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As filed with the Securities and Exchange Commission on December 23, 1997
Registration No. 333-11551
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------
POST-EFFECTIVE AMENDMENT NO. 1
ON FORM S-3
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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PACIFIC BIOMETRICS, INC.
(Name of Small Business Issuer in its Charter)
Delaware 8731 93-1211114
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification No.)
incorporation or Classification Number)
organization)
-----------------
Paul G. Kanan, President
PACIFIC BIOMETRICS, INC. Pacific Biometrics, Inc.
1370 Reynolds Avenue, Suite 119 1370 Reynolds Avenue, Suite 119
Irvine, CA 92614 Irvine, CA 92614
(714) 263-9933 (714) 263-9933
(Name, address and telephone number (Name, address and
of principal executive offices and telephone number
principal place of business) of agent for service)
-----------------
Copy to:
Neil S. Belloff, Esq.
Proskauer Rose LLP
1585 Broadway
New York, New York 10036
(212) 969-3000
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Approximate Date of Proposed Sale to the Public: As soon as practicable
after the Registration Statement becomes effective.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. |_|
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. |X|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
----------------------
The Registrant hereby amends this registration statement on such date
or dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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PACIFIC BIOMETRICS, INC.
CROSS REFERENCE SHEET
Form S-3 Location
Item Number and Caption in Prospectus
1. Forepart of the Registration
Statement and Outside Front Cover
Page of Prospectus Outside Front Cover Page
2. Inside Front and Outside Back Cover
Pages of Prospectus Inside Front and Outside Back
Cover Pages
3. Summary Information, Risk Factors
and Ratio of Earnings to Fixed Charges Prospectus Summary; Risk Factors
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Price Plan of Distribution
6. Dilution Dilution
7. Selling Security Holders Not Applicable
8. Plan of Distribution Cover Page; Plan of Distribution
9. Description of Securities to
be Registered Description of Securities; Plan
of Distribution
10. Interests of Named Experts and
Counsel Legal Matters; Experts
11. Material Changes The Company
12. Incorporation of Certain
Information by Reference Incorporation of Certain
Documents by reference
13. Disclosure of Commission Position
on Indemnification for Securities
Act Liabilities Commission Position on
Indemnification
<PAGE>
PROSPECTUS
Pacific Biometrics, Inc.
1,700,000 Redeemable Warrants
------------------------
This prospectus relates to the Redeemable Warrants (the "Warrants") of
Pacific Biometrics, Inc., a Delaware corporation (the "Company"), issued in
connection with the Company's initial public offering of its securities in
October 1996. Each Warrant entitles the registered holder thereof to purchase,
at any time until January 31, 1998 (the "Expiration Date"), one share of common
stock, par value $.01 per share (the "Common Stock"), at an exercise price of
$12.00, subject to adjustment. In December 1997, the Company agreed to extend
the Expiration Date to June 30, 1998. The Warrants are redeemable by the Company
under certain conditions, at a redemption price of $.10 per Warrant, upon at
least thirty days' prior written notice. See "Description of
Securities--Warrants."
The Common Stock and Warrants are each quoted on the National
Association of Securities Dealers Automated Quotation ("Nasdaq") Small Cap
Market under the symbols "PBMI" and "PBMIW", respectively. On December 19, 1997,
the closing bid and last sale price of the Common Stock and Warrants were
$2.50 and $2.625, and $0.1875 and $0.1875, respectively.
------------------------
THESE ARE SPECULATIVE SECURITIES AND AN INVESTMENT IN THESE
SECURITIES INVOLVES A HIGH DEGREE OF RISK, IS SUBJECT TO
SUBSTANTIAL DILUTION, AND ONLY THOSE WHO CAN BEAR THE
RISK OF THE ENTIRE LOSS OF THEIR INVESTMENT SHOULD
PARTICIPATE. SEE "RISK FACTORS" BEGINNING ON PAGE 8.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL
OFFENSE.
December ___, 1997
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The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports and
other information can be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
NW, Washington D.C. 20549 and at the Commission's regional offices at 7 World
Trade Center, 13th floor, New York, New York 10048, and 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511. Copies of such material can be
obtained from the Public Reference Section of the Commission at prescribed
rates. The Commission maintains a World Wide Web site that contains the
Company's Registration Statement and other information filed electronically with
the Commission. The address of the Commission's World Wide Web site is
http://www.sec.gov. The Company furnishes its stockholders with annual reports
containing audited financial statements examined by the Company's independent
public accountants and makes available its quarterly reports containing
unaudited financial information for each of the first three quarters of each
fiscal year.
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements (including the notes thereto) appearing
elsewhere in the Company's periodic reports filed with the Commission and
incorporated herein by reference thereto. All references to the "Company"
contained herein refer to the Company and its wholly-owned subsidiaries, unless
the context otherwise requires.
THE COMPANY
The Company develops diagnostic and laboratory products and provides
laboratory services in the fields of cardiovascular disease and osteoporosis
laboratory testing. The Company's strategy is to focus on the development of
cost-effective, non-invasive diagnostic tests and improved laboratory techniques
in order to achieve early diagnosis, prevention, and therapeutic monitoring. The
Company plans to (i) finalize development and commercialize a patented skin
patch product that measures bone loss markers in human perspiration (the
"Osteopatch(TM)"); (ii) expand its specialty reference laboratory business; and
(iii) evaluate the feasibility of non-invasive glucose testing using
SalivaSac(R), its patented saliva collection device.
Bone diseases and disorders, including osteoporosis, are a significant
health problem worldwide. An estimated 25 million Americans, and more than 75
million persons worldwide, suffer from osteoporosis. Although the National
Osteoporosis Foundation estimates that the costs associated with osteoporosis
exceed $10 billion annually in the U.S., medical intervention usually occurs
only after symptoms such as pain or fractures appear and when treatment is
generally too late to be effective. The Company believes that over fifty new
therapeutic products are under development and that the osteoporosis therapeutic
market, currently estimated at $2 billion annually, will grow significantly.
Thus, there is a need for diagnostic tools and assessments that will identify
those at risk, allow for early treatment and enhance the physician's ability to
monitor the effectiveness of such treatment.
The Company's specialty reference laboratory has developed an expertise in
the emerging field of osteoporosis laboratory assessments through its work with
diagnostic manufacturers of assays for bone markers (i.e., Ostex International,
Inc. ("Ostex") and Metra BioSystems, Inc. ("Metra")), in addition to
pharmaceutical manufacturers of drugs that prevent bone loss (i.e., Merck & Co.,
Inc. ("Merck") and The Procter & Gamble Company ("Procter & Gamble")). This work
has helped to establish the Company as a leader in its understanding of
biochemical markers for bone formation and bone resorption (loss).
As a result of its work in this field, the Company has recognized the need
for a reliable, cost-effective diagnostic tool that would screen and monitor
individuals that are rapidly losing bone and those at risk of osteoporosis. The
Company has licensed technology for a transdermal collection device, the
Osteopatch(TM), and obtained exclusive rights to antibodies for the detection of
bone loss markers in perspiration. These technologies provide the Company with
the opportunity
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to develop a unique diagnostic tool, coupled with a laboratory analytical
service, which should prove to be a useful indicator of bone loss. The
Osteopatch(TM) product development effort is the Company's primary focus at this
time.
In addition to its work in osteoporosis, the Company's reference laboratory
is recognized as a leader in the fields of laboratory method verification,
technical consulting, clinical trials and reference materials for cholesterol
measurements and related risk factors for coronary heart disease. The Company,
through an affiliated foundation, is one of twelve Centers for Disease Control
("CDC") reference network laboratories for the standardization of cholesterol
testing. The Company intends to expand the marketing of its specialty laboratory
services to pharmaceutical and diagnostic clients in its areas of expertise. In
addition, through the development and commercialization of the Osteopatch(TM),
the Company will expand its business opportunities into clinical laboratory
analysis of bone markers. The Company anticipates that its laboratory facilities
will be positioned to capture a significant portion of the analysis revenues
which will be associated with the Osteopatch(TM) product.
Saliva is a useful body fluid for diagnostic purposes but is difficult to
handle in the laboratory because it contains mucopolysaccharides, particulate
matter, blood contamination, enzymes and other large molecules. These substances
tend to complicate the processing of saliva, which must be frozen or
centrifuged, and often interfere with sensitive assays used to measure analytes
of medical interest. The Company has a patented saliva collection and processing
device called the SalivaSac(R). The SalivaSac(R) is a small device consisting of
a semipermeable outer membrane and containing a small quantity of a substance
such as salt or sugar that acts as an osmotic driver. When the device is placed
in the mouth it rapidly fills with saliva that is filtered as it passes through
the semipermeable membrane. The resulting fluid is clear, easy to use, and does
not contain interfering substances. Based on preliminary studies conducted by
the Company and others, this product has numerous potential applications
including therapeutic drug monitoring, detection of drugs of abuse, measurement
of hormones and analytes of infectious disease.
The Company is also researching applications of this technology for
diabetes. While previous attempts by others to correlate saliva glucose with
blood glucose have been unsuccessful, the Company has had encouraging
preliminary results using the SalivaSac(R) device as it appears to exclude
substances that interfere with accurate glucose measurements.
In addition to developing applications for the SalivaSac(R), the Company
will seek to license the SalivaSac(R) to others for applications in markets that
the Company does not intend to serve itself. The Company does not believe that
any products developed using SalivaSac(R) will be available for regulatory
approval or test marketing prior to the end of fiscal 1998.
In December 1997, the Company signed a Technical Development and License
Agreement with Actimed Laboratories ("Actimed"), a small privately held company,
which has strip assay technology to support the continued development of a
non-invasive glucose test. The Company has obtained exclusive use of Actimed's
patented technology for glucose testing in saliva, with
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applications for the screening and monitoring of diabetes. The Company has also
commenced a joint development effort with Actimed to develop both a screening
product to detect diabetes in the general population using a saliva sample, and
a monitoring product to monitor glucose levels in diabetics through use of the
Company's SalivaSac(R) and Actimed's proprietary technology. There can be no
assurance, however, that either of these products will be successfully
developed, or if developed, will be approved for use by the U.S. Food and Drug
Administration ("FDA"), achieve market acceptance or contribute significantly to
the Company's revenues and profits.
The Company also acquired the rights to a sample preparation device which
it markets under the name SPINPRO(R). SPINPRO(R) simplifies and improves the
methods used for performing certain tests in the laboratory. By reducing the
number of manual steps involved in the testing process, the laboratory can save
labor costs and achieve more consistent and accurate results. The first
application of this device is for the testing of HDL cholesterol. SPINPRO(R) is
distributed by Sigma Diagnostics ("Sigma"), a division of Sigma Chemical Co., a
major distributor of diagnostic reagents and products, to laboratories in the
U.S. and Europe. The Company was required to make a minimum royalty payment in
June 1996 under the SPINPRO(R) license agreement in order to maintain
exclusivity of the technology. The Company elected not to make such payment and
believes that the loss of exclusivity, of which the Company has not yet been
notified, will not have a material adverse effect on the business or prospects
of the Company.
Production of SPINPRO(R) units is currently suspended as a result of the
termination of a manufacturing agreement with the Company's prior supplier of
the SPINPRO(R) product. The expected relocation of SPINPRO(R) manufacturing may
further disrupt production while new manufacturing and supply arrangements are
negotiated, however, such disruptions are not anticipated to have a material
effect on the Company's operations or financial condition, since SPINPRO(R)
revenues have not been material to date. The Company is investigating other
applications of its SPINPRO(R) technology, alternate methods of distribution and
joint venture opportunities.
In September 1997, the Company announced that it had signed a letter of
intent with Sudormed, Inc. ("Sudormed") and Sudor Partners, the licensors of the
skin patch for applications of measuring bone loss markers in sweat which is the
basis for the Company's Osteopatch(TM) system. The letter of intent provides for
the acquisition by the Company of an exclusive world-wide license to all
applications for use of the skin patch technology except for those relating to
alcohol and drugs of abuse which have been previously licensed to another
company. The parties have until December 31, 1997 to enter into a definitive
agreement and complete due diligence. If the acquisition of this license is
consummated, the Company intends to examine the potential for the sweat patch
technology in areas such as cardiovascular disease, cancer and pediatrics.
The Company owns or is the exclusive licensee of rights under thirteen
issued U.S. patents and four pending U.S. patents.
THE MERGER TRANSACTIONS
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The Company conducts its business through its wholly-owned subsidiaries,
Pacific Biometrics, Inc., a Washington corporation ("PBI-WA") and BioQuant,
Inc., a Michigan corporation ("BioQuant"). On June 28, 1996, the Company
completed the mergers (the "Mergers") whereby BioQuant and PBI-WA became
wholly-owned subsidiaries of the Company in separate stock-for-stock exchange
transactions. In January 1995, Pacific Biometrics, Inc., a Washington
corporation ("Old PBI") and Merchant House Scientific, Inc. ("MHS") were merged
into PBI/MHS Consolidation Corporation, a Washington corporation ("PBI/MHS"),
which subsequently changed its name to Pacific Biometrics, Inc. The Company
believes that the synergies among PBI-WA and BioQuant, through the technical
expertise and research capabilities of their respective personnel, will expedite
current development of the Osteopatch(TM) product and the development of
SalivaSac(R) diagnostic applications, completion of clinical trials of these
devices and receipt of FDA approval of these devices and their applications.
Additionally, the Company anticipates that its laboratory facilities will be
positioned to capture a significant portion of the analysis revenues which will
be associated with the Osteopatch(TM) product.
The Company's principal executive office is located at 1370 Reynolds
Avenue, Suite 119, Irvine, California 92614. The telephone number is (714)
263-9933.
THE OFFERING
Securities Offered 1,700,000 Warrants to purchase an
aggregate of 1,700,000 shares of
Common Stock.
Terms of Warrants Each Warrant is exercisable at any time
until January 31, 1998, which Expiration
Date has been extended by the Company
to June 30, 1998 and entitles the holder
thereof to purchase one share of Common
Stock at an exercise price of $12.00 per
share (subject to adjustment in the event
of any stock splits or other similar
events).The Warrants are redeemable by
the Company under certain conditions,
upon at least 30 days prior written
notice, at $.10 per Warrant. See
"Description of Securities--Redeemable
Warrants."
Common Stock Outstanding
Prior to Exercise of Warrants(1) 3,709,671 Shares
Common Stock Outstanding
After Exercise of Warrants(1)(2) 5,409,671 Shares
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Use of Proceeds The Company intends to apply the proceeds, if
any, received from the exercise of Warrants
to working capital for general corporate
purposes and continued implementation of the
Company's business plan. See "Use of
Proceeds."
Nasdaq Small Cap Market
Symbols(3):
Common Stock "PBMI"
Warrants "PBMIW"
Risk Factors Investment in the Common Stock and Warrants
involves a high degree of risk and
substantial dilution. See "Risk Factors"
and "Dilution."
- ----------------------
(1) Does not include Common Stock issuable upon exercise of outstanding
options and warrants to purchase shares of Common Stock, and Common Stock
reserved for issuance under the Company's stock option plan.
(2) Assumes issuance of 1,700,000 shares of Common Stock upon exercise of the
Warrants offered hereby. See "Plan of Distribution."
(3) A Nasdaq listing does not provide any assurance that an active trading
market will be maintained.
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RISK FACTORS
An investment in the securities offered hereby is highly speculative and
subject to a high degree of risk, and only those who can bear the risk of the
entire loss of their investment should participate. Prospective investors should
carefully consider the following factors in analyzing this Offering.
1. History of Losses; Uncertainty of Future Profitability. The Company has
incurred significant operating losses since inception. The consolidated net loss
for the fiscal year ended June 30, 1997 was approximately $1,577,000. The
Company's accumulated deficit at June 30, 1997 was approximately $11,735,000,
including one-time charges of an aggregate of approximately $6,802,000. The
one-time charges are related to amortization of goodwill and purchased research
and development, in connection with the Company's mergers with BioQuant and
PBI-WA. No assurance can be given that the net loss and accumulated deficit will
not continue to increase or that the Company will ever achieve profitable
operations. The Company has not had an extensive operating history and revenues
to date have been limited. Potential investors should be aware of the problems,
delays, expenses and difficulties encountered by an enterprise in the Company's
stage of development, many of which may be beyond the Company's control. These
include, but are not limited to, unanticipated problems relating to the
competitive and regulatory environment in which the Company operates and
marketing problems and additional costs and expenses that may exceed current
estimates. Potential investors should be aware of the difficulties normally
encountered by new enterprises and the high rate of failure associated with such
enterprises. The likelihood of success must be considered in light of the
problems, expenses, difficulties, complications, delays and competition
encountered in connection with the development of a business in the
biotechnology industry.
The Company will be required to conduct significant research, development,
testing and regulatory compliance activities that, together with projected
general and administrative expenses, are expected to result in significant
operating losses for at least the next twenty-four months. Revenues, if any,
that the Company may receive in the next twenty-four months will be limited to
revenues received from the Company's laboratory operations, payments under
research or product development relationships and payments under license
agreements which may be established and revenues received in connection with the
Osteopatch(TM) product upon approval by the FDA. There can be no assurance,
however, that the Company will be able to establish any such relationships or
enter into any such license agreements or that the FDA will approve the
Osteopatch(TM) product. The Company's ability to achieve profitability depends
upon its ability to successfully complete, either alone or with others,
development of its potential medical diagnostic products, conduct clinical
trials, obtain required regulatory approvals, and manufacture and market its
products or enter into license agreements, on acceptable terms. In the event
that the Company enters into any future license agreements, such license
agreements may adversely affect the Company's profit margins on its potential
products. The Company may never achieve significant revenue or profitable
operations.
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2. Early Stage of Development; Regulatory and Technological Uncertainties.
The Company is at an early stage of development. Except for revenues from its
laboratory, all of the Company's potential products are currently in research
and development, and no revenues have been generated to date. A significant
portion of the Company's resources have been, and for the foreseeable future
will continue to be, dedicated to the Company's research programs and the
development of potential medical diagnostic products emanating therefrom. There
can be no assurance that the Company will be able to develop a commercial
product from these projects. The Company currently has three potential products
under development, one of which has entered human clinical trials. While the
Company believes that the results attained to date in such studies support
further research and development of these potential products, such results are
not necessarily indicative of results that will be obtained in human clinical
trials or that will ultimately be accepted by the FDA.
The potential medical diagnostic products currently under development by
the Company may require significant additional research and development and
preclinical testing and will require extensive clinical testing prior to
submission of any regulatory application for commercial use. The Company's
potential products are subject to the risks of failure inherent in the
development of medical diagnostic products based on new technologies. These
risks include the possibilities that the Company's novel approach to diagnosis
will not be successful; that any or all of the Company's potential products will
not be found to be safe and effective or otherwise fail to receive necessary
regulatory clearances; that the products, if safe and effective, will be
difficult to manufacture on a large scale or uneconomical to market; that
proprietary rights of third parties will preclude the Company from marketing
such products; or that third parties will market superior or equivalent
products. As a result, there can be no assurance that the Company's research and
development activities will result in any commercially viable products.
3. Future Capital Needs; Uncertainty of Additional Funding. The Company
will require substantial additional funds in order to continue the research and
development programs and preclinical testing of its potential diagnostic
products and to conduct clinical trials and marketing of such products that may
be developed. The Company's capital requirements depend on numerous factors,
including the progress of its research and development programs, the progress of
preclinical and clinical testing, the time and costs involved in obtaining
regulatory approvals, the cost of filing, prosecuting, defending and enforcing
any patent claims and other intellectual property rights, competing
technological and market developments, changes in the Company's existing license
and supply relationships, the ability of the Company to establish collaborative
arrangements, the development of commercialization activities and arrangements,
and the purchase of additional capital equipment. Other than the Company's
laboratory revenues and nominal revenues from sales of the SPINPRO(R) product,
the Company has no current source of revenues or capital other than through
exercise of the Warrants. Based upon its current plans, which the Company
anticipates will include concluding human clinical trials on the Osteopatch(TM)
and filing an FDA application with respect thereto during the next few months,
the Company believes that its anticipated cash flows from operations, together
with the remaining proceeds
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received from the Company's initial public offering ("IPO") completed in
November 1996 and existing and anticipated debt arrangements, will be sufficient
to meet the Company's operating expenses and capital requirements for
approximately twelve months. The previous sentence is considered a
forward-looking statement for purposes of the "safe harbor" provisions of the
Private Securities Litigation Reform Act of 1995 that involves risks and
uncertainties that could cause actual results to differ materially. Such
statement is based on, among other things, assumptions made by, and information
currently available to management, including management's own knowledge and
assessment of the Company's industry, competition and current regulatory
environment. Additionally, the adequacy of the Company's available cash
equivalents and revenue from operations to sustain current and anticipated
levels of operations are subject to a number of variables including maintaining
and increasing existing laboratory revenues and profitability, performance of
products in clinical trials, the level and timing of research and development
costs necessary to obtain FDA clearance of products under development, the costs
and timing associated with commercial production and marketing of such products,
the execution of definitive agreements with key partners, intensified
competition, third party reimbursement, technology obsolescence prior to
successful commercialization, and the acceptability of terms related to
anticipated sources of debt capital.
If the Company's current and projected needs change due to unanticipated
events or otherwise, the Company may be required to obtain additional capital.
The Company intends to seek such additional funding through public or private
financings or collaborative or other arrangements with corporate partners. There
can be no assurance, however, that additional financing will be available from
any of these sources, or if available, will be available on acceptable terms. If
adequate funds are not available, the Company may be required to delay, scale
back or eliminate one or more of its research and development programs,
including but not limited to the development of the Osteopatch(TM), or to obtain
funds through entering into arrangements with collaborative partners or others
that may require the Company to relinquish rights to certain of its technologies
or potential products that the Company would not otherwise relinquish.
4. Dependence on Collaborators. The Company's strategy for the research,
development and commercialization of its potential medical diagnostic products
has and will require the Company to enter into various arrangements with
corporate and academic collaborators, licensors, licensees and others, and may
therefore be dependent upon the subsequent success of these outside parties in
performing their responsibilities. There can be no assurance that the Company
will be able to establish collaborative arrangements or license agreements that
the Company deems necessary or acceptable to develop and commercialize its
potential products or that such collaborative arrangements or license agreements
will be successful. Moreover, certain of the collaborative arrangements that the
Company may enter into in the future may place responsibility for preclinical
testing and human clinical trials and for preparing and submitting applications
for regulatory approval for potential products on the collaborative partner.
Should a collaborative partner fail to develop or commercialize successfully any
potential product to which it has rights, the Company's business, financial
condition and results of operations may be materially adversely affected. In
addition, there can be no assurance that the collaborative partner
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will not be pursuing alternative competing technologies or developing competing
products either on their own or in collaboration with others, including the
Company's competitors, as a means for developing diagnostic processes for the
diseases or disorders targeted by the Company's collaborative programs.
5. Dependence on Licenses; Sale of Underlying Patents; Conflict of
Interest. The Company has licensed technologies developed by various companies
and research institutes and universities. Pursuant to the terms of those
agreements, the Company is obligated to exercise diligence in bringing potential
products to market and to make certain royalty payments that in some instances
may be substantial. The Company is also obligated to make royalty payments on
the sales, if any, of licensed products. In addition, in some instances, the
Company is responsible for making minimum royalty payments without generating
sales and may incur costs of filing and prosecuting patent applications. Each
license agreement is terminable by either party, upon notice, if the other party
defaults in its obligations. The Company licensed the technology for development
of its Osteopatch(TM) product from the owner of the patents covering such
technology pursuant to arrangements requiring minimum quarterly royalty
payments. The termination or cancellation of any of the Company's material
licensing arrangements would have a material adverse effect on the Company's
business, financial condition and results of operations.
6. Uncertainty of Protection of Patents and Intellectual Property Rights;
Risk of Patent Infringement Liability. The Company's success depends on its
ability to obtain future patents, protect existing patents, licenses,
intellectual property rights, trade secrets, and to operate without infringing
upon the proprietary rights of others and prevent others from infringing on the
intellectual property rights of the Company. In addition, the Company has
exclusive licenses from third parties under various U.S. patents and pending
U.S. patent applications to the technology covered in whole or in part by the
claims therein. Since a patent may be invalid or circumvented by alternative
technologies, there can be no assurance as to the breadth of protection that any
such patents may afford the Company. In the event the Company is held liable for
patent infringement, insurance may not cover any or all of the infringement
damages and as such, any infringement liability would adversely affect the
business, financial condition and results of operations of the Company.
There can be no assurance that any patent applications relating to the
Company's potential products or processes will result in patents being issued,
or that resulting patents, if any, or existing patents, will provide protection
against competitors who successfully challenge the Company's patents, obtain
patents that may have an adverse effect on the Company's ability to conduct
business, or are able to circumvent the Company's patent position. It is
possible that other parties have conducted research or made discoveries of
processes that preceded the Company's discoveries, which could prevent the
Company from obtaining patent protection of these discoveries. A substantial
number of patents have been applied for by and issued to other pharmaceutical,
biotechnology and biopharmaceutical companies, and other companies may have
filed applications for, may have been issued patents or may obtain additional
patents and proprietary rights relating to products or processes competitive
with those of the Company. In
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view of the time delay in patent approval and the secrecy afforded patent
applications, the Company does not know if there are patent applications
belonging to others which have priority over applications belonging to the
Company. There can be no assurance that others will not independently develop
products similar to or obsoleting those under development by the Company, or,
notwithstanding the Company's intellectual property protections, duplicate any
of the Company's products. The Company may determine there is no economic
benefit in commencing or continuing a patent infringement action. Further, as
stated above, there can be no assurance that the Company's current or future
exclusive licenses will not be challenged or that such license arrangements will
be honored by those granting such licenses or their successors in interest. In
such event, the Company would be required to enforce its intellectual property
rights at a time when it does not have the resources to do so, which would have
a material adverse effect on the Company's business, financial condition and
results of operations.
7. No Significant Marketing, Sales, Clinical Testing or Regulatory
Compliance Experience. In view of the early stage of the Company and its
research and development programs, the Company has restricted hiring to research
scientists and a small administrative staff and has relied on external
consulting resources for support in regulatory compliance. The Company has made
limited investment in marketing, product sales and regulatory compliance
resources. If the Company successfully develops any commercially marketable
medical diagnostic product, it may seek to enter into a joint venture,
sublicense or other marketing arrangement with parties that have an established
marketing capability, or it may choose to pursue the commercialization of such
products on its own. There can be no assurance, however, that the Company will
be able to enter into such marketing arrangements on acceptable terms, if at
all. Further, the Company will need to hire additional personnel skilled in the
clinical testing and regulatory compliance process and in marketing or product
sales if it develops products with commercial potential that it determines to
commercialize itself. There can be no assurance, however, that it will be able
to acquire such personnel. In addition, the Company's laboratory business is
subject to federal regulation under the Clinical Laboratory Improvement
Amendments of 1988 ("CLIA") and regulations promulgated thereunder and the FDA's
Good Laboratory Practices for Nonclinical Laboratory Studies regulations.
Failure to comply with applicable regulations could result in loss of
certification under CLIA and disqualification resulting in the exclusion of
studies performed in the laboratory from consideration in support of FDA
submissions, as well as civil and criminal sanctions.
8. Risk of Product Liability; Product Liability Insurance May Be
Insufficient or Unavailable. Sales of the Company's products entails the risk of
product liability claims. The Company faces financial exposure to product
liability claims in the event that use of its products results in personal
injury. The Company also faces the possibility that defects in the design or
manufacture of its products might necessitate a product recall. There can be no
assurance that the Company will not experience losses due to product liability
claims or recalls in the future. The Company currently maintains product
liability insurance with coverage limits and there can be no assurance that the
coverage limits of the Company's insurance policies will be adequate. Such
insurance is expensive, difficult to obtain and may not be available in the
future on acceptable
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terms, or at all. No assurance can be given that product liability insurance can
be maintained in the future at a reasonable cost or in sufficient amounts to
protect the Company against losses due to liability. Any inability to maintain
insurance at an acceptable cost or to otherwise protect against potential
product liability could prevent or inhibit the continued commercialization of
the Company's products. In addition, a product liability claim in excess of
relevant insurance coverage or product recall could have a material adverse
effect on the Company's business, financial condition and results of operations.
9. Government Regulation and Product Approval. The FDA and comparable
agencies in state and local jurisdictions and in foreign countries impose
substantial requirements upon the testing, manufacturing and marketing of
therapeutic and diagnostic products, through lengthy and detailed laboratory and
clinical testing procedures, sampling activities and other costly and time
consuming procedures. Satisfaction of these requirements may take several years
or more and varies substantially based upon the type, complexity and novelty of
the diagnostic product.
Although the Company believes that its products currently under development
will be classified as "Class II" medical devices allowing the Company to use the
more expedient 510(k) notification procedure, there can be no assurance that the
FDA will not require the Company to submit the more cumbersome and lengthy
pre-market approval ("PMA") application. The Company will attempt to market its
products pursuant to Section 510(k) of the Food, Drug and Cosmetic Act (the "FDC
Act"), which would require filing a 510(k) submission, but not a PMA
application. According to the FDA's Office of Device Evaluation Annual Report,
during 1995, the average 510(k) review time was approximately six months,
significantly shorter than the PMA application review process, which
approximated one year. There can be no assurance, however, that the 510(k)
review process will not take more than six months or that the FDA will not
require the Company to submit a PMA application. The 510(k) process requires
that the Company show, among other things, that its product is substantially
equivalent to another legally marketed product. The Company may begin marketing
once the FDA issues an order allowing the product to be marketed. If a medical
device does not qualify for the 510(k) notification procedure, the Company must
file a PMA application, which requires more extensive clinical testing and
submissions and involves a longer process of regulatory review and approval.
The Company believes that its osteoporosis product will be classified as a
"Class II" medical device, which will permit the Company to use the 510(k)
notification procedure. The Company is relying on (i) the fact that the FDA has
already cleared the skin patch, which has been licensed to the Company by
Sudormed, as a general sample collection device and as a perspiration collection
device for diagnosis of five drugs of abuse (opiates, PCP, THC, cocaine and
amphetamines) and thereby may be expected to clear the skin patch as a
collection device for pyridinoline ("Pyd") and deoxypyridinoline ("Dpd") and
(ii) the fact that the FDA has cleared Metra's 510(k) submissions for its
immunoassay test kits, which measure Pyd and Dpd levels in "first morning void"
urine samples. If the Company is able to demonstrate a correlation between Pyd
and/or Dpd levels in perspiration and measurable physiologic changes in
patients, the Company believes that its osteoporosis product can be shown to be
substantially equivalent to
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medical devices (i.e., diagnostic kits for measurement of Pyd and/or Dpd levels
in urine) which the FDA has already cleared for marketing and thus qualifying
the Company's product for the 510(k) notification procedure. The FDA may respond
to the Company's 510(k) notification, however, by directing the Company to file
a PMA application for the osteoporosis product because, despite the Company's
correlation studies and clinical tests, the FDA may consider perspiration too
different from urine as a medium for Pyd and/or Dpd. If the Company is required
to file a PMA application for its osteoporosis product, the Company would be
required to conduct substantial additional research and clinical tests before
doing so, and would be unable to file a PMA application for approximately 12 to
18 months. Even if the FDA permits the Company to proceed with a 510(k)
notification, the FDA may require the Company to support its notification with
additional research and clinical test data, resulting in a longer process of
regulatory review than is typical for 510(k) notifications.
The Company has relied on scientific, technical, clinical, commercial and
other data supplied or disclosed by others, including its collaborators, and may
rely on such data in support of applications to enter human clinical trials for
its potential products. Although the Company has no reason to believe that this
information contains errors or omissions of fact, there can be no assurance that
there are no errors or omissions of fact that would materially change the
Company's view of the likelihood of FDA approval or commercial viability of
these potential products. There can be no assurance that clinical data from
studies performed by others will be available to the Company or acceptable to
the FDA or other regulatory agencies in support of the Company's applications
for regulatory approval, and the FDA may, among other things, require the
Company to collect additional data and conduct controlled clinical studies prior
to acceptance of any such applications.
The effect of government regulation may be to delay for a considerable
period of time or prevent the marketing of any product that the Company may
develop and/or to impose costly requests for additional animal, human or other
data upon the Company, the result of which may be a delay in the marketing of
its products, thus furnishing an advantage to its competitors. There can be no
assurance that the FDA or other regulatory approval for any products developed
by the Company will be granted on a timely basis or at all. Any such delay in
obtaining or failure to obtain such approvals would adversely affect the
marketing of the Company's proposed products and the ability to earn product
revenues or royalties. As with all investigational products, additional
government regulations may be promulgated requiring additional research and data
to be submitted that could delay marketing approval of the Company's potential
products. The Company cannot predict whether any adverse government regulation
might arise from future legislation or other governmental action.
While the Company believes it is aware of all the permits it is required to
obtain and all of the governmental regulations it is required to comply with,
and believes that it can obtain such permits and comply with all such
regulations in the future, there can be no assurance that this will be the case,
that such compliance might not increase the expenses the Company will incur or
that
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such regulations will not be modified, making it increasingly difficult for
the Company to operate its business as it presently anticipates.
10. Risks Inherent in International Transactions. The Company plans to
market its products to customers both in the U.S. and abroad. International
sales and operations may be limited or disrupted by the imposition of government
controls, export license requirements, economic and political instability, price
controls, trade restrictions, and changes in tariffs or difficulties with
foreign distributors. Foreign regulatory agencies often establish product
standards different from those in the U.S. and any inability to obtain or
maintain foreign regulatory approvals on a timely basis could have a material
adverse effect on the Company's international business operations. Additionally,
the Company's business, financial condition and results of operations may be
materially and adversely affected by fluctuations in currency exchange rates as
well as increases in duty rates and difficulties in obtaining required licenses
and permits. There can be no assurance that the Company will be able to
successfully commercialize its products in any foreign market. In addition, the
laws of some countries do not protect the Company's proprietary rights to the
same extent as do the laws of the U.S.
Distribution of the Company's products outside the U.S. is subject to
extensive government regulation. These regulations, including the requirements
for approvals or clearance to market, the time required for regulatory review
and the sanctions imposed for violations, vary from country to country. There
can be no assurance that the Company will obtain regulatory approvals in such
countries or that it will not be required to incur significant costs in
obtaining or maintaining its foreign regulatory approvals. In addition, the
export by the Company of certain of its products which have not yet been cleared
for domestic commercial distribution may be subject to FDA export restrictions.
Failure to obtain necessary regulatory approvals, the restriction, suspension or
revocation of existing approvals or any other failure to comply with regulatory
requirements would have a material adverse effect on the Company's business,
financial condition and results of operations.
11. Uncertainty of Market Acceptance. The commercial success of the
Company's products will depend upon their acceptance by the medical community
and third-party payors as clinically useful, cost-effective and safe. Pyridinium
crosslinks to measure bone loss, the technology used with the Company's
Osteopatch(TM), is a relatively new technology. Market acceptance will depend on
several factors, including the establishment of clinical utility of these
biochemical markers, the receipt of regulatory clearances in the U.S. and
elsewhere, the development of diagnostic tests that can be processed using
commercially available automated systems, the availability of third-party
reimbursement, extensive physician education and the approval and commercial
acceptance of therapies for the treatment of osteoporosis. There can be no
assurance that the Company's products will gain market acceptance. Failure to
achieve market acceptance would have a material adverse effect on the Company's
business, financial condition and results of operations.
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12. Manufacturing Limitations. The Company currently does not have the
capability to manufacture products under the current Good Manufacturing
Practices regulations ("GMP") promulgated by the FDA. Accordingly, the Company
intends to outsource its manufacturing requirements relating to the
Osteopatch(TM) and the chemical reagent to be used in laboratory analysis. The
Company has established or is in the process of establishing arrangements with
contract manufacturers to supply sufficient quantities of such products to
conduct clinical trials as well as for the manufacture, packaging, labeling and
distribution of finished products if its potential products are approved for
commercialization. If such arrangements are terminated and if the Company is
unable to manufacture or contract for a sufficient supply of its potential
products on acceptable terms, the Company's preclinical and human clinical
testing schedule may be delayed, resulting in the delay of submission of
products for regulatory approval and initiation of new development programs,
which may have a material adverse effect on the Company's business, financial
condition and results of operations. Contract manufacturers used by the Company
currently adhere to GMP. The FDA may require, prior to 510(k) clearance, and
would require prior to approval of a PMA application, that the manufacturing
facility pass a GMP inspection. The Company may also be required to obtain a
license from the state in which the products will be manufactured in order to
manufacture any investigational products, which license will be issued only if
the Company is in compliance with, among others, GMP regulations. The Company's
dependence upon third parties for the manufacture of its products may adversely
affect the Company's profit margins and its ability to develop and deliver such
products on a timely and competitive basis. The Company has limited experience
in the manufacture of diagnostic products or medical devices in clinical
quantities and for commercial purposes. Should the Company determine to
manufacture products itself, the Company would be subject to the regulatory
requirements described above, would be subject to similar risks regarding delays
or difficulties encountered in manufacturing any such products and would require
substantial additional capital. In addition, there can be no assurance that the
Company will be able to manufacture any products successfully and in a
cost-effective manner. The Company has entered into a supply agreement with an
affiliate of the licensor of the technology relating to the Osteopatch(TM) for
the production of the Osteopatch(TM) product. The supply agreement requires
minimum annual purchases of the Osteopatch(TM) product. Failure to purchase the
required annual minimum amounts would result in a default under the license
agreement relating to the technology incorporated into the Osteopatch(TM). Loss
of such license, loss of the supplier or failure of the supplier to comply with
GMP will have a material adverse effect on the Company's business, financial
conditions and results of operations.
13. Competition and Technological Change. There are many companies, both
public and private, including well-known pharmaceutical companies, chemical
companies and specialized biotechnology companies, engaged in developing medical
diagnostic products for certain of the applications being pursued by the
Company. Many of these companies have substantially greater capital, research
and development, manufacturing, marketing and human resources and experience
than the Company and represent substantial long-term competition for the
Company. Such companies may develop products more quickly or products that are
more effective and less costly than any that may be developed by the Company.
The industry in which the Company proposes to
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compete is characterized by extensive research efforts and rapid technological
progress. New developments are expected to continue and there can be no
assurance that discoveries by others will not render the Company's products or
potential products noncompetitive. Competition may increase further as a result
of advances that may be made in the commercial applicability of technologies and
greater availability of capital for investment in these fields.
14. Uncertainty of Product Pricing; Healthcare Reform and Related Matters.
The levels of revenues and profitability of pharmaceutical and biotechnology
companies may be affected by the continuing efforts of governmental and third
party payors to contain or reduce the costs of healthcare through various means.
For example, in certain foreign markets pricing or profitability of prescription
pharmaceuticals and medical diagnostic processes are subject to government
control. In the U.S., there have been, and the Company expects that there will
continue to be, a number of federal and state proposals to implement similar
government control. It is uncertain what legislative proposals will be adopted
or what actions federal, state or private payors for healthcare goods and
services may take in response to any healthcare reform proposals or legislation.
The Company cannot predict the effect healthcare reforms may have on its
business, and no assurance can be given that any such reforms will not have a
material adverse effect on the Company's business, financial condition and
results of operations. Further, to the extent that such proposals or reforms
have a material adverse effect upon the business, financial condition and
profitability of other companies that are prospective collaborators for certain
of the Company's potential products, the Company's ability to commercialize its
potential products may be adversely affected. In addition, in both the U.S. and
elsewhere, sales of medical products are dependent in part on the availability
of reimbursement to the consumer from third party payors, such as government and
private insurance plans. If the Company succeeds in bringing one or more
products to the market, there can be no assurance that third party payors will
provide sufficient reimbursement to the consumer to allow the Company to sell
its products competitively.
15. Reliance on Distributors, Suppliers and Manufacturers. The Company is,
and expects that it will continue to be, highly dependent upon certain
distributors, suppliers and manufacturers and the Company's ability to operate
competitively will depend, at least in part, on its ability to assure continuous
and reliable sources of distribution and supply. If the suppliers become unable
or unwilling to continue to produce products or components for the Company
according to the Company's specifications, or to meet the Company's delivery
schedules, the Company's operations could be materially disrupted, especially
over the short term, resulting in a material adverse effect on its results of
operations or the success or timing of necessary clinical trials. There is no
assurance that the Company's distributors and suppliers will remain in business
or honor their arrangements with the Company.
16. Dependence on Major Customers. Revenues received from laboratory
operations are generally pursuant to short-term contracts. The Company has no
long term contracts or agreements with its customers. Each contract is
negotiated separately with the pharmaceutical manufacturer or research
organization and is usually limited to a specific project with limited duration.
The cancellation of any contracts with existing customers or the failure to
replace such
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contracts upon expiration or termination could have a material adverse effect on
the Company's laboratory operations. One customer individually accounted for
approximately 35.9 percent of the Company's total sales in fiscal 1997 and
another customer individually accounted for approximately 29.5 percent of the
Company's total sales in fiscal 1996. Sales to the Company's five largest
customers represented approximately 76.8 percent and 63.0 percent of total sales
in fiscal 1997 and fiscal 1996, respectively. As the Company's laboratory
operations grow, the Company expects that its dependence on any one or group of
customers will diminish.
17. Dependence on Key Personnel. The Company's success depends upon the
continued contribution of Ellen Rudnick, Chairman, Paul Kanan, President, G.
Russell Warnick, Chief Scientific Officer and Elizabeth Teng Leary, Vice
President and Director of Laboratories, and its ability to attract and retain
qualified personnel in the future. The loss of services of, or a material
reduction in the amount of time devoted to the Company by, any of such persons
could impair the development of the Company's programs and may have a material
adverse effect on the Company's business, financial condition and results of
operations. The Company entered into employment agreements with each of Ms.
Rudnick, Mr. Kanan, Mr. Warnick and Ms. Leary. The Company does not maintain
key person life insurance on any of its key employees.
18. Effective Control by Principal Stockholders. The officers and directors
of the Company currently beneficially own approximately 39.0 percent of the
Common Stock (including options and warrants held by such persons) of the
Company and will have the ability to significantly influence the election of all
of the directors of the Company and otherwise significantly influence the
affairs of the Company.
19. Arbitrary Determination of Exercise Price. The exercise price of the
Warrants was arbitrarily determined by the Company and the underwriter of the
Company's IPO and bears no relationship to the Company's assets, book value,
results of operations or other established criteria of value. The factors
considered in determining the exercise price, in addition to prevailing
estimates of the business potential and earning prospects of the Company, the
present state of the Company's development and an assessment of the Company's
management, as well as the consideration of the foregoing factors in relation to
market valuations of comparable companies, do not necessarily bear any
relationship to the Company's assets, accounting results or the book value of
the Company or other generally accepted criteria of value.
20. Absence of Dividends. The Company has not paid any cash dividends on
its Common Stock and does not anticipate paying any such cash dividends on its
Common Stock in the foreseeable future. Earnings, if any, will be retained to
finance future growth.
21. Certain Anti-Takeover Measures. The Board of Directors has the
authority to issue up to 5,000,000 shares of undesignated Preferred Stock and to
determine the rights, preferences, privileges and restrictions of such shares
without any further vote or action by the stockholders. The issuance of
Preferred Stock under certain circumstances could have the effect of delaying or
preventing a change in control of the Company or otherwise adversely affecting
the
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rights of the holders of Common Stock. The issuance of Preferred Stock,
however, could be used, under certain circumstance, as a method of preventing a
takeover of the Company. The Board of Directors, without any action of the
holders of the Common Stock, could issue shares of Preferred Stock which could
have detrimental effect on the rights of holders of the Common Stock, including
loss of voting control. Anti-takeover provisions that could be included in the
Preferred Stock when issued may have a depressive effect on the market price of
the Company's securities and may limit a stockholder's ability to receive a
premium on their shares of Common Stock by discouraging takeover and tender
offer bids. Additionally, the Company is subject to the provisions of Section
203 of the General Corporation Law of the State of Delaware, an anti-takeover
statute enacted in 1988, which may make it more difficult for the Company to
engage in a business combination with an "interested stockholder" as defined in
the statute. See "Description of Securities."
22. Substantial Dilution of Book Value. The officers, directors and present
stockholders of the Company have acquired their interest in the Company at a
cost substantially less than that which investors will pay for the Common Stock
upon exercise of the Warrants. An investment in such securities will result in
substantial dilution to such investors and an increase in the book value of the
securities held by the present stockholders, including management. Future
issuances of securities by the Company will further dilute the ownership of
investors purchasing securities in this Offering.
23. Underwriter's Purchase Warrant. The Company has granted the underwriter
of the Company's IPO a warrant (the "Underwriter's Purchase Warrant") to
purchase 170,000 shares of Common Stock at an exercise price of $5.70 per share.
During the four-year term (commencing from October 29, 1997) that the
Underwriter's Purchase Warrant is exercisable, the holders thereof are given the
opportunity to profit from a rise in the market price of the Company's Common
Stock. The holders of the Underwriter's Purchase Warrant would be most likely to
exercise the option at a time when the Company could obtain capital by a new
offering of securities, on terms more favorable than those provided by the
Underwriter's Purchase Warrant. Consequently, the terms on which the Company
could obtain additional capital during such period may be adversely affected.
Furthermore, if any or all of the Underwriter's Purchase Warrant is exercised,
the percentage of the Company's Common Stock held by investors exercising
Warrants will be reduced.
24. No Prior Public Trading Market. The market price for the Company's
securities has been and may continue to be highly volatile. Factors such as the
Company's financial results, introduction of new products in the marketplace,
and various factors affecting the healthcare industry generally may have a
significant impact on the market price of the Company's securities, as well as
price and volume volatility affecting small and emerging growth companies, in
general, and not necessarily related to the operating performance of such
companies.
25. Future Sales of Common Stock Under Rule 144 or Otherwise. All of the
Company's issued and outstanding shares of Common Stock as of the date of this
Prospectus, are eligible for sale under rule 144 promulgated under the
Securities Act of 1933, as amended (the
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"Securities Act"). In general, under Rule 144, a person (or persons whose shares
are aggregated) who has satisfied a one-year holding period may sell "restricted
securities" within any three-month period limited to a number of shares which
does not exceed the greater of one percent of the then outstanding shares or the
average weekly trading volume during the four calendar weeks prior to such sale.
Rule 144 also permits the sale (without any quantity limitation) of "restricted
securities" by a person who is not an affiliate of the issuer and who has
satisfied a two-year holding period. Accordingly, the 1,700,359 shares held by
management will be subject to the volume limitations described above so long as
such persons are deemed affiliates of the Company.
26. Current Prospectus and State Registration Required to Exercise
Warrants. Purchasers of the Warrants will be able to exercise the Warrants only
if a current prospectus relating to the securities underlying the Warrants is
then in effect and only if such securities are qualified for sale or exempt from
qualification under the applicable securities laws of the states in which the
various holders of Warrants reside. Although the Company will use its best
efforts to maintain the effectiveness of a current prospectus covering the
securities underlying the Warrants, there can be no assurance that the Company
will be able to do so. The Company will be unable to issue Common Stock to those
persons desiring to exercise their Warrants if a current prospectus covering the
Common Stock issuable upon the exercise of the Warrants is not kept effective or
if such Common Stock is not qualified nor exempt from qualification in the
states in which the holders of the Warrants reside. See "Description of
Securities--Warrants."
27. Possible Delisting of Securities from Nasdaq Small Cap Market;
Disclosure Relating to Low-Priced Stocks. On August 22, 1997, the Commission
approved new listing maintenance requirements applicable to the Nasdaq Small Cap
Market. These changes materially enhance the threshold criteria necessary to
maintain listing on the Nasdaq Small Cap Market. The Company's failure to meet
such new listing maintenance criteria in the future for any reason may result in
the discontinuance of the inclusion of the Company's securities on the Nasdaq
Small Cap Market. To qualify for continued inclusion in the Nasdaq Small Cap
Market under the new rules, a company will have to maintain (a) either
$2,000,000 in net tangible assets (total assets minus total liabilities and
goodwill); market capitalization of $35,000,000; or net income of $500,000 in
the most recently completed fiscal year or in two of the last three most
recently completed fiscal years; and (b) a market value of the public float of
$1,000,000. In addition, continued inclusion requires two market-makers and a
minimum bid price of $1.00. In the event of Nasdaq Small Cap Market delisting,
trading, if any, in the Company's securities may then continue to be conducted
on the OTC Electronic Bulletin Board or in the non-Nasdaq over-the-counter
market. As a result, an investor may find it more difficult to dispose of, or to
obtain accurate quotations as to the market value of the Company's securities.
In addition, the Company would be subject to Rule l5g-9 (the "Rule") promulgated
under the Exchange Act, which imposes various sales practice requirements on
broker-dealers who sell securities governed by the Rule to persons other than
established customers and accredited investors (generally institutions with
assets in excess of $5,000,000 or individuals with a net worth in excess of
$1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their
spouse). For transactions covered by the Rule, the broker-dealer must make a
special suitability determination for the purchaser and have received the
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purchaser's written consent to the transaction prior to sale. Consequently, the
Rule may have an adverse effect on the ability of broker-dealers to sell the
Company's securities and may affect the ability of purchasers of the Company's
securities to sell the Company's securities in the secondary market and
otherwise affect the trading market in the Company's securities.
The Commission has adopted rules that regulate broker-dealer practices in
connection with transactions in "penny stocks." Penny stocks generally are
equity securities with a price of less than $5.00 (other than securities
registered on certain national securities exchanges or quoted on the Nasdaq
system, provided that current price and volume information with respect to
transactions in such securities is provided by the exchange or system). The
penny stock rules require a broker-dealer, prior to a transaction in a penny
stock not otherwise exempt from the rules, to deliver a standardized risk
disclosure document prepared by the Commission 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
salesperson in the transaction, and monthly account statements showing the
market value of each penny stock held in the customer's account. The bid and
offer quotations, and the broker dealer and salesperson compensation information
must be given to the customer orally or in writing prior to effecting the
transaction and must be given to the customer in writing before or with the
customer's confirmation. These disclosure requirements may 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. If the Company's securities become
subject to the penny stock rules, investors in the Company's securities may find
it more difficult to sell their securities. The Company's securities are
currently outside the definitional scope of a penny stock under the rules.
USE OF PROCEEDS
The proceeds to the Company from the exercise of the Warrants offered
hereby are estimated to be up to $20,400,000, not including expenses hereof of
approximately $45,000. The Company anticipates that the proceeds received upon
exercise of the Warrants, if any, will be applied substantially to working
capital for general corporate purposes and further implementation of the
Company's business plan.
DILUTION
Substantial Dilution of Book Value. The officers, directors and present
stockholders of the Company have acquired their interest in the Company at a
cost substantially less than that which investors will pay for the Common Stock
upon exercise of the Warrants. An investment in such securities will result in
substantial dilution to such investors and an increase in the book value of the
securities held by the present stockholders, including management. Future
issuances of securities by the Company will further dilute the ownership of
investors purchasing securities in this Offering.
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DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its Common
Stock. The Company currently intends to retain its earnings to finance the
growth and development of its business and therefore does not anticipate paying
any cash dividends with respect to its Common Stock in the foreseeable future.
DESCRIPTION OF SECURITIES
General
The authorized capital stock of the Company consists of an aggregate of
35,000,000 shares, of which 30,000,000 shares are of Common Stock, par value
$.01 per share and 5,000,000 shares are Preferred Stock, par value $.01 per
share.
Common Stock
The Company is authorized to issue 30,000,000 shares of Common Stock, $.01
par value per share, of which 3,709,671 shares are currently outstanding.
Holders of Common Stock are entitled to one vote for each share held of record
on all matters to be voted on by stockholders. There are no preemptive,
subscription, conversion or redemption rights pertaining to the Common Stock.
Holders of Common Stock are entitled to receive such dividends as may be
declared by the Board of Directors from funds legally available therefor and to
share ratably in the assets of the Company available upon liquidation. The
holders of Common Stock do not have the right to cumulate their votes in the
election of directors and, accordingly, the holders of more than 50 percent of
all the Common Stock outstanding are able to elect all directors. The officers
and directors continue to control a significant portion of the votes and,
accordingly, they are able to significantly influence the election of all of the
Company's directors. All of the outstanding shares of Common Stock are, and the
Common Stock issuable upon exercise of the Warrants, upon issuance and when paid
for, will be duly authorized, validly issued, fully paid and non-assessable.
Warrants
The Company has authorized the issuance of up to 1,700,000 Warrants and has
reserved an equivalent number of shares of Common Stock at a price of $12.00 per
share. The Warrants are exercisable at any time after the original date of their
issuance through January 31, 1998, which Exercise Date has been extended to June
30, 1998 unless earlier redeemed. The Warrants are redeemable by the Company at
$.10 per Warrant, upon thirty days' notice, at any time, if the closing average
bid price per share of the Common Stock for twenty consecutive trading days
prior to the date notice of redemption is given equals or exceeds $16.80 per
share. In the event the Company gives notice of its intention to redeem, a
holder would be forced either to exercise his or her Warrant within thirty days
after the date of notice or accept the redemption price.
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The exercise price of the Warrants may be reduced at any time from time to
time in the discretion of the board of directors when it appears to be in the
best interests of the Company to do so. Any such reduction would benefit the
holders who do not exercise their Warrants prior to the effective date of the
reduction.
The Warrants are issued in registered form under a Warrant Agreement
between the Company and American Securities Transfer & Trust, Inc. (the "Warrant
Agent"). The shares of Common Stock underlying the Warrants, when issued and
paid for upon exercise of a Warrant, will be fully paid and nonassessable, and
the Company will pay any transfer tax incurred as a result of the issuance of
Common Stock to the holder upon its exercise.
The Warrants contain provisions that protect the holders against dilution
by adjustment of the exercise price in certain events, such as stock dividends
and distributions, stock splits, recapitalization, mergers or consolidations and
certain issuances below the fair market value of the Common Stock. The Company
is not required to issue fractional shares upon the exercise of a Warrant. The
holder of a Warrant will not possess any rights as a stockholder of the Company
until such holder exercises the Warrant.
The foregoing discussion of certain terms and provisions of the Warrants is
qualified in its entirety by reference to the detailed provisions of the Warrant
Agreement, the form of which has been filed as an exhibit to the Registration
Statement of which this Prospectus is a part.
For the Company to redeem or a holder to exercise the Warrants, there must
be a current registration statement in effect with the Commission and
qualification under applicable state securities laws (or applicable exemptions
from state qualification requirements) with respect to the shares or other
securities underlying the Warrants. The Company has agreed to use all reasonable
efforts to cause a registration statement or a post-effective amendment to this
registration statement with respect to such securities under the Securities Act
to be filed and to become and remain effective during the term of the Warrants
and to take such other actions under the laws of various states as may be
required to cause the redemption of the Warrants or the sale of Common Stock
upon exercise of Warrants to be lawful. The Company will not call for redemption
or not be required to honor the exercise of Warrants if, in the opinion of the
Board of Directors upon advice of counsel, such would be unlawful. See "Risk
Factors--Current Prospectus and State Registration Required to Exercise
Warrants."
Bridge Warrants
In connection with the financings completed in June 1996 and August 1996,
respectively, the Company issued an aggregate of 300,000 warrants (the "Bridge
Warrants") to purchase 300,000 shares of Common Stock at an exercise price equal
to $5.70. The Bridge Warrants are exercisable until April 30, 1998. The Company
granted demand and piggy back registration rights with respect to the Bridge
Warrants and the Common Stock issuable upon exercise thereof.
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Preferred Stock
Preferred Stock may be issued from time to time in one or more series. The
Board of Directors are authorized to determine the rights, preference,
privileges and restrictions granted to, and imposed upon any such series. The
issuance of Preferred Stock could be used, under certain circumstance, as a
method of preventing a takeover of the Company and could permit the board of
directors, without any action of the holders of the Common Stock to issue
Preferred Stock that could have a detrimental effect on the rights of holders of
the Common Stock, including loss of voting control. Anti-takeover provisions
that could be included in the Preferred Stock when issued may have a depressive
effect on the market price of the Company's securities and may limit a
stockholder's ability to receive a premium on their shares of Common Stock by
discouraging takeover and tender offer bids. There are no shares of Preferred
Stock currently outstanding.
Underwriter's Purchase Warrant
The Company sold to the underwriter warrants to purchase from the Company
an aggregate of up to 170,000 shares of Common Stock exercisable at $5.70 per
share. The Underwriter's Purchase Warrant and the shares underlying such warrant
are subject to demand registration on one occasion at the request of such
underwriter (of which the Company shall bear all expenses) and "piggyback"
registration rights in the event the Company registers any class of equity
securities (other than securities registered on Form S-8, Form S-4 or other
similar registration form) for a period of five years from November 1996.
Transfer Agent and Warrant Agent
American Securities Transfer & Trust, Inc. is the transfer agent for the
Common Stock and Warrant Agent with respect to the Warrants.
Anti-Takeover Protections
The Company is a Delaware corporation, and the Delaware General Corporation
Law contains certain provisions applicable to the Company that may have the
effect of preventing a non-negotiated change of control of the Company. These
provisions, among other things, prevent anyone who owns 15 percent or more of
the outstanding voting stock of the Company or who is an affiliate or associate
of the Company and owned 15 percent or more of the out-standing shares of stock
of the Company at any time within the prior three years (in either case, an
"interested stockholder") from engaging in any business combination with the
Company for a period of three years after becoming an interested stockholder,
unless (i) prior to the date the stockholder became an interested stockholder,
the Board of Directors approved either the business combination or the
transaction that resulted in the stockholder becoming an interested stockholder;
(ii) the interested stockholder, while acquiring his or her 15 percent, acquires
at least 85 percent of the outstanding shares, excluding shares held by
directors who are also officers and certain shares held under
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<PAGE>
employee stock option plans; or (iii) on or subsequent to such date, the
business combination is approved by the Company's Board of Directors and by the
affirmative vote of two-thirds of the shares voting at a stockholders' meeting,
excluding shares held by the interested stockholder.
COMMISSION POSITION ON INDEMNIFICATION
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company,
the Company has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or controlling person of the Company in
the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
registered hereunder, the Company will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
PLAN OF DISTRIBUTION
The Company has agreed to indemnify the underwriter of the Company's IPO
against certain liabilities, including liabilities under the Securities Act. The
Company has sold to the underwriter of the Company's IPO, for nominal
consideration, a warrant to purchase up to 170,000 shares of Common Stock. The
warrant has an exercise price per share of $5.70, is exercisable beginning on
October 29, 1997 for a period of four years, and contain certain anti-dilution,
registration rights, net issuance and exercise provisions. During the terms of
such warrant, the holders thereof will have the opportunity to profit from an
increase in the market price of the Company's Common Stock. The existence of
such warrant may adversely affect the terms on which the Company can obtain
additional financing, and the holders of such warrant can be expected to
exercise such warrant at a time when the Company, in all likelihood, would be
able to obtain additional capital by offering shares of its Common Stock on
terms more favorable to the Company than those provided by the exercise of such
warrant.
The exercise price of the Warrants has been determined through negotiations
between the Company and the underwriter. Among the factors in such negotiations
were prevailing market conditions, certain financial information concerning the
Company, market valuations of publicly traded companies that the Company and
such underwriter believed to be comparable to the Company, estimates of the
business potential of the Company, the present state of the Company's
development and the markets for its products and services, an assessment of the
Company's
25
<PAGE>
management, the economics of the industry in which the Company operates, and the
economy as a whole.
Unless granted an exemption by the Commission from certain provisions of
Regulation M of the Securities Exchange Act of 1934 (the "Exchange Act"), in the
event that the Company engages the underwriter of the Company's IPO to assist in
soliciting exercise of the Warrants, such underwriter will be prohibited from
engaging in any market making activities with regard to the Company's securities
for the period from either one or five business days (or such other applicable
period as Regulation M may provide) prior to any solicitation of the exercise of
Warrants until the later of the termination of such solicitation activity or the
termination (by waiver or otherwise) of any right that such underwriter may have
to receive a fee for the exercise of Warrants following such solicitation. As a
result, the underwriter of the Company's IPO may be unable to continue to make a
market in the Company's securities during certain periods while the Warrants are
exercisable.
LEGAL MATTERS
The legality of the issue of the securities underlying the Warrants has
been previously passed upon for the Company by Proskauer Rose LLP, 1585
Broadway, New York, New York.
EXPERTS
The consolidated balance sheet as of June 30, 1997 and the consolidated
statements of operations, stockholders' equity and cash flows for the fiscal
years ended June 30, 1997 and 1996 incorporated by reference in this prospectus,
have been incorporated herein in reliance upon the report of Coopers & Lybrand
L.L.P., independent accountants, given upon the authority of that firm as
experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission a registration statement (the
"Registration Statement") under the Securities Act with respect to the Warrants
covered by this Prospectus. This Prospectus does not contain all of the
information set forth in the Registration Statement, certain parts of which are
omitted in accordance with the rules and regulations of the Commission. For
further information with respect to the Company and the securities offered
hereby, reference is made to the Registration Statement including the exhibits
filed therewith. The Registration Statement may be inspected at the Public
Reference Section at the Commission's principal office, 450 5th Street, N.W.,
Judiciary Plaza, Washington, D.C. 20549, and at the Northeast Regional Office,
Room 1028, 7 World Trade Center, New York, New York 10048 and the Chicago
Regional Office, Suite 1400, 500 West Madison Street, Chicago, Illinois
60661-2511. Copies may be obtained from the Commission's principle office upon
payment of the fees prescribed by the
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<PAGE>
Commission. The Commission maintains a World Wide Web site that contains the
Company's Registration Statement and other information filed electronically with
the Commission. The address of the Commission's World Wide Web site is
http://www.sec.gov. Although the Company believes that this Prospectus describes
all material terms of those contracts or documents referenced herein, statements
contained in this Prospectus as to the contents of any contract or other
document are not necessarily complete and where the contract or other document
has been filed as an exhibit to the Registration Statement, each such statement
is qualified in all respects by such reference to the applicable document filed
with the Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents or portions thereof, filed by the Company with the
Commission pursuant to the Exchange Act are incorporated by reference in this
Prospectus:
(a) Quarterly Report on Form 10-QSB for the first quarter ended September
30, 1997 filed with the Commission on November 14, 1997 (File No. 0-21537);
(b) Annual Report on Form 10-KSB for the fiscal year ended June 30, 1997,
filed on September 29, 1997 (File No. 0-21537);
(c) Proxy Statement of the Company dated October 13, 1997 filed with the
Commission on October 13, 1997 (File No. 0-21537); and
(d) The information in respect of the Company's Common Stock and Warrants
under the caption "Description of Registrant's Securities to be Registered"
contained in the Registration Statement on Form 8-A, filed on October 12, 1996
(File No. 0-21537).
All documents subsequently filed by the Company pursuant to Sections 13(a),
13(c), 14 and 15(d) of the Exchange Act, prior to the filing of a post effective
amendment hereto indicating that all securities offered hereby have been sold or
which deregisters all securities then remaining unsold, shall be deemed to be
incorporated by reference in this Prospectus and to be a part of this Prospectus
from the respective dates of filings of such documents.
Any statement contained herein or in a document incorporated or deemed to
be incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any subsequently filed document which also is or is deemed to be
incorporated herein by reference modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
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<PAGE>
The Company undertakes to provide, without charge, to each person,
including any beneficial owner, to whom this Prospectus is delivered, upon the
written or oral request of such person, a copy of any and all of the documents
incorporated herein by reference (other than exhibits to such documents unless
such exhibits are specifically incorporated by reference herein). Requests for
such documents should be directed to the Chief Financial Officer of the Company
at 1370 Reynolds Avenue, Suite 119, Irvine, California 92614. Telephone requests
for such copies should be directed to the Chief Financial Officer at (714)
263-9933.
----------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY TO ANY PERSON OR BY ANY PERSON IN ANY JURISDICTION IN
WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY DISTRIBUTION OF THE SECURITIES TO WHICH THIS PROSPECTUS
RELATES SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY INFERENCE THAT THERE HAS BEEN
NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE OF THIS PROSPECTUS.
List of Trademarks
SalivaSac(R), SPINPRO(R), and Osteopatch(TM) are trademarks of the Company.
28
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
The expenses payable by the Registrant in connection with the registration
of the issuance and distribution of the Company's Common Stock upon exercise of
the Warrants are estimated as follows:
Printing and Engraving Expenses..................................... $ 7,500
Legal Fees and Expenses............................................. $20,000
State Securities Qualification Fees................................. $ 7,000
Accounting Fees and Expenses........................................ $10,000
Miscellaneous....................................................... $ 500
---------
Total.......................................................... $45,000
=========
Item 15. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law permits a corporation,
within certain limitations, to indemnify any person by reason of the fact that
he is or was a director, officer, employee or agent of the corporation, or is or
was serving at the request of the corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorney's fees) judgments, fines and
amounts paid in settlement actually and reasonably incurred in connection with
an action, suit or proceeding, if such person acted, in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
the corporation and, in criminal actions or proceedings, in addition, had no
reasonable cause to believe that his conduct was unlawful.
Article EIGHTH of the Registrant's Certificate of Incorporation, as
amended, provides that:
No director of the Corporation shall be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director; provided, however, that nothing in this Article EIGHTH shall
eliminate or limit the liability of any director (i) for breach of the
director's duty of loyalty to the Corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involves intentional misconduct or
knowing violation of law, (iii) under Section 174 of the General Corporation Law
of the State of Delaware, or (iv) for any transaction from which the director
derived an improper personal benefit. Neither the amendment nor repeal of this
Article EIGHTH, nor the adoption of any provision of the Certificate of
Incorporation inconsistent with this Article EIGHTH, shall eliminate or reduce
the effect of this Article EIGHTH in respect of any matter occurring, or any
cause of action, suit or claim that, but for this Article EIGHTH, would accrue
or arise, prior to such amendment, repeal or adoption of an inconsistent
provision.
In addition, the Registrant's Amended and Restated By-laws provides that
the Registrant shall indemnify all persons to the full extent permitted, and in
the manner provided, by the Delaware General Corporation Law.
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The Registrant intends to maintain director and officer liability insurance
which would provide coverage against certain securities law liabilities.
Item 16. Exhibits
1.1 -- Revised Form of Underwriting Agreement.*
4.1 -- Specimen Stock Certificate.*
4.2 -- Specimen Warrant Certificate.*
4.3 -- Form of Warrant Agreement.*
4.4 -- Revised Form of Underwriter's Purchase Warrant.*
5.1 -- Securities Opinion of Proskauer Rose LLP
23.1-- Consent of Proskauer Rose LLP (included in Exhibit 5.1 of this
Registration Statement.)
23.2-- Consent of Coopers & Lybrand L.L.P., independent accountants.
25.1-- Powers of Attorney appear on the signature page in Part II of the
Registration Statement filed on September 6, 1996.*
- --------------
* Previously filed.
Item 17. Undertakings
The Registrant hereby undertakes:
(1) To file, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of the Securities
Act of 1933, as amended (the "Act");
(ii)Reflect in the prospectus any facts or events which, individually or
together, represent a fundamental change in the information in the registration
statement;
(iii)Include any additional or changed material information on the plan of
distribution.
(2) That, for determining liability under the Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
(3) To file a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
(4) To provide to the Underwriter at the closing specified in the
underwriting agreement certificates in such denominations and registered in such
names as required by the Underwriter to permit prompt delivery to each
purchaser.
(5) Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the small business
issuer pursuant to the foregoing provisions, or otherwise, the small business
issuer has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in
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<PAGE>
the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
small business issuer of expenses incurred or paid by a Director,
officer or controlling person of the small business issuer in the
successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the small business issuer will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as expressed
in the Act and will be governed by the final adjudication of such issue.
(6) For determining any liability under the Securities Act, to treat the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the small business issuer under Rule 424(b)(1), or (4) or
497(h) under the Securities Act as part of this registration statement as of the
time the Commission declared it effective.
(7) For determining any liability under the Securities Act, to treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration statement,
and that offering of the securities at that time as the initial bona fide
offering of these securities.
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SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and authorized this Post-Effective
Amendment No. 1 to Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Irvine, California on the 19th day of
December, 1997.
PACIFIC BIOMETRICS, INC.
By: /s/ PAUL G. KANAN
-----------------------------
Paul G. Kanan, President
In accordance with the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 1 to Registration Statement has been signed by the
following persons in the capacities and on the dates stated:
/s/ PAUL G. KANAN President, Chief Executive December 19, 1997
- -----------------------------
Paul G. Kanan Officer and Director
* Chairman of the Board of December 19, 1997
- -----------------------------
Ellen A. Rudnick Directors
/s/ PETER LUDLUM Vice President Finance, December 19, 1997
- -----------------------------
Peter Ludlum Chief Financial Officer
(principal accounting officer)
and Secretary
* Treasurer and Director December 19, 1997
- -----------------------------
Mary L. Campbell
* Director December 19, 1997
- -----------------------------
Douglas S. Harrington, M.D.
* Director December 19, 1997
- -----------------------------
Craig M. Goldstone
* Director December 19, 1997
- ------------------------------
Terry Giles
- ----------
*Executed by Paul G. Kanan pursuant to a Power of Attorney contained
in the Signature Page in connection with the Registration Statement filed on
September 6, 1996.
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<PAGE>
EXHIBIT INDEX
Exhibit
Number
1.1 -- Revised Form of Underwriting Agreement.*
4.1 -- Specimen Stock Certificate.*
4.2 -- Specimen Warrant Certificate.*
4.3 -- Form of Warrant Agreement.*
4.4 -- Revised Form of Underwriter's Purchase Warrant.*
5.1 -- Securities Opinion of Proskauer Rose LLP
23.1 -- Consent of Proskauer Rose LLP (included in Exhibit 5.1 of this
Registration Statement.)
23.2 -- Consent of Coopers & Lybrand L.L.P., independent accountants.
25.1 -- Powers of Attorney appear on the signature page in Part II of the
Registration Statement filed on September 6, 1996.*
- --------------
* Previously filed.
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<PAGE>
December 22, 1997 EXHIBIT 5.1
The Board of Directors
Pacific Biometrics, Inc.
1370 Reynolds Avenue
Irvine, CA 92614
Ladies and Gentlemen:
We are acting as counsel to Pacific Biometrics, Inc., a Delaware
corporation (the "Company"), in connection with the Post-Effective Amendment No.
1 to Registration Statement on Form S-3 to Form SB-2 (the "Registration
Statement") filed by the Company under the Securities Act of 1933, as amended,
and the rules and regulations thereunder (Commission File No. 333-11551),
relating to the registration of 1,700,000 Redeemable Common Stock Purchase
Warrants (the "Warrants") of the Company and 1,700,000 shares (the "Shares") of
Common Stock, par value $0.1 per share, of the Company issuable upon exercise of
the Warrants.
As such counsel, we have participated in the preparation of the
Registration Statement, and have reviewed the corporate proceedings of the
Company in connection with the authorization of the Warrants and the Shares and
have also examined and relied upon originals or copies, certified or otherwise
authenticated to our satisfaction, of all such corporate records, documents,
agreements, and instruments relating to the Company, and certificates of public
officials and of representatives of the Company, and have made such
investigations of law, and have discussed with representatives of the Company
and such other persons such questions of fact, as we have deemed proper and
necessary as a basis for rendering this opinion.
Based upon, and subject to, the foregoing, we are of the opinion that the
Shares are duly authorized and, upon exercise of the Warrants in accordance with
the terms of the Warrants against payment of the exercise price therefor, will
be, assuming no change in the applicable law or pertinent facts, validly issued,
fully paid, and non-assessable.
We hereby consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement. In giving the foregoing consent, we do not admit that we
are in the category of persons whose consent is required under Section 7 of the
Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission promulgated thereunder.
Very truly yours,
/s/ PROSKAUER ROSE LLP
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EXHIBIT 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report, dated September 26, 1997, accompanying the
consolidated financial statements of Pacific Biometrics, Inc. and Subsidiaries
included in the annual Report on Form 10-KSB for the year ended June 30, 1997,
which is incorporated by reference in this Post-Effective Amendment No. 1 on
Form S-3 to the Registration Statement on Form SB-2 (the "Registration
Statement"). We consent to the incorporation by reference in the Registration
Statement of the aforementioned report and to the use of our name as it appears
under the caption "Experts."
COOPERS & LYBRAND L.L.P.
Newport Beach, California
December 19, 1997
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