<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
For the fiscal year ended July 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number: 0-14026
Daltex Medical Sciences, Inc.
(Exact name of Registrant as specified in its charter)
Delaware 59-2197020
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation of Organization) Identification Number)
7777 Glades Road, Suite 211, Boca Raton, FL 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
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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
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 for the year ended
July 31, 1999: $0.
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 August 25, 1999 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 August 25, 1999, 18,632,999
shares of Common Stock were 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 X No
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
Daltex Medical Sciences, Inc. incorporated on July 28, 1983 in the
State of Delaware, was a pharmaceutical and medical device company. Daltex's
business objective 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, Daltex, 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.
Daltex 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.
BUSINESS OBJECTIVE
Daltex is a "blank check" or "blind pool" company. Daltex is seeking
acquisition possibilities throughout the United States and to make acquisitions
or enter into other business endeavors to the extent its limited assets will
allow. The current business objective of Daltex is to effect a merger, exchange
of capital stock, asset acquisition or other business combination (a "Business
Combination") with one or operating businesses (a "Target Business") which
Daltex believes has significant growth potential.
Daltex is seeking to acquire a Target Business in the Internet or
information technology areas. Daltex's officers and directors have had
preliminary contact or discussions with representatives of several other company
regarding the possibility of a Business Combination between Daltex and such
other company, although none of these have resulted in any agreements or
understandings and it is possible if not likely that no transaction will be
consummated with any of these parties.
Management does not intend to undertake any efforts to cause a market
to develop in Daltex's securities until such time as it has successfully
implemented its business plan described herein.
SELECTION OF A TARGET BUSINESS AND STRUCTURING OF A BUSINESS COMBINATION.
Management of Daltex will have substantial flexibility in identifying
and selecting a prospective Target Business. As a result, investors in Daltex
will be almost entirely dependent on the judgment of management in connection
with the selection of a Target Business. In evaluating a prospective Target
<PAGE>
Business, management will consider, among other factors, the following: (i)
costs associated with effecting the Business Combination; (ii) equity interest
in and opportunity for control of the Target Business; (iii) growth potential of
the Target Business; (iv) experience and skill of management and availability of
additional personnel of the Target Business; (v) capital requirements of the
Target Business; (vi) competitive position of the Target Business; (vii) stage
of development of the Target Business; (viii) degree of current or potential
market acceptance of the Target Business, products or services; (ix) proprietary
features and degree of intellectual property or other protection of the Target
Business; (x) the financial statements of the Target Business; and (xi) the
regulatory environment in which the Target Business operates.
The foregoing criteria are not intended to be exhaustive and any
evaluation relating to the merits of a particular Target Business will be based,
to the extent relevant, on the above factors as well as other considerations
deemed relevant by management in connection with effecting a Business
Combination consistent with Daltex's business objectives. In connection with its
evaluation of a prospective Target Business, management, with the possible
assistance of an independent investment banking firm, anticipates that it will
conduct a due diligence review which will encompass, among other things, meeting
with incumbent management and inspection of facilities, as well as a review of
financial, legal and other information which will be made available to Daltex.
The time and costs required to select and evaluate a Target Business
(including conducting a due diligence review) and to structure and consummate
the Business Combination (including negotiating and documenting relevant
agreements and preparing requisite documents for filing pursuant to applicable
securities laws and state "blue sky" and corporation laws) cannot presently be
ascertained with any degree of certainty. Daltex's current executive officers
and directors intend to devote only a small portion of their time to the affairs
of Daltex and, accordingly, consummation of a Business Combination may require a
greater period of time than if Daltex's management devoted their full time to
Daltex's affairs. However, each officer and director of Daltex will devote such
time as they deem reasonably necessary to carry out the business and affairs of
Daltex, including the evaluation of potential Target Businesses and the
negotiation of a Business Combination and, as a result, the amount of time
devoted to the business and affairs of Daltex may vary significantly depending
upon, among other things, whether Daltex has identified a Target Business or is
engaged in active negotiation of a Business Combination. Any costs incurred in
connection with the identification and evaluation of a prospective Target
Business with which a Business Combination is not ultimately consummated will
result in a loss to Daltex and reduce the amount of capital available to
otherwise complete a Business Combination or for the resulting entity to
utilize.
Daltex anticipates that various prospective Target Businesses will be
brought to its attention from various sources, including securities
broker-dealers, investment bankers, venture capitalists, bankers, other members
of the financial community and affiliated sources, including, possibly, Daltex's
executive officer, directors and their affiliates. While Daltex has not yet
ascertained how, if at all, it will advertise and promote itself, it may elect
to publish advertisements in financial or trade publications seeking potential
business acquisitions. Daltex may also engage the services of professional firms
that specialize in finding business acquisitions, in which event Daltex may pay
a finder's fee or other compensation. In no event, however, will Daltex pay a
finder's fee or commission to officers or directors of Daltex or any entity with
which they are affiliated for such service.
<PAGE>
BUSINESS EXPERIENCE OF PRINCIPALS
The officers and the other directors of Daltex have business experience
which has provided them with skills that Daltex believes will be helpful in
evaluating potential Target Businesses and negotiating a Business Combination.
RETENTION OF INVESTMENT BANKER
Daltex may engage an investment banking firm which is a member in good
standing of the NASD to assist Daltex in identifying, evaluating, structuring
and negotiating potential Business Combinations.
FACTORS THAT MAY AFFECT FUTURE RESULTS
The following important factors, among others, could cause actual
results to differ from those indicated in forward-looking statements made in
this document. The following factors contain some forward looking statements.
Forward-looking statements give our current expectations or forecasts of future
events. You can identify these statements by the fact that they do not relate
strictly to historical or current facts. They use words such as "anticipate,"
"estimate," "expect," "project," "intend," "plan," "believe," and other words
and terms of similar meaning in connection with any discussion of future
operating or financial performance. In particular, these include statements
relating to our anticipated operating results for the year ending July 31, 2000,
and our anticipated cash flow and to future actions, future performance or
results of current and anticipated sales and marketing efforts, expenses, the
outcome of contingencies, and other financial results. From time to time, we
also may provide oral or written forward-looking statements in other materials
we release to the public.
Any or all of our forward-looking statements in this document and in
any other public statements we make may turn out to be wrong. They can be
affected by inaccurate assumptions we might make or by known or unknown risks
and uncertainties. Many factors mentioned in the discussion below will be
important in determining future results. Consequently, no forward-looking
statement can be guaranteed. Actual future results may vary materially.
We undertake no obligations to publicly update any forward-looking
statements, whether as a result of new information, future events or otherwise.
You are advised, however, to consult any further disclosures we make on related
subjects in our future filings with the SEC.
NO RELEVANT OPERATING HISTORY; LIMITED RESOURCES; NO PRESENT SOURCE OF REVENUES.
Daltex sold its business in April 1998, so its historical financial
information is of limited value to potential investors in evaluating an
investment in Daltex's common stock. Although Daltex's directors and its
executive officers have had extensive experience relating to the identification,
evaluation and acquisition of Target Businesses, because of Daltex's operating
history, there is only a limited basis upon which to evaluate Daltex's prospects
for achieving its intended business objectives. Daltex has limited resources and
<PAGE>
has had no current revenues. In addition, Daltex will not achieve any revenues
until, at the earliest, the consummation of a Business Combination. Moreover,
there can be no assurance that any Target Business, at the time of Daltex's
consummation of a Business Combination, or at any time thereafter, will derive
any material revenues from its operations or operate on a profitable basis.
BROAD DISCRETION OF MANAGEMENT.
Prospective investors who invest in Daltex will do so without an
opportunity to evaluate the specific merits or risks of any one or more Business
Combinations. As a result, investors will be entirely dependent on the broad
discretion and judgment of management in connection the selection of a Target
Business. There can be no assurance that determinations ultimately made by
Daltex will permit Daltex to achieve its business objectives.
ABSENCE OF SUBSTANTIVE DISCLOSURE RELATING TO PROSPECTIVE BUSINESS COMBINATIONS;
INVESTMENT IN DALTEX VERSUS INVESTMENT IN A TARGET BUSINESS
"Public shell" companies are inherently characterized by the absence of
substantive disclosure, other than general descriptions, relating to the
intended application of company funds. Daltex has not yet identified a
prospective Target Business. Accordingly, stockholders have no substantive
information concerning consummation of any specific Business Combination. There
can be no assurance that an investment in our common stock will not ultimately
prove to be less favorable to stockholders than a direct investment, if such
opportunity were available, in a Target Business.
THERE IS A LIMITED MARKET FOR DALTEX COMMON STOCK
There can be no assurance that there will be an active trading market
for Daltex's securities following the completion of a Business Combination or,
if a market does develop, as to the market price for Daltex's securities. While
a prospective Target Business may deem a consummation of a Business Combination
with Daltex desirable for various reasons, a Business Combination may involve
the acquisition of, merger or consolidation with, a company which does not need
substantial additional capital, but which desires to establish a public trading
market for its shares, while avoiding what it may deem to be adverse
consequences of undertaking a public offering itself, including time delays,
significant expense, loss of voting control, the time and expense incurred to
comply and compliance with various Federal and state securities laws that
regulate initial public offerings.
DEPENDENCE UPON EXECUTIVE OFFICERS AND BOARD OF DIRECTORS
The ability of Daltex to successfully effect a Business Combination
will be largely dependent upon the efforts of its executive officers and the
Board of Directors. Notwithstanding the significance of such persons, Daltex has
not entered into employment agreements or other understandings with any such
personnel concerning compensation or obtained any "key man" life insurance on
their respective lives. The loss of the services of such key personnel could
have a material adverse effect on Daltex's ability to successfully achieve its
business objectives. None of Daltex's key personnel are required to commit a
substantial amount of their time to the affairs of Daltex and, accordingly, such
personnel may have conflicts of interests in allocating management time among
various business activities. However, the executive officers and the other
directors of Daltex will devote such time as they deem reasonably necessary to
carry out the business and affairs of Daltex, including the evaluation of
potential Target Businesses and the negotiation and consummation of a Business
Combination, and, as a result, the amount of time devoted to the business and
affairs of Daltex may vary significantly depending upon, among other things,
<PAGE>
whether Daltex has identified a Target Business or is engaged in active
negotiation of a Business Combination. Although the officers and directors of
Daltex have substantial experience in buying and selling businesses, they have
no prior experience in "blind pool" or "blank check" companies. Daltex will rely
upon the expertise of such persons, and the Board does not anticipate that it
will hire additional personnel. However, if additional personnel are required,
there can be no assurance that Daltex will be able to retain such necessary
additional personnel.
ADDITIONAL FINANCING REQUIREMENTS
Daltex has no current revenue sources and will not achieve any revenues
until, at the earliest, the consummation of a Business Combination. Although
Daltex anticipates that its existing resources will be sufficient to effect a
Business Combination, inasmuch as Daltex has not yet identified any prospective
Target Business candidates, Daltex cannot ascertain with any degree of certainty
the capital requirements for any particular Business Combination. In the event
that Daltex's existing resources prove to be insufficient for purposes of
effecting a Business Combination (because of the size of the Business
Combination or other reasons), Daltex will be required to seek additional
financing. The failure by Daltex to secure additional financing could have a
material adverse effect on Daltex's ability to consummate a Business Combination
or continued development or growth of the Target Business. Daltex does not have
any arrangements with any bank or financial institution to secure additional
financing and there can be no assurance that any such arrangement, if required
or otherwise sought, would be available on terms deemed to be commercially
acceptable and in the best interests of Daltex. Daltex has recently received
advances of $5,000 from shareholders to pay operating expenses in addition to
the $89,000 in previous securities sales.
COMPLIANCE WITH PENNY STOCK RULES
Daltex's securities are considered a "penny stock" as defined in the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and the rules
thereunder, since the price of each security is less than $5.00. Unless such
security is otherwise excluded from the definition of "penny stock," the penny
stock rules apply with respect to that particular security. The penny stock
rules require a broker-dealer prior to a transaction in penny stock not
otherwise exempt from the rules, to deliver a standardized risk disclosure
document prepared by the SEC that provides information about penny stocks and
the nature and level of risks in the penny stock market. The broker-dealer also
must provide the customer with current bid and offer quotations for the penny
stock, the compensation of the broker-dealer and its sales person in the
transaction, and monthly account statements showing the market value of each
penny stock held in the customer's account. In addition, the penny stock rules
require that the broker-dealer, not otherwise exempt from such rules, must make
a special written determination that the penny stock is suitable for the
purchaser and receive the purchaser's written agreement to the transaction.
These disclosure rules have the effect of reducing the level of trading activity
in the secondary market for a stock that becomes subject to the penny stock
rules. So long as the common stock is subject to the penny stock rules, it may
become more difficult to sell such securities. Such requirements, if applicable,
could result in reduction in the level of trading activity for that particular
security of Daltex and could make it more difficult for investors to sell that
particular security.
<PAGE>
EMPLOYEES
Bruce Hausman, Esquire, currently serves as President, Chief Executive
Officer and a director and is the only employee.
ITEM 2. DESCRIPTION OF PROPERTIES
In November 1997 Daltex vacated its office facilities. Its current
mailing address is 7777 Glades Road #211, Boca Raton, FL 33434, where it does
not pay any rent or have a lease.
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
Daltex's Common Stock is currently listed on the OTC Bulletin Board
under the symbol "DLTX" .
The following tables set forth the range of high- and low-bid prices
for Daltex's Common Stock for each quarterly period beginning August 1, 1997 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. As there has
been limited trading, many of the prices reflect the closest transaction to the
end of the period.
High Low
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Fiscal 1998
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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
Fiscal 1999
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1st Quarter Ended October 31, 1998 .015 .015
2nd Quarter Ended January 31, 1999 .013 .013
3rd Quarter Ended April 30, 1999 .04 .04
4th Quarter Ended July 31, 1999 .035 .031
The approximate number of holders of record of Common Stock of Daltex,
as of September 1, 1999, was 455.
Recent Sales of Unregistered Securities
In February 1999, Daltex issued to an aggregate of 1,000,000 shares of
common stock and 89,000 shares of Series A Convertible Preferred Stock to three
investors. The common stock was issued at a price of $.01 per share in exchange
for the cancellation of an aggregate of $10,000 in loans from these persons. The
preferred stock was sold for $89,000 of cash. Each of these investors were
accredited and the transactions were exempt from registration pursuant to
Section 4(2) of the Securities Act of 1933.
<TABLE>
<CAPTION>
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<S> <C> <C>
Name Common Stock Issued Preferred Stock Issued
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Lawrence Rutstein 333,400 29,666
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Robert and Barbara Hausman JTWROS 333,300 29,667
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MCG Partners, Inc. 333,300 29,667
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- -------------------------------------------------------------------------------------------
Total 1,000,000 89,000
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</TABLE>
<PAGE>
Dividend History
Daltex has not paid or declared any dividends, cash or otherwise, since
its inception in 1983. Management of Daltex has no intention of paying cash
dividends in the foreseeable future.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
General
The following discussion regarding Daltex 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. Daltex does not have a policy of updating or
revising forward-looking statements and thus it should not be assumed that
silence by management of Daltex over time means that actual events are bearing
out as estimated in such forward looking statements.
Daltex 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, Daltex
successfully completed an initial public offering to raise working capital.
Since that time, management of Daltex 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, Daltex did not have any sales of its technologies or its antimicrobial
medical gloves. During this period, Daltex received revenues from royalty
payments and development fees pursuant to two licenses with sublicensees of
applications of Daltex's antimicrobial medical technology. Effective April 30,
1998, Daltex, 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.
All current activity of Daltex is related to seeking a Business
Combination. All of Daltex's costs to date have been paid out of available cash.
Daltex will use its available resources and the net proceeds of any future
financing together with the income and interest earned thereon, principally in
connection with effecting a Business Combination, and structuring and
consummating a Business Combination (including possible payment of finder's fees
or other compensation to persons or entities which provide assistance or
services to Daltex). To the extent that common stock is used as consideration to
effect a Business Combination, the balance not expended will be used to finance
the operations of the Target Business.
The report of Daltex's independent auditors on Daltex's financial
statements includes an explanatory paragraph which states that Daltex's
recurring losses and working capital and total stockholders' deficits raise
substantial doubt about Daltex's ability to continue as a going concern and
precludes and has precluded the expression of an opinion on Daltex's financial
statements as of and for the years ended July 31, 1999. The financial statements
do not include any adjustments that might result from the outcome of this
<PAGE>
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, Daltex has curtailed expenditures to the
extent possible. Daltex does not have any commitments to raise additional
capital in the future, and there can be no assurance that Daltex will be
successful in any of its capital-raising efforts or that Daltex can avoid
liquidation.
The discussion below should be reviewed together with Daltex's
Financial Statements and the Notes thereto.
Results of Operations
For the year ended July 31, 1999, Daltex had no revenue. For the fiscal
year ended July 31, 1998, Daltex's $272,138 of revenue was from license fees,
royalties and interest income.
Operating expenses for the year ended July 31, 1999 and 1998 consisted
principally of general and administrative expenses. General and administrative
expenses in the fiscal years ended July 31, 1999 and 1998 were $19,516 and
$265,969, respectively. General and administrative expenses have decreased by
$246,453 from 1998 to 1999 due to the inactivity in fiscal 1999. Daltex expects
this trend to continue until a Business Combination is consummated.
Daltex 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.
Daltex had net a net loss of $19,516 for the year ended July 31, 1999
compared to income of $877,929 for the year ended July 31, 1998, a significant
decrease due to the extraordinary gain realized from the settlement agreement
entered into with Columbia University in fiscal 1998. The net loss applicable to
common shareholders was $909,516, reflecting a noncash $890,000 deemed dividend
charge from the issuance of preferred stock.
Liquidity and Capital Resources
At July 31, 1999, Daltex had cash and cash equivalents of approximately
$541, representing a decrease of approximately $21,954 over the July 31, 1998
balance of cash and cash equivalents. During the year ended July 31, 1999,
Daltex used net cash for operations of $31,354 during 1999 as compared to
$40,627 in 1998. This change in cash flows from operations was primarily due to
decreases in accrued expenses. In addition, Daltex had a working capital deficit
of $107,141 as of July 31, 1999, primarily due to accrued payables and expenses
and an accumulated deficit of $7,998,837. Of the $87,682 of accounts payable and
accrued expenses at July 31, 1999 was accrued compensation payable to Bruce
Hausman, Daltex's president. In addition, Daltex owed $15,000 to Columbia
University that was past due.
In February 1999, Daltex issued to three investors 1,000,000 shares of
common stock at a price of $.01 per share in exchange for the cancellation of
$10,000 in loans from these persons. These investors also were issued 89,000
shares of Series A Convertible Preferred Stock in exchange for $89,000 of cash.
Subsequent to year end, Daltex issued an additional 15,000 shares to Bruce
Hausman, its president, in cancellation of $60,000 of indebtedness.
Management has continued to curtail expenditures in many areas,
including discretionary expenditures, in order to stay in business and to focus
<PAGE>
Daltex's extremely limited resources in what it believes are the most promising
areas of Daltex's business in the near term. However, there can be no assurance
that Daltex 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 Daltex's future operations. If
Daltex is unsuccessful in raising additional capital during fiscal year 2000,
Daltex may be unable to continue as a going concern, even with further
cost-cutting measures. To meet its long-term liquidity requirements, Daltex 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 Daltex will be successful in meeting its immediate or
long-term liquidity requirements or that Daltex can continue as a going-concern.
Daltex may utilize cash derived from the sale of equity securities,
debt securities or bank or other borrowing or a combination thereof as
consideration in effecting a Business Combination. Although Daltex has no
commitments as of the date hereof to issue any shares of Common Stock or options
or warrants, Daltex will, in all likelihood, issue a substantial number of
additional shares in connection with the consummation of a Business Combination.
To the extent that such additional shares are issued, dilution to the interests
of Daltex's stockholders will occur. Additionally, if a substantial number of
shares of Common Stock are issued in connection with the consummation of a
Business Combination, a change in control of Daltex may occur which may affect,
among other things, Daltex's ability to utilize net operating loss carry
forwards, if any.
There currently are no limitations on Daltex's ability to borrow funds
to effect a Business Combination. However, Daltex's limited resources and lack
of operating history may make it difficult to borrow funds. The amount and
nature of any borrowing by Daltex will depend on numerous considerations,
including Daltex's capital requirements, potential lenders' evaluation of
Daltex's ability to meet debt service on borrowing and the then prevailing
conditions in the financial markets, as well as general economic conditions.
Daltex does not have any arrangements with any bank or financial institution to
secure additional financing and there can be no assurance that such arrangements
if required or otherwise sought, would be available on terms commercially
acceptable or otherwise in the best interests of Daltex. The inability of Daltex
to borrow funds required to effect or facilitate a Business Combination, or to
provide funds for an additional infusion of capital into a Target Business, may
have a material adverse effect on Daltex's financial condition and future
prospects, including the ability to effect a Business Combination. To the extent
that debt financing ultimately proves to be available, any borrowing will
subject Daltex to various risks traditionally associated with indebtedness,
including the risks of interest rate fluctuations and insufficiency of cash flow
to pay principal and interest. Furthermore, a Target Business may have already
incurred debt financing and, therefore, subject Daltex to all the risks inherent
thereto.
Year 2000
Since Daltex does not currently have any operations or computer systems, it is
not required to make any adjustments for the Year 2000 problem. However, to the
extent that Daltex consummates a Business Combination, it will be required to
insure that the Target Business is Year 2000 compliant.
ITEM 7. FINANCIAL STATEMENTS
The financial statements as of and for the years ended July 31, 1999
and 1998 are appended to this Report on Form 10-KSB.
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
<PAGE>
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS
Identification Of Directors And Executive Officers, Promoters 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 Daltex.
<TABLE>
<CAPTION>
Name Age Since Position
---- --- ----- --------
<S> <C> <C> <C>
Louis R.M. Del Guercio, M.D. 69 1983 Chairman of the Board, Director, Member of the
Executive Committee
C. Lawrence Rutstein 55 1997 Director
Herbert J. Mitchele, Jr. 69 1983 Secretary, Treasurer, Chief Financial Officer,
Director, Member of the Executive Committee
Bruce Hausman, Esq. 69 1993 President, Chief Executive Officer, Director, Member
of the Executive Committee
</TABLE>
All directors hold office until the next annual meeting of stockholders
of Daltex or until their successors are elected and quality. Due to its
extremely limited financial resources, Daltex 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. has been a director since he co-founded
Daltex in 1983 He 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 has been a director since December 1997. Between
May 1997 and June 1998 Mr. Rutstein had served as Chairman, CEO and president of
Regenesis Holdings Corporation. 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.
<PAGE>
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 Gourmentmarket.com,
Inc.
Herbert J. Mitschele, Jr. has been a director since he co-founded
Daltex in 1983. He 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. has been President and Chief Executive Officer
since May 18, 1995. He has been a director and member of the Executive Committee
since December 1993. 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.
ITEM 10. EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth information concerning the compensation
received by the current Chief Executive Officer of Daltex and the former
President and Chief Operating Officer of Daltex.
<TABLE>
<CAPTION>
Long Term Compensation
-------------------------
Annual Compensation Awards Payouts
------------------- ------ -------
Name and Other Annual All Other
Principal Position Year Salary ($) Bonus ($) Compensation Options (#) Compensation ($)
------------------ ---- ---------- --------- ------------ ----------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Bruce Hausman, President 1999 -- -- -- -- --
Chief Executive Officer 1998 -- -- -- 250,000 --
1997 -- -- -- -- --
</TABLE>
<PAGE>
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 Unexercised
Number of Unexercised In-the-Money Options
Options at FY/End (#) At FY End ($)
--------------------- -------------
Shares Acquired Value Exercisable/ Exercisable/
Name On Exercise (#) Released ($) Unexercisable Unexercisable
---- --------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Bruce Hausman -- -- 500,000 $7,500/0
Harvey S.S. Miller -- -- 275,000 $9,625/0
</TABLE>
(1) Based on a market price of $0.045 as of June 30, 1999.
Other Arrangements
In November 1993, Daltex entered into a consulting arrangement with Mr.
Bruce Hausman, in connection with which Mr. Hausman agreed to serve as a member
of Daltex's Board of Directors and Executive Committee. Mr. Hausman received
compensation consisting of non-qualified stock options to purchase an aggregate
of 250,000 shares of Daltex'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 Daltex as
Daltex's cash flow permits or upon a change of control of Daltex. On May 18,
1995, the Board of Directors appointed Mr. Hausman to serve as President and
Chief Executive Officer of Daltex. Mr. Hausman receives reimbursement of his
reasonable expenses incurred in the conduct of Daltex's business. On December
23, 1997 the Board of Directors approved repricing of this option to $.03 per
share.
In March 1996, Mr. Hausman was granted a non-qualified option to
purchase an aggregate of 250,000 shares of Common Stock of Daltex 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 Daltex since May 1995. On December 23, 1997 the Board of
Directors approved repricing of this option to $.03 per share.
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.
Compensation of Directors
No compensation of directors has been paid since 1989.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information, as of August 31,
1999 with respect to holdings of Daltex's Common Stock by each person known by
Daltex to be the beneficial owner of more than 5% of the total number of shares
of Common Stock and Series A Convertible Preferred Stock outstanding as of such
date and by each current director and by all current directors and officers as a
group. Each beneficial owner has sole voting and investment power with respect
<PAGE>
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:
<TABLE>
<CAPTION>
Name and Address Amount and Nature of Percentage of
of Beneficial Owner Beneficial Ownership Outstanding Shares (1)
------------------- --------------------- ----------------------
<S> <C> <C>
Louis R.M. Del Guercio, M.D.
14 Pryer Lane
Larchmont, New York 10538 734,300 3.9%
W. David and Venus Anthony
20 Kristen Court
Towaco, New Jersey 07082 1,072,500 5.8%
Herbert J. Mitschele, Jr.
141 Daly Road
Far Hills, New Jersey 07931 458,400 (2) 5.31%
C. Lawrence Rutstein
7777 Glades Road, Suite 211
Boca Raton, Florida 33434 59,999,700(3)
Bruce Hausman
4642 Bocaire Boulevard
Boca Raton, Florida 33487 505,000(4) 2.6%
MCG Partners, Inc.
7777 Glades Road, Suite 211
Boca Raton, Florida 33434 30,000,300(5)
Robert Hausman
1900 Corporate Boulevard., Suite 400
Boca Raton, Florida 33431 30,000,300 30.42%
All executive officers and directors
as a group (four persons) 61,687,400
</TABLE>
(1) Based on 18,632,699 shares of Common Stock outstanding.
(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. 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.
(3) Includes (i) 26,667,000 shares underlying 26,667 shares of Series A
Convertible Preferred Stock held by MCG Partners, Inc., (ii) 3,333,300
shares of Common Stock held by MCG Partners, Inc., of which Mr.
Rutstein is an officer, director and principal shareholder, and
(iii) 3,333,400 shares of Common Stock held be Mr. Rutstein.
<PAGE>
(4) 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 Daltex, which options are currently
exercisable.
(5) Includes 26,667,000 shares underlying 26,667 shares of Series A
Convertible Preferred Stock and 3,333,300 shares of Common Stock held
by MCG Partners, Inc.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires Daltex's
directors and executive officers, and persons who own more than ten percent of a
registered class of Daltex'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 Daltex. Officers, directors and greater than
ten-percent shareholders are required by SEC regulation to furnish Daltex with
copies of all Section 16 (a) forms they file.
To Daltex's knowledge, based solely on review of the copies of such
reports furnished to Daltex, all Section 16(a) filing reports were timely filed.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Daltex has adopted a policy that no officer, director or affiliate may
engage in any transactions with Daltex or any of its subsidiaries unless such
transactions have been approved by a majority of Daltex's directors who have no
interest in the transactions. Daltex anticipates that all related party
transactions will be on terms and conditions at least as favorable to Daltex as
Daltex could obtain in dealing with unrelated parties.
See Item 5-Market for Equity Securities and Related Stockholder Matters-Recent
Sales of Unregistered Securities" for a description of the issuance of Series A
Preferred Stock to C. Lawrence Rutstein, a director, and other persons.
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 Daltex, as amended
3.2(a) By-laws of Daltex
<PAGE>
10.53(a) Non-qualified Stock Option Agreement with Harvey S.S.
Miller, dated as of September 2, 1992
10.57(a) Agreement with Bruce Hausman, dated November 10, 1993
10.68 Non-Qualified Stock Option Agreement between Daltex and
Bruce Hausman dated as of March 6, 1996
23.1 Consent of Margolies, Fink and Wichrowski
(a) Reference is made to the exhibits to the Form 10-K for the
fiscal year ended July 31, 1993
Reports of Daltex on Form 8-K for the fiscal quarter ended July 31,
1999
On June 29, 1999 Daltex filed a Form 8-K to discuss its Change in
Control and the issuance of the Series A Convertible Preferred Stock.
<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.
Dated: September 22, 1999 By: /s/ Bruce Hausman, Esq.
----------------------------
Bruce Hausman, Esq.
President & Chief
Executive Officer
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.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Dr. Louis R.M. Del Guercio Director, Chairman
- ------------------------------
Dr. Louis R.M. Del Guercio Board of Directors September 22, 1999
/s/ Bruce Hausman, Esq. President, Chief Executive Officer September 22, 1999
- -----------------------
Bruce Hausman, Esq.
/s/ C. Lawrence Rutstein Director September 22, 1999
- ------------------------
C. Lawrence Rutstein
/s/Herbert J. Mitschele, Jr. Director, Secretary, Treasurer, Chief September 22, 1999
- ----------------------------
Herbert J. Mitschele, Jr. Financial Officer
</TABLE>
<PAGE>
DALTEX MEDICAL SCIENCES, INC.
TABLE OF CONTENTS
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS F-1
FINANCIAL STATEMENTS:
Balance Sheets at July 31, 1999 and 1998 F-2
Statements of Operations F-3
Years ended July 31, 1999 and 1998
Statements of Stockholders' Deficit F-4
Years ended July 31, 1999 and 1998
Statements of Cash Flows F-5
Years ended July 31, 1999 and 1998
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 sheets of Daltex Medical Sciences, Inc. as of July
31, 1999 and 1998 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, 1999 and 1998 and the results of operations and its cash flows for the
years ended July 31, 1999 and 1998 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, 1999 and 1998. Furthermore, at July 31, 1999 and 1998 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
August 25, 1999
F-1
<PAGE>
DALTEX MEDICAL SCIENCES, INC.
BALANCE SHEETS
JULY 31, 1999 AND 1998
<TABLE>
<CAPTION>
ASSETS
1999 1998
---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents (Note 1) $ 541 $ 22,495
----------- -----------
Total current assets 541 22,495
----------- -----------
$ 541 $ 22,495
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Note payable (Note 3) $ 15,000 $ 70,000
Accounts payable and accrued expenses (Note 4) 87,682 99,520
Loans payable (Note 5) 5,000 39,600
----------- -----------
Total current liabilities 107,682 209,120
----------- -----------
Stockholders' deficit (Note 6)
Preferred stock, $1 par value, authorized
850,000 shares, 0 shares issued, -- --
Series A Preferred stock, $1 par value, authorized
150,000 shares, 89,000 shares issued,
80,000 shares outstanding 80,000 --
Common stock, $.01 par value;
authorized 20,000,000 shares; 18,632,699 and
8,632,699, shares issued and outstanding respectively 186,327 86,327
Additional paid-in capital 7,625,369 6,816,369
Retained deficit (7,998,837) (7,089,321)
----------- -----------
Total stockholders' deficit (107,141) (186,625)
----------- -----------
$ 541 $ 22,495
=========== ===========
</TABLE>
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, 1999, AND 1998
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Revenues:
License fees, grants and royalties $ -- 270,138
Interest and other income -- 2,000
----------- ----------
-- 272,138
----------- ----------
Expenses:
General and administrative expenses 19,516 265,969
----------- ----------
Income from operations before extraordinary item (19,516) 6,169
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) (19,516) 877,929
Dividends on Series A convertible preferred stock
From discount at issuance (890,000) --
----------- ----------
Net income (loss) applicable to common shareholders $ (909,516) $ 877,929
=========== ==========
Net income (loss) per share information: (Note 1)
Basic:
Net income (loss) before extraordinary item $ (.09) $ .00
=========== ==========
Extraordinary item $ .00 $ .10
=========== ==========
Net income (loss) per share $ (.09) $ .10
=========== ==========
Weighted average number of common shares 10,199,822 8,633,000
=========== ==========
Diluted:
Net income loss before extraordinary item $ (.09) $ .00
=========== ==========
Extraordinary item $ .00 $ .10
=========== ==========
Net income (loss) per share $ (.09) $ .10
=========== ==========
Weighted average number of common shares 10,199,822 8,633,000
=========== ==========
</TABLE>
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, 1999 AND 1998
<TABLE>
<CAPTION>
Series A
Preferred Stock Common Stock Additional
Number of Par Number of Par paid-in Retained
Shares value Shares value capital deficit Total
------ ----- ------ ----- ------- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
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)
Issuance of preferred stock 89,000 89,000 890,000 (890,000) 89,000
Issuance of common stock 1,000,000 10,000 10,000
Conversion of preferred
stock (9,000) (9,000) 9,000,000 90,000 (81,000) -
Net loss
- - - - - (19,516) (19,516)
------- -------- --------- --------- ----------- ----------- -----------
Balance, July 31, 1999 80,000 $80,000 18,632,699 $186,327 $ 7,625,369 $(7,998,837) $ (107,141)
======= ======== ========= ========= =========== =========== ===========
</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, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (19,516) $ 877,929
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 payable accrued expenses (11,838) (46,796)
--------- ---------
Net cash used in operations: (31,354) (40,627)
--------- ---------
Cash flows provided by financing activities:
Reduction of notes payable (55,000)
Proceeds from issuance of stock 76,500
Increase (decrease) in other liabilities (12,100) 39,600
--------- ---------
Net cash provided by financing activities 9,400 39,600
--------- ---------
Net decrease in cash and cash equivalents (21,954) (1,027)
Cash and cash equivalents, beginning of period 22,495 23,522
--------- ---------
Cash and cash equivalents, end of period $ 541 $ 22,495
========= =========
Supplemental disclosure of non-cash investing and financing activities:
Issuance of preferred stock for debt $ 22,500 $ --
========= =========
Gain on settlement and mutual
release agreement of debt $ -- $ 871,760
========= =========
</TABLE>
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) 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.
(c) Financial Instruments
The carrying values of the Company's financial instruments at July 31, 1999
approximate their estimated fair values.
(d) Net Income (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-6
<PAGE>
DALTEX MEDICAL SCIENCES, INC.
Notes to Financial Statements
1. Summary of Significant Accounting Policies, (continued)
(e) 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) 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.
(h) 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, 1999 of $7,998,837. As of July 31, 1999
and 1998, the Company has $ 541 and $22,495, respectively, in cash and cash
equivalents, working capital deficits of $107,141 and $186,625, 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 2000. 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.
F-7
<PAGE>
DALTEX MEDICAL SCIENCES, INC.
Notes to Financial Statements
2. Going Concern (continued)
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.
3. Notes payable
In connection with the Company entering into the Settlement and Mutual Release
Agreement with Columbia University (a creditor), the Company agreed to make a
$15,000 cash payment, 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. At July 31, 1999 the loan is in default and the remaining unpaid
balance is $15,000.
4. Accounts payable and accrued expenses
Accounts payable and accrued expenses consist of the following:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Accounts payable and accrued expenses - trade $ 27,682 $ 39,520
Accrued compensation to officer 60,000 60,000
------------ ------------
$ 87,682 $ 99,520
============ ============
</TABLE>
5. 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
accrued interest at 8%, and was repaid in September 1998; $22,500 was
non-interest bearing, and was used to acquire common and preferred stock of the
Company during 1999.
6. Capital Stock
At July 31, 1998 the Company's authorized capital consisted of
1,000,000 shares of Preferred Stock, par value $1.00 per share, and 20,000,000
shares of Common Stock, par value .01 per share. On September 15, 1998 the
Company approved the issuance of a series of Preferred Stock to be designated
Series A Convertible Preferred Stock, $1.00 par value, to consist of 150,000
shares. Each share of Series A Convertible Preferred Stock is convertible, at
the option of the holder thereof, without the payment of additional
consideration, at any time into 1,000 shares of Common Stock. The agreement
provides that no fractional shares be issued.
F-8
<PAGE>
DALTEX MEDICAL SCIENCES, INC.
Notes to Financial Statements
6. Capital Stock (continued)
On November 25, 1998 the Company issued 89,000 shares of its Series A
Convertible Preferred Stock for $66,500 in cash and the cancellation of $22,500
in debt. In connection with the issuance of the Series A Convertible Preferred
Stock the Company has record a deemed preferred stock dividend totaling $890,000
resulting from the discount at conversion of the common stock at date of
issuance. Additionally, the Company issued 1,000,000 shares of common stock at
$.01 for $10,000.
On June 25, 1999 holders of the Company's Series A Convertible preferred stock
converted 9,000 shares of preferred stock into 9,000,000 shares of the company's
common stock.
During the years ended July 31, 1997 and 1998, the Board agreed to issue a law
firm 50,000 shares of Common Stock, and an individual 50,000 shares of common
stock, respectively, in recognition of their valued cooperation over the past
several years. Such shares were not issued as of July 31, 1999.
At July 31, 1999, 775,500 shares of the Company's common stock is reserved as
potentially issuable under the Company's stock option plan.
7. Stock Options
At July 31, 1999 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 exercisable
under option for the year ended July 31, 1999 are summarized as follows:
Nonqualified Options
--------------------
Shares Wtd. Ave. Price
------ ---------------
Outstanding at July 31, 1997 1,415,500 .11
Expired (500,000)
---------
Outstanding at July 31, 1998 915,500 .12
Expired 140,500
---------
Outstanding at July 31, 1999 775,500 .02
=========
The following table summarizes information about all of the stock options
outstanding at July 31, 1999:
Exercise Weighted average
price Shares remaining life
----- ------ --------------
$ .01 275,000 3.0
.03 500,000 8.5
F-9
<PAGE>
DALTEX MEDICAL SCIENCES, INC.
Notes to Financial Statements
8. 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, 1999 and 1998 are presented
as follows:
Deferred tax assets: 1999 1998
---- ----
Net operating loss carryforwards $ 2,406,000 $ 2,399,000
Research and development tax credits 65,000 65,000
Noncash compensation charges 156,000 156,000
Other 46,000 46,000
----------- -----------
Total deferred tax asset 2,673,000 2,666,000
Valuation allowance (2,673,000) (2,666,000)
----------- -----------
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, 1999, the Company has available net operating loss carryforwards of
approximately $6,372,000 for federal income tax reporting purposes. 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 have begun expiring in 1999. The
Company made no payments of federal or state income taxes during the years ended
July 31, 1999 and 1998.
Reconciliation of the Company's provision (benefit) for income taxes to the
federal statutory rate for July 31, 1998 is as follows:
Year ended
July 31, 1998
Statutory rate applied to income ---------------------
before income taxes $ 271,000 34.0%
State income tax 79,000 5.0%
Utilization of net operating loss (350,000) (39.0)%
--------- -----
$ - 0.0%
========= =====
F-10
<PAGE>
DALTEX MEDICAL SCIENCES, INC.
Notes to Financial Statements
9. 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.
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, for the year ended July 31, 1998.
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.
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.
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.
F-11
<PAGE>
DALTEX MEDICAL SCIENCES, INC.
Notes to Financial Statements
9. License Agreement and Research Grants (continued)
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
=========
F-12
