[EPSTEIN BECKER & GREEN, P.C. LETTERHEAD]
October 12, 2005
VIA EDGAR
Jeffery P. Riedler
United States Securities and Exchange Commission
Division of Corporation Finance
450 Fifth Street, N.W.
Mail Stop 0309
Washington, D.C. 20549-0306
Re: Medical Discoveries, Inc.
Amendment No. 2 to Form SB-2 Registration Statement
File No. 333-121635
Dear Mr. Riedler:
We are writing on behalf of our client, Medical Discoveries, Inc. (the
"Company"), in response to the letter of comments from the United States
Securities and Exchange Commission (the "Commission") to the Company, dated June
30, 2005, with respect to the Company's Amendment No. 2 to Form SB-2, File No.
333-121635 (the "Registration Statement"). The Company is filing concurrently
herewith via EDGAR a third amendment to the Registration Statement in response
to the letter of comments. The numbered paragraphs below restate the numbered
paragraphs in the Commission's letter of comments to the Company, and the
discussion set out below each such paragraph is the Company's response to the
Commission's comment.
GENERAL
1. YOUR LETTER OF RESPONSE INDICATES, WITH RESPECT TO MOST OF THE COMMENTS IN
OUR PREVIOUS LETTER, ONLY THAT "THE PROSPECTUS HAS BEEN REVISED IN RESPONSE
TO THE STAFFS COMMENTS." WHEN YOU RESPOND TO THE COMMENTS IN THIS LETTER,
PLEASE INDICATE, IN EACH RESPONSE, PRECISELY WHERE THE REVISIONS ARE
LOCATED AND, IN REASONABLE DETAIL, WHAT THEY CONSIST OF.
October 12, 2005
Page 2
The Staff's comment has been considered and responses to Staff comments on
Amendment 2 have been drafted to specifically describe the details of each
revision.
2. WE NOTE THAT YOU HAVE MADE A NUMBER OF REVISIONS TO YOUR PREVIOUSLY FILED
DOCUMENT THAT HAVE NOT BEEN RED-LINED IN THIS AMENDMENT. SEE, FOR EXAMPLE,
THE FOOTNOTES NOW PRESENTED ON PAGES 1 AND 2 AND THE FOOTNOTES TO THE
SELLING SECURITY HOLDERS TABLE ON PAGE 12. PLEASE ENSURE THAT ALL REVISIONS
ARE RED-LINED IN FUTURE AMENDMENTS TO THIS REGISTRATION STATEMENT.
The Staff's comment has been considered and all revisions to Amendment 2
have been redlined in Amendment 3.
3. WE ARE UNABLE TO LOCATE THE DISCLOSURE REQUIRED BY ITEM 402 OF REGULATION
S-B. PLEASE INCLUDE IT IN YOUR NEXT AMENDMENT.
The executive compensation disclosure required by Item 402 of Regulation
S-B appears on page 42 of Amendment 2. That section has been updated for
the purposes of Amendment 3.
PROSPECTUS SUMMARY - PAGE 1
4. PLEASE REVISE THE DISCLOSURE UNDER "OUR COMPANY" TO DISCLOSE THE EXACT
DEVELOPMENTAL STATUS OF EACH OF YOUR PROPOSED PRODUCTS.
The first paragraph of the "Our Company" section on page 2 of the
prospectus has been revised to disclose that an IND for MDI-P is on file
with FDA and we are awaiting results of further preclinical studies to seek
FDA approval to proceed with Phase I clinical trials. This section has been
further amended to disclose that SaveCream is currently in preclinical
development.
5. IT APPEARS THAT THERE IS NO MINIMUM CONVERSION PRICE PER SHARE ON THE
CONVERTIBLE PREFERRED STOCK YOU ISSUED ON MARCH 14, 2005. PLEASE CLEARLY
INDICATE THIS AND INCLUDE APPROPRIATE DISCLOSURE HERE, AND IN THE RISK
FACTOR SECTION, REGARDING THE POTENTIAL ADVERSE CONSEQUENCES FOR INVESTORS.
Footnote 1 in the "Our Company" section has been revised to include an
express disclosure that there is no minimum conversion price per share for
the preferred stock issued on March 14, 2005. This section has been further
amended to advise investors to consider the risks associated with the
conversion feature. Similarly, the risk factor concerning dilution has been
amended to not only refer investors to the Dilution section of the
prospectus, but also to point out in particular the dilution risks
associated with the Series A preferred stock.
October 12, 2005
Page 3
6. ALSO, PLEASE TELL US WHY YOU USED A $.05 PER SHARE CONVERSION PRICE TO
DETERMINE THE NUMBER OF SHARES UNDERLYING THE CONVERTIBLE PREFERRED STOCK
ISSUED IN MARCH IF THERE IS NOT A MINIMUM CONVERSION PRICE.
The disclosure was revised to reflect that $0.05 per share was the assumed
conversion price chosen to calculate the number of shares to be registered
in connection with this issuance, as required by the applicable
registration rights agreement with Mercator Momentum Fund, LP and Mercator
Momentum Fund III, LP.
7. PLEASE DISCLOSE THE MAXIMUM AND MINIMUM NUMBER OF SHARES THAT COULD BE
ISSUED ON CONVERSION OF ALL OF THE CONVERTIBLE PREFERRED STOCK.
The statement has been revised in response to the Staff's comment to
reference the Selling Security Holders section. This section discloses the
minimum and maximum number of shares that could be issued upon conversion.
RISK FACTORS -- PAGE 2
8. PLEASE INCLUDE A RISK FACTOR ADDRESSING "PENNY STOCK" ISSUES.
A risk factor entitled "`Penny stock' rules may make buying or selling our
securities difficult which may make our stock less liquid and make it
harder for investors to buy and sell our shares," has been added at page 8,
disclosing the risks arising out the fact that our stock falls within the
definition of a penny stock under SEC regulations.
9. PLEASE INCLUDE A RISK FACTOR ADDRESSING THE RISKS AND ADVERSE CONSEQUENCES
RESULTING FROM THE BENEFICIAL OWNERSHIP OF 80.58% OF YOUR COMMON STOCK BY
MERCATOR ADVISORY GROUP, LLC.
The Selling Security Holders section of the prospectus has been updated to
include a detailed disclosure of the actual minimum and maximum number of
shares of common stock into which the outstanding Series A stock could be
converted, including the limitation in the Series A financing documents
that prohibits the Series A shareholders from beneficially owning more than
9.99% of the issued and outstanding common stock at any one time. The
resulting beneficial ownership of our stock is clearly described on page 12
of Amendment 3. By reason of the limitation on ownership, any statement
that Mercator Advisory Group is the beneficial owner of 80.58% of our
common stock would not accurately reflect the risks associated with
purchase of the securities.
October 12, 2005
Page 4
WE ARE A DEVELOPMENT-STAGE COMPANY THAT HAS NOT YET COMMERCIALIZED A PRODUCT. --
PAGE 2
10. IN THE THIRD SENTENCE OF THE RISK FACTOR YOU CHARACTERIZE YOUR PRE-CLINICAL
STUDIES OF MDI-P AND SAVECREAM AS "QUITE FAVORABLE." IT IS UNCLEAR WHAT
THIS STATEMENT MEANS, ESPECIALLY IN THE PRE-CLINICAL CONTEXT. IN ADDITION,
IT APPEARS TO BE MITIGATING LANGUAGE THAT IS INAPPROPRIATE IN RISK FACTOR
DISCLOSURE. PLEASE DELETE IT.
The risk factor on page 2 of the prospectus, disclosing that we are a
development stage company that has not yet commercialized a product, has
been revised to indicate that preclinical studies of MDI-P and anecdotal
clinical data for SaveCream have been positive.
11. IN ADDITION, WE ARE UNABLE TO LOCATE ANY DISCLOSURE IN THE DOCUMENT
RELATING TO PRE-CLINICAL STUDIES OF SAVECREAM. PLEASE EITHER DELETE THE
REFERENCE OR PROVIDE THE INFORMATION SUPPORTING THE STATEMENT.
The referenced risk factor has been revised to refer to the anecdotal
clinical data we have on file for SaveCream, as disclosed in the
Description of Business section. The Description of Business section has
been revised, in the subsection on MDI's commercialization plans for
SaveCream, to disclose that we will believe we can use existing CMC data,
but will have to complete other preclinical testing.
WE MAY NOT BE ABLE TO RAISE SUFFICIENT CAPITAL TO MEET PRESENT AND FUTURE
OBLIGATIONS. - PAGE 3
12. YOU INDICATE THAT AS OF MARCH 31, 2005, YOUR CURRENT LIABILITIES EXCEEDED
YOUR CURRENT ASSETS BY $760,802 AND YOU NEED TO OBTAIN ADDITIONAL CAPITAL
TO MEET "BASIC OPERATIONAL NEEDS." PLEASE IDENTIFY AND QUANTIFY THESE
NEEDS. DISCUSS THE STEPS YOU HAVE TAKEN OR INTEND TO TAKE TO REMEDY THIS
SITUATION. IDENTIFY THE SPECIFIC ADVERSE CONSEQUENCES THAT YOU WILL
EXPERIENCE IF YOU ARE UNABLE TO SATISFY YOUR CURRENT LIABILITIES OR
OPERATIONAL NEEDS.
The referenced risk factor has been revised to detail MDI's cash needs and
anticipated solutions.
13. ON PAGE 22 YOU INDICATE THAT YOU HAVE FILED AN IND WITH THE FDA SEEKING
PERMISSION TO BEGIN PHASE I HUMAN CLINICAL TRIALS OF MDI-P AS A TREATMENT
FOR CYSTIC FIBROSIS, AND THE FDA HAS REQUESTED FURTHER ANIMAL TESTING AND
RAISED OTHER QUESTIONS. PLEASE ADDRESS THE EFFECT YOUR FINANCIAL CONDITION
HAS AND WILL HAVE ON YOUR IND APPLICATION AS PART OF THIS RISK FACTOR.
The referenced risk factor has been revised to disclose the impact of the
FDA's request for further preclinical studies on our current and future
capital needs. We have disclosed that we believe we have sufficient capital
on hand to initiate these clinical studies and
October 12, 2005
Page 5
that further requests for preclinical studies by the FDA may require the
expenditure of funds in excess of the amounts currently budgeted for
preclinical and Phase I development of MDI-P for treatment of cystic
fibrosis.
14. IN THE FOURTH SENTENCE OF THE RISK FACTOR YOU STATE THAT YOU DO NOT
ANTICIPATE THAT REVENUES WILL SATISFY THESE CAPITAL REQUIREMENTS. THIS
SUGGESTS THAT YOU CURRENTLY HAVE REVENUES, WHICH IS NOT THE CASE. PLEASE
DELETE THE STATEMENT.
The referenced sentence in this risk factor has been deleted in response to
the staff's comment.
15. IN THE LAST BULLET OF THE RISK FACTOR YOU REFER TO "THE EFFECT OF THE
EXERCISE OF OUTSTANDING OPTIONS AND WARRANTS EXERCISABLE INTO APPROXIMATELY
60 MILLION SHARES OF COMMON STOCK." PLEASE DESCRIBE WHAT THIS EFFECT IS
LIKELY TO BE.
The reference risk factor has been revised to disclose that dilution is the
likely effect of the exercise of outstanding options and warrants, and
references the risk factor detailing the risk of dilution below.
OUR OPERATIONS ARE AND WILL BE SUBJECT TO EXTENSIVE REGULATION. - PAGE 4
16. PLEASE REFER TO COMMENT 8 IN OUR PREVIOUS LETTER. IN THAT COMMENT WE ASKED
YOU TO RECONCILE A NUMBER OF STATEMENTS REGARDING SUBMISSION OF AN IND TO
THE FDA. YOUR RESPONSE INDICATES THAT YOU REVISED THE PROSPECTUS IN
RESPONSE TO THE COMMENT, BUT WE ARE UNABLE TO LOCATE THE REVISED
DISCLOSURE. PLEASE TELL US WHERE TO FIND THE REVISED DISCLOSURE, OR PROVIDE
US WITH THE INFORMATION WE PREVIOUSLY REQUESTED.
The inconsistent statements referred to in comment 8 to Amendment 1 were
removed from Amendment 2 in response to this and other staff comments. The
Summary on page 1 has been revised in Amendment 3 to include disclosure of
the exact developmental status of MDI-P, namely that an IND for MDI-P is on
file with FDA and we are awaiting results of further preclinical studies to
seek FDA approval to proceed with Phase I clinical trials.
WE FACE INTENSE COMPETITION AND COMPETING PRODUCTS. - PAGE 6
17. THE INFORMATION IN THIS RISK FACTOR IS SO VAGUE AND ABSTRACT THAT IT IS
APPLICABLE TO MOST COMPANIES IN YOUR INDUSTRY. PLEASE EXPAND THE RISK
FACTOR TO IDENTIFY YOUR MOST SIGNIFICANT COMPETITORS AND THE COMPETING
PRODUCTS FOR EACH OF YOUR PROPOSED DRUGS. DISCUSS HOW YOU PROPOSE TO
COMPETE WITH THESE COMPETITORS AND PRODUCTS GIVEN YOUR LIMITED RESOURCES.
October 12, 2005
Page 6
The referenced risk factor has been revised at page 6 to disclose our most
significant competitors, identified as the manufacturers of currently
available, commonly used therapies for treatment of HIV, cystic fibrosis
and breast cancer. The revised risk factor also discloses that we may
pursue a co-development partner or licensing opportunities to enable our
technologies, should they be commercialized, to compete in the respective
markets.
OUR INTELLECTUAL PROPERTY MAY NOT BE ADEQUATELY PROTECTED. - PAGE 6
18. PLEASE REFER TO COMMENT 9 IN OUR PREVIOUS LETTER. YOUR REVISED RISK FACTOR
DOES NOT ADDRESS MOST OF THE ISSUES WE RAISED IN THAT COMMENT. PLEASE
REVISE THE RISK FACTOR AS WE PREVIOUSLY REQUESTED.
The referenced risk factor was revised at page 7 to disclose the number of
patents, what those patents cover, and their durations, including
references to the more detailed information contained in the Description of
Business section.
WE MAY NEED TO LITIGATE TO SECURE OUR RIGHTS TO SAVECREAM AND RELATED ASSETS. -
PAGE 7
19. YOU SAY THAT AT THE TIME YOU ACQUIRED SAVECREAM, THE SELLER HAD NOT YET
OBTAINED AND FILED WITH THE APPROPRIATE PATENT OFFICES ASSIGNMENTS OF THE
VARIOUS INVENTORS' RIGHTS TO THE UNDERLYING INVENTIONS. PLEASE EXPAND THE
RISK FACTOR TO IDENTIFY THE PATENT OFFICES, INVENTORS, INVENTORS' RIGHTS
AND UNDERLYING INVENTIONS YOU REFER TO.
The referenced risk factor has been revised at page 7 to identify the
inventors and the specific rights that have not yet been assigned by one of
the inventors to the company.
20. YOU SAY FURTHER THAT YOU MAY NEED TO INITIATE LITIGATION AGAINST THE
INVENTORS TO SECURE THE ASSIGNMENTS. PLEASE INDICATE WHAT COUNTRY YOU WOULD
HAVE TO LITIGATE THIS ISSUE IN, WHETHER YOU CURRENTLY HAVE THE FUNDS TO DO
SO, AND WHETHER THE INVENTORS HAVE REFUSED TO MAKE THE ASSIGNMENTS. IF SO,
ALSO INDICATE WHAT THE BASIS FOR THEIR REFUSAL IS.
The referenced risk factor has been revised at page 7 to indicate that any
litigation that may be required against one of the SaveCream inventors
would be brought in each of the countries in which patent applications have
been filed and that we may not have sufficient funds to effectively
prosecute those claims. We further disclose that one of the inventors has
assigned his rights in the SaveCream patent to the company. The other
inventor has refused to make the assignment he is contractually bound to
make, and we are unaware of any basis in law for his refusal.
October 12, 2005
Page 7
21. IT IS UNCLEAR WHETHER THE FAILURE TO OBTAIN THE ASSIGNMENTS MEANS THAT THE
INTELLECTUAL PROPERTY YOU ACQUIRED IN THIS TRANSACTION IS NOT PATENTABLE,
OR WHETHER PATENT APPLICATIONS HAVE EVEN BEEN FILED. WE MAY HAVE ADDITIONAL
COMMENTS AFTER WE REVIEW YOUR RESPONSE.
The referenced risk factor has been revised at page 7 to disclose that the
inventions are patentable, patent applications have been filed and have
been issued in many cases (as described more fully in the Description of
Business section), and intellectual property rights obtained from SaveT
will remain subject to patent protection should we fail to obtain the
second inventor's assignment. We further disclose the specific adverse
consequences should we be unable to procure the inventor's assignment.
THE MARKET FOR OUR STOCK IS THIN AND SUBJECT TO MANIPULATION. - PAGE 8
22. PLEASE REVISE THE RISK FACTOR TO DISCUSS THE "THIN" TRADING IN YOUR STOCK
AS WELL AS THE POTENTIAL FOR "MANIPULATION" REFERENCED IN THE SUBHEADING.
QUANTIFY THE DISCLOSURE TO THE EXTENT PRACTICABLE.
The referenced risk factor has been revised in response to the Staff's
comments. We disclose that the low trading volume in our stock increases
the volatility of the stock price and may lead to significant fluctuations
in value with sales of even small blocks of stock. We further disclose the
risk of naked short selling arising from the thin trading in our stock.
OBTAINING ADDITIONAL CAPITAL THOUGH THE SALE OF COMMON STOCK WILL RESULT IN
DILUTION OF STOCKHOLDER INTERESTS. - PAGE 8
23. WE NOTE THAT THIS RISK FACTOR IS RELATED TO THE RISK FACTOR CALLED "WE MAY
NOT BE ABLE TO RAISE SUFFICIENT CAPITAL..." ON PAGE 3. PLEASE RELOCATE IT
SO THAT IT FOLLOWS THAT RISK FACTOR. ALSO, PLEASE TIE THIS RISK TO THE LAST
BULLET IN THE RISK FACTOR ON PAGE 3.
In response to the Staff's comment, the referenced risk factor has been
moved to follow the risk factor, "We may not be able to raise sufficient
capital..." on page 3. The last bullet in the previous risk factor has been
deleted as the risk it addresses is more appropriately covered under this
dilution risk factor.
24. UNDER "DILUTION" ON PAGE 10, YOU DISCUSS THE ADVERSE IMPACT THAT
OUTSTANDING OPTIONS AND CONVERSION RIGHTS MAY HAVE ON FUTURE EQUITY
OFFERINGS. YOU SHOULD ALSO ADDRESS THIS IMPACT IN THE RELOCATED RISK
FACTOR.
The referenced risk factor was revised to discuss the adverse impact that
outstanding options and conversion rights may have on future equity
offerings.
October 12, 2005
Page 8
SELLING SECURITY HOLDERS - PAGE 10
25. IN COMMENT 11 OF OUR PREVIOUS LETTER WE REQUESTED THAT YOU TELL US WHETHER
ANY OF THE NATURAL PERSONS HAVING BENEFICIAL OWNERSHIP OF THE SECURITIES
REGISTERED FOR SALE ARE BROKER/DEALERS OR AFFILIATES OF BROKER/DEALERS.
YOUR LETTER INDICATES THAT THE PROSPECTUS HAS BEEN REVISED IN RESPONSE TO
THE COMMENT. PLEASE TELL US WHERE THIS INFORMATION IS LOCATED OR PROVIDE US
WITH THE INFORMATION WE PREVIOUSLY REQUESTED.
The referenced section has been revised to disclose that Ascendiant
Securities, LLC is a registered broker-dealer, and Messrs. Wilhite and
Bergendahl are registered principals of Ascendiant. No other parties are
broker/dealers or affiliates.
26. IN COMMENT 11, WE ALSO ASKED YOU TO INCLUDE THE IDENTITIES OF THE NATURAL
PERSONS HAVING BENEFICIAL OWNERSHIP OF THE SECURITIES BEING REGISTERED. AS
PREVIOUSLY REQUESTED, PLEASE IDENTIFY THE NATURAL PERSONS HAVING BENEFICIAL
OWNERSHIP OF THE SECURITIES BEING REGISTERED ON BEHALF OF ASCENDIANT
SECURITIES, LLC AND ASCENDIANT CAPITAL GROUP, LLC.
The referenced risk factor has been revised to disclose, in footnotes 7 and
8 to the beneficial ownership table on page 12, that Ascendiant Securities
LLC is a wholly owned subsidiary of Ascendiant Capital Group LLC, whose
beneficial owners are Bradley Wilhite and Mark Bergendahl.
27. THE REVISED DISCLOSURE AT THE TOP OF PAGE 12 INDICATES THAT THE TABLE THAT
FOLLOWS PRESENTS INFORMATION REGARDING SECURITIES EXERCISABLE BEFORE JUNE
2, 2005. PLEASE REVISE THE DISCLOSURE AND THE TABLE TO INCLUDE THIS
INFORMATION FOR ANY SECURITIES EXERCISABLE WITHIN 60 DAYS BEFORE AND AFTER
THE FILING DATE OF THE AMENDMENT. PLEASE MAKE A SIMILAR REVISION TO THE
OWNERSHIP TABLE ON PAGE 17.
The disclosure preceding the table clearly indicates that the information
was compiled in compliance with applicable SEC rules. This includes the
requirement that information in table represent securities exercisable
within 60 days before and after filing, as indicated in footnote b of the
table.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT - PAGE 17
28. YOU HAVE NOT PROPERLY DISCLOSED THE OWNERSHIP INFORMATION FOR MERCATOR
ADVISORY GROUP, LLC IN THE TABLE. YOU HAVE DISCLOSED, ON PAGE 12, THAT
MERCATOR ADVISORY GROUP CONTROLS THE INVESTMENTS OF THE MONARCH FUND AND
BOTH MERCATOR MOMENTUM FUNDS. THUS, THE NUMBER OF SHARES ATTRIBUTED TO
MERCATOR ADVISORY GROUP IN THE TABLE SHOULD INCLUDE ALL OF THE SHARES
ATTRIBUTABLE TO EACH OF THE FUNDS.
October 12, 2005
Page 9
IT ALSO APPEARS THAT DAVID F. FIRESTONE SHOULD BE IDENTIFIED IN THE TABLE
AS THE BENEFICIAL OWNER OF ALL OF THE SHARES HELD BY THE FUNDS AND THE
GROUP. PLEASE REVISE THE TABLE AND THE FOOTNOTES ACCORDINGLY.
The referenced table has been revised as requested.
29. CURRENTLY, THE FOOTNOTES CONTAIN "ESTIMATES" OF THE NUMBER OF SHARES THAT
MAY BE ACQUIRED UPON EXERCISE OF OPTIONS. PLEASE REVISE THE TABLE AND THE
FOOTNOTES TO SHOW THE EXACT NUMBER OF SHARES THAT MAY BE ACQUIRED BY EACH
NAMED PERSON UPON THE EXERCISE OF THEIR STOCK OPTIONS.
The referenced footnotes have been revised to disclose exact numbers of
shares that may be acquired upon exercise of options.
30. PLEASE ALSO REVISE THE TABLE AND THE FOOTNOTES TO SHOW THE EXACT NUMBER OF
SHARES THAT CAN BE ACQUIRED BY EACH NAMED PERSON UPON THE EXERCISE OF
WARRANTS OR THE CONVERSION OF CONVERTIBLE SECURITIES. WHERE CONVERTIBLE
SECURITIES ARE CONVERTIBLE BASED ON THE CURRENT PRICE OF YOUR STOCK,
PROVIDE THE OWNERSHIP INFORMATION BASED ON THE MOST RECENT PRACTICABLE
STOCK PRICE WITH APPROPRIATE CALCULATIONS PRESENTED IN THE FOOTNOTES.
PLEASE MAKE SIMILAR CHANGES TO THE SELLING SECURITY HOLDER INFORMATION ON
PAGE 10.
The referenced table has been revised as requested to disclose exact
numbers of shares, based upon the most recent stock price.
PREFERRED STOCK - PAGE 19
31. PLEASE REFER TO COMMENT 17 IN OUR PREVIOUS LETTER. ALTHOUGH YOU STATE THAT
THE PROSPECTUS WAS REVISED IN RESPONSE TO THE COMMENT, WE ARE UNABLE TO
LOCATE ANY INFORMATION REGARDING A DIVIDEND PREFERENCE. PLEASE REVISE OR
ADVISE AS WE PREVIOUSLY REQUESTED.
Comment 17 to Amendment 1 requested a description of the dividend
preference for the Series A preferred stock, as well as a quantification of
what holders of outstanding shares of preferred stock are entitled to upon
dissolution of the company. In Amendment 2, we revised the Preferred Stock
disclosure, appearing on page 19 of Amendment 2, to include the precise
language set forth in the Designation. Thus, no additional information
about the rights of holders of preferred stock is available. A copy of the
Designation has been filed.
October 12, 2005
Page 10
DESCRIPTION OF BUSINESS - PAGE 22
32. PLEASE DELETE THE THIRD SENTENCE OF THE THIRD PARAGRAPH UNDER THIS HEADING.
IT IS A CONCLUSORY STATEMENT UNSUPPORTED BY FACTS.
The referenced sentence on page 22 has been revised to include supporting
facts. We disclose the specific results of our preliminary and anecdotal
clinical trials in which an average fifty percent reduction in tumor size
was obtained with two weeks' treatment.
33. PLEASE ALSO DELETE THE NEXT TO LAST SENTENCE OF THE FIRST PARAGRAPH UNDER
"RELATED DEVELOPMENTS" ON PAGE 23. IT TOO IS A CONCLUSORY STATEMENT
UNSUPPORTED BY FACTS.
The referenced sentence on page 22 has been revised to include supporting
facts. We disclose the specific results of our preliminary and anecdotal
clinical trials in which an average fifty percent reduction in tumor size
was obtained with two weeks' treatment.
34. ON PAGE 23, IN THE THIRD PARAGRAPH UNDER "RECENT DEVELOPMENTS," YOU STATE
THAT YOU EXPECT TO EXPAND THE CLINICAL TRIALS FOR SAVECREAM OVER 2005 AND
THAT THIS WILL "OPEN THE DOOR TO COMMERCIALIZATION OPPORTUNITIES" FOR
SAVECREAM BY LATE 2006. YOU HAVE NOT YET FILED AN IND FOR THIS PROPOSED
PRODUCT, AND YOU DO NOT APPEAR TO HAVE THE FUNDS TO DO SO. ACCORDINGLY,
THESE STATEMENTS ARE INAPPROPRIATE. PLEASE DELETE THEM.
The referenced paragraph has been revised in response to the Staff's
comments. We disclose that we intend to perform additional preclinical
development for SaveCream, but we will need to raise additional funds to do
so. We further disclose that co-development or out-licensing opportunities
may be pursued should we be unable to fund the required pre-clinical
testing. Please note that "commercialization" includes any ability to
generate revenues, and any technology at any stage of development may be
sold or licensed.
35. IN THE LAST PARAGRAPH ON PAGE 23 YOU STATE THAT YOU HAVE AGREED WITH THE
FDA ON A "LARGE ANIMAL MODEL PROTOCOL" TO ESTABLISH PHARMACOLOGICAL SAFETY
WITH RELATION TO CARDIOVASCULAR AND CENTRAL NERVOUS SYSTEM TOXICITY" FOR
YOUR PENDING IND APPLICATION AND EXPECT TO BEGIN THAT PHASE OF THE TESTING
IN THE VERY NEAR FUTURE AND TO START PHASE I CLINICAL TRIALS IN CYSTIC
FIBROSIS IN THE FOURTH QUARTER OF 2005. GIVEN YOUR CURRENT FINANCIAL
CONDITION AND LACK OF FUNDS, IT IS NOT CLEAR HOW YOU INTEND TO DO THIS.
PLEASE IDENTIFY THE SOURCE OF FUNDS YOU WILL USE TO DO THIS AND HOW MUCH
YOU ANTICIPATE IT WILL COST. IF YOU ARE UNABLE TO PROVIDE THIS INFORMATION,
PLEASE DELETE THE STATEMENTS REGARDING THE TIMING OF YOUR RESEARCH
ACTIVITIES.
October 12, 2005
Page 11
The referenced paragraph has been revised in response to the staff's
comments. We disclose that we have entered into fixed price contracts for
the research services we believe will be necessary to complete the
preclinical testing and initiate the Phase I cystic fibrosis testing of
MDI-P, and that we believe we have budgeted sufficient funds for these
activities.
36. IN A NUMBER OF PLACES IN YOUR REVISED DISCLOSURE YOU MAKE CLAIMS REGARDING
THE SIZE OF MARKETS, SIDE-EFFECTS OF EXISTING PRODUCTS AND OTHER
STATISTICAL CLAIMS. SEE, FOR EXAMPLE, THE THIRD PARAGRAPH ON PAGE 26, THE
THIRD PARAGRAPH ON PAGE 27 AND THE LAST THREE PARAGRAPHS ON PAGE 29. PLEASE
PROVIDE US WITH FACTUAL SUPPORT FOR EACH CLAIM YOU MAKE, INCLUDING COPIES
OF THE DOCUMENTS YOU ARE RELYING ON IN MAKING THE CLAIMS. MARK THE
SUPPORTING DOCUMENTS TO SHOW THE SPECIFIC LOCATION OF THE INFORMATION
UNDERLYING EACH CLAIM. WE MAY HAVE FURTHER COMMENT AFTER REVIEWING THE
SUPPORTING DOCUMENTS.
The Description of Business section has been revised in response to the
Staff's comments. Appendix 1 to this letter contains supporting
documentation for all market information, reported side effects and other
statistical claims appearing in the revised disclosure.
37. PLEASE REFER TO THE BULLETS AT THE BOTTOM OF PAGE 27. PLEASE REVISE THIS
AND ALL OTHER INSTANCES WHERE YOU HAVE STATED THAT YOUR PROPOSED PRODUCTS
HAVE BEEN SHOWN, DEMONSTRATED OR OTHERWISE SUGGESTED THAT ANY OF YOUR
PRODUCT CANDIDATES IS SAFE OR EFFECTIVE, INCLUDING THE LAST SENTENCE ON
PAGE 28 AND THE LAST SENTENCE OF THE CARRYOVER PARAGRAPH AT THE TOP OF PAGE
29 AND ALL OF THE DISCLOSURE UNDER "POTENTIAL BENEFITS OF SAVECREAM IN
TREATING ER-POSITIVE BREAST CANCERS" ON PAGE 30. THESE CONCLUSIONS ARE FOR
THE FDA OR SIMILAR FOREIGN REGULATORY AUTHORITY TO MAKE. ADDITIONALLY, WHEN
REFERRING TO THE FDA OR OTHER REGULATORY AUTHORITY'S FINDING YOU SHOULD
STATE THAT THE CANDIDATE IS SUFFICIENTLY SAFE OR EFFECTIVE AS THEY DO NOT
DECLARE A PRODUCT TO BE SAFE. WE WILL NOT OBJECT IF YOU DISCLOSE THAT A
CANDIDATE WAS WELL TOLERATED OR DEMONSTRATED POSITIVE RESULTS.
The referenced statements have been revised to clarify that we are
disclosing our hopes for positive outcomes with the use of our products
based on preliminary research, and that these outcomes have not yet been
established and will have to be demonstrated by further clinical testing.
38. PLEASE REFER TO COMMENT 22 IN OUR PREVIOUS LETTER. WE ARE UNABLE TO LOCATE
THE REVISED DISCLOSURE. PLEASE ADVISE US WHERE IT IS LOCATED OR REVISE AS
WE PREVIOUSLY REQUESTED.
The referenced statement does not appear in the Description of Business
section of Amendment 2. A similar statement appearing in the Management
Discussion and Analysis section of Amendment 2, at page 38, has been
revised to disclose the source of funding budgeted to initiate the Phase I
cystic fibrosis trials and our belief that additional funding may be
necessary to complete the trials.
October 12, 2005
Page 12
39. PLEASE REVISE YOUR DISCUSSION OF PATENTS TO EXPLAIN WHAT A "METHOD PATENT"
IS. ALSO, WE ARE UNABLE TO LOCATE THE REVISIONS YOU MADE IN RESPONSE TO
COMMENT 23, EXCEPT FOR THE DURATION OF THE PATENTS. PLEASE PROVIDE THE
REMAINDER OF THE INFORMATION WE REQUESTED IN THAT COMMENT.
The disclosures related to our intellectual property have been revised in
response to the Staff's comments. We have included in the description of
each patent a statement of whether it covers a substance or a method of
using or producing a substance. We have disclosed that we believe our
existing patents and pending patent applications, if granted, are
sufficient to protect the intended uses of MDI-P and SaveCream, but that
additional patents may be sought if new intended uses are pursued.
MANAGEMENT'S DISCUSSION AND ANALYSIS - PAGE 37
LIQUIDITY AND CAPITAL RESOURCES - PAGE 38
40. IN THE SECOND PARAGRAPH UNDER THIS HEADING YOU REFER TO MAKING "THE SECOND
INSTALLMENT ON OUR PURCHASE OF THE SAVECREAM ASSETS." WE ARE UNABLE TO
LOCATE ANY DISCUSSION OF THESE INSTALLMENT PAYMENTS IN CONJUNCTION WITH
YOUR DESCRIPTION OF THE ACQUISITION. PLEASE DISCUSS YOUR PURCHASE
ARRANGEMENT IN GREATER DETAIL, QUANTIFYING THE DISCLOSURE TO THE EXTENT
PRACTICABLE. WE MAY HAVE ADDITIONAL COMMENTS AFTER REVIEWING YOUR RESPONSE.
In Amendment 2, a complete description of the acquisition of the SaveCream
assets was included in the Notes to Financial Statements Section, Note J -
Subsequent Events. These details, including details of the installment
payment schedule, have been included at page 23, under Recent Developments,
in the Description of Business Section.
41. WE NOTE THAT YOUR AGREEMENT TO ACQUIRE THESE ASSETS HAS NOT BEEN FILED AS
AN EXHIBIT TO THE REGISTRATION STATEMENT. PLEASE INCLUDE IT IN YOUR NEXT
AMENDMENT, IN ADDITION, PLEASE EXPAND THE DISCUSSION IN THE BUSINESS
SECTION TO INCLUDE A DISCUSSION OF ALL OF THE MATERIAL PROVISIONS OF THAT
AGREEMENT.
The Description of Business section has been revised as described above to
include the material terms of the asset purchase agreement. The agreement
was filed with the Q2 10-Q and is referenced as Item 2.1 in the Exhibit
Index.
42. PLEASE PROVIDE FACTUAL SUPPORT FOR YOUR CLAIM THAT YOU HAVE SUFFICIENT
CAPITAL ON HAND TO COMPLETE PHASE I CLINICAL TRIALS FOR CYSTIC FIBROSIS. WE
NOTE, IN THIS REGARD, THAT THE FDA HAS NOT APPROVED THE IND, ALTHOUGH IT
HAS BEEN PENDING FOR AN EXTENDED PERIOD OF TIME, AND HAS APPARENTLY
REQUIRED YOU TO CONDUCT ADDITIONAL PRE-CLINICAL STUDIES IN ORDER TO
CONSIDER IT FURTHER.
October 12, 2005
Page 13
The referenced statement on page 38 has been revised in response to the
staff's comments to detail the source of funding for the pre-clinical and
Phase I trials. We disclose the basis of our belief that we have sufficient
funds to cover the costs of completing the preclinical work and initiating
the Phase I trials, and note that additional funds may be required to
complete Phase I testing.
RELATED PARTY TRANSACTIONS - PAGE 40
43. PLEASE REFER TO COMMENT 19 IN OUR PREVIOUS LETTER. THE REVISED DISCLOSURE
DOES NOT DISCLOSE THE PERIOD OF TIME OVER WHICH THE EXPENSES WERE RENDERED
OR ACCRUED. PLEASE REVISE AS WE PREVIOUSLY REQUESTED.
The referenced disclosure on page 40 has been revised to state that the
accounts payable represent accrued compensation for the period June 2000
through June 2005.
44. PLEASE RECONCILE THE AMOUNT PAYABLE TO YOUR CEO LISTED HERE WITH THE AMOUNT
DISCLOSED IN FOOTNOTE A ON PAGE 42.
Amendment 2 discloses that the amount payable to our CEO on page 40
represents the total payable as of March 31, 2005, while the amount listed
on page 42 is for the period ended December 31, 2004. In Amendment 3, the
disclosure on page 40 has been updated to reflect the total payable as of
June 30, 2005.
45. PLEASE REFER TO COMMENT 20 IN OUR PREVIOUS LETTER. WE ARE UNABLE TO FIND
THE LOCATION OF THE DISCUSSION OF THE TERMS OF THE ORAL AGREEMENT BETWEEN
THE COMPANY AND MS. ROBINETT. PLEASE REVISE THE DISCLOSURE AS WE PREVIOUSLY
REQUESTED.
The related Party Transactions section has been revised to indicate that
the executed employment agreement between the company and Ms. Robinett is
attached as Exhibit 10.4, and the agreement has been filed with this
amendment.
46. THE REVISED DISCLOSURE IN THIS SECTION DOES NOT INCLUDE ALL OF THE
INFORMATION SPECIFIED IN ITEM 404 OF REGULATION S-B. FOR EACH IDENTIFIED
TRANSACTION, INCLUDE THE NAME OF THE PERSON, INCLUDING THE STOCKHOLDERS TO
WHOM YOU OWE MONEY, THE NATURE OF THE PERSON'S INTEREST IN THE TRANSACTION
AND THE AMOUNT OF EACH SUCH INTEREST.
Our current noteholders are not shareholders. Therefore, we have deleted
such references.
October 12, 2005
Page 14
PART II
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
47. WE NOTE THAT YOU MADE SALES OF SECURITIES IN MARCH IN PRIVATE PLACEMENTS IN
ADDITION TO THE SALE OF CONVERTIBLE PREFERRED SECURITIES CURRENTLY
DISCUSSED IN THE PROSPECTUS. PLEASE EXPAND THE DISCLOSURE IN THE MD&A
SECTION TO DISCUSS THESE SALES IN REASONABLE DETAIL. ALSO, THE REVISED
DISCLOSURE IN THIS SECTION SHOULD IDENTIFY THE PERSONS TO WHOM YOU SOLD THE
SECURITIES AND CLARIFY THE CLAIMED EXEMPTION FROM REGISTRATION AND THE
FACTS RELIED UPON TO MAKE THE EXEMPTION AVAILABLE. IT APPEARS THAT YOU ARE
CLAIMING RELIANCE ON RULE 144 FOR EXEMPTION FROM REGISTRATION.
Item 26 has been revised to include the information requested in the
Staff's comment. This includes a disclosure that we believe these sales
were exempt from registration pursuant to Section 4(2) of the Securities
Act of 1933 because the sales did not involve a public offering.
SIGNATURES
48. WE HAVE NOTED YOUR RESPONSE TO COMMENT 29. PLEASE REFER TO THE INSTRUCTIONS
FOR SIGNATURES IN THE FORM SB-2 AND REVISE AS WE PREVIOUSLY REQUESTED.
We have added our controller's signature to the registration statement.
FINANCIAL STATEMENTS - DECEMBER 31, 2004
INDEPENDENT AUDITORS' REPORT, PAGE F-3
49. PLEASE INCLUDE, IN THE FILING, THE AUDIT REPORT OF THE OTHER AUDITORS DATED
MARCH 20, 2000 REFERRED TO BY EIDE BAILLY LLP RATHER THAN THE ONE DATED
MARCH 6, 1999.
The March 20, 2000 audit report has been added in response to the Staff's
comment.
NOTES TO FINANCIAL STATEMENTS, PAGE F-10
NOTE A - SIGNIFICANT ACCOUNTING POLICIES, PAGE F-8
OTHER INCOME, PAGE F-10
50. PLEASE REFER TO YOUR JUNE 2, 2005 RESPONSE TO COMMENT 27:
o TELL US WHEN THE INDIVIDUAL RELEASED YOU FROM THE LIABILITY AND, IF NOT
DURING 2003, HOW RECORDING THE $219, 000 IN YOUR 2003 FINANCIAL STATEMENTS
COMPLIES WITH GAAP.
October 12, 2005
Page 15
The individual released us from liability as of March 22, 2001. It was
appropriate under GAAP to record this change once the prior error was
discovered. We did not deem the error to be material enough for GAAP to
require us to restate our 2001 and 2002 financials.
o TELL US WHEN THE APPLICABLE STATUTES OF LIMITATION EXPIRED AND WHY
RECORDING THE $319,828 IN YOUR 2003 FINANCIAL STATEMENTS COMPLIES WITH
GAAP. FURTHER TELL US WHY THE EXPIRATION OF STATUTE OF LIMITATION
JUDICIALLY RELEASES YOU FROM THE DEBT. PLEASE CONFIRM THAT THE AMOUNT DOES
NOT ESCHEAT TO THE STATE.
The applicable statutes of limitation expired in 2001 through 2003. It was
appropriate under GAAP to record this in 2003 because it was in that year
that we undertook to closely examine all aged payables and asked for a
legal opinion from counsel concerning the statutes of limitation. Based on
advice from our auditors, our understanding is that FAS 140 can be
satisfied either by court order or by being legally excused from liability
because of the running of the statute of limitations. Once we were excused
of the liability, the payable is no longer an asset of the creditor.
Therefore, no asset exists that may escheat to the state.
Very truly yours,
/s/ Stephen R. Drake
Stephen R. Drake
Encl. Appendix 1
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