AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 10, 1998
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
DERMA SCIENCES, INC.
(Exact name of Registrant as specified in its charter)
Pennsylvania 23-2328753
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
214 Carnegie Center, Suite 100
Princeton, NJ 08540
(609) 514-4744
(Address, including zip code, and telephone
number, including area code, of Registrant's principal
executive offices)
Edward J. Quilty, Chairman
214 Carnegie Center, Suite 100
Princeton, NJ 08540
(609) 514-4744
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies of all communications and notices to:
Raymond C. Hedger, Jr., Esq.
Hedger & Hedger
1800 Linglestown Road, Suite 206
Harrisburg, PA 17110
(717) 238-1800
Approximate date of commencement of proposed sale to public: From time
to time after this 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, please 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. [ ]
<PAGE>
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
============================= ================== ====================== ====================== ======================
Proposed maximum Proposed maximum
Title of each class of Amount to be offering price per aggregate offering Amount of
securities to be registered registered unit price registration fee
============================= ================== ====================== ====================== ======================
<S> <C> <C> <C> <C>
Common Stock, $.01 par
value per share (1) 1,750,000 $1.19(2) $2,082,500 $ 706
- ----------------------------- ------------------ ---------------------- ---------------------- ----------------------
Common Stock, $.01 par
value per share (3) 1,750,000 $1.19(2) $2,082,500 $ 706
- ----------------------------- ------------------ ---------------------- ---------------------- ----------------------
Common Stock, $.01 par
value per share (4) 250,000 $1.19(2) $ 297,500 $ 101
- ----------------------------- ------------------ ---------------------- ---------------------- ----------------------
Totals 3,750,000 $4,462,500 $1,513
============================= ================== ====================== ====================== ======================
</TABLE>
(1) To be offered and sold by Selling Shareholders upon conversion of Series A
Preferred Stock (the "Preferred Stock") into Common Stock, $.01 par value
per share (the "Common Stock"). Pursuant to Rule 416 under the Securities
Act, this registration statement also relates to an indeterminate number of
additional shares of Common Stock which may be issuable upon conversion of
the Preferred Stock to prevent dilution resulting from stock splits, stock
dividends and similar transactions.
(2) Estimated solely for the purpose of computing the amount of the
registration fee in accordance with Rule 457(c) under the Securities Act of
1933, as amended (the "Securities Act"), based on the average of the high
and low sale price for the Common Stock as reported by the National
Association of Securities Dealers Automated Quotation System-Small Cap
Market on Feburary 6, 1998.
(3) To be offered and sold by Selling Shareholders upon exercise of outstanding
Warrants (the "Warrants"). Pursuant to Rule 416 under the Securities Act,
this registration statement also relates to an indeterminate number of
additional shares of Common Stock which may be issuable upon exercise of
the Warrants to prevent dilution resulting from stock splits, stock
dividends and similar transactions.
(4) To be offered and sold by Selling Shareholders.
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
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION SHATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
<PAGE>
PROSPECTUS
DERMA SCIENCES, INC.
3,750,000 SHARES OF
COMMON STOCK
This Prospectus relates to 3,750,000 shares (the "Shares") of Common
Stock, $.01 par value per share, (the "Common Stock") of Derma Sciences, Inc.
(the "Company") to be sold by certain shareholders of the Company (the "Selling
Shareholders") from time to time. In addition, pursuant to Rule 416 of the
Securities Act of 1933, as amended, (the "Securities Act") this Prospectus also
relates to such additional number of shares of Common Stock as may become
issuable upon conversion of the Company's Series A Preferred Stock, $.01 par
value per share, (the "Preferred Stock") or exercise of warrants to purchase
shares of Common Stock (the "Warrants") as a result of, among other reasons,
stock splits, stock dividends and anti-dilution adjustments.
The Selling Shareholders may sell the Shares from time to time
directly, through agents, broker-dealers or underwriters, publicly or in
privately negotiated transactions, in one or more transactions, including block
transactions, on the Nasdaq Small Cap Market, the Boston Stock Exchange, the
Pacific Stock Exchange or on any other market or stock exchange on which the
Shares may be listed in the future. The selling price of the Shares may be at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices. See "Selling Shareholders" and
"Plan of Distribution."
The Company will receive no proceeds from the resale of the Shares by
the Selling Shareholders. However, the Company will receive proceeds of
$1,575,000 upon the exercise of the Warrants if all of the Warrants are
exercised. The Company will bear all expenses in connection with the
registration of the Shares herein. The Selling Shareholders will pay any
brokerage compensation in connection with its sale of the Shares. The Company
has agreed to indemnify certain of the Selling Shareholders against certain
civil liabilities, including liabilities under the Securities Act. See "Selling
Shareholders" and "Plan of Distribution."
-------------------
THE PURCHASE OF THESE SECURITIES INVOLVES A HIGH DEGREE OF RISK. SEE
"RISK FACTORS" COMMENCING ON PAGE 4.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
NO ONE HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED OR INCORPORATED BY REFERENCE ON THIS PROSPECTUS IN
CONNECTION WITH THIS OFFERING. ANY INFORMATION OR REPRESENTATION NOT CONTAINED
OR INCORPORATED BY REFERENCE HEREIN MUST NOT BE RELIED ON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ANY SELLING SHAREHOLDER. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY THE
SECURITIES OFFERED HEREBY IN ANY STATE TO ANY PERSON TO WHOM IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION. EXCEPT WHERE OTHERWISE INDICATED, THIS
PROSPECTUS SPEAKS AS OF ITS DATE AND NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE
HEREOF.
-------------------
The Company's Common Stock is traded on the National Association of
Securities Dealers Automated Quotation System - SmallCap Market under the symbol
"DSCI". On February 9, 1998 the closing bid price for the Common Stock as
reported by Nasdaq SmallCap Market was $1.25.
THE DATE OF THIS PROSPECTUS IS FEBRUARY 10, 1998.
<PAGE>
ADDITIONAL INFORMATION
The Company has been subject to the informational requirements of the
Securities Exchange Act of 1934, as amended, (the "Exchange Act") since May,
1994, and in accordance therewith files reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission").
These reports, proxy statements and other information may be inspected and
copied at the public reference facilities maintained by the Commission at
Judiciary Plaza, 450 Fifth Street, NW, Washington, DC 20549 and at the following
Regional Offices of the Commission: 7 World Trade Center, Suite 1300, New York,
New York 10048: and Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511. Reports filed since April, 1996 can also be
inspected via the internet at http://www.sec.gov in the EDGAR archives.
The Company has filed with the Commission a registration statement on
Form S-3 (the "Registration Statement") under the Securities Act with respect to
the Shares offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules thereto. For further information with respect to the Company and the
Shares offered hereby, reference is hereby made to the Registration Statement,
exhibits and schedules.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The documents listed below have been filed by the Company with the
Commission under the Exchange Act and are incorporated herein by reference:
(a) The Company's Annual Report on Form 10-KSB for the year ended
December 31, 1996 (the "Form 10-KSB").
(b) The Company's Quarterly Reports on Forms 10-QSB for the
quarters ended March, 31, 1997, June 30, 1997 and September
30, 1997.
(c) The Company's Current Reports on Forms 8-K filed May 6, 1997,
July 1, 1997 and November 24, 1997.
(d) The Company's definitive Proxy Statement for the Special
Meeting of Shareholders held January 7, 1998 (the "Proxy
Statement").
(e) The description of the Company's Common Stock contained in the
Company's registration statement on Form 8-A effective May 13,
1994.
(f) The description of the Company's Preferred Stock contained in
the Proxy Statement.
All documents filed by the Company pursuant to Sections 13(a), 13(c),
14 and 15(d) of the Exchange Act, subsequent to the date hereof and prior to the
filing of a post-effective amendment to the Registration Statement which
indicates that all shares of Common Stock offered hereby have been sold, or
which deregisters all shares of Common Stock then remaining unsold, shall be
deemed to be incorporated by reference into this Prospectus and to be a part
hereof from the date of filing 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 the Prospectus to
the extent that such statement is modified or superseded by a statement in a
subsequently filed document which also is or is deemed to be incorporated by
reference herein. Any such statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
The Company will provide, without charge, to each person (including any
beneficial owner) to whom this Prospectus is delivered, upon written or oral
request by such person, a copy of any and all of the information that has been
incorporated by reference in this Prospectus (not including exhibits to such
information unless such exhibits are specifically incorporated by reference into
such information). Such requests should be directed to Richard S. Mink, Chief
Operating Officer, at the Company's principal executive offices at 214 Carnegie
Center, Suite 100, Princeton, New Jersey 08540, telephone (609) 514-4744.
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information contained or incorporated by reference in this Prospectus. Purchase
of the Shares involves a high degree of risk. See "Risk Factors."
THE COMPANY
Derma Sciences, Inc. was incorporated under the laws of Colorado on
September 10, 1984. On June 3, 1996 the Company changed its state of domicile to
Pennsylvania. Its principal office is located at 214 Carnegie Center, Suite 100,
Princeton, New Jersey, 08540. Its telephone number is (609) 514-4744. The
Company engages in the development, marketing and sale of primarily proprietary
sprays, ointments and dressings for the management of certain chronic
non-healing skin ulcerations such as pressure, diabetic and venous ulcers,
surgical incisions and burns. The Company markets its products, both directly to
customers and through independent distributors, primarily to the geriatric
community such as nursing homes, similar extended care facilities, hospitals and
home healthcare agencies throughout the United States. In addition, the
Company's products are available in selected markets throughout the world
through strategic alliances with local companies.
THE OFFERING
Securities Offered. This Prospectus relates to the offer and sale of up
to 3,750,000 shares of Common Stock of the Company (the "Shares") by the Selling
Shareholders. The Shares are held by, or are issuable to, the Selling
Shareholders as follows: (i) 1,750,000 of the Shares are issuable to the Selling
Shareholders upon conversion of the Preferred Stock into Common Stock; (ii)
1,750,000 of the Shares are issuable to the Selling Shareholders upon exercise
of the Warrants; and (iii) 250,000 of the Shares are currently held by the Galen
Partners III partnerships. See "Selling Shareholders."
Securities Outstanding. The Company has the following securities
outstanding:
Common Stock (1)................................. 4,567,635 shares
Series A Convertible Preferred Stock (2) ......... 1,750,000 shares
Warrants to purchase Common Stock (3)............. 1,750,000
Warrants to purchase Common Stock (4)............. 50,000
Options to purchase Common Stock (5).............. 1,171,000
(1) Common Stock, $.01 par value per share, authorized: 15,000,000 shares.
(2) Series A Convertible Preferred Stock, $.01 par value per share,
authorized: 1,750,000 shares. Each share of Series A Convertible
Preferred Stock is convertible into Common Stock, on a one for one
basis and without limitation, at the option of the holder thereof.
(3) Each Warrant entitles the holder thereof to purchase one share of
Common Stock, at a price of $.90 per share, at any time prior to 3:30
p.m. EST November 15, 2001.
(4) Each Warrant entitles the holder thereof to purchase one share of
Common Stock, at a price of $3.125 per share, at any time prior to
August 2, 2001.
(5) These Options entitle the holders thereof to purchase a total 1,171,000
shares of Common Stock at prices ranging from $.80 to $2.50 per share.
These options vest at varying rates and expire at various dates during
the period January 1, 2007 through January 29, 2008.
Use of Proceeds. The Company will not receive any proceeds from the
sale of the Common Stock sold by the Selling Shareholders. If all of the
Warrants are exercised, the Company will receive gross proceeds of $1,575,000.
The Company intends to utilize any proceeds received from the exercise of the
Warrants for general corporate purposes.
Risk Factors. See "Risk Factors" for a discussion of certain risks that
should be considered by prospective investors in connection with an investment
in the Shares.
3
<PAGE>
FORWARD LOOKING STATEMENTS
Statements contained in this Prospectus, including the information
incorporated herein by reference, that are not statements of historical fact may
be deemed to be forward-looking statements. Without limiting the generality of
the foregoing, words such as "may," "will," "expect," "believe," "anticipate,"
"intend," "could," "estimate" or "continue" are intended to identify
forward-looking statements. The Company cautions readers that certain important
factors may affect the Company's actual results and could cause such results to
differ materially from any forward-looking statements which may be made in this
Prospectus or which are otherwise made by or on behalf of the Company. Factors
which may affect the Company's results include, but are not limited to, product
demand, market acceptance, impact of competitive products and prices, product
development, commercialization or technological difficulties and trade, legal,
social and economic risks. The Company is also subject to other risks discussed
in the Company's Commission filings. Additional factors that could cause or
contribute to differences between the Company's actual results and forward
looking statements include, but are not limited to, those discussed in "Risk
Factors" below as well as elsewhere in this Prospectus and in the Company's
filings with the Commission.
RISK FACTORS
AN INVESTMENT IN THE SECURITIES OFFERED HEREBY IS SPECULATIVE IN
NATURE, INVOLVES A HIGH DEGREE OF RISK AND SHOULD ONLY BE CONSIDERED BY
INVESTORS WHO CAN AFFORD TO LOSE THEIR ENTIRE INVESTMENT. IN ADDITION TO THE
OTHER INFORMATION CONTAINED IN THIS PROSPECTUS, THE FOLLOWING RISK FACTORS
SHOULD BE CONSIDERED CAREFULLY IN EVALUATING WHETHER TO MAKE AN INVESTMENT.
No Dividends. The Company has not paid any cash dividends on its Common
Stock to date. Payment of dividends on the Common Stock is within the discretion
of the Board of Directors and will depend upon the Company's earnings, its
capital requirements and financial condition, and other relevant factors. The
Company does not intend to declare dividends on its Common Stock in the
foreseeable future.
Outstanding Options. The Company has issued options to purchase its
Common Stock to current and former members of its board of directors, current
and former executive officers and certain outside consultants. Presently,
options to purchase 1,171,000 shares of Common Stock, at per share exercise
prices ranging from $.80 to $2.50, are outstanding. The exercise of these
options could have a dilutive effect on ownership interests of existing
shareholders as well as investors in this Offering.
Possible Volatility of Securities Prices. The market price of the
Common Stock has in the past been, and may in the future continue to be,
volatile. A variety of events, including quarter to quarter variations in
operating results, news announcements or the introduction of new products by the
Company or its competitors, as well as market conditions in the wound care
industry or changes in earnings estimates by securities analysts, may cause the
market price of the Common Stock to fluctuate significantly. In addition, the
stock market in recent years has experienced significant price and volume
fluctuations which have affected market prices of equity securities of many
companies and which often have been unrelated to the operating performance of
such companies. These market fluctuations may adversely affect the price of the
Common Stock.
Absence of Historical Profitability; Recent Losses; Accumulated
Deficit. The Company had limited profitability in the years ended December 31,
1994 and 1995 and incurred a loss in the year ended December 31, 1996 of
$1,436,265. The Company anticipates a loss in excess of $2.4 million (unaudited)
with an accumulated deficit of in excess of $4.0 million (unaudited) in the year
ended December 31, 1997. The Company's revenues are derived solely from sales of
its wound care products. Inasmuch as the Company will continue to have a high
level of operating expense, the Company's ability to achieve future
profitability will depend upon its ability to attain corresponding increases in
revenues.
Quarterly Fluctuations. The Company's quarterly revenues and operating
results have varied significantly in the past and may continue to do so in the
future. In particular, the Company's distributors and other customers may
purchase several months of inventory at one time which may cause fluctuations in
quarterly revenues. Future revenues and operating results may also fluctuate
significantly from quarter to quarter and will depend upon, among other factors:
(i) demand for the Company's products and new product introductions by the
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Company or its competitors or transitions to new products, (ii) the timing of
orders and shipments, (iii) the mix of sales between products, (iv) competition,
including pricing pressures, (v) the timing of regulatory and third-party
reimbursement approvals, and (vi) the timing of research and development
expenditures. Accordingly, period-to-period comparisons of the Company's
revenues and operating results should not be relied upon as an indication of
future performance and the results of any quarterly period may not be indicative
or results to be expected for a full year.
Restructuring of Distribution System. The Company is engaged in the
restructuring of its product distribution system pursuant to which certain of
the Company's former master distributors will be supplemented or replaced by a
direct sales force employed by the Company. There can be no assurance that the
Company will be able to continue to successfully expand its sales and marketing
staff, that such an expanded sales and marketing staff will be cost-effective,
or that the Company's increased direct sales and marketing efforts will be
successful. The Company also sells its products through international
distributors of medical products. There can be no assurance that the Company or
its distributors will be successful in marketing or selling the Company's
products.
Ability to Renew Present Financing. The Company has a line of credit
arrangement with PNC Bank (the "Bank") in a maximum amount of $800,000. As of
January 30, 1998 the Company had borrowed $689,000 under this line of credit.
The line of credit matures March 31, 1998. Although in the past the Bank has
renewed the Company's line of credit upon maturity, there can be no assurance
that it will continue to do so. If the Bank does not renew the line of credit,
there can be no assurance that the Company will be able to arrange alternative
financing on terms satisfactory to it.
Government Regulation and Product Approval. The development,
manufacturing and marketing of the Company's products are subject to extensive
and rigorous regulation by numerous governmental authorities in the United
States and other countries. The marketing and sale of products may not take
place in the United States absent compliance with applicable regulations of the
United States Food and Drug Administration ("FDA"). The manufacture of the
products must be in accordance with standards set by the Good Manufacturing
Practice ("GMP") regulations.
In the future, government regulations may be promulgated which could
delay regulatory approval of the Company's products. Adverse governmental
regulation which might arise from future legislative or administrative action
cannot be predicted. There can be no assurance that additional products
developed by the Company, alone or in collaboration with others, will be
determined to be safe and efficacious or meet other applicable regulatory
standards. Even if such approvals are obtained, post-market evaluation of the
products, if required, could result in suspension or limitation of approvals.
Delays in obtaining U.S. or foreign approvals could adversely affect the
marketing of the Company's products.
Declining Sales and Dependence on a Single Product Line. The Company's
revenues are principally derived from the sale of its wound care products. If
the market for wound care products were to decline for any reason, the Company's
results of operations would be adversely affected. The Company's sales declined
in 1996 by $1,166,647, or 20%, to $4,557,931 from $5,724,578 in 1995. Sales for
1997 declined by approximately $548,000, or 12%, to approximately $4,000,000
(unaudited).
Healthcare Reimbursement. The Company's ability to sell its products in
certain areas depends in part upon the extent to which a consumer is able to
obtain reimbursement for the cost of the Company's products from government
health administration authorities, private health coverage insurers and other
organizations. Uncertainty exists as to the future reimbursement status of
healthcare products such as those sold by the Company.
Government and other third party payors are attempting to contain
healthcare costs by limiting both coverage and the level of reimbursement for
healthcare products. Whereas federal and state governments, as well as private
insurers, will continue to pursue programs designed to control or reduce the
cost of health care, there can be no assurance as to whether, or to what extent,
reimbursements for the Company's products will continue to be available.
Patents and Proprietary Technology. The Company has been awarded a U.S.
patent and several foreign patents relative to its Dermagran Spray, Dermagran
Ointment, Dermagran II Moisturizing Spray and Dermagran II Ointment. The
Company's success may depend, in part, on its ability to obtain additional
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patents, maintain trade secret protection and operate without infringing on the
proprietary rights of third parties. There can be no assurance that the Company
will develop additional proprietary products that are patentable, that any
patents issued to the Company or its licensors will provide the Company with any
competitive advantages or will not be challenged by third parties, or that the
patents of others will not have an adverse effect on the ability of the Company
to do business. Furthermore, there can be no assurance that others will not
independently develop similar products, duplicate any of the Company's products
or design around the patented products developed by the Company.
Dependence on Third Party Manufacturers. The Company currently does not
have the capability to manufacture products and does not intend to develop such
capabilities in the foreseeable future. The Company believes that there are
numerous available manufacturers for its products. However, if the Company is
unable to obtain or retain third party manufacturing on commercially acceptable
terms, it may be delayed in its ability to commercialize products or may not be
able to commercialize products as planned. The Company's dependence upon third
parties for the manufacture of products may adversely affect the Company's
profit margins and its ability to develop and deliver products on a timely and
competitive basis.
Technological Change and Competition. The Company operates in a rapidly
evolving field and new developments are expected to continue at a rapid pace.
Competition from large pharmaceutical companies, biotechnology companies, joint
ventures, research and academic institutions and others is intense and may
increase. Many of these companies and institutions have substantially greater
capital resources, research and development staffs and facilities than the
Company and substantially greater experience in obtaining regulatory approvals
and manufacturing and marketing pharmaceutical products. The activities of these
entities represent significant long-term competition for the Company. In
addition, the Company's competitors may succeed in developing technologies and
products that are more effective than any that are being developed by the
Company or that would otherwise render the Company's technology and products
obsolete or noncompetitive.
Attraction and Retention of Key Personnel. The Company's future
performance depends in significant measure upon the continued service of its
senior management and upon its ability to attract and retain highly skilled
managerial, marketing and sales personnel. The Company faces competition for
such personnel from other companies in its industry, research and academic
institutions, government entities and other organizations. By virtue of the
Company's small size and limited resources relative to other companies in its
industries, there can be no assurance that the Company will continue to be able
to attract and retain the personnel required to achieve profitability and
growth.
Product Liability; Insurance. The commercial sale of pharmaceuticals
may expose the Company to liability claims incident to alleged adverse effects
caused by these products. These claims might be made directly by consumers,
distributors, wholesalers, dealers or others selling the products. The Company
has obtained $1,000,000 per occurrence, $2,000,000 aggregate, product liability
insurance. However, such coverage is becoming increasingly expensive and there
is no assurance that liability insurance will continue to be available at a
reasonable cost or that such insurance is, or will be, sufficient to cover
claims.
Control by Existing Management and Shareholders. Following this
Offering, and assuming exercise of all of the Warrants, the Company's current
shareholders, directors and executive officers will continue to have the ability
to elect all of the Company's directors and determine corporate and shareholder
actions.
6
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USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the Shares
offered by the Selling Shareholders. If all of the Warrants are exercised, the
Company will receive gross proceeds of $1,575,000. The Company intends to
utilize any proceeds received from the exercise of the Warrants for general
corporate purposes. There can be no assurance that any of the Warrants will be
exercised.
SELLING SHAREHOLDERS
The following table sets forth as of the date of this Prospectus
certain information with respect to the Shares held by the Selling Shareholders.
The Company believes that all Selling Shareholders named herein have sole voting
and investment power with respect to all Shares beneficially owned by them
subject, where applicable, to community property laws. Each Selling
Shareholder's ownership is determined by assuming that all Warrants held by such
Selling Shareholder have been exercised. Each Selling Shareholder's ownership
after the Offering is determined by assuming that all of the Shares registered
for the account for the Selling Shareholder are sold. No Selling Shareholder has
had any position, office or other material relationship with the Company, or any
of its affiliates, during the past three years other than as a holder of the
Company's Common Stock.
<TABLE>
<CAPTION>
SHARES SHARES SHARES TO BE
BENEFICIALLY OFFERED OWNED AFTER
NAME OWNED HEREBY OFFERING
---------- ------------ --------- ------------
<S> <C> <C> <C>
The Aries Fund, a Cayman Islands Trust............... 502,500 502,500 - 0 -
Aries Domestic Fund, L.P............................. 247,500 247,500 - 0 -
Steven A. Elms....................................... 25,000 25,000 - 0 -
Kristin L. Enghauser................................. 12,500 12,500 - 0 -
Galen Employee Fund III, L.P......................... 4,549 4,549 - 0 -
Galen Partners III, L.P.............................. 888,795 888,795 - 0 -
Galen Partners International III, L.P................ 106,656 106,656 - 0 -
David Golden......................................... 25,000 25,000 - 0 -
Hambrecht & Quist California......................... 1,225,000 1,225,000 - 0 -
Vivek Jain........................................... 62,500 62,500 - 0 -
Russell L. Pollack................................... 25,000 25,000 - 0 -
Dennis J. Purcell.................................... 125,000 125,000 - 0 -
Redwood Asset Management............................. 500,000 500,000 - 0 -
--------- ---------
Total............................................ 3,750,000 3,750,000
</TABLE>
PLAN OF DISTRIBUTION
The Shares set forth in the "Selling Shareholders" table may be sold by
the Selling Shareholders, or by pledgees, donees, transferees or other
successors in interest, either pursuant to the Registration Statement of which
this Prospectus forms a part or, if available, under Section 4(1) of the
Securities Act or Rule 144 promulgated thereunder. To the Company's knowledge,
this Offering is not being underwritten. The Company believes that the Selling
Shareholders, directly or through agents designated from time to time, or
through broker-dealers or underwriters also to be designated (who may purchase
as principal and resell for their own account), may sell the Shares from time to
time, publicly or through privately negotiated transactions, or in one or more
transactions, including block transactions, on the Nasdaq SmallCap Market, the
Boston Stock Exchange, the Pacific Stock Exchange or on any other market or
stock exchange on which the Shares may be listed in the future.
The selling price of the Shares may be at market prices prevailing at
the time of sale, at prices relating to such prevailing market prices or at
negotiated prices. From time to time the Selling Shareholders may engage in
short sales against the box, puts and calls and other transactions in securities
of the Company or derivatives thereof, and may sell and deliver the shares in
connection therewith. Further, the Selling Shareholders are not restricted as to
the number of shares which may be sold at any one time. It is possible that a
significant number of shares could be sold at the same time which may have a
depressive effect on the market price of the Company's Common Stock.
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The Selling Shareholders may also pledge shares as collateral for
margin accounts, and such shares could be resold pursuant to the terms of such
accounts. Resales or reoffers of the Shares by the Selling Shareholders must be
accompanied by a copy of this Prospectus. The Selling Shareholders and any
agents, broker-dealers or underwriters that participate in the distribution of
the Shares may be deemed to be underwriters, and any profit on the sale of the
Shares by them, and any discounts, commissions or concessions received by them,
may be deemed to be underwriting commissions or discounts under the Securities
Act.
MATERIAL CHANGES
Amendment of Articles of Incorporation. The Company's articles of
incorporation were amended on February 6, 1998 pursuant to shareholder approval
granted at a special meeting of the Company's shareholders held January 7, 1998.
The amendment authorizes the Company to issue 1,750,000 shares of preferred
stock "with such designations, voting rights, preferences, limitations and
special rights as the board of directors may direct." Acting in accordance with
the foregoing authority, the board of directors, by resolution dated February 9,
1998, designated all 1,750,000 shares of the Company's preferred stock as its
Series A Convertible Preferred Stock (the "Preferred Stock") and further defined
the rights and preferences of the Preferred Stock. These rights and preferences
are described in the Company's Current Report on Form 8-K filed November 19,
1997 and in the Company's Proxy Statement incorporated by reference herein. The
Shares to which this Prospectus relates include 1,750,000 Shares of Common Stock
issuable upon conversion of the Preferred Stock.
Fourth Quarter 1997 Operating Loss. During the fourth quarter ended
December 31, 1997 the Company incurred an operating loss of approximately
$200,000 (unaudited).
LEGAL MATTERS
Matters relating to the legality of the securities being offered hereby
are being passed upon for the Company by Hedger & Hedger, 1800 Linglestown Road,
Suite 206, Harrisburg, Pennsylvania, 17110.
EXPERTS
The financial statements of the Company appearing in the Company's
Annual Report (Form 10-KSB) for the year ended December 31, 1996 have been
audited by Ernst & Young LLP, independent auditors, as set forth in their report
thereon included therein and incorporated herein by reference. Such financial
statements are incorporated herein by reference in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth expenses (estimated except for the
registration fee) in connection with the Offering described in the Registration
Statement:
SEC registration fee ......................... $ 1,513
Accounting fees and expenses ................. 5,000
Legal fees and expenses ...................... 15,000
Printing expenses ............................ 2,500
Miscellaneous ................................ 1,000
-------
Total .................................... $25,013
=======
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Sections 1741 and 1742 of the Pennsylvania Business Corporation Law of
1988 empower the Company, and the bylaws of the Company provide that it shall
have the power, to indemnify any person who was or is a party or is threatened
to be made a party to any threatened, pending or completed action, suit or
proceeding by reason of the fact that he is or was a director, officer, employee
or agent of the Company, or is or was serving at the request of the Company as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses, judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in connection
with such action, suit or proceeding if he acted in good faith and in a manner
he reasonably believed to be in, or in the case of actions undertaken other than
in his official capacity, not opposed to, the best interest of the Company, and,
with respect to any criminal action or proceeding, had no reasonable cause to
believe his conduct was unlawful; except that, in the case of an action or suit
by or in the right of the Company, no indemnification may be made in respect of
any claim, issue or matter as to which such person shall have been adjudged to
be liable for negligence or misconduct in the performance of his duty to the
Company unless and only to the extent that the court in which such action or
suit was brought shall determine that such person is fairly and reasonably
entitled to indemnity for proper expenses.
ITEM 16. EXHIBITS.
Exhibit Number Description
-------------- -----------
5 ................ Opinion of Hedger & Hedger regarding the
legality of the securities being registered
23.1 ............. Consent of Ernst & Young LLP
23.2 ............. Consent of Hedger & Hedger (included in its
opinion filed as Exhibit 5)
24 ............... Powers of Attorney (included in signature page
forming a part hereof)
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(l) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement; notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of the securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
II-1
<PAGE>
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change
in the maximum aggregate offering price set forth in the "Calculation
of Registration Fee" table in the effective Registration Statement; and
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement; provided, however, that paragraphs (l)(i) and
(l)(ii) do not apply if the Registration Statement is on Form S-3 or
Form S-8, and the information required to be included in a
post-effective amendment by those paragraphs is contained in periodic
reports filed by the registrant pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in
the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new Registration Statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
(4) That, for purposes of determining any liability under the
Securities Act of 1933, as amended, each filing of the Registrant's annual
report pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934
that is incorporated by reference in the Registration Statement shall be deemed
to be a new Registration Statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the provisions described under Item 15 above, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant 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 Registrant 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.
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SIGNATURES
Pursuant to 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 has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Princeton, State of New Jersey, on the 9th day of
February 1998.
DERMA SCIENCES, INC.
By: /s/ Edward J. Quilty
------------------------------------
Edward J. Quilty, Chairman of the Board
POWER OF ATTORNEY
Know all men by these presents, that each person whose signature
appears below constitutes and appoints Edward J. Quilty as his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution
for him and in his name, place and stead, in any and all capacities to sign any
and all amendments (including post-effective amendments) to this Registration
Statement, and to file the same, with all exhibits thereto, and other documents
in connection therewith with the Securities and Exchange Commission, granting
unto said attorney-in-fact and agent full power and authority to do and perform
each and every act and thing requisite or necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and agent
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
SIGNATURE CAPACITY IN WHICH SIGNED DATE
/s/ Edward J. Quilty
- -------------------- Chairman of the Board and Director February 9, 1998
Edward J. Quilty (Principal Executive Officer)
/s/ Richard S. Mink
- -------------------- Chief Operating Officer February 9, 1998
Richard S. Mink
/s/ Stephen T. Wills
- -------------------- Vice President and Chief Financial February 9, 1998
Stephen T. Wills, CPA, MST Officer (Principal Financial and
Accounting Officer)
/s/ John T. Borthwick
- -------------------- Director February 9, 1998
John T. Borthwick
/s/ Mary G. Clark
- -------------------- Director February 9, 1998
Mary G. Clark
/s/ Laurence F. Lane
- -------------------- Director February 9, 1998
Laurence F. Lane
II-3
February 10, 1998
The Board of Directors
Derma Sciences, Inc.
214 Carnegie Center, Suite 100
Princeton, NJ 08540
Re: Registration Statement on Form S-3
Gentlemen and Madam:
We are counsel to Derma Sciences, Inc. (the "Company") in connection with the
Registration Statement on Form S-3 filed on February 10, 1998 (the "Registration
Statement") under the Securities Act of 1933, as amended, covering the resale by
certain of the Company's shareholders of up to 3,750,000 shares of the Company's
Common Stock, par value $.01 per share (the "Shares"), which shares are
currently issued or to be issued pursuant to the conversion of the Company's
Series A Convertible Preferred Stock (the "Preferred Stock") and the exercise of
Warrants to purchase the Company's Common Stock (the "Warrants").
We have examined the originals, or certified, conformed or reproduction copies,
of such records, agreements, instruments and documents as we have deemed
relevant or necessary as the basis for the opinion hereinafter expressed. In all
such examinations, we have assumed the genuineness of all signatures on original
or certified copies and the conformity to original or certified copies of all
copies submitted to us as conformed or reproduction copies. As to various
questions of fact relevant to our opinion, we have relied upon, and assumed the
accuracy of, certificates and oral or written statements and other information
of or from public officials, officers or representatives of the Company and
others.
Based upon the foregoing, we are of the opinion that the Shares, including
therein those issued and to be issued upon conversion of the Preferred Stock and
exercise of the Warrants, are, or will be, as applicable, validly issued, fully
paid and non-assessable shares of Common Stock of the Company.
<PAGE>
Derma Sciences, Inc.
February 10, 1998
Page 2
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to this firm under the caption
"Legal Opinion" in the Prospectus forming a part of the Registration Statement.
Very truly yours,
HEDGER & HEDGER
Raymond C. Hedger, Jr.
Consent of Independent Auditors
We consent to the reference to out firm under the caption "Experts" in the
Registration Statement (Form S-3 No. 333-0000) and related Prospectus of Derma
Sciences, Inc. for the registration of 3,750,000 shares of its common stock and
to the incorporation by reference therein of our report dated January 17, 1997,
with respect to the financial statements of Derma Sciences, Inc. included in its
Annual Report (Form 10-KSB) for the year ended December 31, 1996, filed with the
Securities and Exchange Commission.
/s/ ERNST & YOUNG LLP
Philadelphia, Pennsylvaina
February 10, 1998