, 1997 1,415,500 .11
Granted
Exercised
Expired (500,000) .08
-----------
Outstanding at July 31, 1998 915,500 .12
===========
F-10
<PAGE>
DALTEX MEDICAL SCIENCES, INC.
Notes to Financial Statements
9. Stock Options (continued)
The following table summarizes information about all of the stock options
outstanding at July 31, 1998:
Exercise Weighted average
price Shares remaining life
----- ------ --------------
$ .01 305,000 3.77
.03 500,000 9.42
.06 10,000 5.42
.15 20,000 .83
.67 80,500 1.44
10. Income Taxes
The tax effects of temporary differences that give rise to significant portions
of the Company's deferred tax assets as of July 31, 1998 and 1997 are presented
as follows:
Deferred tax assets: 1998 1997
---- ----
Net operating loss carryforwards $ 2,399,000 $ 2,566,000
Research and development tax credits 65,000 65,000
Noncash compensation charges 156,000 156,000
Other 46,000 46,000
Advanced royalty payments 183,000
----------- -----------
-
Total deferred tax asset 2,666,000 3,016,000
Valuation allowance (2,666,000) (3,016,000)
----------- -----------
Net deferred tax asset $ -- $ --
----------- -----------
The valuation allowance above has been applied to offset the deferred tax assets
to recognize the uncertainty of realizing such tax benefits.
At July 31, 1998, the Company has available net operating loss carryforwards of
approximately $6,114,000 and $2,416,000 for federal and state income tax
reporting purposes, respectively, which are available to offset future Federal
and state taxable income, if any. The Company also has research and development
tax credit carryforwards of $65,000 for Federal income tax reporting purposes
which are available to reduce Federal income taxes, if any. These carryforwards
expire beginning in 1999. The Company made no payments of federal or state
income taxes during the years ended July 31, 1998 and 1997.
F-11
<PAGE>
DALTEX MEDICAL SCIENCES, INC.
Notes to Financial Statements
10. Income Taxes (continued)
Reconciliation of the Company's provision (benefit) for income taxes to the
federal statutory rate is as follows:
<TABLE>
<CAPTION>
Year ended Year ended
July 31, 1998 July 31, 1997
------------- -------------
<S> <C> <C> <C> <C>
Statutory rate applied to income
before income taxes $ 271,000 34.0% $ -- .0%
State income tax 79,000 5.0% -- .0%
Utilization of net operating loss (350,000) (39.0)% -- --
--------- ----- ---------- -----
$ 0% $ -- .0%
========= ====== ========== =====
</TABLE>
11. License Agreement and Research Grants
In March 1991, the Company entered into a definitive license agreement whereby a
leading manufacturer and marketer of catheters and cardiovascular supplies was
obligated to pay royalties, including minimum annual royalties, to the Company
based upon units sold in several product applications which incorporate the
Company's antimicrobial technology. Furthermore, in connection with a patent
dispute which was settled in 1995, certain additional royalties were remitted to
the Company which, in turn, it remitted to Columbia University pursuant to an
exclusive license agreement. On October 27, 1995, the Company modified the
original license agreement and received a $600,000 payment as advanced royalties
for the period from August 31, 1995 through September 1, 2000, of which 50% was
immediately payable to a Columbia University (see note 12).
Revenue, as well as the expense for the amounts paid to the Columbia University,
have been recognized ratably over the term of the agreement; such amounts
totaled $127,500 and $120,000, and $63,750 and $110,000, respectively, for the
years ended July 31, 1998 and 1997. In February 1997 the Company received
$50,000 from a manufacturer to cover legal and administrative expenses
associated with a second license modification. In November 1995 the Company
received $75,000 from a manufacturer to help fund the payment of legal costs
incurred by the Company in connection with certain patent interference
proceedings. This amount is included in other income for the year ended July 31,
1997.
F-12
<PAGE>
DALTEX MEDICAL SCIENCES, INC.
Notes to Financial Statements
11. License Agreement and Research Grants (continued)
In May 1997, the Company entered in to a second license modification agreement
with a manufacturer and marketer of catheters and cardiovascular supplies. In
connection with the modifications the Company received a one-time,
non-refundable, non-creditable fee of $100,000, of which $50,000 was paid to
Columbia University. Revenue, as well as the expense for the amounts paid to the
Columbia University, were recognized ratably over the term of the agreement. In
consideration for this fee, the Company waived development fees and minimum
annual royalties due on products sold by the licensee for the specific products
added to the agreement under the second license modification for a period of
three years. After three years the licensee shall pay development fees of $2,500
per quarter, payable in advance, during the development phase. After such time
as a sale is made the licensee shall pay a running royalty as defined by the
agreement, and at a minimum $2,500 payable quarterly in advance.
In connection with a Settlement and Mutual Release Agreement entered into by the
Company with the Trustees of Columbia University, the Company reassigned and
transferred back to Columbia University all of the above mentioned licensee
agreements (see note 12).
12. Commitments and Contingencies
The Company had been granted exclusive worldwide commercial licenses to any
results from the sponsored research with Columbia University. In connection
therewith, the Company was to share gross revenue on a 50-50 basis with Columbia
University if the Company elects to sublicense the manufacture of products
developed from such research and development. In the event that the Company
elected to manufacture and sell the product itself, royalty payments would have
been made. At April 30, 1998, approximately $837,610 was owed to the Columbia
University and its legal counsel relative to the licenses, and had been included
in accounts payable and accrued expenses.
In November 1995, payment was made to the university of the remaining $34,289 of
research amounts and $300,000 representing its share of the advanced royalty
payment (see note 11). The Company has been billed $661,005 by the university's
patent counsel for its professional services provided as of July 31, 1997,
although the Company is currently disputing a significant portion of these legal
fees, they have been included in accounts payable and accrued expenses at July
31, 1997.
Pursuant to the existing license arrangements with the Columbia University for
the antimicrobial technology, an agreement in principle also contained the
negotiated percentage royalty scheduled to be paid by the Company to Columbia
University at rates ranging from 2.5% to 5.5% depending upon aggregate net
annual sales levels of antimicrobial surgical gloves. The agreement, in
principle, also provides that the royalty rates for antimicrobial examination
gloves shall be two-thirds of the scheduled rates for the antimicrobial surgical
gloves.
F-13
<PAGE>
DALTEX MEDICAL SCIENCES, INC.
Notes to Financial Statements
12. Commitments and Contingencies ( continued)
Effective April 30, 1998 the Company entered into a Settlement and Mutual
Release Agreement with the Trustees of Columbia University, whereby the Company
reassigned and transferred back to Columbia all of its rights, title and
interest as Columbia's licensee to certain proprietary rights, pursuant to
certain licenses agreements with Columbia.
In conjunction with the Settlement and Mutual Release Agreement the Company has
recorded a net gain of $871,760 which is computed as follows:
Release of liability from Columbia University
and their legal counsel, less $70,000 note $ 767,610
Acceleration of amortization of prepaid royalties 165,000
Officers compensation (60,000)
Net release of other related assets and liabilities (850)
----------
$ 871,760
==========
13. Lease
The Company vacated its corporate offices in November 1997. Rent expense
incurred by the Company was $ 5,558 and $22,230 for the
years ended July 31, 1998 and 1997, respectively.
14. Subsequent events
On September 4, 1998 the Company agreed in principal to sell 10,000,000 shares
of its common stock, and 80,000 shares of its preferred stock for $10,000 and
$80,000 respectively, to an investor group. The 80,000 shares of preferred stock
will be convertible into 80,000,000 shares of common stock. As of the date of
this report the shares have not yet been issued.
F-14
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000742686
<NAME> DALTEX MEDICAL SCIENCES, INC.
<S> <C>
<PERIOD-TYPE> Year
<FISCAL-YEAR-END> JUL-31-1998
<PERIOD-START> AUG-01-1997
<PERIOD-END> JUL-31-1998
<CASH> 22,495
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 22,495
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 22,495
<CURRENT-LIABILITIES> 209,120
<BONDS> 0
0
0
<COMMON> 86,327
<OTHER-SE> 6,816,369
<TOTAL-LIABILITY-AND-EQUITY> 22,495
<SALES> 0
<TOTAL-REVENUES> 272,138
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 265,969
<LOSS-PROVISION> 6,169
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 6,169
<INCOME-TAX> 0
<INCOME-CONTINUING> 6,169
<DISCONTINUED> 0
<EXTRAORDINARY> 871,760
<CHANGES> 0
<NET-INCOME> 877,929
<EPS-PRIMARY> .10
<EPS-DILUTED> .10
</TABLE>
