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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB/A
(Amendment No. 1)
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934. [Fee Required]
For the fiscal year ended February 29, 1996
/ / TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934. [No Fee Required]
For the transition period from to
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Commission file number 1-12836
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PHARMA PATCH PUBLIC LIMITED COMPANY
(Name of small business issuer in its charter)
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Ireland Not Applicable
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(State of incorporation or organization) (I.R.S. Employer Identification No.)
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15/16 Fitzwilliam Place, Dublin 2, Ireland None
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(Address of principal executive offices) (Zip Code)
011-353-1-662-5222
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(Issuer's telephone number, including area code)
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
ORDINARY SHARES, PAR VALUE IRL .01
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Title of Class
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act during the preceding 12 months, and
(2) has been subject to such filing requirements for the past 90 days.
/ /YES /x/NO
As of May 15, 1996, 16,915,211 ordinary shares were outstanding and the
aggregate market value of the common shares (based upon the average bid and
asked prices on such date) of the Registrant held by nonaffiliates was
approximately $8,457,605.
Check if there is no disclosure of delinquent filers in response to item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part Ill of this Form 10-KSB or any
amendment to this Form 10-KSB / /
For the fiscal year ended February 29, 1996 there were no revenues from
continuing operations.
Documents incorporated by reference: None.
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PHARMA PATCH PUBLIC LIMITED COMPANY
FORM 10-KSB
TABLE OF CONTENTS
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Page
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Item 1. Description of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Item 2. Description of Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . . . . . 28
Item 5. Market for Common Equity and Related Stockholder Matters . . . . . . . . . . . . . . . . . . . . 28
Item 6. Management's Discussion and Analysis or Plan of Operations . . . . . . . . . . . . . . . . . . . 28
Item 7. Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Item 8. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act . . . . . . . . . . . . . . . . . . . . . . . 30
Item 10. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Item 11. Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . . . . . . . . . 36
Item 12. Certain Relationships and Related Transactions . . . . . . . . . . . . . . . . . . . . . . . . . 37
Item 13. Exhibits List and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
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ITEM 1. DESCRIPTION OF BUSINESS
BUSINESS OF THE COMPANY
The Company had no revenues from continuing operations and has
accumulated a deficit as of February 29, 1996 of $6,249,628 after giving effect
to the sale of assets described below. The Company made a significant shift in
its business direction in recent months through the sale of substantially all of
its operating assets and subsequently through the acquisition of a significant
interest in a laser vision company. The Company does expect to continue to
incur operating losses until such time, if ever, as it derives revenues from
operations. There is no assurance that the Company will ever operate
profitably.
On November 1, 1995, the Company sold substantially all of its assets,
including the operations and technology acquired from Flora, Inc. on June 30,
1994, to Technical Chemicals and Products, Inc. ("TCPI") in exchange for
786,214 shares of TCPI common stock ("Shares") with a fair value of $11,919,000
after net closing adjustments of $81,000 and the satisfaction by TCPI of a
$5,000,000 promissory note previously issued by the Company. As a result of
the consummation of this transaction, the Company then owned approximately 9.9%
of TCPI's outstanding common shares. In April 1996, the Company sold 210,000
TCPI shares pursuant to the underwritten TCPI public offering described in the
next paragraph and received net proceeds of $2,928,697.
On January 16, 1996, the Company entered into a Supplemental Agreement
("Supplemental Agreement") with TCPI which amends certain provisions of the
Asset Purchase Agreement dated as of November 1, 1995 ("Asset Purchase
Agreement") between the Company and TCPI and addressing certain additional
matters. TCPI has filed a Registration Statement on Form S-1 ("S-1") with the
Securities and Exchange Commission with respect to the sale of 1,800,000 TCPI
common shares ("Offering"). Pursuant to the terms of the Supplemental
Agreement, the Company agreed to execute a lock-up letter with the
representative of the Underwriters providing that it would not sell or
otherwise dispose of any of its shares of Common Stock for a period to expire
180 days following the closing date of the Offering. As consideration for the
execution of this lock-up agreement, TCPI agreed (i) to terminate an existing
lock-up agreement covering Common Stock owned by the Company, executed in
connection with the Asset Purchase Agreement; (ii) effective as of the closing
date of the Offering, to terminate the voting trust agreements, shareholders'
agreement and irrevocable proxy, executed in connection with the Asset Purchase
Agreement which, among other things, limited the Company's ability to vote or
dispose of its shares of Common Stock; (iii) allow the Company to offer for
sale 100,000 shares of this Common Stock in the Offering (plus up to an
additional 110,000 if the Underwriters' over-allotment option is exercised);
(iv) effective as of the closing date of the Offering, issue to the Company a
two-year warrant to purchase 100,000 shares of Common Stock at an exercise
price equal to the per share Offering price; and (v) to file a registration
statement on Form S-3 to register all of the remaining shares of Common Stock
owned by the Company after the Offering. All 210,000 shares were sold in the
Offering which closed on April 30, 1996.
On March 31, 1996, the Company acquired a controlling interest in Vista
Technologies, Inc. ("Vista"), a publicly traded company. Vista also received
equity financing from the Company in a series of transactions. The Company
purchased 200,000 Vista shares for $500,000 cash and received 2,060,000 Vista
shares and 500,000 Vista Class C Warrants in exchange for a loan to Vista of
$750,000 repayable in six months and 200,000 restricted shares of TCPI common
stock owned by the Company. The Company acquired an additional 250,000 Vista
shares upon the exercise of a warrant received by it in March 1996. See
"Certain Transactions." Vista provides photorefractive keratectomy and other
laser vision correction facilities and services to the health care industry.
The mailing address and telephone number of the Company's principal
executive offices are 15/16 Fitzwilliam Place, Dublin 2, Ireland and
011-353-1-668-7144, respectively.
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BUSINESS OF VISTA
INTRODUCTION
Vista, through its European operating subsidiaries and joint venture
interests in other affiliated companies in the United States and Canada, is
primarily engaged in providing access to advanced laser vision correction
("LVC") equipment and support services (collectively "LVC Services") for use by
licensed ophthalmologists in the treatment of refractive vision disorders.
Computer-controlled excimer lasers can be used to treat refractive vision
disorders such as nearsightedness and astigmatism to eliminate or reduce the
need for corrective lenses. Vista's subsidiaries and affiliates provide
individual physicians and group ophthalmic practices with shared access to
laser equipment, thus eliminating capital costs, investment risk and
maintenance of such equipment by the health care professional. LVC Services
provided by Vista's subsidiaries and affiliates also include various support
services, such as physician and staff training, technical support services,
equipment maintenance, billing and accounting and other administrative
services.
Vista's European operating subsidiaries have owned and operated
excimer laser facilities in Italy and Sweden since 1992 and 1994, respectively,
and currently maintain six excimer lasers in use at outpatient surgical
centers, four in Italy and two in Sweden. See "European Operating Subsidiaries"
below.
In anticipation of recent approvals by the United States Food and Drug
Administration ("FDA") of excimer laser technology and equipment supplied by
two manufacturers to treat certain refractive vision disorders, Vista developed
a strategic plan commencing in June 1995 to organize and sponsor additional
companies to provide LVC Services in the United States and Canada through
regional joint venture alliances with certain prominent ophthalmologists. A
key part of Vista's strategy for expansion in the United States and Canada is
to develop, invest in, and act as a consultant to, regional joint venture
companies ("Regional Joint Ventures") that are to be independently financed and
offer advantages of equity incentives and management control to skilled and
prominent ophthalmologists experienced in a variety of LVC treatments,
procedures and post-operative care. To date, Vista has organized and sponsored
five Regional Joint Ventures in various stages of development including four
which have commenced operations in 1996, collectively with an excimer laser at
each of six locations. See "North American Regional Joint Venture Investments
and Affiliations".
During March 1996, Vista completed equity financing transactions with
Pharma Patch PLC ("Pharma Patch") that resulted in a change in control of
Vista. See "Agreements with Pharma Patch for Equity Financing and Change in
Control".
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In July 1995, Vista abandoned efforts to acquire control of Medical
Development Resources, Inc. ("MDRI") and wrote off $5,643,000 of prior
investments in MDRI and its subsidiaries at the end of its prior fiscal year on
March 31, 1995. The joint venture operations of an excimer laser clinic in
London, England were discontinued in June 1995 in response to unfavorable local
pricing for PRK procedures due to overcrowding of the market, a history of
unprofitable operations and a change in business strategy of the joint venture
partner.
Vista was incorporated under the laws of Nevada on June 15, 1992 and
its principal office is located at 167 South San Antonio Road, Suite 9, Los
Altos, California 94022, telephone number (415) 947-1750.
BACKGROUND AS TO LASER VISION CORRECTION SYSTEMS
Advanced LVC equipment supplied by various manufacturers has been
commercially available in recent years for use in foreign countries, including
Canada and various countries in Europe, among others. Two U.S. manufacturers,
Summit Technology, Inc. ("Summit") and VISX, Incorporated ("VISX"), recently
received FDA pre-market approval in October 1995 and March 1996, respectively,
for use of the Summit SVS Apex excimer laser system and VISX's excimer laser
systems Models "B" and "C" to perform photorefractive keratectomy ("PRK") to
treat low to moderate myopia (nearsightedness). PRK is a form of LVC treatment
involving the use of an excimer laser to reshape the cornea, thereby adjusting
refractive power of the eye. Excimer lasers manufactured by Summit and VISX
have also been approved for use in the United States and other countries to
treat a number of pathological superficial corneal disorders in a procedure
called phototherapeutic keratectomy ("PTK").
Other LVC procedures employed in Canada and other foreign countries
include the use of excimer lasers to perform a procedure known as laser in situ
keratomileusis ("LASIK") and holmium lasers for laser thermalkeratoplasty
("LTK") and laser sclerostomy ("LS") procedures. LASIK is primarily prescribed
for treatment of hyperopia (farsightedness), astigmatism and extreme myopia;
LTK may be prescribed for instances of mild hyperopia and astigmatism; and LS
is used for treatment of symptoms of glaucoma. In May 1996, the FDA advised
U.S. eye care professionals that LASIK and bilateral surgery (treatment of both
eyes at the same time) are outside the scope of currently FDA approved labeling
for excimer lasers; although the FDA noted that physician discussions with
patients and decisions to conduct either of those procedures are considered the
practice of medicine, the FDA cautioned that it expects excimer laser equipment
manufacturers and health care practitioners will advertise and promote the use
of FDA approved lasers in the United States only within the scope of their
currently FDA approved use, i.e. for PRK and PTK.
All of these LVC procedures are normally performed on an outpatient
basis and require from 15 to 30 minutes in addition to pre-operative
consultations and post-operative care. Depending upon the severity of the
patient's pre-treatment vision disorder, improved vision resulting from LVC
procedures either eliminates or significantly reduces the patient's need to
wear eyeglasses or contact lenses. Vista's existing European subsidiaries and
its existing and planned Regional Joint Ventures in the United States focus
primarily on PRK treatment to correct low and mild myopia. Regional Joint
Venture operations planned for at least two locations in Canada adjacent to the
U.S. border are expected to offer a wider variety of LVC services, including
LASIK, bilateral treatment and an advanced proprietary method of PRK developed
by Dr. Donald G. Johnson called the Johnson transepilthelial multi-zone,
multi-pass PRK procedure ("TMM PRK"). TMM PRK provides for a smoother ablation
zone than standard PRK procedures, thus reducing glare and central islands side
effects sometimes encountered in PRK procedures. The epithelium (a layer of
cells comprising the outer surface of the cornea) is removed in the TMM PRK
procedure by use of the laser, thus avoiding direct contact with the eye by the
physician or instruments. Vista believes that the TMM PRK method promotes
faster post-operative regrowth during the period when risk of pain and
infection risk is highest.
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Vision care professionals engaged by Vista and/or its Regional Joint
Ventures establish medical and operational standards relating to LVC Services,
train ophthalmologists and optometrists in advanced LVC procedures, and
establish advisory boards consisting of credentialed and prominent
ophthalmologists and optometrists with similar skills and experience. Vista
believes that its Regional Joint Ventures planned for targeted market segments
of North America will be capable of supporting a full range of LVC in operation
and procedures because of access to physicians skilled in advanced methods and
the ability to make appropriate referrals to medical professionals in Canada
offering certain LVC procedures not currently available in the U.S.
VISION DISORDERS AND ALTERNATE FORMS OF CORRECTIVE TREATMENT
The human eye is approximately 25 millimeters in diameter and
functions much like a camera, with a lens in front and a light sensitive
screen, the retina, in the rear. Images enter the human eye through the
cornea, a transparent domed window at the front of the eye. In a properly
functioning eye, the cornea bends (refracts) incoming images, causing the
images to focus on the retina. The inability of the cornea to properly refract
incoming images results in blurred vision and is called a refractive disorder.
Myopia (nearsightedness), hyperopia (farsightedness) and astigmatism
are three of the most common refractive disorders resulting from an inability
of the optic system to properly focus images on the retina. The amount of
refraction is dependent on the shape, specifically the curvature, of the
cornea. In a nearsighted (myopic) eye, images are focused in front of the
retina; in a farsighted (hyperopic) eye, images are focused behind the retina;
and in an astigmatic eye, images are not focused at any one single point.
Conventional methods of correcting refractive disorders are by
prescription of eyeglasses and contact lenses. Over the last 15 years,
refractive vision disorders have also been treated by several surgical
techniques. These include radial keratotomy ("RK"), in which small incisions
approximately 400 to 450 microns deep in a radial configuration are made around
the periphery of the cornea to cause a flattening of the cornea. Other
surgical techniques are keratomileusis, which involves freezing the cornea and
reshaping it, and automated lamellar keratoplasty ("ALK"), which involves using
a microkeratone to remove microscopic amounts of corneal tissue. Industry
sources estimate that 200,000 RK procedures were performed in the United States
in 1994. Because RK is a manual procedure and not performed with a
computer-controlled device, RK is highly dependent on the surgical skill of the
ophthalmologist performing the procedure. Moreover, because RK involves
incisions into the corneal tissue, it weakens the structure of the cornea which
may have adverse consequences as patients age. RK has never undergone a
controlled clinical study under an FDA protocol because no medical device,
other than a scalpel, is used in the procedure. Compared to RK, Vista believes
that laser surgery involves reduced surgical risk, does not weaken the corneal
tissue, is less invasive and is less dependent on the ophthalmologist's skill.
LASER VISION CORRECTION ("LVC") SYSTEMS
Lasers have been used routinely for a variety of medical purposes
since the 1960s. Lasers emit photons of light into a highly intense beam of
energy that is delivered to targeted tissue by means of optical mirrors or
fiber optics. The degree of absorption by the tissue varies with the choice of
wavelength and is an important variable in the application of laser technology
in treating various tissues. Surgical lasers emit light in a continuous stream
or in a series of very short duration "pulses", thus interacting with tissue
through heat or shock waves. Several factors, including the wavelength of the
laser and the frequency and duration of the exposure or pulse, determine the
amount of energy which interacts with the targeted tissue.
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Laser technology has been accepted in the ophthalmic community for the
treatment of certain eye disorders. In general, ophthalmic lasers are used to
coagulate, cut or ablate (remove) targeted tissue.
EXCIMER LVC SYSTEMS AND PROCEDURES
Excimer lasers were first developed in the late 1980s, and are
incorporated in a fully integrated ophthalmic surgical workstation for use by
ophthalmologists to perform procedures to treat refractive and other ophthalmic
disorders. The excimer laser system delivers pulses of ultraviolet laser light
to ablate (remove) submicron layers of tissue from the surface of the cornea in
a computer-assisted, predetermined pattern to reshape the cornea. Most of the
laser light generated by the excimer system is absorbed by the removed corneal
tissue during a procedure. As a result, the laser light does not penetrate
interior portions of the eye and does not create substantial amounts of heat in
the surrounding tissue. These attributes make the excimer laser system well
suited to corneal surgery.
PRK: Photorefractive keratectomy ("PRK") is a procedure
performed with a excimer laser system to treat primarily nearsightedness. When
performing PRK with the excimer laser, the ophthalmologist determines the exact
correction required (which is measured by the same type of examination used to
prescribe eyeglasses or contact lenses) and programs the correction into the
system's computer. The ophthalmologist removes the thin surface layer of the
cornea (the epithelium) and positions the patient for the laser procedure. The
average PRK procedure consists of approximately 150 laser pulses, each of which
lasts several billionths of a second over a period ranging for 15 to 40
seconds. Cumulative exposure to the laser light is less than one second. The
entire procedure, including patient preparation and post-operative dressing,
generally lasts no more than thirty minutes.
Following the PRK procedure, the ophthalmologist may
prescribe topical pharmaceuticals to promote corneal healing and to alleviate
discomfort. A series of patient follow up visits is scheduled with the
ophthalmologist or an optometrist to monitor the corneal healing process, to
verify that there are no complications and to test the correction achieved by
the PRK procedure. Patients undergoing PRK generally experience discomfort for
approximately 24 hours, and blurred vision for approximately 48 to 72 hours
after the procedure. Although most patients experience improvement in
uncorrected vision within a few days of the procedure, it generally takes from
two to six months for the correction to stabilize and for the full benefit of
the procedure to be realized. An individual typically has one eye treated in a
session, with the second eye treated three to six months thereafter. Vista
anticipates, however, that a significant percentage of patients at Vista's
Regional Joint Ventures planned for Canada may be eligible for bilateral
treatment in which both eyes are treated simultaneously.
Although a patient usually experiences a substantial
improvement in clarity of vision within a few days following the PRK procedure,
it generally takes from two to six months for the full benefit of the procedure
to occur. The PRK procedure is used today primarily to correct the vision of
patients with myopia (or nearsightedness) ranging from -1.5 to up to -7.00
diopters, although the PRK procedure has also been performed in foreign
countries on higher diopter nearsighted and, occasionally, farsighted and
astigmatic patients. Approximately 90% of all myopic patients are nearsighted
up to -6.00 diopters and use of the PRK procedure to correct the vision of
nearsighted patients of up to -6.00 diopters therefore has received the
greatest degree of testing.
LASIK: Laser assisted in situ keratomileusis ("LASIK") is
a procedure performed with an excimer laser system primarily to treat extreme
cases of myopia. LASIK, although a more unusual and delicate surgical
procedure than PRK, offers advantages in that the epithelium is not touched by
the laser and
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therefore promotes quicker healing. The ophthalmologist uses a microkeratone
to open a flap on the surface of the cornea, laser energy is used to ablate
corneal cells on the exposed surface, and the flap is then folded back into
place. Glare and central islands are practically non-existent after LASIK
since ablation occurs in the stroma layer (under the surface epithelium layer).
Due to the corneal flap, subsequent retouches are facilitated with minimal
recovery time.
LASIK may be more predictable in treating high levels
of myopia, but the LASIK procedure not been specifically approved in the United
States by the FDA. The FDA has advised physicians that discussions with
patients and decisions to conduct LASIK or bilateral surgery (treatment of both
eyes at the same time) are considered the practice of medicine, and Vista
believes that certain surgeons in the U.S. are performing LASIK procedures.
The FDA has cautioned eye care professionals in the U.S. to advertise and
promote the use of FDA approved lasers only within the scope of their currently
FDA approved use, i.e. for PRK and PTK.
PTK: Phototherapeutic keratectomy ("PTK") is a procedure
performed with the excimer system to treat corneal pathologies. In this
procedure, submicron layers of tissue are ablated from the surface of the
cornea in order to remove diseased, scarred or sight-inhibiting tissue. The
goal of PTK is not necessarily to cure the corneal pathology, but to alleviate
symptoms associated with the pathology. The FDA has granted pre-market
approvals for use in the United States of PTK procedures with Summit excimer
laser equipment in February 1995 and for VISX equipment in October 1995.
OTHER: Excimer lasers may also be used to treat glaucoma
by a procedure known as Partial Excimer Traheculectomy ("PET"). The PET
procedure involves the use of the excimer laser to create a penetrating filter
through the scleral tissue (the tough, fibrous tissue covering all of the eye
except the cornea), which causes the permeation of fluids from within the eye,
thus reducing pressure levels. Vista believes that one laser manufacturer has
received an Investigational Device Exemption from the FDA to conduct clinical
trials for the PET procedure in the United States.
HOLMIUM LVC SYSTEMS AND PROCEDURES
LTK: Another recently developed LVC technology is the
holmium laser system. The holmium system delivers high intensity pulses of
infrared light to an eye by means of a fiber optic cable and a single-use,
hand-held probe that directly contacts the eye at the exact spots chosen by the
ophthalmologist. Vista is aware of two manufacturers that have developed
holmium laser systems. Vista believes that both of those companies are in the
process of conducting clinical trials for the FDA to demonstrate the safety and
efficacy of the holmium laser to perform laser thermal keratoplasty ("LTK").
LTK is a refractive procedure performed to treat farsightedness and astigmatism
in which peripheral corneal tissue is thermally shrunk, causing the central
portion of the cornea to steepen.
LS: Laser Sclerostomy ("LS") is a surgical procedure
performed with the holmium system to treat the symptoms of glaucoma by making
an opening in the front chamber of the eye. Summit has received FDA pre-market
approval to sell its holmium system in the U.S. for treatment of glaucoma.
OTHER LVC SYSTEMS
Vista is aware of three companies that have reportedly developed solid
state lasers, ophthalmic laser surgical systems that apply a beam of high
intensity light to remove tissue from the inside, as opposed to the surface of,
the cornea. These solid state lasers are designed to ablate tissue inside the
cornea without violating the cornea's surface by computer guiding the laser
beam to the inner corneal tissue and vaporizing the targeted tissue.
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EUROPEAN OPERATING SUBSIDIARIES
From February to May 1994, Vista negotiated and completed the
acquisition of controlling interests in certain foreign subsidiaries offering
access to excimer lasers at outpatient surgical centers in Italy, Sweden and
the United Kingdom. At the time of those acquisitions in 1994, these European
operating subsidiaries had excimer lasers at four refractive surgical centers,
two in Italy, one in Sweden and one in England. The center in England was
subsequently closed in June 1995 and three new centers, two in Italy and one in
Sweden, have been opened since these acquisitions were accomplished. Due
primarily to the limited operating history of these surgical centers including
charges for depreciation and amortization, Vista's operations in Europe have
not yet been profitable. However, Vista's European subsidiaries are currently
operating at levels that are neutral or positive in cash flows.
Vista's European LVC Services are operated under the trade name Vista
Vision(TM). As of March 31, 1996, Vista owned approximately 73.57% of Vista
Vision S.p.A. ("Vista-Italy") and 100% of Vista Vision Scandinavia AB
("Vista-Sweden"). Vista's interest in Vista-Sweden is held through a
wholly-owned Dutch company organized to facilitate administration of Vista's
European operations. A United Kingdom subsidiary of Vista, Vista Vision
International Ltd. ("Vista-UK"), owned a 50% joint venture interest in a
surgical center in London, England and was liquidated in mid-1995 when Vista
and its joint venture partner determined to close the London clinic.
Vista-Italy's locations include a Milan center originally opened in
February 1992 and relocated during 1995, a Pisa clinic established in March
1993 and relocated in January 1996 to Viareggio, a Rome center started in
January 1995 and a Palermo center established in July 1996. The Vista-Sweden
centers include a center in Stockholm purchased from a third party in June 1994
and a center in Malmo opened in August 1995.
Vista's European operating subsidiaries typically receive a fee or a
percentage of the surgeon's fee for each LVC surgical procedure performed,
which to date have consisted primarily of PRK procedures. The gross
professional fee for PRK procedures in Italy and Sweden currently ranges from
approximately $1,500 to $2,500 per procedure, with a single eye constituting
one procedure, and fees payable to Vista-Italy and Vista-Sweden generally range
from $800 to $1,800 per procedure. Certain operating expenses of Vista-Italy
and Vista-Sweden under cooperative agreements for their facilities and
equipment use are in turn based upon the number of procedures performed.
Vista-Italy and Vista-Sweden maintain a total of six VISX excimer
lasers. The following chart summarizes certain information as to the number of
LVC surgical procedures performed at Vista's European centers for the periods
indicated (excluding the center at Palermo, Italy opened in July 1996 after the
periods covered by the table):
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Fiscal Year Ended March 31,
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1996 1995 1994
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Milan, Italy (opened February 1992).......... 595 466 239
Viareggio, Italy (opened March 1993)......... 504 404 213
Rome, Italy (opened January 1995)............ 268 41 --
Stockholm, Sweden (see Note a)............... 581 524 420
Malmo, Sweden (opened August 1995)........... 77 -- --
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Totals....................................... 2,025 1,435 972
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(a) Includes procedures performed at this center for periods prior to the June
1994 purchase of assets by Vista-Sweden.
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NORTH AMERICAN REGIONAL JOINT VENTURE INVESTMENTS AND AFFILIATES
Having anticipated recent FDA pre-market approval of PRK equipment
supplied by Summit and VISX, Vista's business strategy developed in June 1995,
is to expand in North America by organizing and sponsoring independently
financed regional enterprises (the "Regional Joint Ventures") in which Vista
obtains an equity interest and long-term fee-based consulting arrangements.
Vista has obtained and will continue to seek affiliations for each of its
Regional Joint Venture subsidiaries with experienced LVC eye care
professionals; these regional enterprises will seek third-party financing with
Vista's assistance to provide equipment and other LVC support services to
vision care professionals in targeted regional markets operating under the name
"Vista Laser Centers".
In the five Regional Joint Ventures formed and sponsored by Vista to
date, Vista has acquired common stock of the Regional Joint Venture in exchange
for shares of Vista common stock. From July 1995 through May 1996, a foreign
corporate investor, Refractive Services 800, Inc., provided at least $100,000
in initial seed capital to each of these five Regional Joint Ventures (for an
aggregate investment of $520,000) to finance initial organizational expenses
and costs of negotiating agreements with vision care professionals and seeking
additional financing. Vista recently negotiated an agreement on July 18, 1996
to acquire the equity interest owned by Refractive Services-800, Inc. in all
five of these Regional Joint Ventures in exchange for 520,000 shares of Vista
common stock.
After the initial organization of a Regional Joint Venture,
negotiations with one or more local prominent ophthalmologists are instituted
and these selected physicians have been offered the opportunity of providing
additional seed capital investments in common stock and/or common stock purchase
warrants issuable by the Regional Joint Venture. Agreements with professionals
will be negotiated for use of the Regional Joint Venture's equipment and other
LVC Services and for management to be provided to the Regional Joint Venture by
local vision care professionals or management personnel designated by them.
These agreements may be, in certain cases, conditioned upon receipt of
additional financing in the form of a subsequent private placement and/or
initial public offering of securities by the Regional Joint Venture. Although
some preliminary negotiations have taken place, no definitive arrangements with
any physicians have been reached, and there can be no assurance if and when any
agreements will be finalized.
Based upon its experience in LVC Services and affiliations with
prominent LVC specialists, Vista may enter into a long-term consulting services
agreement to provide certain consulting services to the Regional Joint Venture
discussed below. Each Regional Joint Venture will seek to enter into
associations and agreements with additional ophthalmologists and optometrists
who desire to contract for access to LVC equipment and related support services
offered by the Regional Joint Venture. The Regional Joint Venture will be
licensed by Vista to operate under the name and style of "Vista Laser Centers"
at locations within its particular region. Vista is currently evaluating service
mark applications filed by Vista in the U.S. and Canada to determine whether a
modification to that particular name would enhance Vista's rights to a service
mark.
In the typical consulting services agreement between Vista and a
Regional Joint Venture, Vista expects to provide consulting service to the
Regional Joint Venture relating to LVC developments in Europe and at other LVC
Regional Joint Ventures sponsored by Vista in North America, advice as to
equipment and leasehold financing options and alternatives, information as to
certain legal matters relating to the operation of an LVC services business and
consulting advice as to locations for additional sites for expansion. Vista, at
its discretion, may also provide financial accommodations to the Regional Joint
Venture. Terms of such consulting services agreement may be subject to
negotiation between Vista and operating management of the Regional Joint
Venture. In addition to its equity investments to date Vista has advanced loans
of approximately $1,400,000 and guaranteed equipment financing obligations of
approximately $500,000 for certain of the Regional Joint Venture operating
subsidiaries.
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In exchange for its consulting services, Vista typically expects to
charge the Regional Joint Venture 5% of revenues realized by the Regional Joint
Venture from providing LVC equipment and related services to physicians. The
Regional Joint Venture's revenues from LVC operations is generally defined as
its fees for use of LVC equipment and support services changed by the Regional
Joint Venture to its affiliated physicians and physician groups, and does not
include non-operating revenues such as gains or losses on the sale of equipment.
An additional fee may be charged as Vista develops advertising and marketing
programs in which Regional Joint Ventures may participate. Consulting fees are
payable to Vista on a monthly basis. In one instance where the Regional Joint
Venture has agreed to purchase an established operation, Vista has agreed to a
credit of $5,000 per month against its monthly consulting fee that acknowledges
a level of operations attained without Vista's prior participation and
consulting services. To date, Vista has yet to derive revenues from any of its
Regional Joint Ventures and there is no assurance when or if revenues will be
received.
Each Regional Joint Ventures derives its LVC operating revenues by
billing health care professionals at the time of equipment use, with such fees
normally based upon a negotiated percentage of the gross procedure fees charged
to patients by the professional. Health care professionals affiliated with
Regional Joint Ventures charge patients for their services on gross procedure
fee basis (each eye and the related pre-operative and post-operative care and
any corrective adjustment representing one procedure) and generally collect
payment in cash or by credit card before the procedure is performed. The gross
procedure fee is required by law to be established by the professional;
however, each Regional Joint Venture requires prior consent for the gross
procedures fee to be less than a stated minimum per LVC procedure in an effort
to insure recovery of estimated costs of operations and a reasonable margin.
Depending upon the particular circumstances, Regional Joint Ventures generally
seek to charge an average of approximately 60% of the gross procedure fee as a
fair allocation for the costs and market value of their LVC services, and the
consulting fee payable to Vista in turn is based upon those revenues earned by
the Regional Joint Venture. However, the fees charged by the Regional Joint
Ventures to individual physicians may vary depending upon the skill and
experience of the physician, the volume of his or her anticipated use of LVC
equipment offered by the Regional Joint Venture and the individual policies of
each Regional Joint Venture. One of the Regional Joint Ventures has established
a policy of charging a flat dollar amount for each LVC procedure in lieu of a
percentage of the physician's gross procedure fee. The fees charged by each
Regional Joint Venture to individual physicians are normally determined by
negotiation between the Regional Joint Venture and the physician, and each
Regional Joint Venture has the authority to establish its own policies
concerning these negotiations and the minimum percentage or amount that the
Regional Joint Venture will require as a fee from each physician. Accordingly,
the method of determining revenues that may be obtained by each Regional Joint
Venture, and upon which Vista's percentage consulting fees will be based, are
not within the direct control of Vista. Such policies and methods may be
changed from time to time without the prior consent of Vista, which could
adversely affect the amount of revenues generated by Regional Joint Ventures on
a per procedure basis and the resulting consulting fee income to Vista.
Payment of fees charged to physicians by the Regional Joint Venture
normally will be received by the Regional Joint Venture when the professional
collects the gross procedure fee from the patient. For this purpose, the gross
procedure fee is generally defined to include all charges to the patient for
services of one or more professionals to perform an LVC procedure for one eye,
which typically includes professional services for the procedure,
post-operative care and re-operative care procedures, if required, plus all
charges to the patient for equipment use, medical supplies and related items.
Generally speaking, gross procedure fees charged by professionals for LVC
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treatment in most North American markets currently range from approximately
$1,500 to $2,200 per eye, although there can be no assurance these levels will
be maintained for the long term. Health insurance providers in both Canada and
the United States generally consider LVC procedures to be elective surgery and
do not provide insurance or other third-party reimbursement. Since
reimbursement is not available, the policy adopted by Regional Joint Ventures
and their associated physicians is to collect payment by credit card or by
check at or prior to the time the LVC procedure is performed. The gross
procedure fee is required by applicable laws and regulations to be determined
by the physician, is influenced in part by competitive pricing for LVC
procedures generally in the relevant market and by special requirements for
each patient's condition, and will therefore vary in amount. Although Regional
Joint Ventures cannot control the determination of the gross procedure fee,
each Regional Joint Venture requires prior consent for the gross procedures fee
to be less than a stated minimum per LVC procedure to insure recovery of
estimated costs of operations (except for one Regional Joint Venture which
charges the physician a flat fee per gross procedure.
Terms of the consulting services agreement between Vista and a
Regional Joint Venture may be subject to negotiation between Vista and
operating management of the Regional Joint Venture, and will not necessarily be
identical in all cases. In each instance, the initial term of the consulting
services agreement between Vista and the Regional Joint Venture will be ten
years from the execution date of the consulting agreement.
The Regional Joint Ventures sponsored by Vista are in various stages
of development. As noted below, four of the five Regional Joint Ventures have
commenced business operations during 1996. The Company expects that it
eventually will receive a certain percentage of the revenues realized by each
Regional Joint Venture. To date, however, the Company has yet to derive
revenues from any of the Regional Joint Ventures and there is no assurance, and
the Company in not able to predict, when, or if, revenues will be received.
At September 30, 1996, Vista Laser Centers of Michigan, Inc.
("VLC-Michigan") had received $187,500 in cash subscriptions and 200,000 Vista
common shares for 325,000 shares of VLC-Michigan common stock and convertible
preferred stock and 725,000 Class A warrants exercisable at $1 per share.
VLC-Michigan recently entered into an agreement to purchase the capital stock
of Windsor Excimer Corporation, an affiliate of Dr. Fouad Tayfour, effective as
of August 1, 1996. The agreement is subject to certain conditions to closing.
Dr. Tayfour will serve as Chairman of the Board and a Medical Director for
VLC-Michigan, and will agree to provide consulting services to VLC-Michigan for
a term of five years. Upon closing the agreements, VLC-Michigan will pay a
purchase price of approximately $1,000,000 for Windsor Excimer Corporation,
payable in two promissory notes bearing interest at 10% per annum. One note for
approximately $500,000 will be due in January 1997 and the remaining $500,000
will be due in August, 1998. The operations of Windsor Excimer Corporation are
located in facilities leased at Windsor, Ontario. Equipment owned by Windsor
Excimer Corporation includes a Summit OmniMed UV 200 excimer laser, a Sunrise
Technologies LTK holmium laser and related equipment.
VLC-Michigan has assumed a lease obligation from one physician in
Michigan as to a Summit holmium laser with rental payments of $10,850 per month
until December 1999, at which point VLC-Michigan has the right to purchase the
equipment for a nominal payment of $1, plus an obligation in the aggregate
amount of $230,000, payable at the rate of $250 each time the equipment is used
by a physician.
Vista Laser Centers of the Southwest, Inc. ("VLC-Southwest") commenced
business operations at a location in Scottsdale, Arizona in February 1996.
VLC-Southwest has leased a newly acquired VISX excimer laser. As of June 30,
1996, VLC-Southwest had received cash subscriptions of $291,500 to 100,000
shares of its Series A preferred stock ($100,000), 35,000 shares of its common
stock ($35,000), 315,000 Class A warrants ($31,500) exercisable at $1 per
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<PAGE> 13
share and a private placement ($125,0000) of units aggregating $125,000 in
principal amount of 11% convertible notes and 12,500 Class B warrants
exercisable at $4 per share. One of the investors in common stock and Class A
warrants of VLC-Southwest is Dr. J. Charles Casebeer, who is a member of
Vista's board of directors and Chairman of the Board of VLC-Southwest.
VLC-Southwest is currently operating at a leased facility in Scottsdale,
Arizona.
Vista Laser Centers of the Pacific, Inc. ("VLC-Pacific") commenced
business operations in June 1996 following receipt of $1,295,000 in cash
subscriptions to 100,000 shares of its Series A preferred stock ($100,000),
50,000 shares of its common stock ($50,000), 450,000 Class B warrants ($45,000)
exercisable at $1 per share and a private placement ($950,000) of units
aggregating $950,000 in principal amount of 11% convertible notes and 95,000
Class A warrants exercisable at $4 per share. VLC-Pacific has assumed equipment
lease obligations from physicians affiliated with VLC-Pacific for two VISX
excimer lasers in Sacramento and San Jose, California and for a Summit excimer
laser in San Leandro, California, and is currently operating at leased
facilities in those three locations.
Vista Laser Centers Metro, Inc., to be renamed Vista Laser Centers of
the Northeast, Inc. ("VLC-Northeast") commenced business operations at a center
in Toronto, Ontario and received $100,000 in cash subscriptions to 100,000
shares of Series A preferred stock. Additional cash subscriptions to common
stock and warrants from local physicians and from a private placement of 11%
convertible note and warrants are pending. VLC-Northeast owns a newly acquired
VISX excimer laser and is engaged in negotiations to establish its next
location in the New York City metropolitan area. VLC-Northeast is currently
operating at a leased facility in Toronto, Ontario.
Vista Laster Centers of the Northwest, Inc. ("VLC-Northwest") has not
yet commenced business operations and has received $120,000 in cash
subscriptions for 100,000 shares of its common stock from Vista.
Vista has granted or is committed to grant irrevocable proxies to vote
certain shares in the Regional Joint Venture owned by Vista to one or more
local affiliates of each Regional Joint Venture. However, Vista has or will
retain the right to representation on the Board of Directors of the Regional
Joint Ventures. Although there can be no assurance one or more Regional Joint
Ventures will be successful in plans for an initial public offering or
additional private placement financing, each Regional Joint Venture plans to
ultimately effect a public offering of its securities that would reduce Vista's
beneficial ownership in the Regional Joint Venture to significantly less than
50%.
<TABLE>
<CAPTION>
Vista Technologies
common stock issued
to acquire Series B
Preferred shares in Convertible Preferred Stock
Regional Joint Venture in Regional Joint Venture Owned by Vista
Number of Number of Preferred Shares % of Equity Interest (1)
Vista Common Date
Regional Joint Venture Shares(1) Issued Series B(1) Series A(1) Primary (2) Diluted (3)
<S> <C> <C> <C> <C> <C> <C>
Vista Laser Centers of
Michigan, Inc. ....... 200,000(1) 11-16-95 200,000(4) 100,000(4) 92.31% 28.32%
Vista Laser Centers of
the Southwest, Inc.... 350,000(5) 100,000(5) 94.02% 54.43%
Vista Laser Centers of
the Pacific, Inc...... 500,000(1) 5-08-96 500,000(6) 100,000(6) 92.31% 38.52%
Vista Laser Centers of
the Northeast, Inc.... 450,000(1) 5-08-96 500,000(7) 100,000(7) 100% 100%
Vista Laser Centers of
the Northwest, Inc.... 100,000(8) 100% 100%
Common Stock issued
to acquire
Series A Preferred.... 520,000 7-18-96
</TABLE>
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- ----------------
(1) Vista has granted or is committed to grant to one or more persons
associated with the Regional Joint Venture an irrevocable proxy
granting such person or persons the right to vote shares acquired by
Vista in the Regional Joint Venture for a five year term. Conversely,
the Board of Directors of Vista has received for the same period an
irrevocable proxy from the Regional Joint Venture to vote shares of
Vista common stock issued to the Regional Joint Venture. All of such
proxies will terminate as to any shares which are sold to a bona fide
third party prior to expiration of the proxy.
(2) Represents percentage of outstanding voting stock as of October 31,
1996. Does not give effect to the exercise of warrants and/or options
or to the conversion of certain notes issued by VLC-Southwest and
VLC-Pacific or to the possibility of additional offering of securities
planned by the Regional Joint Ventures.
(3) Calculated on a fully-diluted basis to give effect to the assumed
conversion or exercise into common stock of all convertible
securities, warrants and/or stock options issued by the Regional Joint
Venture as of September 30, 1996. Does not give effect to the
possibility of additional offerings of securities planned by the
Regional Joint Venture. Based upon current proposals, if a planned
initial public offering for VLC-Pacific is successfully completed, as
to which there can be no assurances, the beneficial ownership of
shares held by Vista in VLC-Pacific on a fully-diluted basis would
decrease to approximately 17.4%.
(4) Shares of 5% Series B preferred stock issued by VLC-Michigan have a
preference in liquidation of $2.50 per share and are convertible into
common stock of VLC-Michigan on a one-for-one basis. The appraised
value of the Series B preferred shares in VLC-Michigan as of the date
of original issuance for financial purposes is $217,597. Shares of
10% Series A preferred stock acquired by Vista for 100,000 shares of
Vista Common Stock on July 18, 1996 were originally issued by
VLC-Michigan for $1.00 per share in cash, have a preference in
liquidation of $5.00 per share and are convertible into common stock
of VLC-Michigan on a one-for-one basis.
(5) Shares of 5% Series B preferred stock issued by VLC-Southwest have a
preference in liquidation of $2.50 per share and are convertible into
VLC-Southwest common stock on a one-for-one basis. The appraised value
of the Series B preferred shares in VLC-Southwest as of the date of
original issuance for financial purposes is $236,428. Shares of 10%
Series A preferred stock acquired by Vista for 100,000 shares of Vista
Common Stock on July 18, 1996 were originally issued by VLC-Southwest
for $1.00 per share in cash, have a preference in liquidation of $5.00
per share and are convertible into common stock of VLC-Southwest on a
one-for-one basis. Vista has converted all of its VLC-Southwest
preferred stock into VLC-Southwest common stock. In addition, Vista
has agreed to purchase from Pharma Patch for $100,000 a VLC-Southwest
note in the principal amount of $100,000 plus 10,000 VLC-Southwest
Class B warrants; Vista further agreed with VLC-Southwest to convert
the VLC-Southwest note into an additional 100,000 shares of
VLC-Southwest common stock.
(6) Shares of 5% Series B preferred stock issued by VLC-Pacific have a
preference in liquidation of $2.50 per share and are convertible into
common stock of VLC-Pacific on a one-for-one basis. The appraised
value of the Series B preferred shares in VLC-Pacific as of the date
of original issuance for financial reporting purposes is $487,855.
Shares of 10% Series A preferred stock acquired by Vista for 100,000
shares of Vista Common Stock on July 18, 1996 were originally issued
by VLC-Pacific for $1.00 per share in cash, have a preference in
liquidation of $5.00 per share and are convertible into common stock
of VLC-Pacific on a one-for-one basis.
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(7) Shares of 5% Series B preferred stock issued by VLC-Northeast have a
preference in liquidation of $2.50 per share and are convertible into
common stock of VLC-Northeast on a one-for-one basis. The value of the
Series B preferred shares in VLC-Northeast has not yet been appraised.
Shares of 10% Series A preferred stock acquired by Vista for 100,000
shares of Vista Common Stock on July 18, 1996 were originally issued
by VLC-Northeast for $1.00 per share in cash, have a preference in
liquidation of $6.00 per share and are convertible into common stock
of VLC-Northeast on a one-for-one basis.
(8) Shares of 10% Series A preferred stock acquired by Vista for 120,000
shares of Vista Common Stock on July 18, 1996 were originally issued
by VLC-Northwest for $1.20 per share in cash, have a preference in
liquidation of $6.00 per share and are convertible into common stock
of VLC-Northwest on a one-for-one basis.
OTHER RELATIONSHIPS WITH PROFESSIONALS
Dr. Donald G. Johnson is Chairman of the Board and a director of Vista
and has agreed to render part-time consulting services to certain of Vista's
Regional Joint Ventures. The TMM PRK procedure was developed by Dr. Johnson,
who is one of the world's most experienced PRK surgeons. Dr. Johnson developed
TMM PRK procedures with VISX equipment and, as of December 31, 1995, has
successfully treated approximately 7,400 eyes with excimer laser procedures.
Dr. J. Charles Casebeer is an educator and trainer in the LASIK
procedure and has previously served other companies as a consultant in the
LASIK field. Dr. Casebeer is a director of Vista and has entered into a
Consulting Agreement with VLC-Michigan contingent upon completion of its
pending public offering. He is expected to continue his efforts in LASIK
procedures and to assist in managing programs for training vision care
professionals in the use and performance of LVC procedures and in recommending
standards to establish a program of credentialing and training health care
professionals in various aspects relating to LVC procedures and patient
treatment. If a proposed private placement of securities by VLC-Southwest is
successfully completed, Dr. Casebeer's professional corporation will receive
from VLC-Southwest compensation at the rate of $60,000 per annum.
Dr. Casebeer and Dr. Johnson are expected to promote advanced LVC
methods for both Vista and for various Regional Joint Ventures that have been
formed, or may be formed in the future by Vista, to service various North
American geographic markets.
SAFETY AND EFFICACY
The first PRK procedure for the treatment of nearsightedness using an
excimer laser system was performed in 1989, and the first PTK procedure for the
treatment of a corneal pathology using an excimer system was performed in 1988.
A large majority of PRK and PTK procedures to date have been performed only
since 1990. PRK to correct myopia has been performed in at least 35 countries
outside the U.S. prior to 1996.
Some potential medical risks have been identified in connection with
the use of LVC surgery and there may be other risks which will not be known
until the procedure has been more widely used and monitored over an extended
period of time.
Possible concerns with respect to the safety and efficacy of LVC
excimer laser systems for refractive surgery include predictability and
stability of results and potential complications, such as modest decreases in
best corrected vision and side effects from PRK, PTK, LASIK and LTK. Other
possible effects include postoperative discomfort; corneal haze during healing
(an increase in the light scattering properties of the cornea); glare/halos
(undesirable visual sensations produced by bright lights); decrease in contrast
sensitivity
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(diminished vision in low light); temporary increases in intraocular pressure
in reaction to post procedure medication; modest fluctuations in astigmatism
and modest decreases in best corrected vision (i.e., with eyeglasses);
unintended over or under corrections; instability, reversal or regression of
effect; corneal scars (blemishing marks left on the cornea); corneal ulcers
(inflammatory lesions resulting in loss of corneal tissue); and corneal healing
disorders (compromised or weakened immune system or connective tissue disease
which causes poor healing).
Summit has reported that two year follow-up data accumulated by Summit
during its Phase III PRK clinical trials indicate all of the individuals
undergoing PRK experienced an improvement in visual acuity without corrective
eyewear. Prior to PRK, 95% of the eyes in this group were 20/200 or worse. Of
the eyes treated, approximately 91% improved to 20/40 or better, the legal
requirement to obtain a driver's license in most states without corrective
eyewear, while the remaining 9% experienced improved vision without corrective
eyewear, but still required corrective eyewear to achieve 20/40 vision or
better.
MARKET POTENTIAL FOR LVC SERVICES
It is estimated that in excess of 100 million people in the U.S., and
a much larger number worldwide, use eyeglasses or contact lenses to correct
common vision disorders, with over 60 million of these individuals suffering
from nearsightedness. U.S. consumers spent an estimated $13.8 billion in
eyeglass and contact lens purchases in 1993. While excimer laser procedures can
treat people who are farsighted or are astigmatic, both the existing technology
and application for regulatory approvals for those uses are in an earlier stage
than for use of excimer lasers for treatment for nearsightedness.
Refractive disorders generally are corrected with conventional methods
such as eyeglasses and contact lenses. Alternative treatments for permanently
reshaping the cornea to relieve nearsightedness, farsightedness and astigmatism
include surgical methods, the most popular of which has been RK, discussed
earlier in this Report. RK is used primarily to correct nearsightedness, but is
known to have potential limitations such as: (i) weakening the cornea, (ii)
potential for infection and (iii) producing inconsistent visual correction
results. However, RK procedures are generally substantially less expensive than
LVC procedures.
Vista believes that the market potential for alternative refractive
care utilizing excimer laser systems is commercially significant. Many eyeglass
or contact lens wearers are potential candidates for laser refractive surgery.
Generally speaking, Vista believes that younger persons are more apt to elect
refractive surgery than older people who have become accustomed to eyeglasses
or contact lenses over an extended period. However, the degree to which Vista's
LVC Services can penetrate the potential market for vision correction will
depend on a variety of factors including, but not limited to, medical and
public acceptance of laser vision correction procedures and alternative
technologies. None of these factors is under the immediate control of Vista nor
is any predictable at this time.
Vista's growth strategy includes: (a) increasing market penetration
into Canada and the United States through Vista's sponsorship, investment and
affiliation with Regional Joint Ventures; (b) continuing to promote alliances
with prominent ophthalmologists and other vision care professionals with a goal
of maximizing excimer laser usage for both its European operating subsidiaries
and North American Regional Joint Ventures; (c) targeting Regional Joint
Venture efforts toward specific markets and key demographic groups within their
regional markets; (d) expanding market acceptance of LVC procedures by both
vision care professionals and the general public through Vista's participation
in seminars and training programs and dissemination of public information and
advertising; and (e) on a longer-term basis, the possible acquisition of other
companies engaged in providing LVC Services.
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LVC EQUIPMENT AND SUPPLIERS
Vista is not involved in the research, development or manufacture of
refractive laser systems, and is dependent on unrelated manufacturers for the
supply of laser equipment and systems to Regional Joint Venture companies and
for possible expansion in Europe. Vista believes there are four U.S. companies
that have conducted or are conducting clinical trials with excimer lasers for
refractive surgery: in addition to Summit and VISX, these include Chiron Corp.
and LaserSight Incorporated. As discussed earlier, Summit and VISX have
received pre-market approval to commercially sell and market in the United
States their excimer lasers for PRK treatment of low and mild myopia and for
PTK procedures.
The current cost of an excimer laser ranges from approximately
$475,000 to $525,000, plus sales tax. For laser equipment purchased from VISX
or Summit, the manufacturer generally requires an additional royalty equal to
$250 per PRK procedure to be paid to Pillar Point Partners, a partnership
between VISX and Summit that holds certain patent rights with respect to their
excimer laser technology. The purchase price typically includes a one or two
year warranty on all parts except the optics (mirror and glass components)
which generally carry a 30-day warranty. Annual maintenance and service fees
are contracted for separately at the time of purchase and range from
approximately $40,000 to $60,000 per year, but these estimates may vary with
usage. Due to the equipment cost, Vista believes that most ophthalmologists
interested in LVC surgery will not be able or willing to purchase a laser, seek
financing for the purchase and/or arrange for required maintenance of the laser
equipment.
Equipment currently maintained or expected to be acquired by Vista's
European operating subsidiaries and Regional Joint Ventures are summarized
above under the captions "European Operating Subsidiaries", and "North American
Regional Joint Venture Investments and Affiliates". Reference is also made to
Note 12 of the Notes to the Consolidated Financial Statements. Regional Joint
Ventures in which Vista has acquired an interest plan to enter into additional
commitments to purchase and lease LVC equipment which may be contingent in
certain instances upon the respective Regional Joint Venture obtaining
additional financing.
In June 1996, Vista entered into two rental agreements with Summit for
the lease of two Summit Apex excimer lasers. The term of each rental agreement
commences upon equipment installation and will continue for a 27 month period.
After the first three months of operation, each equipment lease provides for a
minimum monthly rental fee of $6,500. Vista anticipates installing these
lasers at one or more of its Regional Joint Ventures under a sublease
arrangement.
FDA PRE-MARKET APPROVAL OF LVC EXCIMER SYSTEMS
Excimer laser systems are regulated as medical devices by the United
States Food and Drug Administration ("FDA") and require pre-market clearance or
pre-market approval (referred to as a "PMA") by the FDA prior to commercial
sale and use in the U.S. Medical devices in the U.S. are classified into one of
three classes on the basis of the controls deemed necessary by the FDA to
reasonably ensure safety and effectiveness. Class III devices, which include
medical lasers, generally are those which must receive PMA by the FDA to ensure
their safety and effectiveness and include, among other devices, new devices
which have been found not to be "substantially equivalent" to existing legally
marketed devices.
A PMA application must be supported by valid scientific evidence which
typically includes extensive preclinical and clinical trial data to demonstrate
the safety and effectiveness of the device. If human clinical trials of a
device are required, and the device presents a "significant risk," the sponsor
of the trial (usually the manufacturer or distributor of the device) will have
to file an Investigational Device Exemption ("IDE") application prior to
commencing human clinical trials. The IDE application must be supported by
data, typically including results of animal and laboratory testing. If the IDE
application is approved, human clinical trials may begin at a specific number
of investigational sites with a specific number of patients, as approved by the
FDA.
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A PMA application must contain the results of clinical trials, the
results of all relevant bench tests, laboratory and animal studies, a complete
description of the device and its components, a detailed description of
methods, facilities and controls used to manufacture the device and certain
other information. FDA review of a PMA application generally takes one to two
years from the date the PMA is accepted for filing, but may take significantly
longer. The review time is often significantly extended by the FDA asking for
more information, including additional clinical trials for clarification of
information provided in the submission. When conditions have been fulfilled to
the satisfaction of the FDA, it will issue a PMA approval letter, authorizing
commercial distribution of the device for certain applications. If the FDA's
evaluation is not favorable, the FDA will deny approval of the PMA application
or issue a "not approvable letter". There are devices for which FDA approval
has been sought which have never been approved for marketing in the U.S. The
FDA may approve a device for some procedures but not others, or for certain
classes of patients and not others. Modifications to a device that is an
approved PMA also may require approval by the FDA of PMA supplements or new
PMAs.
GOVERNMENTAL REGULATION
The manufacturing, labeling, distribution, marketing and promotion of
medical devices such as excimer lasers to which Vista and its affiliated
companies provide access are subject to extensive and rigorous government
regulation in the United States and in certain other countries.
Excimer lasers in the United States are required to be the subject of
an approved PMA application. Summit and VISX have received approval of PMA
applications for use of their excimer lasers in PRK and PTK procedures for the
treatment of low to mild myopia. There can be no assurance that FDA approval
will be received by equipment manufacturers for use of PRK for other refractive
disorders, such as extreme myopia, astigmatism and hyperopia (farsightedness)
or that other LVC procedures, such as LASIK or TMM PRK, will ever be approved
by the FDA. Failure to receive such approvals could have the effect of limiting
the market for LVC procedures in the United States, although Vista's plan in
such event is that vision care professionals affiliated with its Regional Joint
Ventures will have an option of referring patients desiring these alternative
procedures to physicians in Canada associated with one or more Regional Joint
Ventures.
Users of medical devices in the United States are subject to
continuing FDA obligations. Medical devices are required to be manufactured in
accordance with regulations setting forth current Good Manufacturing Practices
("GMP"), which require that devices be manufactured and records be maintained
in a prescribed manner with respect to manufacturing, testing and control
activities. It is the FDA's view that with respect to excimer lasers, users, as
well as manufacturers, are required to comply with FDA requirements with
respect to labeling and promotion. The Medical Device Reporting regulation
adopted by the FDA would require that the user provide information to the FDA
whenever there is evidence to reasonably suggest that one of its devices may
have caused or contributed to a death or serious injury, or that there has
occurred a malfunction that would be likely to cause or contribute to a death
or serious injury if the malfunction were to recur. Users of medical devices
are subject to periodic inspections by the FDA. Failure to comply with
applicable FDA requirements could subject one or more Regional Joint Ventures
subject to FDA regulation in the United States to enforcement action, including
product seizures, recalls, withdrawal of approvals, and civil and criminal
penalties, any one or more of which could have a material adverse effect.
Medical device laws and regulations are also in effect in Canada and
Europe. These range from comprehensive device approval requirements to requests
for product data or certifications. The number and scope of these requirements
are increasing. Medical device laws and regulations are also in effect in some
states in which Vista may plan to sponsor Regional Joint Ventures. The failure
of Vista's European operating subsidiaries or Regional Joint Ventures to comply
with applicable foreign or state medical device laws and regulations may have a
material adverse effect on Vista's business.
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Federal, state and foreign laws and regulations regarding the
manufacture and marketing of medical devices are subject to change. For
example, the FDA is currently considering significant changes to its GMP and to
other regulations. Vista cannot predict what impact, if any, such changes
might have on its business.
The operations of Vista's European subsidiaries and the Regional Joint
Ventures are also subject to extensive rules and regulations, both in the
United States and foreign countries at the federal, provincial, state and local
level, affecting the health care industry and the delivery of health care.
These include laws and regulations prohibiting the practice of medicine and
optometry by persons not licensed to practice medicine or optometry,
prohibiting the unlawful rebate or unlawful division of fees and limiting the
manner in which prospective patients may be solicited.
Current regulatory requirements and restrictions that relate to
corporate entities involved in the ownership and operation of healthcare
facilities include prohibitions against: the corporate practice of medicine
except by an entity owned by healthcare professionals and/or wherein the
professionals exercise control over medical judgments; patient referrals by
healthcare professionals (including ophthalmologists and optometrists) to a
facility owned or compensated by such referring professional (either generally,
or sometimes by defining such payments as "kick backs"); and "fee splitting"
between healthcare professionals and corporate entities. Other laws in both the
United States and foreign countries specifically regulate the nature and
compensation provisions of employment or management relationships that
healthcare professionals may have with a corporate-owned facility, may affect
the form of business entity to be utilized, may limit payments either to the
entity or to healthcare professionals to the "fair market value" of their
contributions, or affect the manner of marketing the service performed at the
healthcare facility. Additional regulations in some jurisdictions also now
affect, or in the future may affect, the administration and use of LVC
Services, including requirements for certificates of need and/or other
licensing and registration of medical equipment.
Laws and regulations affecting the manner in which LVC Services may be
marketed, administered or compensated for vary significantly from jurisdiction
to jurisdiction. In some instances these laws and regulations are ambiguous,
and sometimes regulators fail to provide adequate guidelines. Vista believes
that its European operating subsidiaries and Regional Joint Ventures have
adopted strategies that enables each of them to offer and administer LVC
Services in compliance with applicable regulatory requirements in their areas
of operations. However, federal, state and provincial regulatory attention may
continue to be directed to the practice of medicine, and any changes in
applicable law or regulations, or in governmental agency and judicial
interpretations of such laws and regulations, could cause one or more of these
strategies currently in compliance with applicable laws to cease to comply.
The use of excimer lasers and other medical equipment is also subject
to numerous government laws and regulations relating to such matters as safe
working conditions, environmental protection, fire hazard control and disposal
of potentially hazardous substances. There can be no assurance that Vista's
European operating subsidiaries and one or more Regional Joint Ventures will
not be required to incur significant costs to comply with such laws and
regulations in the future.
INSURANCE AND INDEMNIFICATION
Health insurance providers in North America generally consider LVC
procedures to be elective surgery and do not provide insurance reimbursement.
In other countries, reimbursement programs vary by country and region, and
reimbursement is not generally available for European locations at which
Vista's European subsidiaries currently operate.
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Use of laser systems by health care professionals using laser
equipment and other LVC Services may give rise to claims against Vista or its
affiliates by persons alleging injury. Vista's subsidiaries generally do not
currently have malpractice liability insurance due to limited capital
resources.
Vista believes that claims alleging defects in laser systems will be
covered by manufacturers' warranties and the manufacturer's product liability
insurance, and that Vista and its affiliates could take advantage of such
insurance by adding such suppliers to potentially adverse lawsuits. There can
be no assurance that laser suppliers will carry product liability insurance or
that any such insurance will be adequate to protect Vista.
Generally speaking, the policy of Vista's operating subsidiaries and
Regional Joint Ventures are to require that ophthalmologists who perform laser
procedures by use of LVC equipment maintain their own professional liability
insurance.
At a future date, Vista intends to explore the availability and cost
of obtaining umbrella coverage with respect to any malpractice claims relating
to procedures performed by use of LVC Services and of obtaining errors and
omissions coverage with respect to Vista's staff. There can be no assurance
that Vista will be able to retain adequate liability insurance at reasonable
rates, or that insurance or indemnification provided by health care providers
will be adequate to cover claims asserted against Vista, in which event Vista's
business may be materially adversely affected.
PROPRIETARY RIGHTS
Vista has no licenses, patents, registered trademarks or registered
copyrights except that it has filed trademark applications in the United States
and Canada for the service mark "Vista Laser Centers" (TM) and its European
operating subsidiaries conduct business under the name of Vista Vision (TM).
Vista is currently evaluating service mark applications filed by Vista in the
U.S. and Canada to determine whether a modification to that particular name
would enhance Vista's rights to a service mark.
COMPETITION
The vision care industry is extremely competitive and includes
numerous companies that are substantially larger than Vista and have greater
financial, marketing and technical resources. Vista believes principal
competitive factors affecting revenues include market acceptance of LVC
procedures by both patients and vision care professionals, performance, success
relative to alternative refractive correction methods, pricing, regulatory
requirements, quality of equipment and convenience to the patient and
physicians, some of which are factors beyond Vista's control.
Vista competes with other surgical and non-surgical forms of
treatments for refractive disorders, including eyeglasses, contact lenses,
manual refractive surgery (such as RK), corneal transplants and possibly other
new technologies currently under development. Continued use of eyeglasses and
contact lens are expected to be the most popular methods of treating refractive
vision disorders due to low immediate cost and the avoidance of surgery.
Notwithstanding certain limitations and disadvantages compared to LVC
procedures, RK surgery is generally less expensive than are LVC procedures, and
RK may remain a competitive surgical treatment due to cost considerations or
the skills of particular physicians.
The market for access to excimer lasers is highly competitive and
Vista and its Regional Joint Ventures compete, or will compete, in various
geographic markets with other businesses formed since 1990 offering similar
access to LVC equipment and services in Europe, Canada and the United States.
These competitors are pursuing a variety of business and marketing strategies,
such as marketing directly to consumers through optical chains or affiliating
with hospitals or physician group practices.
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Summit, a supplier of laser equipment, operating through a subsidiary
named Refractive Centers International, Inc., plans to open various laser
centers in the United States. Other companies which do not manufacture laser
equipment currently provide, or have indicated they intend to provide, access
to laser equipment in the United States, including: Beacon Eye Institute Inc.
(a subsidiary of Hawker Siddley Canada Inc.); Vision International, Inc., which
operates PRK clinics in Mexico, Finland and Argentina; Laser Vision Centers,
Inc. ("LVCI"), which has operated centers in Canada since 1991 and in Europe
since 1993; Global Vision, Inc.; LCA Vision, Inc.; Sight Resources, Inc.;
Sterling Vision, Inc.; The Laser Centre; and 20/20 Laser Centers, Inc.
Additional competition also exists or may develop from hospital affiliated
groups, physician group practices and private ophthalmologists electing to
purchase refractive laser systems in certain markets, some of whom are believed
to operate equipment for which royalties are not payable to a laser
manufacturer. LVCI reportedly operates 12 sites in the U.S., and plans to open
additional U.S. locations, in conjunction with Columbia Healthcare Corporation,
formerly named Columbia/HCA, which operates ambulatory surgery centers in
approximately 27 states. LVCI has also announced plans to develop
self-contained mobile laser surgery centers and to apply for pre-market
approval of its mobile system with the FDA.
The ability of Vista and its Regional Joint Ventures to compete
successfully may also depend in the future on their ability to adapt to
technological changes and advances in the treatment of refractive vision
disorders. There can be no assurance that, as the market for excimer laser
surgery and other treatments of refractive disorders develops, that equipment
owned and/or leased by Vista and its affiliates will not become obsolete, and
if this occurs, there can be no assurance that Vista will be able to secure new
equipment to allow Vista and its affiliates to compete effectively.
INVESTMENT IN TECHNICAL CHEMICALS AND PRODUCTS, INC.
As part of an agreement between Vista and Pharma Patch generating
additional financing for Vista in March 1996, Vista received 200,000 restricted
shares of Technical Chemicals and Products, Inc. ("TCPI") common stock from
Pharma Patch at a value of $2,662,500, or $13.31 per TCPI share. At the time
this transaction was completed and at March 31, 1996, shares of TCPI acquired
by Vista were restricted as to resale under federal securities laws and have
been valued at both dates for financial statement purposes at a 25% discount
from the public market price. On March 21, 1996, the date Pharma Patch and
Vista closed the agreement, the closing price for TCPI common stock was $17.75
per share. Subsequent closing prices for TCPI common stock were $16.50 on March
31, 1996 and $10.63 on September 30, 1996.
TCPI is principally engaged in the design, development, manufacture
and marketing of a wide range of medical diagnostic products for use in
physician offices, at home and at other point-of-care locations. TCPI's
medical diagnostic products employ patented and proprietary membrane-based
technology, and include approximately 25 different tests to detect conditions
such as pregnancy, ovulation timing, cholesterol levels, blood glucose levels,
infectious diseases and drugs of abuse. TCPI markets diagnostic products
through a marketing and distribution alliance between TCPI and Boehringer
Mannheim and also markets products under its proprietary brand name and under
private label arrangements to drug, discount and supermarket chains. In
addition to its diagnostics business, TCPI is also involved, through its
Pharmetrix Division acquired from Pharma Patch PLC in November 1995, in
research, development and commercialization of transdermal and mucosal drug
delivery systems and skin permeation enhancers. For its fiscal year ended
December 31, 1995, TCPI reported net sales of $4,188,000 and a net loss of
$1,494,000.
TCPI's common stock is publicly-traded in the over-the-counter market
and quoted on the Nasdaq SmallCap Market under the symbol "TCPI". TCPI is
subject to the informational requirements of the Securities Exchange Act of
1934, as amended, and in accordance therewith files reports, proxy statements
and other
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<PAGE> 22
information with the Securities and Exchange Commission ("Commission") which
may be inspected and copied at the public reference facilities maintained by
the Commission at its principal office in Washington D.C. and at its regional
offices in Chicago and New York.
As the assignee of Pharma Patch with respect to its investment in
TCPI, Vista is entitled to certain benefits and subject to certain obligations
arising under prior agreements between Pharma Patch and TCPI. TCPI filed a
registration statement on Form S-3 to register certain shares of TCPI common
stock acquired by Pharma Patch from TCPI, including the 200,000 shares assigned
to Vista. The resale of these shares pursuant to such registration was subject
to a lock-up agreement executed by Vista. Under that lock-up, Vista agreed it
would not sell, contract to sell, grant any option for the sale of, or
otherwise directly or indirectly dispose of Vista's shares of TCPI common stock
during the period expiring 180 days following the closing of a public offering
of securities by TCPI on May 2, 1996 without the prior consent of the
representative of the underwriters of TCPI's public offering. Vista sold most
of its TCPI Shares in late November 1996 at prices ranging from $7.50 to $8.00
per share.
EMPLOYEES
Vista's corporate operations employ the services of eight employees
and consultants, including three on a full time basis and five on a part-time
basis, all of which are involved in management or administrative functions.
Vista's European subsidiaries employ six persons at Vista-Italy and five
persons at Vista-Sweden. Management believes that Vista's relationship with its
employees is satisfactory. As Vista expands, it expects to add additional
employees, primarily in marketing, administrative and management positions.
Vista does not anticipate difficulty in hiring such personnel when needed.
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THE COMPANY'S MARKET MAKERS: - M.H. Meyerson
- Herzog, Heine & Goduld
- Mayer & Schweitzer
- Coastal Securities Limited
As of November 29, 1996, 5,340,685 Ordinary Shares were eligible for
sale under Rule 144, subject to certain limitations included in such Rule. In
general, under Rule 144, a person (or persons whose shares are aggregated) who
has satisfied a two-year holding period, under certain circumstances, may sell
within any three-month period a number of shares which does not exceed the
greater of 1% of the Company's then outstanding Common Stock or the average
weekly trading volume of such Common Stock during the four calendar weeks prior
to such sale. Rule 144 also permits, under certain circumstances, the sale of
shares without any quantity limitation by a person who has satisfied a
three-year holding period and who is not, and has not been for the preceding
three months, an "affiliate" of the Company.
In connection with the Arca and the May 1995 private placement
transactions described under the caption "Item 12. Certain Relationships and
Related Transactions", the Company granted registration rights and has filed a
Registration Statement with respect to the Ordinary Shares issued in those
transactions.
Except as described in the preceding paragraph, the Company has not
granted any rights, or otherwise agreed, to register any shares of the Ordinary
Shares of the Company under the Securities Act for any security holder.
The Company has no present intention of publicly offering any shares
of its Ordinary Shares.
HOLDERS
As of November 29, 1996, there were 204 record holders of the Company's Ordinary
Shares represented by ADR's.
DIVIDENDS
A. Since inception, the Company has not paid any dividends on any of
their respective shares of capital stock.
B. The Company does not foresee that it will have the ability to pay any
dividends on its Ordinary Shares during the fiscal year ending
February 28, 1997, nor does management have any present intention to
pay any dividends in the foreseeable future. It is management's
intention to retain any earnings of the Company for future expansion
and development purposes.
EMPLOYEES
The Company retains a total staff of 3 individuals.
ITEM 2. DESCRIPTION OF PROPERTY
The Company leases an approximately 1,000 square foot office for
administrative purposes on a month to month basis in Toronto, Ontario, Canada at
a monthly rental of $1,640.
ITEM 3. LEGAL PROCEEDINGS
The Company is not involved in or aware of any legal proceedings.
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<PAGE> 24
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
PRICE RANGE OF THE COMPANY'S ADRS
The Company's ADRs were traded on the NASDAQ Stock Market (Small Cap
Market ["NASDAQ"]) and on the Boston Stock Exchange ("BSE") through August 16,
1995. Effective August 17, 1995, the ADRs were de-listed from NASDAQ and the
BSE. The ADRs now trade on NASDAQ's OTC Bulletin Board. The Company's ADR's
began trading on NASDAQ on March 1,1994. Set forth below is the closing bid
and asking prices for the ADRs for the periods indicated:
<TABLE>
<CAPTION>
PERIOD CLOSING BID CLOSING ASK
- ------ ----------- -----------
1994 HIGH LOW HIGH LOW
- ---- ---- --- ---- ---
<S> <C> <C> <C> <C>
First Quarter (March 2 thru March 31) . . . . . . 9 7 1/2 9 1/8 7 7/8
Second Quarter . . . . . . . . . . . . . . . . . 6 7/8 4 5/8 7 1/4 5
Third Quarter . . . . . . . . . . . . . . . . . . 5 2 5 3/4 2 1/2
Fourth Quarter . . . . . . . . . . . . . . . . . 2 7/8 1 3 1/2 1 3/8
</TABLE>
<TABLE>
<CAPTION>
1995 HIGH LOW HIGH LOW
- ---- ---- --- ---- ---
<S> <C> <C> <C> <C>
First Quarter . . . . . . . . . . . . . . . . . . 1 3/16 1 1 2 1/4
Second Quarter . . . . . . . . . . . . . . . . . 1 5/8 1 1 5/8 1 1/8
Third Quarter (July 1 through August 16) . . . . 1 7/8 1 1/16 2 1/8 1 1/8
</TABLE>
<TABLE>
<CAPTION>
1995 CLOSING BID CLOSING ASK
- ---- ----------------------------------
<S> <C> <C>
Third Quarter . . . . . . . . . . . . . . . . . . 15/16 1 3/8
Fourth Quarter . . . . . . . . . . . . . . . . . 13/16 1 3/8
</TABLE>
<TABLE>
<CAPTION>
1996
- ----
<S> <C> <C>
First Quarter . . . . . . . . . . . . . . . . . . 3/4 1 3/16
Second Quarter . . . . . . . . . . . . . . . . . 5/8 1 1/8
Third Quarter . . . . . . . . . . . . . . . . . . 1/8 5/8
Fourth Quarter (through November 29) . . . . . . 1/8 5/8
</TABLE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
BACKGROUND
The operations of the Company were primarily those of its wholly
owned subsidiaries PP Holdings, Inc., Medipro Sciences Limited ("Medipro") and
Flora, Inc. ("Flora"). The Flora operation was acquired on June 30, 1994 and is
reflected in fiscal 1995 accordingly. The Medipro operation was significantly
downsized after the acquisition of the assets of Flora and officially ceased
operations January 31, 1995. The operations of the Company were primarily those
of Medipro for the first four months of fiscal 1995 and all prior years. On
November 15, 1995 the Company sold substantially all of its assets (including
the assets acquired from Flora) to Technical Chemicals and Products, Inc.
("TCPI") for 786,214 shares of TCPI common stock. Operating results related to
this business have been treated as discontinued operations in the consolidated
financial statements. Accordingly, the financial statements for fiscal 1996
include a loss from the discontinued operations of approximately $2,600,000, and
a gain on the sale of approximately
24
<PAGE> 25
$16,400,000. In March 1996, the Company acquired a controlling interest in Vista
Technologies, Inc. (Vista). See "Certain Transactions." The consolidated
financial statements have been prepared in accordance with US GAAP.
RESULTS OF OPERATIONS
FISCAL YEARS ENDED FEBRUARY 29, 1996 AND FEBRUARY 28, 1995
As a result of the November 1995 TCPI transaction, the operations of the
Company's subsidiaries, PP Holdings Inc. and Medipro, have been presented in the
Company's Consolidated Statements of Earnings and Loss and Deficit as
discontinued operations as per U.S. GAAP. The transaction with TCPI resulted in
a gain of approximately $16,400,000 as the Company had previously written-off
its acquired technologies and all research and development expenditures
associated with these technologies. TCPI issued 786,214 shares of TCPI's common
stock with a fair value of approximately $11,919,000 to the Company and also
satisfied the $5,000,000 promissory note previously issued by the Company to
Flora, Inc.
During the fiscal year ended February 29, 1996, the Company had revenue
from discontinued operations of $469,055 versus nil for the previous year. These
revenues were primarily due to feasibility studies conducted
25
<PAGE> 26
by the Company on behalf of third parties. The Company does not expect to have
similar revenue in fiscal 1997.
The loss from continuing operations in fiscal 1996 of $1,728,683 consists
mainly of administration expenses of the Company during the year. Administration
expenses of continuing operations of $1,798,524 increased by approximately
$657,223 or 58% from 1995. This increase can be attributed to an increase in
professional fees relating to the TCPI transaction and increased compensation
expenses for the year relating to the anticipated reorganization of the Company.
Other income during the year of $64,321 was primarily derived from receipt of
proceeds from the sale of certain securities. Interest income is down from 1995
by $36,865 or 76% to $11,698 due to lower cash balances being available for
short-term investments during the year.
Medipro Sciences Limited ceased operations January 1995 and accordingly,
this subsidiary did not report any results to effect the Company's fiscal 1996
results. In fiscal 1995, Medipro Sciences Limited reported expenses of $876,101
and $1,088,786 related to general and administration and research and
development respectively. The loss from operations of the discontinued business
segment of $2,593,468 in fiscal 1996 consists mainly of operating expenses of
the Company's subsidiary PP Holdings Inc. PP Holdings, Inc. recorded $1,164,681
and $558,033 of research and development and general and administrative expenses
respectively during fiscal 1996 versus $974,145 and $781,693 for research and
development and general and administrative expenses respectively during fiscal
1995. In addition, $337,667 in interest on long-term debt was incurred during
the year related to the $5,000,000 note satisfied by TCPI. In total, research
and development expenses for fiscal 1996 of $1,164,681 declined by approximately
$898,000 from fiscal 1995 due to a duplication of expenses associated with
operating two research and development facilities (Toronto, Ontario and Menlo
Park, California) for seven months while the Company was in the process of
closing its Toronto facility and moving all research and development activities
to Menlo Park, California (location of the facility acquired from Flora). The
fiscal 1995 loss from operations of discontinued business segment of $11,698,353
for fiscal 1995 is $9,104,885 higher than the 1996 amount because of the unusual
items charged in 1995's financial statements. These included the write-off of
capitalized technologies, restructuring costs of Medipro and the write-off of a
foreign currency translation amount, all totalling approximately $6,361,000. In
addition to these amounts, fiscal 1995 costs were higher due to higher research
and development costs incurred of $2,355,515.
For the year ended February 29, 1996 the Company has a net earnings of
$12,090,676 or $.70 per share (fiscal 1995 -- a loss of $2.56 per share). This
net income in fiscal 1996 is due to the gain on the sale of assets to TCPI
whereas the fiscal 1995 loss is attributable to the unusual items charged in
fiscal 1995 listed above.
FISCAL YEARS ENDED FEBRUARY 28, 1995 AND 1994
Expenses from continuing operations for the fiscal year ended February 28,
1995 were $2,081,891 versus $1,348,112 for the fiscal year ended February 28,
1994. The increase in expenses are primarily attributable to the write-off of
Cangene acquisition costs and the loss on disposal of the Cangene investment
($992,843) partially off-set by a reduction in administration expense and a
foreign exchange gain. Loss from continuing operations for the 12 month periods
ending February 28, 1995 and 1994 are $2,039,091 and $1,307,672 respectively.
The increase in the loss from continuing operations is attributable as outlined
above.
The loss from discontinued operations for fiscal year 1995 were $11,698,353
versus $1,919,752 for the fiscal year ended February 28, 1994. The year over
year increase in the loss from discontinued operations is primarily attributable
to unusual items written off in fiscal 1995 totalling $6,361,084 and an increase
in expenses associated with the operations of PP Holdings, Inc. The unusual
items relate to acquired technology ($2,775,336), write-off of capitalized
technology ($1,685,516), Medipro restructuring costs ($1,492,070) and a
write-off of the cumulative translation adjustment related to Medipro Sciences
Limited ($408,162).
The net loss for fiscal 1995 increased 326% to $13,737,444 from $3,227,424
in fiscal 1994. The increase was primarily attributable to the unusual items
described above and duplication of discontinued operating expenses as defined
above.
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<PAGE> 27
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has relied upon private and public equity
financing and internally generated cash flows, principally from the license and
contract product development fees, to finance its operations.
The increase in cash of $30,077 from February 28, 1995 to February 29,
1996 represents the net proceeds from private placement monies offset by cash
requirement needs for the Company's operations, the purchase of fixed assets of
approximately $51,000 and advances to Vista Technologies Inc. of $251,500.
Subsequent to February 29, 1996, the Company sold 210,000 TCPI shares for
net proceeds of $2,928,697, $750,000 of which was used to pay a loan to Vista as
part of the consideration in the acquisition of Vista. As of November 20, 1996,
the TCPI stock had a market value of $8.00 per share, of which the Company owns
576,214 shares.
The Company has had limited operating revenues and has accumulated a
deficit of $6,249,628 as of February 29, 1996. The Company expects to continue
to incur operating losses until such time, if ever, it generates sufficient
revenues. There is no assurance that the Company will ever operate profitably.
The Company's principal capital requirements include cash requirements to
finance programs to acquire additional LVC equipment and support activities of
Regional Joint Ventures sponsored by Vista since June 1996, working capital for
management and administration and, in the future, anticipated requirements to
finance sales and marketing. Subject to availability of adequate capital, as to
which there can be no assurance, expenditures for additional excimer laser
equipment may be significant during the foreseeable future to support the
Company's program of expanding LVC Services and supporting the activities of
Regional Joint Ventures.
The Company, through Vista and its Regional Joint Ventures, plans to select
strategically located sites for additional expansion, each of which will be
equipped with state-of-the-art laser equipment systems permitted for commercial
use in the state or province in which such equipment is located, as well as
diagnostic, pre-operative and post-operative facilities. These corporate
affiliates will own or lease and maintain the LVC equipment at each site, will
lease real estate facilities for each location, and will offer MDs and ODs
billing, accounting, administrative, marketing and management services, as well
as access to a trained support staff and necessary LVC equipment and supplies,
so that health care professionals may concentrate their efforts on patient care.
The current cost of an excimer laser ranges from approximately $475,000 to
$525,000, plus sales tax. For laser equipment purchased from VISX or Summit, the
manufacturer generally requires an additional royalty equal to $250 per PRK
procedure to be paid to Pillar Point Partners, a partnership between VISX and
Summit that holds certain patent rights with respect to their current laser
technology. The purchase price typically includes a one or two year warranty on
all parts except the optics (mirror and glass components) which generally carry
a 30-day warranty. Annual maintenance and service fees are contracted for
separately at the time of purchase and range from approximately $40,000 to
$60,000 per year, but these estimates may vary with usage. Due to the equipment
cost, the Company believes that most ophthalmologists interested in LVC surgery
will not be able or willing to purchase a laser. As a result, the Company,
through Vista will seek financing for the purchase and/or arrange for required
maintenance of the laser equipment.
Vista's strategic plan is to expand its laser vision correction center
network and locations as quickly as possible within the limits of available
financial resources and prudent operating and financial policies. This growth
strategy includes: (i) rapidly increasing market penetration, principally in the
United States, through expansion of the number of locations at which LVC
equipment and services are offered by Vista's subsidiaries; (ii) continuing to
promote development of alliances with experienced ophthalmologists and
optometrists with the goal of maximizing excimer laser usage; (iii) actively
training additional physicians in advanced LVC procedures; and (iv) developing
marketing and advertising programs targeted to specific regional markets and key
demographic groups within those markets.
27
<PAGE> 28
Vista is currently seeking additional private placement equity capital in
an amount of at least $5 million up to $10 million. Although it has identified a
source through which a financing may be sought, the Company has not received any
binding commitments to obtain such financing. Subject to its ability to obtain
additional private placement capital, as to which there can be no assurance, the
Company currently projects that additional capital expenditures for investment
in equipment and facilities of Vista's Regional Joint Ventures in North America
for the next twelve months will be as much as $6,600,000. Additional projected
requirements during that period for the implementation of sales and marketing
programs are approximately $400,000 and Vista anticipates it will also seek to
expand its administrative and management personnel and systems at a projected
expense of approximately $600,000 for that period. Management anticipates that
substantial additional public and/or private financings in excess of the above
amounts will be required after twelve months, in amounts not yet determined, to
finance continued growth of its laser vision correction center network and that
purchase money equipment financing and/or leasing arrangements will be utilized
to the extent available, if any, to leverage the amount of additional equipment
available to expand Vista's operations. The Company's actual future capital
requirements will depend on numerous factors, including, but not limited to,
Vista's progress in acquiring additional laser equipment and facilities for LVC
centers, the ability of Vista to establish additional affiliations with vision
care professionals, the availability, amount and terms of additional equipment
lease and/or installment purchase financing, competing technological and market
developments, and the cost of marketing and advertising programs. The Company is
unable to state the amount or potential source of additional financing.
Because of the Company's potential long-term capital requirements, it may
undertake additional equity offerings through Vista whenever conditions are
favorable, even if it does not have an immediate need for additional capital at
that time. There can be no assurance that the Company will be able to obtain
additional funding when needed, or that such funding, if available will be
obtainable on reasonable terms. Any such additional funding may result in
significant dilution to existing stockholders of Vista. If adequate funds are
not available, Vista may be required to accept unfavorable alternatives,
including (i) the delay, reduction or elimination of its planned expansion,
capital expenditures, marketing and advertising and other operating programs, or
(ii) arrangements with collaborative partners that may require Vista to
relinquish material interests in its operating subsidiaries that it would not
otherwise relinquish.
Vista's European subsidiaries currently own or lease and maintain six
excimer lasers, and at present Vista's Regional Joint Ventures in the United
States and Canada collectively own or lease and maintain six excimer lasers.
Expenditures for additional excimer laser equipment to support Vista's program
of expanding LVC Services offered its corporate affiliates may be significant.
To date, Vista and its corporate affiliates have been able to provide a deposit
of approximately $50,000 per laser and have not experienced difficulty in
arranging for equipment financing of the balance of the purchase price, either
from the equipment manufacturer or a third party, by means of a capital
equipment lease or an installment note secured by the equipment. Due to current
demand for and the cost of excimer lasers, the Company believes that the resale
value of an excimer laser has facilitated obtaining equipment financing for a
substantial portion of the equipment price, especially when the third party
financing source has reason to believe the laser will be utilized on a
consistent basis by experienced professionals. Vista intends to continue to rely
upon such third party financing techniques to finance a substantial portion of
additional equipment acquisitions, as well as raising additional capital through
a future offering of equity securities by Vista. In addition, Regional Joint
Ventures sponsored by Vista each plan to raise additional capital through either
the private placement and/or initial public offerings of their securities to
enhance their ability to obtain additional equipment to expand operations in
their region. There can be no assurance that additional equipment financing will
continue to be available to Vista and its corporate affiliates or that either
Vista or any of its Regional Joint Ventures will be successful in obtaining
additional equity capital from private and/or public offerings of their
securities.
Vista plans to continue to seek additional capital through the private
placement and/or public sale of its equity securities, use of equipment lease
financing, and sale of marketable securities to finance operations and expansion
plans in North America.
Although Vista's European operating subsidiaries appear to have achieved
positive or neutral cash flow levels of operations, the Company's management
anticipates that its consolidated operations will incur
28
<PAGE> 29
negative cash flows for the immediate future, primarily due to fixed expenses
for corporate general and administrative overhead. Management is actively
pursuing strategies to increase the Company's revenues and reduce its negative
cash flow. There can be no assurance that consolidated revenues will increase to
the point that operating expenses will be fully absorbed by revenues from
operations.
The Company has a significant investment in Vista, however, the Company
will continue to look at other investment opportunities over the next twelve
months. Based on currently planned activities, the Company believes that its
cash and marketable securities (if necessary) are sufficient to meet the
Company's anticipated cash requirements for the next twelve months.
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
Impairment of Long-Term Assets and for Long-Term Assets to be Disposed of" which
is effective for fiscal year beginning after December 15, 1995. This statement
is not expected to have a significant effect on the results of operations or
financial position of the Company. In October 1995, the Financial Accounting
Standards Board issued SFAS No. 123, "Accounting for Stock-Based Compensation,"
which is effective for years beginning after December 15, 1995. The Company
anticipates electing to continue its current accounting methodology regarding
stock options granted to employees and will add the required additional footnote
disclosures prescribed by SFAS No. 123. In addition, options granted to
non-employees will have compensation expense associated with it, calculated in
accordance with the new pronouncement.
ITEM 7. FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
See page F-1 through F-21 attached hereto for copies of the Company's
audited consolidated financial statements through February 29, 1996.
Audited Annual Consolidated Financial Statements:
February 29, 1996, and February 28, 1995.
Unaudited Quarterly Financial Statements:
None.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
DIRECTORS AND EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
NAME AGE TITLE
- ---- --- -----
<S> <C> <C>
Murray D. Watson . . . . . 52 Chairman of the Board, Chief Executive Officer,
President and Director
Kenneth G. Howling . . . . 39 Vice President -- Finance and Chief Financial
Officer
Paul E. Heney . . . . . . . 37 Secretary
Kevin J. Quinn . . . . . . 54 Director(1)
Jac. J. Lam . . . . . . . . 48 Director(1)
</TABLE>
- ----------------------
(1) Member of the Audit, Compensation and Nominating Committees.
29
<PAGE> 30
All of the above persons have served in their respective capacities
since July 30, 1993 with the following exceptions: Mr. Howling began his
service on November 8, 1993, and Mr. Quinn and Mr. Lam became directors on
March 15, 1996 and April 1, 1996, respectively. No director receives any
compensation for his services as such.
The function of the Audit Committee is to review significant financial
and accounting issues, to review the services performed by, and reports of, the
Company's independent auditors and to make recommendations to the Board of
Directors with respect to these and related matters.
The Compensation Committee is responsible for establishing and
administering the Company's executive compensation programs. The Nomination
Committee is responsible for making recommendations for vacancies on the Board
of Directors.
MURRAY D. WATSON, B.A.SC., M.B.A., CHAIRMAN OF THE BOARD, CHIEF EXECUTIVE
OFFICER, PRESIDENT AND DIRECTOR
Mr. Watson became the Chairman of the Board and Chief Executive
Officer of the Company on July 30, 1993. Prior thereto, he had been the
President and Chief Operating Officer of Medipro Sciences Limited since
November, 1987. He has over 25 years of experience in the international health
care industry including Vice President, Picker International Inc., President,
Odyssey Inc., and General Manager, American Hospital Supply Corp. of Canada. As
President of the M.D.W. Group Inc., a privately owned merchant banking company
since 1985, he has managed a broad spectrum of business ventures. Mr. Watson
received his B.A.Sc., in Civil Engineering in 1965 from the University of
Toronto and his MBA in 1971 from York University in Toronto, Canada. Mr.
Watson is also a director of Technical Chemicals and Products, Inc. and is the
Vice-Chairman of the Board of Vista. See "The Company" and "Certain
Transactions".
KENNETH G. HOWLING, C.P.A., VICE PRESIDENT -- FINANCE AND CHIEF FINANCIAL
OFFICER
Mr. Howling became the Vice President -- Finance and Chief Financial
Officer of the Company on November 8, 1993. He served as the Corporate
Secretary and Controller for Roberts Company Canada Limited from June 1988
until May 1991 and also served as General Manager from June 1991 to November
1993. Prior thereto, he spent 10 years in financial and general management
positions including positions with Smith Kline Beecham, Bencard Allergy
Laboratories, McGraw Edison, and Price Waterhouse. He has been involved in
acquisitions, corporate restructuring, cash flow management, human resource
management, and management information systems. Mr. Howling received his
Certified Public Accountant license from the state of New Jersey in 1987 and
his B.A. in Accounting from Upsala College in East Orange, New Jersey.
PAUL E. HENEY, B.SOC.SCI., LL.B., M.B.A., SECRETARY
Mr. Heney became the Secretary of the Company on July 30, 1993. He is
an attorney and has practiced in the Toronto, Ontario firm of Heney and
Associates since 1991. Between 1985 and 1991 he worked with the Toronto law
firm of Holden Day Wilson. He received his B.Soc.,Sci. in economics from the
University of Ottawa in 1981, his LL.B. from the University of Ottawa in 1984
and his M.B.A. in 1985 from York University, Toronto.
KEVIN J. QUINN, LLM., DIRECTOR
Mr. Quinn was elected a director of the Company in March 1996. He has
been a practicing attorney in Los Angeles, California since 1969.
30
<PAGE> 31
JAC. J. LAM, DIRECTOR
Jac. J. Lam was elected a director, President and Chief Executive
Officer of Vista on June 9, 1995. Mr. Lam, a resident and citizen of The
Netherlands, has served since 1979 as president and the Managing Director of
Multibreen B.V., a company founded and owned by Mr. Lam. Multibreen B.V.
specializes in temporary assignments providing services in the fields of
interim management, mergers and acquisitions, international tax advice, and
financial and corporate services; it also manges portfolio investments for a
wide range of clients. Mr. Lam is a chartered accountant and a member of the
Association of Chartered Accountants, whose career in professional advisory
services includes taxes, audit, financial advisory and administration services.
Prior to founding Multibreen B.V. in 1979, he served as a senior auditor with
the accounting firm of Dijker & Doornbos in 1969 and 1970 and with Price
Waterhouse form 1971 to 1973. Mr. Lam was the director of Finance, European
Operations, for Oriflame International Corporation in 1974, a Swedish company
active in the field of health care and cosmetic products. In 1975, he
co-founded Scheffers Boulnois & Partners B.V., a firm specializing in
international auditing, accounting and tax consulting services, which grew from
three partners to a staff of 65 employees at the time Mr. Lam sold his interest
in 1979. Mr. Lam is fluent in four languages and has written several papers
and is a frequent speaker for the English Business Club in the Netherlands.
EMPLOYMENT AND CONSULTING AGREEMENTS
The Company entered into a three (3) year management agreement
commencing August 3, 1993 (the "TMI Agreement") with Trident Management Inc.
("TMI"). Mr. Watson is a minority shareholder of TMI.
On February 28, 1994 the TMI Management Agreement was terminated save
and except for the option provisions and a three-year employment agreement
between the Company and Mr. Watson became effective. On January 22, 1996, the
TMI Agreement was terminated, effective November 15, 1995. A new consulting
agreement was entered into between the Company and TMI on February 27, 1996,
effective November 16, 1995. The new agreement provides that TMI will provide
general supervision of the day to day operations and provide consulting
services with respect to the worldwide business and affairs of the company and
designated Murray D. Watson, a minority shareholder of TMI, to serve as the
Company's Chairman of the Board and Chief Executive Officer.
The agreement provides for annual salary of $225,000 U.S., payable
monthly. The annual base salary shall be increased annually at the rate of 10%
per annum. TMI shall be entitled to receive an annual performance bonus
payable in cash or by mutual agreement by equivalent equity in the amount equal
to 100% of the gross annual base remuneration payable during the first year of
the term thereof but only in the event that closing price of the Company's ADSs
equals or exceeds U.S.$ 2.00 for any 21 day period (whether or not consecutive)
prior to February 28, 1997. With respect to subsequent years, the bonus shall
be in an amount agreed upon between the compensation committee of the Company's
board of directors and TMI. If the Company terminates the agreement without
cause, TMI will be entitled to receive severance payments in an amount equal to
the greater of the amounts payable each year for the number of years or part
thereof remaining under the contract or 12 months.
On November 8, 1993, the Company entered into an employment agreement
with Mr. Kenneth Howling for a term of three (3) years. On January 22, 1996,
this agreement was terminated, effective November 15, 1995. Pinnacle Financial
Corporation ("Pinnacle") and the Company entered into a new three year
consulting agreement on February 27, 1996, effective November 16, 1995.
Pinnacle is wholly-owned by Mr. Howling. The new agreement provides that
Pinnacle will provide general supervision of the day to day financial
operations and provide consulting services with respect to the worldwide
business and affairs of the company and designated Kenneth G. Howling, its sole
shareholder, to serve as the Company's Vice President of Finance and Chief
Financial Officer.
The agreement provides for annual salary of $125,000 U.S., payable
monthly. The annual base salary shall be increased annually at the rate of 10%
per annum. Pinnacle shall be entitled to receive an annual
31
<PAGE> 32
performance bonus payable in cash or by mutual agreement by equivalent equity
in the amount equal to 100% of the gross annual base remuneration payable
during the first year of the term thereof but only in the event that closing
price of the Company's ADSs equals or exceeds US$2.00 for any 21 day period
(whether or not consecutive) prior to February 28, 1997. With respect to
subsequent years, the bonus shall be in an amount agreed upon between the
compensation committee and the Company's board of directors. If the Company
terminates the agreement without cause, Pinnacle will be entitled to receive
severance payments in an amount equal to the greater of the amounts payable
each year for the number of years or part thereof remaining under the contract
or 12 months.
Effective December 1, 1993, the Company entered into a consulting
agreement with Dr. Joseph G. Masterson pursuant to which Dr. Masterson will
provide the Company with consulting services including assistance in
establishing strategic alliances. This agreement was terminated on January 22,
1996.
Also on January 22, 1996, the employment or management agreements
between the Company, Hooper & Associates of which Mr. Gary R. Hooper is the
sole shareholder, Dr. Thomas S. Spencer and Dr. Vithal J. Rajadhyaksha were
terminated. Mr. Hooper resigned as the President and Chief Operating Officer
of the Company; Dr. Spencer resigned as the Executive Vice President and Chief
Technical Officer of the Company; and Dr. Rajadhyaksha resigned as the Vice
President - Pharmaceutical Development of the Company. These transactions were
effective November 15, 1995. In connection with the termination of these
agreements, as consideration for contractual obligations not met by the
Company, services rendered, severance pay, accepting shares in lieu of cash as
payment for salaries in fiscal 1996, the obligations of TMI, Hooper &
Associates, Mr. Howling, and Dr. Spencer under promissory notes valued at
$741,250 issued in August of 1995 with respect to the purchase of Ordinary
Shares were deemed paid in full and TMI was issued 206,250 additional Ordinary
Shares valued at $103,125. (See "Certain Transactions").
Murray D. Watson, through TMI and Kenneth G. Howling, through
Pinnacle, are paid compensation for acting as officers and/or directors of
Vista at the annual rate of $100,000 U.S. and $60,000 U.S., respectively. The
compensation paid by the Company to TMI and Pinnacle is reduced by such
amounts. Such compensation commenced on April 1, 1996. Each of TMI and Pinnacle
are entitled to a bonus to be reviewed by the Board of Directors of Vista at
the end of each fiscal year up to 100% of base compensation.
STOCK OPTION PLANS
On July 30, 1993, and July 19, 1994, the Board of Directors adopted
its 1993 and 1994 Share Option Plans (together, the "Plans"), the purpose of
which is to provide the Company's employees, officers and directors with
additional incentives to improve the Company's ability to attract, retain and
motivate individuals upon whom the Company's sustained growth and financial
success depend.
The Plans are administered by the Compensation Committee designated by
the Board of Directors (the "Committee"), which is comprised of outside
directors. The aggregate number of Ordinary Shares reserved for issuance under
the 1993 Plan is 550,000 shares, while the aggregate number of Ordinary Shares
reserved for issuance under the 1994 Plan is 150,000 shares. Options for a
total of 685,000 shares were outstanding and have expired.
On March 3, 1996, the following options to purchase Ordinary Shares
were issued to the persons and entities listed below, all of which have terms
of five years:
32
<PAGE> 33
<TABLE>
<CAPTION>
No. of Shares Exercise Price
Name Subject to Option(1) Per Share
---- ----------------- ---------------
<S> <C> <C>
Trident Management, Inc. . . . . . . . . . . 350,000 $0.50
Pinnacle Financial Corporation . . . . . . . 250,000 $0.50
S. Lynda Murtha . . . . . . . . . . . . . . . 33,334 $0.50
Kevin J. Quinn . . . . . . . . . . . . . . . 33,333 $0.50
Paul E. Heney . . . . . . . . . . . . . . . . 33,333 $0.50
All officers and directors as a group
(5 persons) . . . . . . . . . . . . . . . . . 700,000
</TABLE>
- --------------------------
(1) These options shall vest only in the event that the closing price of
the Company's ADS's equals or exceeds U.S. $2.00 in any 21 day trading period
(whether or not consecutive) prior to the February 28, 1997.
Options granted under the Plans are immediately exercisable. The
exercise price of the options is determined by the Committee and will be at
least 100% of the market price of the Ordinary Shares on the date the option is
granted. No awards can be made under the Plans after August 2002. The term of
any option will be determined by the Committee, provided that the term may not
exceed ten (10) years from the date of grant. Unless otherwise expressly
authorized by the Board, all options will terminate not more than ninety (90)
days after termination of the option holder's employment or service with the
Company (or one year after such termination because of death or disability).
Under certain circumstances involving a change of control of the Company, the
Committee may accelerate the exercisability and termination of the option.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers, and persons who own more than ten percent of a registered
class of the Company's equity securities (collectively, "Section 16 reporting
persons"), to file with the Securities and Exchange Commission (the "SEC")
initial reports of ownership and reports of changes in ownership of Common
Stock and other equity securities of the Company. Section 16 reporting persons
are required by SEC regulation to furnish the Company with copies of all
Section 16(a) forms they file.
The Company did not become subject to the Section 16(a) reporting
requirements until March 1, 1995. To the Company's knowledge, based solely on
review of the copies of such reports furnished to the Company and written
representations that no other reports were required, subsequent to the end of
the fiscal year ended February 29, 1996, all Section 16(a) filing requirements
applicable to the Company's Section 16 reporting persons were satisfied.
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth in the prescribed format the
compensation paid the Company's Chief Executive Officer and the executive
officers of the Company who received total annual salary, bonus or other annual
compensation in excess of $100,000 for services rendered in all capacities
during the Company's last completed fiscal year:
33
<PAGE> 34
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
--------------------------------------- --------------------------------
Other Annual Securities All Other
Salary Bonus Compensation Underlying Options Options
Name and Compensation
Principal Position Year ($) ($) ($) (#) ($)
------------------------- ---- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Murray D. Watson 1996 211,719(1) -- N/A N/A
309,375(1)(2)
Gary Hooper 1996 128,333(3) -- 160,000(4)
Thomas Spencer 1996 99,167 -- 140,000(5)
Kenneth Howling 1996 117,917(6) -- 115,000(7)
</TABLE>
(1) This amount was paid to TMI in which Mr. Watson is a minority shareholder.
(2) Represents 257,813 Ordinary Shares valued at $0.80 per share and 206,250
Ordinary Shares valued at $0.50 per share which were issued to TMI in which
Mr. Watson is a minority shareholder.
(3) Includes $15,000 paid to a consulting company in which Mr. Hooper is the
sole shareholder.
(4) Represents 200,000 Ordinary Shares valued at $0.80 per share.
(5) Represents 175,000 Ordinary Shares valued at $0.80 per share.
(6) Includes $38,333 paid to a consulting company in which Mr. Howling is the
sole shareholder.
(7) Represents 146,750 Ordinary Shares valued at $0.80 per share issued to a
consulting company in which Mr. Howling is the sole shareholder.
The following tables set forth certain information in the prescribed
format with respect to options granted and exercised under the Company's
various stock option plans during the last fiscal year:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of Stock
Price Appreciation
for Option Term (1)
Number of Securities Underlying % of Total Options Granted To Exercise Expiration
Name Options Granted (#) Employees In Fiscal Year (%) Price ($) Date 5% 10%
---- ------------------- ---------------------------- --------- -------- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Murray D.
Watson -0- N/A N/A N/A N/A N/A
Gary
Hooper -0- N/A N/A N/A N/A N/A
Thomas
Spencer -0- N/A N/A N/A N/A N/A
Kenneth
Howling -0- N/A N/A N/A N/A N/A
</TABLE>
(1) Potential realizable value is based on an assumption that the stock
price of the common stock appreciates at the annual rate shown
(compounded annually) from the date of grant until the end of the ten
year option term. Such amounts are based on the assumption that the
named person hold the options for their full 10-year term. These
numbers are calculated based on the requirements promulgated by the
Securities and Exchange Commission and do not reflect the Company's
estimate of future stock price growth.
34
<PAGE> 35
AGGREGATED OPTION EXERCISES IN LAST FISCAL
YEAR AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Value of Unexercised
Number of Securities Underlying Unexercised in the Money Options
Options at FY-End at FY-Ended(1)
Shares Acquired Value Realized Exercisable/Unexercisable Exercisable/Unexercisable
Name on Exercise (#) ($) ($) ($) ($) ($)
---- --------------- ------------- -------------------------- --------------------------
<S> <C> <C> <C> <C> <C> <C>
Murray D.
Watson None N/A 0 0 0 0
Gary Hooper None N/A 0 0 0 0
Thomas Spenser None N/A 0 0 0 0
Kenneth Howling None N/A 0 0 0 0
</TABLE>
(1) The amounts in this column are calculated using the difference
between the closing market price of the Company's ordinary shares
at the Company's 1996 fiscal year-end and the option exercise
prices.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
PRINCIPAL SHAREHOLDERS
The Company has outstanding 16,934,375 Ordinary Shares as of
August 31, 1996. Such total excludes Ordinary Shares issuable upon the exercise
of outstanding Class A, Class B, Class C and Class D Warrants.
The following table sets forth the Company's Ordinary Shares
beneficially held as of the date of this Prospectus by (i) each person known by
the Company to beneficially hold 5% or more of such shares, (ii) each director
and officer of the Company, and (iii) all officers and directors as a group.
All of the persons and groups shown below have voting and investment power with
respect to the shares indicated.
<TABLE>
<CAPTION>
PERCENTAGE
NUMBER OF
ORDINARY SHARES OUTSTANDING
BENEFICIALLY OWNED (1) SHARES
-----------------------------------
<S> <C> <C>
Trident Management Inc. (2) . . . . . . . . . . . . . . . . . . . 880,339 5.2%
Murray Watson . . . . . . . . . . . . . . . . . . . . . . . . . . -0- -
Paul E. Heney . . . . . . . . . . . . . . . . . . . . . . . . . . 302,500 3.0%
Kenneth G. Howling . . . . . . . . . . . . . . . . . . . . . . . 256,750(3) 3.1%
Pinnacle Financial Corporation (3) . . . . . . . . . . . . . . . 143,750 1.4%
Kevin J. Quinn . . . . . . . . . . . . . . . . . . . . . . . . . 116,408 -
All officers and directors as a group (6 persons) . . . . . . . . 1,555,997 9.6%
</TABLE>
* Less than .1%
(1) Unless otherwise indicated, all shares are beneficially owned and sole
voting and investment power is held by the person or entity in the table
above. The address for each beneficial holder is c/o the Company, 15/16
Fitzwilliam Place, Dublin 2, Ireland.
35
<PAGE> 36
(2) Mr. Watson is a minority shareholder of Trident Management Inc. Mr.Watson
disclaims beneficial ownership of such shares and options.
(3) Includes 143,750 shares owned by Pinnacle Financial Corporation.
(4) Mr. Howling is a controlling shareholder of Pinnacle Financial Corporation
and is the beneficial owner of these shares.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
CERTAIN TRANSACTIONS
On July 30, 1993, pursuant to an Agreement for Purchase of Assets, as
amended, TPR acquired from Synorex Incorporated, a Delaware corporation
("Synorex"), substantially all of the assets of Synorex, consisting primarily
of patents and patent applications relating to certain skin penetration
enhancer technologies in exchange for 2,046,576 TPR Class B Preferred Shares.
After February 28, 1994, such TPR Class B Preferred Shares were exchanged for
300,000 Ordinary Shares of the Company held by TPR. The 300,000 Ordinary
Shares may not be sold or transferred for a period of up to one (1) year after
February 28, 1994 without the prior written consent of Westfield Financial
Corporation, one of the underwriters of the Company's initial public offering.
In connection with the Synorex transaction, Dr. Vithal J. Rajadhyaksha
("Dr. Raj"), the principal inventor of the Synorex technology, entered into a
Consulting and Non-Compete Agreement ("Consulting Agreement") with TPR pursuant
to which Dr. Raj agreed to provide part time technical consulting services to
TPR through December 31, 1996. In connection with the TPR License described
below, the Consulting Agreement was assigned to the Company. Thereafter, the
Consulting Agreement was terminated and Dr. Raj entered into an employment
agreement with the Company. See "Management -- Employment and Consulting
Agreements."
On July 30, 1993, TPR completed the private placement of 1,250,000 of
its Class A Preferred Shares, for with TPR received aggregate gross proceeds of
$5,000,000. Also on July 30, 1993, TPR contributed $4,387,500 to the Company in
exchange for 1,250,000 Units, each of which was comprised of one (1) Ordinary
Share, one-half of a Class A Warrant, and one-quarter of a Class B Warrant.
See "Description of Capital Stock."
The Company entered into the TPR License Agreement dated July 30,
1993, with TPR pursuant to which TPR granted the Company an exclusive, fully
paid, worldwide license to sublicense, develop, manufacture, use and sell all
of the skin penetration enhancer technologies which TPR purchased from Synorex.
As consideration for the license, the Company paid the following to TPR:
<TABLE>
<S> <C>
(1) . . . . . . . . . . . . . . . . . . . . . . . . $300,000;
(2) . . . . . . . . . . . . . . . . . . . . . . 600,000 Units;
(3) . . . . . . . . . . . . . 2,400,000 Class C Warrants; and
(4) . . . . . . . . . . . . . . . . 500,000 Class D Warrants.
</TABLE>
For a description of the Class C Warrants and the Class D Warrants,
see "Description of Capital Stock -- Warrants."
TPR may be deemed to be a promoter of the Company in view of the
foregoing transactions.
On July 30, 1993, the Company entered into a Share Exchange Agreement
("Exchange Agreement") with Medipro and each of its shareholders pursuant to
which the Company acquired all of the issued and outstanding shares of capital
stock of Medipro in exchange for 2,309,432 Ordinary Shares of the Company. The
former Medipro shareholders received registration rights with respect to such
shares, which rights become exercisable on or after July 30, 1995. The majority
of the Company's current directors were nominated by former Medipro
shareholders.
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<PAGE> 37
EC/American Ltd. a consulting firm, received from TPR fees of $262,500
and a payment of $50,000 for expenses as partial consideration for management
consulting services rendered in connection with the development and
implementation of TPR's licensing, acquisition and restructuring strategies.
Such amounts were paid from the proceeds of the TPR Private Offering. In
addition, EC/American Ltd. received Class D Warrants from TPR to acquire up to
500,000 Units which warrants EC/American Ltd. transferred to certain
individuals.
On November 30, 1993, the Company entered into a license agreement
with Genetronics pursuant to which the Company acquired the exclusive world
wide license to exploit electrofusion patents and technological know-how
developed by Genetronics for the purpose of developing and selling transdermal
drug delivery systems, excluding cosmetic applications. The Company paid a
license fee of $150,000 and is required to pay royalties to be mutually agreed
by the parties on a product by product basis. The agreement also provides that
Genetronics shall have the right to manufacture certain components that the
parties expect will be incorporated in drug delivery systems which include
these technologies.
On March 7, 1994, the Company completed its initial public offering in
the United States of ADRs and warrants generating gross proceeds of $3,715,000
(the "ADS Offering").
On June 13, 1994, the Company acquired a total of 1,319,996 common
shares of Cangene Corporation ("Cangene") from Arca Investments Inc.
("Arca"). In payment for these shares, the Company issued a total of 439,999
of its Ordinary Shares, on the basis of one Ordinary Share for each three
shares of Cangene held by Arca. The Company agreed to register 439,999 Ordinary
Shares (which will be represented by ADRs) issued to Arca and has filed this
Registration Statement under the U.S. Securities Act of 1933, as amended. This
acquisition was completed as part of a bid by the Company to acquire all of
the common shares of Cangene which was subsequently withdrawn. The Cangene
shares acquired have since been sold by the Company (See "Managements
Discussion and Analysis of Results of Operations and Financial Condition").
On June 30, 1994, the Company acquired from Flora substantially all of
the assets of Flora and assumed certain specified liabilities arising after
June 30, 1994. The acquired business ("Business") primarily relates to the
research and development of (i) passive transdermal systems, (ii) a periodontal
delivery system and (iii) a buccal system, each for the systemic delivery to
humans of therapeutic drugs and compounds.
In exchange for the Business, the Company issued a two year senior
secured convertible promissory note in the amount of $5,000,000 (the "Note").
The principal amount of the Note was due and payable on June 30, 1996. The Note
was secured by a pledge of all of the assets acquired from Flora. Such assets
were transferred at the direction of the Company directly to PP Holdings, Inc.
a wholly owned subsidiary of the Company, on June 30, 1994.
On July 6, 1994, the Company entered into an Agreement with LDI, Inc.,
("LDI") pursuant to which LDI has provided lease financing in the Canadian
dollar equivalent amount of $750,000 which will be utilized by the Company to
purchase prototype manufacturing equipment costing $1,100,000. The balance of
the acquisition costs, approximately $350,000, has been paid by the Company in
the form of deposits. The equipment supplier has agreed with LDI to repurchase
the equipment if the Company defaults on its lease payments. The Company was
required to provide LDI with a letter of credit for the difference between the
repurchase amount and the lease amount. In September 1994, the Company
terminated the lease arrangement. In full and complete settlement of all claims
regarding this matter, on December 16 , 1994, the equipment lessor drew down
the letter of credit, received a further CDN.$25,000 and accepted delivery of
86,908 common shares of Cangene from the Company. (See "Management's
Discussion and Analysis of Results of Operations and Financial Condition").
The Company entered into agreements with Pharmacia AB of Sweden in
December 1994 pursuant to which it sold to Pharmacia the nicotine patch and
buccal patent rights and know-how acquired from Flora in June 1994. The terms
of the sale included a cash payment to the Company of $1,250,000 and on-going
royalties tied to the revenue generated from the commercialization of these
patent rights. The agreements with Pharmacia
37
<PAGE> 38
entitle the Company to a royalty on the sale by Pharmacia of certain second
generation nicotine patches to be developed by Pharmacia, as well as a
non-exclusive license, with right of sublicense, to use the patent rights sold
by the Company to Pharmacia.
On May 24, 1995, August 14, 1995, August 23, 1995, September 13, 1995
and September 25, 1995, the Company had closings of a private placement of
1,699,400 shares ("Placement Shares") of its Ordinary Shares at a price of
$1.00 per share for net proceeds of $1,486,777. The Placement Shares were
issued to 35 investors. The Company granted registration rights to the
purchasers of the Placement Shares and has filed a separate Registration
Statement with respect to the Placement Shares.
In March 1996, the Company concluded a private placement of 2,150,000
Ordinary Shares to 16 investors. The Company received net proceeds of
$1,075,000 from this private placement.
On May 25, 1995, the Company declared bonuses valued at an aggregate
of $261,250 to Messrs. Watson, Hooper, Spencer and Howling pursuant to their
respective employment agreements or consulting agreements, as the case may be,
with the Company in respect of the fiscal year ended February 28, 1995. One
third of each bonus was paid in cash and the balance paid in an aggregate of
174,167 Ordinary Shares valued at $1.00 per share. During the fiscal year
ended February 29, 1996, senior management received an aggregate of 423,627
ordinary shares at an equivalent price of $.50 per share in lieu of receiving
salary or consulting fees which were billed to the Company at an aggregate
of $211,813.
On June 28, 1995, the Company's Board of Directors authorized the
issuance of an aggregate of 926,563 Ordinary Shares to the following persons or
entities, all of which are either officers, directors or affiliates of officers
and directors of the Company. The price per share was $.80 representing a
discount of 20% from the market price on the date the Board of Directors
authorized the issuance thereof as follows:
<TABLE>
<CAPTION>
Name Number of Shares Subscription Price
- ---- ---------------- ------------------
<S> <C> <C>
Trident Management, Inc. 257,813 Ordinary Shares $206,250
Hooper & Associates, Inc. 200,000 Ordinary Shares 160,000
Thomas Spencer 175,000 Ordinary Shares 140,000
Pinnacle Financial Corporation 143,750 Ordinary Shares 115,000
Lennart Perlhagen 50,000 Ordinary Shares 40,000
Malcolm Rowe 50,000 Ordinary Shares 40,000
Joseph Masterson 50,000 Ordinary Shares 40,000
</TABLE>
Each person or entity executed a promissory note in the amount set
forth above which was secured by a pledge of the shares received by them. The
shares were issued at a discount because the shares could not be sold until the
promissory note was satisfied.
On January 22, 1996, the employment or management agreements between
the Company and each of the above persons or entities were terminated effective
November 15, 1995. In connection with the termination of these agreements, as
consideration for contractual obligations not met by the Company, accepting
shares in lieu of cash as payment for salaries in fiscal 1996, severance pay
and/or the granting of a bonus for fiscal 1996, the obligations of the above
persons or entities under such promissory notes valued at $741,250 were deemed
paid in full and TMI was issued 206,250 additional shares.
During March 1996, the Company and Vista Technologies Inc. ("Vista")
consummated certain agreements pursuant to which Vista received equity
financing from the Company in a series of transactions and the Company acquired
a controlling equity interest in Vista. These definitive agreements are
summarized as follows:
38
<PAGE> 39
Stock Purchase Agreement for $500,000
On March 21, 1996, Vista and the Company consummated a Stock Purchase
Agreement which provided for 200,000 newly issued shares of Vista common stock
to be sold to the Company for a cash price of $500,000, or $2.50 per share.
These funds were part of the proceeds of a private placement of 2,150,000
Ordinary Shares, the net proceeds of $1,075,000 were received by the Company on
March 21, 1996.
Exchange of Shares by Certain Stockholders
Three Vista stockholders, including Therapeutic Patch Research N.V.
("TPR"), Saliva Research Limited ("SRL") and Westcliff Partners Inc. ("WPI"),
agreed to exchange a total of 900,000 shares of Vista's outstanding common
stock owned by TPR, SRL and WPI for 4,500,000 newly issued Ordinary Shares of
the Company in a privately-negotiated transaction. The transaction was
consummated on March 21, 1996.
Exchange Agreement with Vista
On March 1, 1996, the Company and Vista executed an agreement
("Exchange Agreement") which was consummated on March 21, 1996.
Under the Exchange Agreement, Vista delivered 2,060,000 newly issued
shares of Vista common stock to the Company at a stated value of $5,150,000, or
$2.50 per Vista share, plus 500,000 Vista Class C common stock purchase
warrants. In exchange, Vista received from the Company (i) an interest-free
note due in six months from the Company in the principal amount of $750,000,
and (ii) 200,000 restricted shares of TCPI common stock currently held by the
Company at a stated value of $4,400,000, or $22.00 per TCPI share.
As additional consideration for these transactions, the Exchange
Agreement grants the Company an option exercisable at any time on or before
September 30, 1996 to purchase up to an additional 250,000 newly issued shares
of Vista's Common Stock at an option exercise price of $2,50 per share in cash
(the "Six Month Option").
The 500,000 Class C Warrants issuable to the Company under the
Exchange Agreement each represent the right to purchase one (1) share of
Vista's Common Stock during the month of February 1997 and/or the month of
February 1998, and expire thereafter to the extent not exercised. In each
instance, the exercise price per share will be determined by the average of the
quoted closing prices for the Common Stock in the over-the-counter market
during the month of January immediately preceding the date Class C Warrants or
any portion thereof are exercised, except that the Class C Warrant exercise
price per share will not in any event exceed $10.00 per share of Common Stock.
The exercise price and number of shares issuable on exercise of Class C
Warrants are subject to adjustment in certain events to prevent dilution in the
event of any subsequent stock split, stock dividend, reclassification or
recapitalization affecting the outstanding Common Stock as a class.
CHANGE IN CONTROL AND OTHER INFORMATION
As a result of the agreements described above, the Company acquired a
controlling interest in Vista.
As of November 30, 1996 (but without giving effect to other common
stock reserved for outstanding stock options, warrants, conversion or exchange
of debt obligations), there were approximately 7,006,112 Vista shares
outstanding. Of that amount, 3,410,000 Vista common shares, or approximately
49.2% of the total then outstanding, are owned by the Company and the Company
holds Class C Warrants to purchase an additional 500,000 Vista shares. Vista
and the Company anticipate this percentage ownership may be reduced in the near
future as Vista issues additional common shares in connection with its
sponsorship of additional Regional Joint Ventures currently in various stages
of negotiation and for a planned private placement offering of Vista securities
for Vista's own account.
39
<PAGE> 40
various stages of negotiation and for a planned private placement offering of
Vista securities for Vista's own account.
Vista entered into a registration rights agreement at the closing the
Exchange Agreement. This agreement grants the Company certain "piggy-back"
registration rights in the event Vista files registration statements covering
offerings of its securities under the Securities Act of 1933. In addition, the
Company will have the right on one occasion after March 31, 1997 to demand that
all or a portion of the Vista common stock held by the Company as a result of
the Stock Purchase Agreement, the Exchange Agreement and issuable upon exercise
of Class C Warrants be registered under the Securities Act of 1933. Any such
registration of Vista common stock for the account of the Company will be at
Vista's expense.
Murray D. Watson has served since July 1993 as Chairman of the Board,
Chief Executive Officer and a director of the Company. He is also a director
of Vista since January 31, 1994. On February 16, 1996, Mr. Watson was elected
Vista's Vice Chairman of the Board and Kenneth G. Howling, Vice President and
Chief Financial officer of the Company, was elected Vista's Treasurer and Chief
Financial Officer. In each case, their election as Vista officers was subject
to a condition that definitive agreements for the contemplated transactions
between Vista and the Company be executed, which events occurred on March 1,
1996.
The transactions contemplated by the Stock Purchase Agreement and the
Exchange Agreement were authorized and approved by the boards of directors of
the Company and Vista at a board meeting held in February 1996 attended by all
of the Company's and Vista's then directors. The Boards approved the Stock
Purchase Agreement and Exchange Agreement transactions with knowledge and
disclosure of the proposed exchange by TPR, SRL and WPI of 900,000 shares of
Vista common stock with the Company. Messr. Watson and Rowe, each a director
of the Company, abstained from voting on the proposed transactions due to there
being directors of Vista and in the case of Mr. Watson, because of his position
as the Chief Executive Officer and a director of the Company.
$800,000 SECURED LOAN FROM PHARMA PATCH PLC
On August 26, 1996, Vista borrowed $800,000 from the Company in
exchange for an 8% Secured Promissory Note (the "8% Secured Note"). Vista's
assets include 200,000 restricted shares of Technical Chemicals and Products,
Inc. common stock (the "TCPI Shares") which were registered under the
Securities Act of 1933 on June 20, 1996 for possible resale by Vista after
approximately October 23, 1996. The TCPI Shares have been pledged as
collateral by Vista to secure its obligations under the 8% Secured Note.
Principal and interest on the 8% Secured Note are payable on December
31, 1996, or earlier in the event Vista elects to sell all or any portion of
its interest in the TCPI Shares. In the event net proceeds from a sale of a
portion of the TCPI Shares is insufficient to provide for full payment of the
8% Secured Note, the unpaid balance of the 8% Secured Note will remain due on
its original maturity date of December 31, 1996 or earlier in the event of a
subsequent sale of TCPI Shares for the account of Vista. In November 1996, the
8% Secured Note was amended to provide that the proceeds from the sale of the
TCPI Shares by Vista will be allocated 50% to the Company and 50% to Vista.
The original maturity date of the 8% Secured Note may be extended by
Vista up to two times, for an additional six months each, so long as Vista pays
all accrued interest at the date of each renewal and is not otherwise in default
on its loan obligations. The Company has the right to accelerate the maturity
date of the loan if the fair value market of TCPI Shares pledged as collateral
falls to less than 150% of the unpaid principal of the 8% Secured Note unless
Vista, within five business days after notice, prepays a sufficient amount of
the note principal so that the fair market value of TCPI Shares then pledged as
collateral is not less than 150% of the remaining unpaid principal of the 8%
Secured Note.
40
<PAGE> 41
ITEM 13. EXHIBITS LIST AND REPORTS ON FORM 8-K
A. EXHIBITS
The following exhibits were delivered with this Registration
Statement, or will be delivered by Amendment, for filing:
<TABLE>
<CAPTION>
Ex. No. Description of Document
- ------- -----------------------
<S> <C>
3.1 Memorandum and Articles of Association of Registrant.*
4.1 Specimen of American Depositary Share.*
4.2 Warrant Agreement.*
4.3 Form of Class A Warrant (included in Exhibit 4.2).*
4.4 Form of Class B Warrant (included in Exhibit 4.2).*
4.5 Form of Underwriter's Warrant.*
4.6 Form of Class C Warrant.*
4.7 Form of Class D Warrant.*
4.8 Form 1993 Stock Option Plan.*
4.9 Financial Advisory and Investment Banking Agreement between Westfield Financial Corporation and the Company.*
4.10 Form of 1994 Stock Option Plan**
10.1 Share Exchange Agreement between Pharma Patch Plc, the shareholders of Medipro and Medipro, dated July 30, 1993.*
10.2 Agreement for Purchase of Assets between TPR and Synorex, dated March 26, 1993, as amended.*
10.3 Employment Agreement dated August 1, 1993, between Wayne Schnarr, Ph.D. and the Company.*
10.4 Employment Agreement dated August 1, 1993, between Gary Murray, Ph.D, and the Company.*
10.5 Employment Agreement dated November 8, 1993 between Kenneth G. Howling and the Company.*
10.6 Consulting Agreement dated August 3, 1993, between Trident Management, Inc. and the Company.*
10.7 Consulting Agreement dated August 1, 1993, between Dr. James E. Guillet and Medipro Sciences, Ltd.*
10.8 Consulting Agreement dated August 1, 1993, between Ian W. French, Ph.D., and the Company.*
10.10 Consulting Agreement dated August 1, 1993, between Walter Zingg, M.D., and the Company.*
10.11 Deposit Agreement between the Company and the Bank of New York as Depository.*
10.12 Exclusive License Agreement dated July 30, 1993, between TPR and the Company.*
10.13 Option Agreement among the Company, Medipro and Innovation Ontario Corporation, dated July 30, 1993.*
10.14 Voting Rights Agreement among the Company, the Medipro Shareholders, Medipro and TPR, dated July 30, 1993.*
10.15 Letter Agreement dated September 14, 1992, between Medipro and Trimel Corporation.*
10.16 License Agreement dated June 30, 1992, among Medipro, SS Pharmaceutical Co., Ltd., and Dajin Iyakukako Co., Ltd.*
10.17 Joint Venture Agreement dated June 30, 1992, between Medipro and Allelix Pharmaceuticals, Inc.*
10.18 Letter Agreement dated June 18, 1992, between Medipro and Laminating Development Corp.*
10.19 Lease dated May 6, 1991, between Medipro and Inducon development Corporation.*
10.20 Consulting Agreement, dated August 19, 1993 between Registrant and the Canadian Department of National Defense.*
10.21 License Agreement, dated November 1, 1985, between Registrant and the Canadian Department of National Defense.*
10.22 Employment Agreement, dated October 1, 1993, between Dr. Vithal J. Rajadhyaksha and the Company.*
10.23 Consulting Agreement, dated December 1, 1993, between Joseph G. Materson and the Company.*
10.24 License Agreement dated November 30, 1993, between BTX, Inc. and the Company.*
10.25 Employment Agreement, dated January 4, 1994, between Murray Watson and the Company.*
</TABLE>
41
<PAGE> 42
<TABLE>
<S> <C>
10.26 Memorandum of Agreement dated June 1, 1994 between Registrant and Arca Investments, Inc.**
10.27 Offer to Purchase -- Cangene Corporation, dated June 29, 1994.**
10.28 Registration Rights Agreement, dated June 13, 1994, between Registrant and Area Investments Inc.**
10.29 Letter Agreement, dated June 13, 1994, between Registrant and Capital Canada Limited.**
10.30 Letter Agreement, dated June 22, 1994, between Registrant and ScotiaMcLeod.**
10.31 Letter Agreement, dated May 22, 1994, between Registrant and LDI Canada Inc.**
10.32 Research and Development Agreement, dated June 1, 1994, between Registrant and Drug Delivery Research, Inc. ("DDRI").**
10.33 Shareholder Agreement, dated June 1, 1994, among Registrant, Westport Capital, Inc. and DDRI.**
10.34 Asset Purchase and Sale Agreement, dated June 30, 1994, among Registrant, Flora, Inc. and Recordati American Holdings,
Inc.**
10.35 Management and Consulting Agreement, dated as of July 1, 1994, between Hooper & Associates, Inc. and Registrant.
10.36 Employment Agreement, dated as of August 1, 1994, between Thomas S. Spencer and Registrant.*
10.37 Industrial Property Agreement dated December 13, 1995 between PP Holdings and Pharmacia AB*
10.38 Development Agreement dated December 13, 1994 between PP Holdings and Pharmacia AB*
10.39 Agreement dated July 7, 1994 between Registrant and Revlon *
10.40 Amended Letter of Intent between Registrant and Technical Chemicals and Products, Inc. ("TCPI")****
10.41 Asset Purchase Agreement dated as of November 1, 1995 among TCPI, Registrant and PP Holdings, Inc.*****
10.42 Supplemental Agreement dated January 16, 1996 among TCPI, Registrant and PP Holdings, Inc.******
10.43 Form of Management and Consulting Agreement between Registrant and Trident Management, Inc.*
10.44 Form of Management and Consulting Agreement between Registrant and Pinnacle Financial Corporation.*
10.45 Stock Purchase Agreement dated March 1, 1996 between Registrant and Vista Technologies, Inc. ("Vista").*
10.46 Agreement dated as of March 1, 1996 between Vista and Registrant including as exhibits thereto (i) form of Class C Common
Stock Purchase Warrants to be issued by Vista, (ii) form of Promissory Note for $750,000 to be issued by the Company, and
(iii) form of Registration Rights Agreement between Registrant and Vista.*
10.47 Share Exchange Agreement dated as of March 1, 1996 between Registrant and three stockholders of Vista.*
11 Computation of loss per ordinary share.**
21 Subsidiaries of Registrant.**
23.1 Consent of KPMG Peat Marwick LLP
* Filed as an exhibit to Registrant's Form F-1 on Form S-1 Registration Statement, File No 33-70542 and is incorporated
herein by reference.
** Filed as an exhibit to Registrant's Form F-1 on Form S-1 Registration Statement, File No. 33-80816 and is incorporated
herein by reference.
*** Filed herewith.
**** Filed as an exhibit to Registrant's Form 8-K dated August 9, 1995, as amended August 15, 1995 and are incorporated herein
by reference.
***** Filed as an exhibit to Registrant's Form 8-K dated November 15, 1995 and is incorporated herein by reference.
****** Filed as an exhibit to Registrant's Form 8-K dated February 12, 1996 and is incorporated herein by reference.
</TABLE>
B. REPORTS ON FORM 8K
Form 8-K dated February 12, 1996 with respect to Item 2.
42
<PAGE> 43
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this registration statement to be signed no its behalf by the
undersigned, thereunto duly authorized.
PHARMA PATCH PLC
Dated: December 10, 1996 By:/s/ Murray D. Watson
----------------------------------
Murray D. Watson
Chairman of the Board and
Chief Executive Officer
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Murray D. Watson Chairman of the Board, December 10, 1996
- ---------------------------- Chief Executive Officer, President and Director
Murray D. Watson (Principal Executive Officer)
/s/ Kenneth Howling Vice President-Finance December 10, 1996
- ---------------------------- (Chief Accounting Officer)
Kenneth Howling
/s/ Kevin J. Quinn Director December 10, 1996
- ----------------------------
Kevin J. Quinn
/s/ William G. Hutchison Director December 10, 1996
- ----------------------------
William G. Hutchison
</TABLE>
43
<PAGE> 44
PHARMA PATCH PUBLIC LIMITED COMPANY
Index
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report - KPMG Peat Marwick LLP ........................................ F-1
Independent Auditors' Report - Ernst & Young ................................................ F-2
Consolidated Financial Statements:
Consolidated Balance Sheet - February 29, 1996 ........................................ F-3
Consolidated Statements of Earnings and Loss and Deficit -
Years ended February 29, 1996 and February 28, 1995 ................................. F-4
Consolidated Statements of Cash Flows - Years ended
February 29, 1996 and February 28, 1995 ............................................. F-5
Notes to Consolidated Financial Statements ............................................ F-6
</TABLE>
All schedules are omitted for the reason that they are not required or are not
applicable, or the required information is shown in the consolidated financial
statements or notes thereto.
<PAGE> 45
Independent Auditors' Report
The Board of Directors and Shareholders
Pharma Patch Public Limited Company:
We have audited the accompanying consolidated balance sheet of Pharma Patch
Public Limited Company and subsidiaries as of February 29, 1996, and the related
consolidated statements of earnings and loss and deficit and cash flows for the
year then ended. These consolidated financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Pharma Patch Public
Limited Company and subsidiaries as of February 29, 1996, and the results of
their operations and their cash flows for the year then ended, in conformity
with generally accepted accounting principles.
KPMG Peat Marwick LLP
Short Hills, New Jersey
May 9, 1996
F-1
<PAGE> 46
Report of Independent Auditors
To the Shareholders of
Pharma Patch Plc
We have audited the accompanying consolidated statements of earnings and loss
and deficit and cash flows for the year ended February 28, 1995 of Pharma Patch
Plc. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a tests basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provide a reasonable basis for
our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the results of operations and the cash flows
of Pharma Patch Plc for the year ended February 28, 1995, in conformity
with accounting principles generally accepted in the United States.
Dublin, Ireland
May 25, 1995
(except for note 3 which ERNST & YOUNG
is as of May 9, 1996) Chartered Accountants
F-2
<PAGE> 47
PHARMA PATCH PUBLIC LIMITED COMPANY
Consolidated Balance Sheet
February 29, 1996
(Expressed in U.S. Dollars)
<TABLE>
<S> <C>
Assets
Current assets:
Cash and cash equivalents $ 668,822
Accounts receivable 22,690
Due from Vista (note 13) 251,500
Investment in TCPI - available for sale, at
market price 16,805,320
------------
Total current assets $ 17,748,332
============
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable 683,269
Accrued expenses 773,553
Deferred tax liability 1,710,212
------------
Total current liabilities 3,167,034
------------
Shareholders' equity:
Capital stock, authorized 52,046,576 ordinary
shares; issued and outstanding 11,410,633
ordinary shares, at par value (note 7) 2,256,756
Premium in excess of par value 15,404,580
Deficit (6,249,628)
Cumulative translation adjustment (6,518)
Unrealized appreciation on equity securities
available for sale (net of deferred taxes
of $1,710,212) 3,176,108
------------
Total shareholders' equity 14,581,298
Commitments (note 10)
------------
$ 17,748,332
============
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 48
PHARMA PATCH PUBLIC LIMITED COMPANY
Consolidated Statements of Earnings
and Loss and Deficit
Years ended February 29, 1996
and February 28, 1995
(Expressed in U.S. Dollars)
<TABLE>
<CAPTION>
Restated
1996 1995
---- --------
<S> <C> <C>
Revenues $ -- --
------------ ------------
Expenses:
Administration 1,798,524 1,141,301
Foreign exchange loss (gain) 2,285 (52,253)
Write-off of Cangene acquisition costs
(note 8) -- 514,791
Loss on disposal of Cangene investment
(note 8) -- 478,052
------------ ------------
Loss from operations 1,800,809 2,081,891
Other income (76,019) (42,800)
Other expenses 3,893 --
------------ ------------
Loss from continuing operations 1,728,683 2,039,091
------------ ------------
Discontinued operations (note 3):
Loss from operations (2,593,468) (11,698,353)
Gain on sale 16,412,827 --
------------ ------------
Gain (loss) on discontinued
operations 13,819,359 (11,698,353)
------------ ------------
Net earnings (loss) 12,090,676 (13,737,444)
Deficit, beginning of year (18,340,304) (4,602,860)
------------ ------------
Deficit, end of year $ (6,249,628) (18,340,304)
============ ============
Per share of common stock:
Loss from continuing operations -- (.38)
Discontinued operations .70 (2.18)
------------ ------------
Net earnings (loss) $ .70 (2.56)
============ ============
Number of ordinary shares issued for earnings
per share purposes(1) 19,677,650 5,368,298
============ ============
</TABLE>
- ------------
(1) The modified Treasury method was used for the year ended February 29,
1996. Earnings (Loss) Per Share calculation due to the dilutive effect of
outstanding warrants. The weighted average method was used for all other
purposes.
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 49
PHARMA PATCH PUBLIC LIMITED COMPANY
Consolidated Statements of Cash Flows
Years ended February 29, 1996
and February 28, 1995
(Expressed in U.S. Dollars)
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) for the year $ 12,090,676 (13,737,444)
Add noncash items:
Depreciation and amortization 253,958 813,740
Write-down of fixed assets 9,900 892,271
Write-off of Cangene acquisition costs (note 8) -- 514,791
Loss on disposal of Cangene investment (note 8) -- 478,052
Write-off of capitalized technology -- 4,460,852
Write-off of cumulative translation adjustment -- 408,162
Gain on sale of business (note 1(e)) (16,412,827) --
Noncash payment of expense 1,842,478 --
Net change in noncash working capital items
(note 11) 361,272 1,528,131
------------ ------------
Net cash used in operating
activities (1,854,543) (4,641,445)
------------ ------------
Cash flows from investing activities:
Purchase of fixed assets (50,658) (467,369)
Advances to Vista (note 13) (251,500) --
Proceeds of sale of technology -- 1,250,000
Proceeds on sale of Cangene shares (note 8) -- 657,422
------------ ------------
Net cash (used in) provided by
investing activities (302,158) 1,440,053
------------ ------------
Cash flows from financing activities - issue of
shares, net (note 7) 2,186,778 2,590,947
------------ ------------
Effect of exchange rate changes on cash and cash
equivalents -- (3,275)
------------ ------------
Net increase (decrease) in cash and
cash equivalents for the year 30,077 (613,720)
Cash and cash equivalents, beginning of year 638,745 1,252,465
------------ ------------
Cash and cash equivalents, end of year $ 668,822 638,745
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 50
PHARMA PATCH PUBLIC LIMITED COMPANY
Notes to Consolidated Financial Statements
February 29, 1996 and February 28, 1995
(Expressed in U.S. Dollars)
(1) The Company and Basis of Presentation
Pharma Patch Public Limited Company (Pharma Patch or the Company) was
incorporated under the laws of the Republic of Ireland in January 1992.
Prior to July 1993, Pharma Patch had no significant assets or
operations.
(a) In July 1993, Pharma Patch acquired an exclusive, perpetual,
royalty-free license on all skin penetration enhancement
technology held by Therapeutic Patch Research N.V. (TPR), a
Netherlands Antilles company. Pharma Patch paid cash of
$300,000 and issued 600,000 Units (a Unit com prised one
Ordinary Share, one-half Class A Warrant and one quarter Class
B Warrant), 2,400,000 Class C Warrants and 500,000 Class D
Warrants as consideration for the license. Concurrently,
Pharma Patch issued 1,250,000 Units for cash proceeds of
$4,387,500 to certain investors.
(b) On July 30, 1993, Pharma Patch entered into a share exchange
with the shareholders of Medipro Sciences Limited (Medipro),
whereby 2,309,432 Ordinary Shares of Pharma Patch were
exchanged for all of the issued and outstanding common and
Class A shares of Medipro. The exchange of shares were
accounted for as a reverse acquisition of Pharma Patch by
Medipro as the former shareholders of Medipro held a majority
of the voting shares of Pharma Patch following the exchange.
All the assets of Pharma Patch at the time of the exchange,
consisting primarily of the technology acquired from TPR and
the cash from the issue of the 1,250,000 Units described in
note 1(a), were recorded at their estimated fair market value.
There was no excess of the purchase price over the carrying
value of the assets.
(c) On June 30, 1994, the Company acquired substantially all of
the assets and assumed certain specified liabilities arising
after June 30, 1994 of Pharmetrix Corporation (Pharmetrix).
The assets related to patents and the research and development
of (i) passive transdermal systems, (ii) a periodontal
delivery system and (iii) a buccal system, each for the
systemic delivery to humans of therapeutic drugs and
compounds. In exchange for the Pharmetrix assets, the Company
issued a convertible promissory note in the amount of
$5,000,000 (note 6). These assets are held by PP Holdings
Inc., a wholly-owned subsidiary of Pharma Patch incorporated
in the State of California. PP Holdings Inc.'s results of
operations are included in the Company's consolidated results
from July 1, 1994.
This acquisition was accounted for under the purchase method
of accounting whereby the purchase price for the Pharmetrix
assets was allocated to fixed assets at fair market value
assumed by the Company. The difference between the purchase
price and fair market value of fixed assets was assigned to
acquired pharmaceutical technology in the amount of
$4,025,000. A portion of this technology was resold to a third
party for $1,250,000 and the remaining balance of
approximately $2,775,000 (acquired research and development
with no alternative non- pharmaceutical uses) was charged to
the Company's consolidated statement of earnings and loss and
deficit in fiscal 1995.
F-6 (Continued)
<PAGE> 51
PHARMA PATCH PUBLIC LIMITED COMPANY
Notes to Consolidated Financial Statements, Continued
(Expressed in U.S. Dollars)
(1) The Company and Basis of Presentation, cont.
A summary of the unaudited pro forma consolidated statements
of earnings and loss and deficit are set out below to give the
pro forma effect to the Pharmetrix acquisition as if
Pharmetrix had been included in the consolidated statements of
earnings and loss and deficit throughout the year ended
February 28, 1995 (before the effect of discontinued
operations).
<TABLE>
<CAPTION>
Pro forma
(unaudited)
------------
<S> <C>
Revenues $ --
Expenses 14,642,977
------------
Net loss for the year (14,642,977)
Deficit, beginning of year (8,473,352)
------------
Deficit, end of year $(23,116,329)
============
Loss per ordinary share $ (2.73)
============
Weighted average number of Ordinary
Shares outstanding 5,368,298
============
</TABLE>
(d) The acquisition of the Pharmetrix assets and leased facilities
initially increased the Company's annual cash requirements.
The acquisition created a duplication of research staff,
facilities and equipment. Pharma Patch restructured its
operations resulting in the centralization of all research and
development activities at the Pharmetrix facility in Menlo
Park, California, a reduction of 22 staff positions and
termination of lease commitments entered into by the Company
for prototype patch manufacturing equipment. In January 1995,
the Company ceased operations of its Canadian subsidiary,
Medipro. A charge of $1,492,070 was incurred in fiscal 1995 in
connection with this restructuring, primarily consisting of a
write-off of production equipment, capital lease equipment,
employee termination and lease costs. Employee termination
costs of approximately $105,000 were paid and expensed during
fiscal 1995. Of the total $1,492,070 expense, approximately
$83,000 was accrued at the end of fiscal 1995 in connection
with lease costs. All accrued amounts were paid out during
fiscal 1996.
In fiscal 1995, the Company had acquired a 50% interest in the
issued and outstanding shares of Drug Delivery Research Inc.
(DDRI) for a nominal amount with the intention of using DDRI
to perform the research and development work previously being
done by Medipro.
As a result of the Pharmetrix acquisition and the relocation
of research and development activities, DDRI has remained
inactive.
F-7 (Continued)
<PAGE> 52
PHARMA PATCH PUBLIC LIMITED COMPANY
Notes to Consolidated Financial Statements, Continued
(Expressed in U.S. Dollars)
(1) The Company and Basis of Presentation, cont.
(e) On November 15, 1995, the Company sold substantially all of
the operating assets to Technical Chemicals and Products, Inc.
(TCPI) for a gain of approximately $16.4 million. These assets
included 11 U.S. patents relating to transdermal drug delivery
and skin permeation technology, license rights to skin
penetration enhancers and electronically assisted drug
delivery, proprietary information and trade secrets related
thereto, certain licensing and product feasibility agreements
entered into by the Company and all of PP Holdings, Inc.'s
fixed assets. TCPI also assumed the sublease of the research
facility occupied by PP Holdings, Inc.
In consideration for the purchased assets, TCPI issued an
aggregate of 786,214 shares of its common stock with a fair
value of $11,919,000 and satisfied the $5,000,000 promissory
note previously issued by the Company to Flora, Inc. (Flora)
(see note 6). As a result of this transaction, the Company
owned 9.9% of TCPI's outstanding common shares. In addition,
as of November 15, 1995, the Company had ceased to perform
research and development work and other operations in the
areas of skin penetration enhancers and drug delivery systems.
On January 16, 1996, the Company entered into a supplemental
agreement with TCPI which amended certain provisions of the
November 1995 asset purchase agreement. TCPI has filed a
Registration Statement on Form S-1 with the Securities and
Exchange Commission with respect to the sale of 1,800,000 TCPI
common shares (Offering). Pursuant to the terms of the
supplemental agreement, the Company executed a lock-up letter
with the representative of the TCPI Underwriters providing
that it would not sell or otherwise dispose of any of its
shares of common stock for a period to expire 180 days
following the closing date of the Offering without their prior
consent. As consideration for the execution of the lock-up
agreement, TCPI (i) terminated an existing lock-up agreement
covering TCPI common stock owned by the Company, executed in
connection with the asset purchase agreement; (ii) effective
as of closing date of the Offering, terminated the voting
trust agreements, shareholders' agreement and irrevocable
proxy, executed in connection with the asset purchase
agreement which, among other things, limited the Company's
ability to vote or dispose of its shares of common stock;
(iii) allowed the Company to offer for sale 100,000 shares of
this common stock in the Offering (plus up to an additional
110,000 if the Underwriters over-allotment option is
exercised); (iv) effective as of the closing date of the
Offering, issued to the Company a two-year warrant to purchase
100,000 shares of common stock at an exercise price equal to
the per share Offering price; and (v) file a Registration
Statement on Form S-3 to register all of the remaining shares
of common stock owned by the Company after the Offering.
(f) In March 1996, the Company completed the acquisition of
approximately 61% of the voting interest of Vista Technologies
Inc. (Vista). Vista
F-8 (Continued)
<PAGE> 53
PHARMA PATCH PUBLIC LIMITED COMPANY
Notes to Consolidated Financial Statements, Continued
(Expressed in U.S. Dollars)
(1) The Company and Basis of Presentation, cont.
provides photo refractive keratectomy (PRK) and other laser
vision correction (LVC) facilities and services to the health
care industry (see note 13).
As a result of the TCPI transaction, the Company had an
accumulated deficit of $6,249,628 as of February 29, 1996, had
total assets of $17,748,332 and total shareholders' equity of
$14,581,298. The Company, including Vista, has not yet
achieved profitable operations and there is no assurance that
profitable operations, if achieved, could be sustained on a
continuing basis. Further, the Company's future operations are
dependent on the success of the commercialization efforts and
market acceptability of the Vista business plan and other
potential business ventures of the Company, together with the
value derived from the TCPI investment securities.
(2) Significant Accounting Policies
These consolidated financial statements have been prepared in
accordance with generally accepted accounting principles (GAAP) in the
United States.
Principles of Consolidation
The consolidated financial statements include the accounts of Pharma
Patch and its wholly-owned subsidiaries in Canada and in the United
States. All significant intercompany balances and transactions have
been eliminated in consolidation.
Fixed Assets
Fixed assets are recorded at acquisition cost. The Company provides
depreciation and amortization at rates which are expected to charge
operations with the cost of the assets over their estimated useful
lives using a rate of 20% declining balance. Estimated useful lives are
as follows (see note 3 regarding the TCPI purchase of substantially all
of the Company's operating assets):
<TABLE>
<S> <C>
Equipment 5 years
Furniture and office equipment 5 years
Leasehold improvements over the term of the lease
</TABLE>
Research and Development Expenditures
Research and development expenditures are charged to expense as
incurred. Any investment tax credits (ITCs) earned as a result of
incurring scientific research and experimental development expenditures
in Canada (SRED) are recorded as a reduction of the related current
period expense. No ITCs were recognized in 1996 or 1995.
F-9 (Continued)
<PAGE> 54
PHARMA PATCH PUBLIC LIMITED COMPANY
Notes to Consolidated Financial Statements, Continued
(Expressed in U.S. Dollars)
(2) Significant Accounting Policies, cont.
Investment Securities
Investment securities at February 29, 1996 consist of equity
securities. The Company's equity securities are classified as
available-for-sale securities under the provisions of Statement of
Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." The Company's equity
securities are recorded at fair value based on quoted market prices.
The carrying amount of other financial instruments approximates fair
value generally due to the short-term maturity of these instruments.
Technological Assets
Licenses purchased from third parties for non-pharmaceutical uses are
recorded at acquisition cost and are amortized over their expected
useful lives of five years. Non-pharmaceutical licenses are charged to
expense when future recovery becomes uncertain. Pharmaceutical patents
acquired by the Company are charged to expense in the related current
period. Costs associated with the investigation and processing of
patents for technologies developed by the Company are considered
development costs and, accordingly, are charged to expense as incurred.
During 1995, the Company wrote off its capitalized non-pharmaceutical
technology to reflect the uncertainty of cost recovery through future
revenue. The resources required to further develop this technology were
otherwise utilized in the Pharmetrix acquisition. Accordingly, the
remaining net book value of $1,685,516 was charged to the consolidated
statement of earnings and loss and deficit in fiscal 1995.
Stock Compensation
Stock options issued by the Company which are exercisable at a value
below the market price of the common stock at the date the option is
granted or date options vest, if applicable, gives rise to compensation
expense for the excess of such market value over the option price. In
addition, shares may be issued at nominal value to certain directors
and officers as remuneration, of which certain shares are subject to
achieving certain performance criteria. From the time the options are
granted and until the performance criteria are satisfied, compensation
expense results from the difference between the underlying share price
at such time and the exercise price.
Foreign Currency Translation
The acquisition of the Pharmetrix assets and termination of operations
of Medipro resulted in a change in functional currency during fiscal
1995 from Canadian dollars to U.S. dollars.
F-10 (Continued)
<PAGE> 55
PHARMA PATCH PUBLIC LIMITED COMPANY
Notes to Consolidated Financial Statements, Continued
(Expressed in U.S. Dollars)
(2) Significant Accounting Policies, cont.
Foreign Currency Translation, cont.
Prior to fiscal 1995, the Company's functional currency was Canadian
dollars. As the Company's operating activities are now principally in
the United States, the Company also changed its reporting currency to
U.S. dollars in fiscal 1995.
Assets and liabilities stated in functional currencies other than the
U.S. dollar are translated at the year-end exchange rate and revenues
and expenses at the average rate of exchange for the year. Foreign
exchange gains and losses from transactions in currencies other than
the applicable functional currency are reflected in income during the
year. Gains or losses arising on the translation of financial
statements give rise to a cumulative translation adjustment which is
included as a component of shareholders' deficiency. In fiscal 1995,
the Company ceased carrying on business in Canada and accordingly
charged the cumulative translation adjustment to expense. The following
is a continuity schedule of the cumulative translation adjustment
included in shareholders' deficit for fiscal 1995:
<TABLE>
<S> <C>
Balance, beginning of year $ 346,326
Translation adjustments arising
during the year 61,836
Write-off (408,162)
---------
Balance, end of year $ --
=========
</TABLE>
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of expenses
during the reporting period. Actual results could differ from those
estimates.
(3) Discontinued Operations
The November 1995 sale of substantially all of the Company's operating
assets (see note 1(e)) has been accounted for as discontinued
operations. Accordingly, the 1996 consolidated financial statements
exclude amounts for discontinued operations from captions applicable to
continuing operations. The 1995 consolidated statement of earnings and
loss and deficit has been restated to conform with the 1996
presentation.
The discontinued business had revenues of $469,055 in 1996 and none in
1995. There were no tax benefits associated with the losses from
operations of the discontinued business in 1996 or 1995 and the gain
from the disposition had no
F-11 (Continued)
<PAGE> 56
PHARMA PATCH PUBLIC LIMITED COMPANY
Notes to Consolidated Financial Statements, Continued
(Expressed in U.S. Dollars)
(3) Discontinued Operations, cont.
tax expense associated with it as a result of the tax basis of the
assets involved. Interest expense on the $5 million note payable to
Flora, which was satisfied by TCPI, totaling $337,667 and $333,333 in
1996 and 1995, respectively, is included in discontinued operations.
The 1995 loss from operations of the discontinued business includes the
following unusual items:
- Acquired technology write-off of $2,775,336 (see note
1(c)).
- Write-off of capitalized technology of $1,685,516 (see
note 2).
- Medipro restructuring costs of $1,492,070 (see note
1(d)).
- Write-off of cumulative translation adjustment
attributable to Medipro of $408,162 (see note 2).
(4) Investment Securities
Investment securities at February 29, 1996, consisted of equity shares
acquired by the Company in the TCPI asset purchase agreement (see note
1(e)). On November 15, 1995, the Company acquired 786,214 common shares
of TCPI with a fair value of $11,919,000 or $15.16 per share. As of
February 29, 1996, the TCPI stock was trading at $21.375 per share;
therefore, the Company recorded an unrealized gain, net of deferred
income taxes of $1,710,212, on the TCPI shares of $3,176,000 in a
separate component of shareholders' equity. In April 1996, the Company
sold 210,000 TCPI shares for net proceeds of $2,928,697 and recorded a
loss of $254,100. As of May 9, 1996, the TCPI stock had a market value
of $14.25 which eliminates the unrealized gain on the remaining
securities recorded at February 29, 1996.
(5) Fixed Assets
Fixed assets consisted of the following at February 28, 1995 (none at
February 29, 1996 as a result of the TCPI transaction (see notes 5,
1(e) and 3)):
<TABLE>
<CAPTION>
Accumulated Net
depreciation/ book
Cost amortization value
---- ------------- -----
<S> <C> <C> <C>
Equipment $ 858,735 195,861 662,874
Furniture and office equipment 66,780 14,759 52,021
Leasehold improvements 232,650 47,167 185,483
---------- ---------- ----------
$1,158,165 257,787 900,378
========== ========== ==========
</TABLE>
F-12 (Continued)
<PAGE> 57
PHARMA PATCH PUBLIC LIMITED COMPANY
Notes to Consolidated Financial Statements, Continued
(Expressed in U.S. Dollars)
(6) Note Payable
In 1995, the Company issued a $5,000,000 senior secured convertible
promissory note (note 1(c)). The promissory note bore interest at the
rate of 10% per annum, payable semiannually. The principal amount of
the note was originally due and payable in full on June 30, 1996.
As collateral for the promissory note, the Company pledged
substantially all of the assets acquired from Pharmetrix being held in
the Company's subsidiary, PP Holdings Inc. The note was satisfied by
TCPI (see notes 1(c). 1(e) and 3).
(7) Capital Stock
(a) Pharma Patch Capital Stock
The authorized and issued Ordinary Shares of Pharma Patch for
the 1996 and 1995 fiscal years are as follows:
Authorized
The Company has authorized 52,046,576 Ordinary Shares of IR(pound)O.01
representing an aggregate value of IR(pound)520,466.
<TABLE>
<CAPTION>
Number Premium in
of Par excess of
shares value par value Total
------ ----- --------- -----
<S> <C> <C> <C> <C>
Balance, February 28, 1994 ..................... 4,371,932 $ 2,162,932 7,123,610 9,286,542
----------- ----------- ----------- -----------
Issued for cash, March 7, 1994(i) .............. 600,000 8,828 3,706,172 3,715,000
Share issue expenses(i) ........................ -- -- (1,633,990) (1,633,990)
Issued in exchange for Cangene shares(ii) ...... 439,999 6,720 1,764,276 1,770,996
Issued in payment of professional fees(iii) .... 328,322 5,163 488,371 493,534
----------- ----------- ----------- -----------
Balance, February 28, 1995 ..................... 5,740,253 2,183,643 11,448,439 13,632,082
----------- ----------- ----------- -----------
Issued for cash (iv) ........................... 3,249,400 37,713 2,399,085 2,436,798
Share issued costs (iv) ........................ -- -- (250,022) (250,022)
Payment of accrued salaries(v) ................. 804,044 10,848 488,475 499,323
Payment of professional fees(vi) ............... 690,373 9,912 591,993 601,905
Officers and directors(vii) .................... 926,563 14,640 726,610 741,250
----------- ----------- ----------- -----------
Subtotal for fiscal 1996 ....................... 5,670,380 73,113 3,956,141 4,029,254
----------- ----------- ----------- -----------
Balance at February 29, 1996 ................... 11,410,633 $ 2,256,756 15,404,580 17,661,336
=========== =========== =========== ===========
</TABLE>
- ------------
(i) On March 7, 1994, the Company completed an initial public offering for
600,000 American Depository Shares, 575,000 Class B Warrants and
575,000 Class C Warrants of the Company. The securities are
F-13
<PAGE> 58
PHARMA PATCH PUBLIC LIMITED COMPANY
Notes to Consolidated Financial Statements Continued
(Expressed In U.S. Dollars)
traded on the NASDAQ exchange. Gross proceeds from the offering were
$3,715,000, issue costs were $1,633,990 and net proceeds were
$2,081,010.
(ii) Issued in connection with the private acquisition of 1,319,996 common
shares of Cangene Corporation (note 8).
(iii) Equivalent estimated value of stock issued to various professionals
in lieu of cash payments totaling $493,534 for services rendered.
(iv) During the year the Company completed private placements to issue
3,249,400 Ordinary Shares for gross proceeds of $2,399,085, issue costs
of $250,022 and net proceeds of $2,149,063.
(v) In May 1995, the Company declared bonuses totaling $261,250 pursuant to
employment agreements for key executive employees. One-third of each
bonus was paid in cash and the balance of $174,167 was paid in Ordinary
Shares valued at $1.00 (174,167 shares). In the year ended February 29,
1996, 423,627 Ordinary Shares were issued in lieu of cash salaries of
$222,031. In addition, 206,250 shares at an estimated fair value of
$103,125 were awarded in the fourth quarter to senior management in
lieu of a consulting fee.
(vi) During the year the Company issued 690,373 shares in lieu of cash
payments of $601,905 to various professionals for services rendered
and billed to the Company.
(vii) In June 1995, the Company's Board of Directors authorized the issuance
of 926,563 Ordinary Shares to certain officers and directors or their
affiliates at a share price of $0.80. Each person or entity executed a
promissory note which was secured by a pledge of the shares as payment
for the shares received. Effective November 15, 1995 all outstanding
management and employment agreements were terminated. In connection
with the termination of these agreements, as consideration for
contractual obligations not met by the Company, services rendered and
severance pay, the obligations of the officers and directors or their
affiliates under promissory notes totaling $741,250 were deemed to be
paid in full. A charge for this amount is included in administrative
expense in the accompanying fiscal 1996 statement of earnings and loss
and deficit.
As of February 29, 1996, approximately 1.6 million Ordinary Shares
related to a private placement (see (iv) above) and the 206,250 shares awarded
to management in lieu of a consulting fee have not been actually issued.
However, the shares are reflected as outstanding in the accompanying balance
sheet and for purposes of the earnings per share calculation on the date the
shares were awarded/sold. In March 1996, the Company finalized a private
placement for 2,150,000 Ordinary Shares for net proceeds of $1,075,000 (which
includes the 1.6 million shares noted above).
F-14
<PAGE> 59
PHARMA PATCH PUBLIC LIMITED COMPANY
Notes to Consolidated Financial Statements, Continued
(Expressed in U.S. Dollars)
(b) Warrants
The details of outstanding warrants at February 29, 1996 are
as follows:
Class A Warrants - 897,000 outstanding (1995 -
925,000)
Each Class A Warrant entitles the holder to purchase
one Ordinary Share and one Class B Warrant at an
exercise price of $2.66 commencing on May 29, 1994
until February 28, 1999. The warrants are redeemable
by the Company at a price of $0.10 if certain stock
price conditions exist.
Class B Warrants - 1,015,425 outstanding (1995 -
1,037,500)
Each Class B Warrant entitles the holder to purchase
one Ordinary Share at an exercise price of $3.19
commencing on May 29, 1994 until February 28, 1999.
The warrants are redeemable by the Company at a price
of $0.10 if certain stock price conditions exist.
Class C Warrants - 2,939,875 outstanding (1995 -
2,975,000)
The Class C Warrants are exercisable to purchase one
Unit consisting of one Ordinary Share, one-half of a
Class A Warrant and one-quarter of a Class B Warrant
at an exercise price of $5.31 per Unit. The Class C
Warrants are not exercisable until (i) the Company
generates revenues in excess of $10,000,000 in any
one fiscal year or the Units, or the sum of their
components (ii) trade at a price equal to 200% of the
Initial Public Offering (IPO) price of $6.00. The
Class C Warrants are exchangeable at the option of
the warrant holders for Units of the Company on a
formula basis, reflecting the spread between the
exercise price of the warrants and the fair market
value price of the Units (or the sum of their
component parts) at the time when the exchange is
requested by the warrant holders. These warrants
expire on February 28, 1999.
Class D Warrants - 500,000 outstanding
The Class D Warrants are exercisable, commencing on
May 29, 1994, to purchase one Unit consisting of one
Ordinary Share,
F-15 (Continued)
<PAGE> 60
PHARMA PATCH PUBLIC LIMITED COMPANY
Notes to Consolidated Financial Statements, Continued
(Expressed in U.S. Dollars)
(7) Capital Stock, cont.
(b) Warrants, cont.
one-half of a Class A Warrant and one-quarter of a
Class B Warrant. The exercise price per Class D
Warrant is $2.12 and the warrants expire on July 30,
1997.
The Class D Warrants are exchangeable at the option
of the warrant holders for Units of the Company on a
formula basis, reflecting the spread between the
exercise price of the warrants and the fair market
price of the Units (or the sum of their component
parts) at the time when the exchange is requested by
the warrant holders.
The exercise prices of the Class A, B, C and D
Warrants were initially determined by the Board of
Directors and were either equal to or exceeded the
fair market value of the Company's share price at the
date the warrants were granted. Exercise prices are
subsequently adjusted, in accordance with the formula
stipulated in the Warrant Agreement, if the Company
issues or sells shares for consideration less than
the greater of the initial public offering price or
market price.
(c) Stock Option Plan
The Company has adopted stock option plans which allows an
aggregate maximum of 700,000 Ordinary Shares of the Company to
be available for awards to employees, officers and directors.
The exercise price of these options is determined by the
Compensation Committee of the Board of Directors but will be
at least 100% of the fair market value of the options at the
date the option is granted. Additionally, these options shall
terminate in the event of a sale or transfer of all or
substantially all of the Company's assets. Effective November
15, 1995, all outstanding management and employment agreements
were terminated. In connection with the termination of these
agreements, the Company required outstanding options to be
exercised by December 15, 1995. No options were exercised and
all outstanding options thus expired on such date.
Changes to issued options are as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Number of options exercisable, begin-
ning of year 685,000 550,000
New options granted -- 265,000
Options expired (685,000) (130,000)
-------- --------
Number of options exercisable, end of
year -- 685,000
======== ========
</TABLE>
F-16 (Continued)
<PAGE> 61
PHARMA PATCH PUBLIC LIMITED COMPANY
Notes to Consolidated Financial Statements, Continued
(Expressed in U.S. Dollars)
(7) Capital Stock, cont.
(c) Stock Option Plan, cont.
In March 1996, 700,000 options at an exercise price of $.50
per share to purchase Ordinary Shares were issued to certain
individuals and entities who perform services for the Company,
all of which have terms of five years. These options shall
vest only in the event that the closing price of the Company's
stock price equals or exceeds $2.00 in any 21-day trading
period (whether or not consecutive) prior to February 28,
1997. Upon such vesting, administrative expense will be
recorded on 350,000 of such options. The Company intends to
record an expense of $10,000 upon the issuance of the
remaining 350,000 options to a consultant in accordance with
the provision of Financial Accounting Standards Board
Statement No. 123.
(d) Earnings (Loss) Per Share
The net loss per share calculations for the fiscal years ended
1995 and 1994 are based on the weighted average number of
shares outstanding during the respective years. In addition,
the earnings (loss) per share calculations have taken into
account the shares, options and warrants issued at prices
below the Company's IPO price in the 12-month period prior to
the initial filing of the IPO. These have been treated as
outstanding during all the periods presented prior to March 7,
1994. The Company has used the treasury stock method of
determining the dilutive effect of all options and warrants
for the period March 7, 1994 to February 28, 1995.
The net earnings per share calculation for the fiscal year
ended 1996 is based on the modified treasury stock method.
(8) Cangene Acquisition and Disposal
On June 13, 1994, the Company completed a private acquisition of
1,319,996 Common Shares in the capital of Cangene Corporation (Cangene)
from ARCA Investments Inc. (ARCA). In payment for these shares, the
Company issued a total of 439,999 of its Ordinary Shares, on the basis
of one Ordinary Share for each three shares of Cangene. This
acquisition was part of a take-over bid to acquire all of the
outstanding Common Shares of Cangene. The bid was subsequently
withdrawn. The Company incurred acquisition costs of approximately
$515,000, substantially all of which were paid for with Cangene shares.
Certain of the Cangene shares were sold resulting in net cash proceeds
of approximately $657,000 and the balance was used to settle
outstanding professional fees totaling approximately $630,000. The
Company incurred a loss on disposition of the Cangene shares of
approximately $478,000.
(9) Income Taxes
Prior to July 30, 1993, Medipro was a Canadian Controlled Private
Corporation, as defined under the Income Tax Act (Canada) and,
accordingly, was entitled to receive a refund on a portion of its ITCs
earned on eligible SRED. These refundable ITCs, which are similar to
government grants provided for performing qualifying research
activities, were recorded in income as earned.
F-17 (Continued)
<PAGE> 62
PHARMA PATCH PUBLIC LIMITED COMPANY
Notes to Consolidated Financial Statements, Continued
(Expressed in U.S. Dollars)
(9) Income Taxes, cont.
As a result of the change in the ownership of Medipro in fiscal 1994,
the ITCs are earned subsequently at the rate of 20% of eligible SRED,
will no longer be refundable and will only be available to reduce
income taxes payable in Canada.
The Financial Accounting Standards Board has issued Financial
Accounting Standards No. 109, "Accounting for Income Taxes" which was
effective for the Company's February 28, 1994 fiscal year. As of
February 28, 1996 and 1995, Medipro had research and development
expenses not claimed for income tax purposes of approximately
$2,870,000 and $2,831,000, respectively, available to reduce taxable
income of Medipro in future years. Due to the significant uncertainty
relating to the Company's ability to utilize these expenses to offset
taxable income, valuation allowances are recognized to offset all of
the deferred tax assets relating to these expenses. These unclaimed
research and development expenses may be carried forward
indefinitely for income tax purposes.
At February 29, 1996, the Company also had unused operating loss
carryforwards amounting to approximately $6,500,000 available to
reduce future taxable income. A valuation allowance has been set up to
offset the deferred tax benefit of these loss carryforwards. These
losses expire as follows:
<TABLE>
<S> <C>
2001 1,448,000
2002 1,205,000
2010 3,477,000
2011 370,000
=========
</TABLE>
Deferred income taxes have been provided for temporary differences as
follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Deferred Tax Assets:
Operating Loss Carryforward 2,600,000 5,400,000
Capitalized Research and Development
expense -- 492,000
Purchased Research and Development
expense -- 1,110,000
Start-up costs associated with
PP Holdings -- 136,000
Interest Expense -- 133,000
Tax Benefit of Research and Development 1,148,000 1,269,000
Other 59,000 65,000
----------- ----------
Total Tax Assets 3,807,000 8,605,000
Valuation Allowance (3,807,000) (8,605,000)
Adjusted Tax Assets -- --
Deferred Tax Liabilities:
Unrealized appreciation on equity securities (1,710,212) --
----------- ----------
Total Deferred Tax Liability (1,710,212) --
</TABLE>
(10) Commitments
As a result of the transaction with TCPI, the Company no longer has any
commitments under operating leases requiring any future minimum annual
payments.
F-18 (Continued)
<PAGE> 63
PHARMA PATCH PUBLIC LIMITED COMPANY
Notes to Consolidated Financial Statements, Continued
(Expressed in U.S. Dollars)
(10) Commitments, cont.
In February 1996, the Company entered into two consulting agreements,
each for a term of three years with aggregate annual payments of
$350,000, plus a bonus at the discretion of the board of directors.
These agreements provide management to the Company.
(11) Consolidated Statements of Cash Flows
The net change in noncash working capital balances for each of the
fiscal years are noted below:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Sources uses of cash:
Accounts receivable $ 18,910 27,305
Investment tax credits receivable -- 136,937
Prepaid expenses and deposits 47,298 (6,238)
Accounts payable (5,275) 439,763
Accrued expenses 296,854 374,996
Other 3,485 555,368
----------- -----------
$ 361,272 1,528,131
=========== ===========
</TABLE>
During the year ended February 29, 1996, the amounts of cash interest
paid was $250,000 (1995 - $250,000). No income taxes were paid during
1996 or 1995.
All short-term, highly liquid investments with maturities of three
months or less at the date of purchase are considered to be cash
equivalents.
(12) Related-party Transactions
In 1993, the Company entered into an agreement, which expires on
December 31, 2011, with a shareholder whereby the Company has granted
the licensee certain production and distribution rights to a technology
that the Company still maintains after the TCPI transaction, but which
is not expected to be pursued for commercialization. No fee revenue was
recognized in fiscal 1996 and 1995.
(13) Subsequent Event
In March 1996, the Company executed agreements which provided the
Company with a controlling interest in Vista. The Company had
previously made certain working capital advances to Vista before the
consummation of this transaction. Such amounts totaled $251,500 at
February 29, 1996.
The Company executed a stock purchase agreement for 200,000 newly
issued shares of Vista common stock for a cash price of $500,000. The
Company and Vista executed an additional agreement under which Vista
provided 2,060,000 newly issued shares of its common stock to the
Company at a value of $5,150,000 plus 500,000 Vista Class C common
stock purchase warrants. In exchange, Vista received a $750,000
interest-free note due six months after the transaction date and
200,000 restricted shares of TCPI common stock previously held by the
Company with a fair value on the date of the transaction of $3,550,000
(original cost basis to the Company of $3,032,000).
F-19 (Continued)
<PAGE> 64
PHARMA PATCH PUBLIC LIMITED COMPANY
Notes to Consolidated Financial Statements, Continued
(Expressed in U.S. Dollars)
(13) Subsequent Event, cont.
The Company also has an option to purchase up to an additional 250,000
newly issued shares of Vista common stock at an option price of $2.50
in cash. This option is exercisable at any time up to September 30,
1996.
In addition, in a separate transaction, the Company agreed to provide
4,500,000 newly issued Ordinary Shares in exchange for a total of
900,000 shares of Vista's outstanding common stock owned by three
shareholders.
As a result of these transactions, the Company acquired approximately
61% of the voting interest in Vista. The acquisition will be accounted
for utilizing the purchase accounting method in fiscal 1997.
The following unaudited pro forma condensed consolidated balance sheet
reflects the transaction as if it had occurred on February 29, 1996.
<TABLE>
<CAPTION>
Pharma
Patch Public
Limited Vista
Company Technologies
as of Inc. as of
Feb.29, Dec.31,
Assets 1996 1995
------ ---- ----
<S> <C> <C>
Cash, accounts receivable, prepaid expenses, investment
securities and other assets $ 943,012 869,429
Property and equipment -- 1,414,920
Investment in Technical Chemicals and Products, Inc. 16,805,320 --
Cost in excess of net assets acquired -- --
------------ -----------
Total assets $ 17,748,332 2,284,349
============ ===========
Liabilities and Shareholders' Equity (Deficiency)
Accounts payable, note payable, current portion of long-term debt, redeemable
common stock, accrued liabilities, deferred revenue and other liabilities 3,167,034 1,256,179
Long-term debt -- 783,833
Minority interest -- 603,914
------------ -----------
Total liabilities 3,167,034 2,643,926
------------ -----------
Shareholders' equity (deficiency):
Common stock at par value 2,256,756 13,231
Premium in excess of par value 15,404,580 13,513,796
Deficit (6,249,628) (14,160,572)
Foreign currency adjustment (6,518) 273,968
Unrealized appreciation on equity securities (net of deferred taxes) 3,176,108 --
------------ -----------
Total shareholders' equity
(deficiency) 14,581,298 (359,577)
----------- -----------
Total liabilities and shareholders'
equity (deficiency) $ 17,748,332 2,284,349
============ ===========
<CAPTION>
Pro forma
Adjustments totals
---------------------- as of
Assets Debit Credit 1996
------ ----- ------ ----
<S> <C> <C> <C>
Cash, accounts receivable, prepaid expenses, investment
securities and other assets -- -- 1,812,441
Property and equipment -- -- 1,414,920
Investment in Technical Chemicals and Products, Inc. -- -- 16,805,320
Cost in excess of net assets acquired 5,763,930(a) -- 5,763,930
-------------- ---------- -----------
Total assets 5,763,930 -- 25,796,611
============== ========== ===========
Liabilities and Shareholders' Equity (Deficiency)
Accounts payable, note payable, current portion of long-term debt, redeemable
common stock, accrued liabilities, deferred revenue and other liabilities
-- -- 4,423,213
Long-term debt -- -- 783,833
Minority interest -- 2,047,394(b) 2,651,308
-------------- ---------- -----------
Total liabilities -- 2,047,394 7,858,354
-------------- ---------- -----------
Shareholders' equity (deficiency):
Common stock at par value 15,800(c) 911,300(c) 3,165,487
Premium in excess of par value 16,960,236(c) 5,620,700(c) 17,578,840
Deficit -- 14,160,572(c) (6,249,628)
Foreign currency adjustment -- -- 267,450
Unrealized gain or equity securities (net of deferred taxes)
-- -- 3,176,108
-------------- ---------- -----------
(13) Subsequent Event, cont.
Total shareholders' equity
(deficiency) 16,976,036 20,692,572 17,938,257
-------------- ---------- -----------
Total liabilities and shareholders'
equity (deficiency) 16,976,036 22,739,966 25,796,611
============== ========== ===========
</TABLE>
As a result of these transactions, the Company acquired approximately
61% of the voting interest in Vista. The acquisition will be accounted
for utilizing the purchase accounting method in fiscal 1997. A summary
of the consideration for both components of the Vista transaction
include the following:
<TABLE>
<S> <C>
Cash............................................... $ 500,000
Note payable....................................... 750,000
TCPI investment (200,000 shares)................... 3,032,000
----------
Subtotal........................................... 4,282,000
Pharma Patch plc common stock (4,500,000 shares)... 2,250,000
----------
$6,532,000
</TABLE>
Vista had net liabilities before the two transactions, which were
simultaneously consummated in late March 1996, of approximately
$700,000. The first step represented a payment by the Company to Vista
of approximately $4.2 million in consideration to acquire approximately
41% of Vista through the issuance by Vista of new shares of common
stock. This transaction resulted in cost in excess of net assets of
approximately $3.1 million (as Pharma Patch acquired 41% of Vista, the
consideration of $4.2 million must be reduced by its residual ownership
of the assets to approximately $2.4 million which, when compared to net
liabilities of 700,000 generates the $3.1 million of excess purchase
price).
The second phase of the transaction was Pharma Patch transferring $2.2
worth of its common stock to three existing Vista owners in exchange
for an additional 20% ownership in Vista shares. Cost in excess of net
assets from this phase of the transaction is calculated by comparing
the $2.2 consideration to 20% of net assets of $3.2 million (the net
assets after the first transaction is completed). The resulting $1.5
cost in excess combined with the aforementioned $3.1 million represents
the total cost in excess from the acquisition of $4.6 million. The TCPI
investment value was calculated utilizing the original carrying value
of the TCPI investment from November 1995 ($15.16 per share). This
price was determined by the Company to represent the estimated fair
value of the TCPI shares at the date of the acquisition. The TCPI
shares were trading at prices between $21.00 and $11.00 per share
during a short period of time before and after announcement of the
transaction (approximately $17.00 per share as of the closing of the
transaction). The Company is currently amortizing such cost in excess
of net assets acquired over a 15 year period. The final allocation of
purchase price is not yet available.
F-20 (Continued)
<PAGE> 1
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Pharma Patch Public Limited Company
We consent to incorporation by reference in the registration statements (No.
33-83478, 33-93606 and 333-02630) on Form S-8 of Pharma Patch Public Limited
Company of our report dated May 9, 1996, relating to the consolidated balance
sheet of Pharma Patch Public Limited Company and subsidiaries as of February 29,
1996, and the related consolidated statements of earnings and loss and deficit
and cash flows for the year then ended, which report appears in the February 29,
1996 annual report on Form 10-KSB/A (Amendment No. 1) of Pharma Patch Public
Limited Company.
KMPG Peat Marwick LLP
Short Hills, New Jersey
December 10, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-29-1996
<PERIOD-START> MAR-01-1995
<PERIOD-END> FEB-29-1996
<CASH> 668,822
<SECURITIES> 16,805,320
<RECEIVABLES> 22,690
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 17,748,332
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 17,748,332
<CURRENT-LIABILITIES> 3,167,034
<BONDS> 0
0
0
<COMMON> 2,256,756
<OTHER-SE> 12,324,542
<TOTAL-LIABILITY-AND-EQUITY> 17,748,332
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,800,809
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,728,683)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,728,683)
<DISCONTINUED> 13,819,359
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,090,676
<EPS-PRIMARY> 1.50
<EPS-DILUTED> 1.50
</TABLE>
