Page 1 of 64
`
`> -
`
`---- BEGIN PRIVACY-ENHANCED MESSAGE-----
`Proc-Type: 2001,MIC-CLEAR
`Originator-Name: webmasterewww.sec.gov
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`: 19960812
`<SEC-DOCUMENT>0000898430-96-003609.txt
`<SEC-HEADER>0000898430-96-003609.hdr.sgml
`: 19960812
`ACCESSION NUMBER:
`0000898430-96-003609
`CONFORMED SUBMISSION TYPE:
`S-l
`PUBLIC DOCUMENT COUNT:
`5
`FILED AS OF DATE:
`19960809
`SROS:
`
`NASD
`
`FILER:
`
`COMPANY DATA:
`COMPANY CONFORMED NAME:
`CENTRAL INDEX KEY:
`STANDARD INDUSTRIAL CLASSIFICATION:
`IRS NUMBER:
`STATE OF INCORPORATION:
`FISCAL YEAR END:
`
`TRYLON CORP
`0001018866
`[]
`330346437
`DE
`1231
`
`FILING VALUES:
`FORM TYPE:
`SEC ACT:
`SEC FILE NUMBER:
`FILM NUMBER:
`
`BUSINESS ADDRESS:
`STREET 1:
`CITY:
`STATE:
`ZIP:
`BUSINESS PHONE:
`
`S-l
`1933 Act
`333-09915
`96607512
`
`970 WEST 190TH STREET SUITE 900
`TORRANCE
`'
`CA
`90502-1037
`3103278820
`
`MAIL ADDRESS:
`STREET 1:
`CITY:
`STATE:
`ZIP:
`
`970 WEST 190TH STREET SUITE 900
`TORRANCE
`CA
`90502-1037
`
`</SEC-HEADER>
`<DOCUMENT>
`<TYPE>S~1
`<SEQUENCE>1
`<DESCRIPTION>FORM S-l DATED AUGUST 9, 1996
`<TEXT>
`
`<PAGE>
`
`AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 9, 1996
`
`REGISTRATION N0. 333-
`
`SECURITIES AND EXCHANGE COMMISSION
`WASHINGTON, D.C. 20549
`
`FORM S-l
`REGISTRATION STATEMENT
`UNDER
`THE SECURITIES ACT OF 1933
`
`THE TRYLON CORPORATION
`
`Histologics, LLC
`Exhibit 1007
`
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`

`

`Page 2 of 64
`
`(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
`
`DELAWARE
`(STATE OR OTHER
`JURISDICTION OF
`INCORPORATION 0R
`ORGANIZATION)
`
`3841
`(PRIMARY STANDARD
`INDUSTRIAL
`CLASSIFICATION CODE
`NUMBER)
`
`33-0346437
`(I.R.S. EMPLOYER
`IDENTIFICATION NO.)
`
`970 W. 190TH STREET, SUITE 900
`TORRANCE, CALIFORNIA 90502
`(310) 327-8820
`INCLUDING AREA CODE, OF
`INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
`REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
`
`(ADDRESS,
`
`MARTIN L. LONKY
`PRESIDENT AND CHIEF EXECUTIVE OFFICER
`THE TRYLON CORPORATION
`970 W. 190TH STREET, SUITE 900
`TORRANCE, CALIFORNIA 90502
`(310) 327-8820
`INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
`OF AGENT FOR SERVICE)
`
`(NAME, ADDRESS,
`
`INCLUDING AREA CODE,
`
`GARY OLSON
`ROBERT A. KOENIG
`LATHAM a WATKINS
`633 W. FIFTH STREET,
`SUITE 4000
`LOS ANGELES, CALIFORNIA
`90071
`(213) 485-1234
`
`Copies to:
`ERIC A. KLEIN
`KLEIN & MARTIN
`2029 CENTURY PARK EAST
`SUITE 1112
`LOS ANGELES, CALIFORNIA
`90067
`(310) 201-2581
`
`KENNETH J. BARONSKY
`MILBANK, THEED, HADLEY &
`MCCLOY
`601 S. FIGUEROA STREET
`30TH FLOOR
`LOS ANGELES, CALIFORNIA
`90017
`(213) 892-4000
`
`APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
`As soon as practicable after this Registration statement becomes effective.
`
`If any of the securities on this Form are to be offered on a delayed or
`continuous basis pursuant to Rule 415 under the Securities Act of 1933, as
`amended,
`(the "Securities Act"), check the following box:
`[_]
`
`If this Form is filed to register additional securities for an offering
`pursuant to Rule 462(b) under the Securities Act, please check the following
`box and list the Securities Act registration statement number of the earlier
`effective registration statement for the same offering.
`[_]
`
`If this Form is a post-effective amendment filed pursuant to Rule 462(c)
`under the Securities Act, check the following box and list the Securities Act
`registration statement number of the earlier effective registration statement
`for the same offering.
`[_]
`
`If delivery of the prospectus is expected to be made pursuant to Rule 434
`under the Securities Act, please check the following box.
`[_]
`CALCULATION OF REGISTRATION FEE
`
`(TABLE)
`(CAPTION)
`
`TITLE OF EACH CLASS OF
`SECURITIES TO BE REGISTERED
`
`AMOUNT OF
`PROPOSED MAXIMUM
`AGGREGATE OFFERING REGISTRATION
`PRICE(1)
`FEE
`
`<S>
`Common Stock, $.01 par value ..................
`</TABLE>
`
`<C>
`
`$40,000,000
`
`(C)
`$13,793.11
`
`
`
`pursuant to Rule 457(0) under the Securities Act based upon the high point
`of the range of estimated initial public offering prices as specified in
`
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`
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`

`

`Page 3 of 64
`
`the Preliminary Prospectus contained herein.
`
`THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
`DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
`SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
`REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
`SECTION 8(A) OF THE SECURITIES ACT OR UNTIL THE REGISTRATION STATEMENT SHALL
`BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
`SECTION 8(A), MAY DETERMINE.
`
`<PAGE>
`
`++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
`+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
`+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
`+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
`+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
`+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER To SELL OR
`+THE SOLICITATION OF AN OFFER To BUY NOR SHALL THERE BE ANY SALE OF THESE
`+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION 0R SALE WOULD BE
`+UNLAWFUL PRIOR TO REGISTRATION 0R QUALIFICATION UNDER THE SECURITIES LAWS OF
`+ANY SUCH STATE.
`++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
`SUBJECT To COMPLETION, DATED AUGUST 9, 1996
`
`+++++++++
`
`PROSPECTUS
`, 1996
`
`SHARES
`
`THE TRYLON CORPORATION
`
`COMMON STOCK
`
`All of the shares of Common Stock, par value $.01 per share (the "Common
`Stock"), offered hereby (the "Offering") are being issued and sold by The
`Trylon Corporation (the "Company"). Prior to this Offering,
`there has been no
`public market for the shares of Common Stock of the Company. It is currently
`estimated that the initial public offering price will be between 5
`and $
`per share. See "Underwriting“ for a discussion of factors considered in
`determining the initial public offering price of the shares.
`
`Application has been made to include the Common Stock in the Nasdaq National
`Market under the symbol "TRLN."
`
`SEE "RISK FACTORS" ON PAGES 6-13 FOR A DISCUSSION OF CERTAIN FACTORS THAT
`SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE SHARES OF COMMON STOCK
`OFFERED HEREBY.
`
`AND
`SECURITIES HAVE NOT BEEN APPROVED 0R DISAPPROVED BY THE SECURITIES
`THESE
`THE
`EXCHANGE
`COMMISSION
`OR
`ANY
`STATE
`SECURITIES
`COMMISSION
`NOR
`HAS
`SECURITIES
`AND EXCHANGE
`COMMISSION OR
`ANY
`STATE SECURITIES
`COMMISSION
`PASSED UPON
`THE
`ACCURACY
`0R ADEQUACY
`OF
`THIS
`PROSPECTUS.
`ANY
`REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
`
`<TABLE>
`(CAPTION)
`
`PROCEEDS
`UNDERWRITING
`PRICE
`TO THE
`TO THE DISCOUNTS AND
`PUBLIC COMMISSIONS(1) COMPANY(2)
`
`<3)
`Per Share ......................................
`Total(3) .......................................
`</TABLE>
`
`(C)
`$
`
`$
`
`(C)
`
`$
`
`$
`
`(C)
`
`5
`
`$
`
`(1) The Company and certain of the Company's stockholders (the "Selling
`Stockholders") have agreed to indemnify the Underwriters against certain
`liabilities,
`including liabilities under the Securities Act of 1933, as
`amended (the "Securities Act"). See "Underwriting."
`.
`(2) Before deducting expenses payable by the Company estimated at $
`(3) The Company and the Selling Stockholders have granted to the Underwriters a
`30-day option to purchase up to
`and
`additional shares of Common
`Stock, respectively on the same terms as set forth above solely to cover
`
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`
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`

`Page 4 of 64
`
`over-allotments, if any. If the Underwriters exercise such option in full,
`the total Price to the Public, Underwriting Discounts and Commissions,
`Proceeds to the Company and proceeds to the Selling Stockholders will be
`5
`,
`$
`,
`$
`and $
`, respectively. The Company will not receive any
`of the proceeds from the sale of shares by the Selling Stockholders. See
`"Underwriting" and "Principal and Selling Stockholders."
`
`The shares are offered by the Underwriters, subject to prior sale, when, as
`and if delivered to and accepted by the Underwriters and subject to various
`prior conditions,
`including their right to reject orders in whole or in part.
`It is expected that delivery of the shares offered hereby will be available for
`delivery on or about
`, 1996 at the offices of Donaldson, Lufkin & Jenrette
`Securities Corporation, New York, New York or through the facilities of the
`Depository Trust Corporation.
`
`(PAGE)
`
`DONALDSON, LUFKIN & JENRETTE
`SECURITIES CORPORATION
`
`[PHOTOS OF TRYLON'S PAP PLUS SPECULOSCOPY(R) AND OTHER PRODUCTS.]
`
`IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
`TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
`OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
`MARKET. SUCH STABILIZING,
`IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
`
`<PAGE>
`
`PROSPECTUS SUMMARY
`
`The following summary is qualified in its entirety by, and should be read in
`conjunction with,
`the more detailed information and financial statements and
`notes thereto appearing elsewhere in this Prospectus. Unless otherwise
`indicated,
`the information in this Prospectus assumes an initial public
`offering price of $
`per share and that the Underwriters' over—allotment
`option to acquire
`shares is not exercised.
`In addition, all of the
`information in this Prospectus has been adjusted to give effect to an aggregate
`Common Stock split to be completed prior to the consummation of the
`Offering. Unless the context requires otherwise, all references herein to the
`Company include the Company's wholly-owned subsidiary, Perisphere Industries,
`Inc.
`
`THE COMPANY
`
`is an innovative medical
`The Trylon Corporation ("Trylon" or the "Company")
`products company that has pioneered the use of chemical light technology in
`diagnostic and other medical applications. The Company's first product, PAP
`PLUS SPECULOSCOPY(R)
`("PPS"), combines the Company's patented visual
`examination, SPECULOSCOPY(TM), with the standard Pap smear,
`into a simple
`cervical screening test for women. Speculoscopy, which can be performed by a
`wide range of health care practitioners at low cost, visually illuminates
`cervical abnormalities, which may include cancer and precancer, during a
`routine pelvic examination. Trylon received clearance from the FDA in December
`1995 to market PPS for primary cervical screening.
`
`Clinical data reviewed by the FDA indicated that PPS was more accurate in
`detecting cervical abnormalities than the traditional screening test for
`detecting cervical cancer,
`the Pap smear. As a result,
`the Company believes
`that PPS will allow health care practitioners to identify women with cervical
`abnormalities earlier than if they used the Pap smear alone. Earlier diagnosis
`allows for more cost-effective treatment. At a precancerous state of disease,
`costs of treatment typically do not exceed $500, while costs of treating
`invasive cervical cancer often exceed $60,000.
`
`The Company's objective is to have PPS become a "standard of care" for
`primary cervical screening worldwide. The Company has scheduled major United
`States and international product launches of PPS during 1996.
`In the United
`States,
`the Company has a long—term marketing and distribution agreement with
`Pharmacia a Upjohn,
`Inc.
`("P&U"), one of the largest pharmaceutical
`distribution companies in the world.
`In addition, PPS is being marketed through
`leading pharmaceutical and medical supply companies in certain European, Asian
`and North American markets.
`
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`Page 5 of 64
`
`to the areas of women's health care and cancer
`9&0 has a strong commitment
`treatment and plans to utilize its entire national sales force for the
`distribution of PPS.
`In addition,
`P&U has committed to a national advertising
`campaign for PPS and has selected PPS for special sales incentives. PaU will be
`the primary sponsor of the national advertising campaign, although the Company
`will supplement P&U's efforts by contributing approximately $10 million to the
`cost of such campaign. The PPS launch, scheduled to commence in the fourth
`quarter of 1996, will target:
`(i) over 60,000 health care practitioners through
`P&U‘s direct selling efforts and educational programs,
`(ii) women and women's
`advocacy groups, primarily through a direct-to-consumer television and print
`advertising program and other public relations efforts and (iii) third-party
`payors,
`including managed—care organizations. The initial promotional campaign
`will uSe PaU's established sales force to target office-based physicians in 20
`major domestic markets. During 1997,
`PGU plans to expand these marketing
`efforts nationwide, supported by the consumer advertising and advocacy
`campaigns to be undertaken jointly by the Company and P50.
`
`Cervical cancer is the second most common cancer in women worldwide, with
`approximately 450,000 new cases diagnosed annually.
`In the United States, over
`50 million women are screened for cervical cancer annually using a standard Pap
`smear. Nevertheless,
`the incidence of cervical cancer has increased in the
`United States
`
`<PAGE>
`
`over the last ten years, and the rate of death within the first five years of
`diagnosis of cervical cancer remains above 30%. The American Cancer Society
`reported that in 1995 approximately 15,800 new cases of cervical cancer were
`diagnosed in the United States. Worldwide, more than 150 million Pap smears are
`performed annually,
`leaving acute, unfulfilled needs for screening in large
`portions of the world, particularly in developing countries.
`
`the Company has developed and initiated clinical studies
`In addition to PPS,
`of a number of products that apply its proprietary technologies to other
`medical, surgical and dental uses. These products include ORAL SPECULOSCOPY(TM)
`for the screening of oral cancer and SPIRABRUSH Cx(R) as a cervical sampling
`device. The Company's goal is to introduce at least one new product each year.
`The Company is actively developing and seeking to acquire other innovative
`technologies with medical applications. See "Business."
`
`The Company was incorporated in the State of Delaware on June 30, 1987. The
`Company's executive offices are located at 970 West 190th Street, Torrance,
`California 90502 and its telephone number is (310) 327-8820.
`
`THE OFFERING
`
`(5)
`
`<TABLE>
`<C>
`Common Stock offered by the Company(1) .......
`Common Stock to be outstanding immediately
`after the Offering(2) .......................
`Use of Proceeds to the Company ............... To fund the PPS domestic
`marketing campaign,
`research
`and development activities,
`capital expenditures and
`general corporate purposes.
`Proposed Nasdaq National Market Symbol....... TRLN
`</TABLE>
`
`(2)
`
`shares of Common Stock that may be sold by the
`(1) Does not include up to
`Company and the Selling Stockholders pursuant to the Underwriters' over-
`allotment option. See "Underwriting."
`Includes (i) 3,399.6 shares of Common Stock which will be issued upon the
`automatic conversion of outstanding shares of Series A Convertible
`Preferred Stock at the effective date of the Offering and (ii) up to 149.9
`additional shares of Common Stock issuable to an existing stockholder of
`the Company pursuant to anti-dilution rights that are held by such
`stockholder and that will be triggered by the preferred stock conversion,
`but excludes (a) up to 8,000 shares of Common Stock issuable on or prior to
`September 9, 1996 in connection with the exercise of outstanding common
`stock purchase warrants (the "Warrants“) and (b) up to 1,793 shares of
`Common Stock issuable upon the exercise of outstanding options held by a
`director and a former director. See "Description of Capital Stock."
`
`(PAGE)
`
`4
`
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`Page 6 of 64
`
`SUMMARY CONSOLIDATED FINANCIAL INFORMATION
`
`The summary consolidated financial information set forth below for the
`Company's fiscal years ended December 31, 1993, 1994 and 1995 is derived from
`the Company's consolidated financial statements audited by Arthur Andersen LLP,
`independent public accountants,
`included elsewhere in this Prospectus. The
`summary consolidated financial information set forth below for the Company's
`fiscal years ended December 31, 1991 and 1992 and the three months ended March
`31, 1995 and 1996, and as of March 31, 1996,
`is derived from the Company's
`unaudited consolidated financial statements. The unaudited consolidated
`financial statements from which such financial information is derived include
`all adjustments, consisting of normal recurring adjustments, which management
`considers necessary for a fair presentation of the Company's financial position
`and results of operations as of such date and for such periods. Operating
`results for the three months ended March 31, 1996 are not necessarily
`indicative of the results that may be expected for future periods,
`including
`the entire year ending December 31, 1996. The summary financial information
`presented below is qualified in its entirety by, and should be read in
`conjunction with,
`"Management's Discussion and Analysis of Financial Condition
`and Results of Operations" and the Company's consolidated financial statements,
`including the notes thereto, appearing elsewhere in this Prospectus.
`<TABLE>
`(CAPTION)
`
`YEAR ENDED DECEMBER 31,
`
`THREE MONTHS
`ENDED
`MARCH 31,
`
`1991
`<C>
`
`1992
`<C>
`
`1993
`
`<C>
`
`1994
`
`<C>
`
`1995
`
`<C>
`
`1995
`<C>
`
`1996
`<C>
`
`<S>
`STATEMENT OF OPERATIONS
`DATA:
`Revenues, net ........... $
`Gross profit ............
`Income (loss) before
`income taxes ...........
`Net
`income (loss) .......
`Net
`income (loss) per
`share............ ......
`Weighted average number
`of common shares
`outstanding....... .....
`<[TABLE>
`
`88,417
`49,605
`
`$ $93,757
`241,122
`
`$1,305,014
`979,312
`
`52,544,983 $
`1,847,720
`
`628,748
`333,116
`
`$
`
`53,843
`31,136
`
`$
`
`38,799
`10,342
`
`(910,275)
`(912,792)
`
`(646,968)
`(647,768)
`
`(251,386)
`(252,186)
`
`432,259
`431,459
`
`(1,007,968)
`(1,008,768)
`
`(436,174)
`(436,174)
`
`(400,893)
`(400,893)
`
`(15.89)
`
`(10.84)
`
`(3.53)
`
`5.46
`
`(11.70)
`
`(5.06)
`
`(4.65)
`
`57,459.2
`
`59,766.7
`
`71,475.0
`
`79,057.6
`
`86,184.3
`
`86,184.3
`
`86,184.3
`
`<TABLE>
`<CAPTION>
`
`AS OF MARCH 31, 1996
`
`<S>
`BALANCE SHEET DATA:
`Working capital ............................ ... ...... $1,202,254
`Total assets ................................ .. ......
`1,745,522
`Total liabilities ........................... .. ......
`473,762
`Long term debt, net of current portion ...... ... .....
`--
`Stockholders‘ equity .......................... . .....
`1,271,760
`</TABLE>
`
`ACTUAL
`<C>
`
`AS ADJUSTED(1)
`<C>
`
`$37,602,254
`38,025,522
`353,762
`——
`37,671,760
`
`shares of Common Stock
`(1) Adjusted to reflect the sale by the Company of
`in the Offering at an assumed initial public offering price of $
`per
`share and the application of the estimated net proceeds therefrom. See "Use
`of Proceeds."
`
`(PAGE)
`
`RISK FACTORS
`
`This Prospectus contains certain forward—looking statements. Actual results
`of operations could differ materially from those projected in these forward-
`looking statements as a result of certain of the risk factors set forth below
`and elsewhere in this Prospectus. Prospective investors should consider
`carefully the following factors,
`in addition to other information contained in
`this Prospectus,
`in evaluating the Company and its business before purchasing
`shares of Common Stock offered hereby.
`
`DEPENDENCE ON A SINGLE PRODUCT; UNCERTAINTY OF MARKET ACCEPTANCE
`
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`
`the only products marketed by the Company are the SPECULITE(R)
`Currently,
`light source, PPS, other products supporting PPS and certain derivative
`products which generate only nominal revenues. The Company's PPS-related
`products are expected to account for a majority of the Company‘s revenues for
`at least the next several years. Accordingly,
`the Company‘s success depends
`upon the acceptance by the medical community (including health care providers,
`third-party payors and patients) in the United States and foreign markets of
`the PPS screening test as a clinically useful and cost-effective method of
`detecting cervical disease. To date, PPS has been used only on a limited
`clinical basis and there can be no assurance that the medical community will
`endorse the PPS screening test as a new standard of care for cervical
`examinations.
`In addition,
`there can be no assurance that PPS will achieve
`market acceptance on a timely basis, or at all, due to the influence of
`established medical practices, cost constraints,
`the introduction or
`acceptance of competing products or technologies and other factors beyond the
`Company's control. Failure of the PPS screening test to achieve market
`acceptance would have a material adverse effect on the Company‘s business,
`financial condition, results of operations and prospects. See "Business——
`Market and Business Strategy."
`
`LIMITED OPERATING EXPERIENCE; HISTORICAL AND ANTICIPATED FUTURE LOSSES
`
`The Company has a limited history of operations which have focused primarily
`on research and development, product engineering, clinical trials and seeking
`FDA regulatory clearance to market its products. The Company obtained FDA
`clearance of its Section 510(k) premarket notification for PPS in December
`1995. The Company has generated only limited revenues from the sale of its
`products to date and does not have experience manufacturing, marketing or
`selling products in large commercial quantities. The Company has experienced
`significant operating losses since its inception and, as of March 31, 1996,
`had an accumulated deficit of $4.0 million. These losses are primarily
`attributable to the significant expenses associated with the research,
`development, clinical testing and FDA premarket clearance process with respect
`to the PPS screening test and supporting products. The Company expects to
`incur substantial additional losses due to increased operating expenses
`arising from continued research and development,
`the expansion of
`manufacturing activities and domestic and international sales and marketing
`efforts. The Company has established marketing, distribution and manufacturing
`agreements with larger companies with expertise in those areas. See
`"Business-—Market and Business Strategy" and "—-Manufacturing." There can be
`no assurance that the Company will be able to transition successfully, either
`internally or through third—party contracts,
`to a large—scale commercial
`enterprise and achieve significant revenues or profits. The Company‘s results
`of operations may fluctuate significantly from quarter to quarter and will
`depend upon numerous factors,
`including the extent to which the Company's
`products gain market acceptance in the United States and foreign countries,
`and the accompanying timing and volume of domestic and international sales.
`
`DEPENDENCE ON THIRD-PARTY REIMBURSEMENT
`
`Successful sales of the PPS screening test in the United States and foreign
`markets will depend,
`in part, on the availability of adequate reimbursement
`from third—party payors such as government entities, managed care
`organizations and private insurance plans. As federal and state governmental
`agencies are intensifying their efforts to limit health care expenditures,
`including through various pending legislative proposals to reduce Medicaid and
`Medicare expenditures,
`there is substantial uncertainty in the United States
`concerning third—party reimbursement for the use of medical tests
`incorporating new technologies. Internationally, health care payment systems
`vary significantly between countries, and include government-sponsored health
`care payment systems
`
`(PAGE)
`
`and private insurance. The Company's foreign distributors recently have begun
`to seek reimbursement approvals in selected foreign markets but has not
`obtained any reimbursement approvals to date.
`
`Reimbursement by a third—party payor may depend on a number of factors,
`including such payor's determination that the use of the Company's PPS
`screening test is clinically useful, cost-effective and not experimental.
`Since reimbursement approval is required from each third-party payor, seeking
`such approvals is a time-consuming process. Demonstration of PPS's cost—
`effectiveness will be particularly important in managed-care organizations,
`where tight cost controls have become common. Although the Company believes
`that the low cost of the PPS screening test relative to other adjunctive
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`screening techniques, and its effectiveness at detecting early-stage cervical
`disease, will make third—party payors receptive to its use,
`there can be no
`assurance that payors will approve PPS for broad use or reimbursement.
`Furthermore,
`some third—party payors may reduce over time the reimbursement
`offered for the use of PPS because of the potential for less frequent
`screening. Even if third—party reimbursement for the PPS screening test is
`obtainable,
`the Company does not believe that third-party payors will always
`reimburse the full cost of the test. Accordingly, acceptance of PPS in the
`fee-for-service markets will depend on the willingness of the patient to bear
`some or all of the cost of the test. Failure of medical practitioners to
`obtain reimbursement for the PPS screening test by third—party payors could
`have a material adverse effect on the Company's business, financial condition,
`results of operations and prospects.
`
`DEPENDENCE 0N SINGLE CONTRACT MANUFACTURER
`
`The Company does not currently manufacture any of its products but obtains
`its most critical component,
`the Speculite light source, pursuant to a long—
`term supply agreement with Omniglow Corporation ("Omniglow") which gives the
`Company the exclusive right to sell Speculite for use in specified medical
`applications through 2004. Omniglow acquired the patents for the manufacture
`of Speculite from American Cyanamid Company in 1993 and is the only United
`States manufacturer.
`In 1994,
`the Company entered into a relationship with
`Omniglow and another company located in Shanghai, China that will manufacture
`Speculite for sale in China and certain other countries at a lower price than
`that currently charged by Omniglow. Under the current supply agreement,
`the
`price charged by Omniglow to the Company for supplying Speculite is not fixed,
`and the Company's only protection from potential increases in the price
`charged by Omniglow for supplying Speculite is a six month advance notice
`requirement. Any increase in the price charged by Omniglow for Speculite could
`have a material adverse effect on the Company's business, financial condition,
`results of operations and prospects.
`
`The Company's dependence on Omniglow as its sole domestic source of supply
`makes the Company vulnerable to possible interruptions in such supply. Any
`alternative supplier of Speculite would be required to meet stringent FDA and
`international manufacturing standards applicable to medical devices. There can
`be no assurance that an alternate manufacturing source could be found if
`necessary,
`that Omniglow would consent to the Company's use of an alternative
`supplier, or that available inventories would be adequate to meet the
`Company's product needs during any prolonged interruption of supply. A
`reduction or interruption in supply of Speculite, or the Company's inability
`to secure an alternative manufacturer, if required, would limit the Company's
`ability to market the PPS screening test and would have a material adverse
`effect on the Company's business, financial condition, results of operations
`and prospects.
`
`RELIANCE 0N MARKETING AND DISTRIBUTION PARTNERS
`
`The Company has no sales force of its own and relies exclusively on its
`domestic and foreign distribution partners for the marketing of PPS and its
`other products. The Company's principal domestic distributor of PPS is P50,
`with whom it has entered into a distribution and marketing agreement which
`gives PaU exclusive rights to distribute PPS in most areas of the United
`States. The Company also has entered into exclusive distribution agreements
`with certain foreign distribution partners including Bracco S.p.A.
`in Italy.
`Although the Company is currently endeavoring to establish a network of
`distribution and marketing partners to sell PPS internationally,
`to
`
`(PAGE)
`
`7
`
`date the Company has had only limited foreign sales in a limited number of
`countries. The Company‘s inability to establish a network of distribution and
`marketing partners who will commit the substantial financial resources and
`sales personnel necessary to sell its products successfully in the respective
`markets would have a material adverse effect on the Company's business,
`financial condition, results of operations and prospects. Moreover,
`the
`to
`failure by one or more of the Company's distributors, particularly PEU,
`achieve success in marketing PPS would have a similar adverse effect. Although
`the Company's agreements with its distributors contain minimum purchase
`requirements for the PPS screening test,
`these purchase requirements are set
`at low levels and are not sufficient to ensure the Company‘s short-term or
`long—term viability. The Company's distributors have never sold PPS products
`in any quantity in excess of these minimum purchase requirements, and their
`failure to do so in the future would have a material adverse effect on the
`Company's business, financial condition, results of operations and prospects.
`There can be no assurance that the Company will not continue to be dependent
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`
`In 1994, 950 accounted for 54
`upon a limited number of its distributors.
`percent of the Company's revenues and Bracco S.p.A. accounted for 16 percent
`of the Company's revenues.
`In 1995, Bracco s.p.A. accounted for 45 percent of
`the Company's revenues and Asian Sourcing Corporation accounted for 38 percent
`of the Company‘s revenues.
`
`RISKS RELATED TO NEW PRODUCTS; FUTURE CAPITAL NEEDS
`
`The long-term success of the Company will not only depend upon the
`successful establishment and market acceptance of PPS as a new standard of
`care for primary cervical screening but also upon the further development and
`successful commercialization of new technologies and additional applications
`of the Company‘s proprietary technology.
`In general,
`the process of developing
`technologies and products is time-consuming and costly, and there is no
`assurance that any technology or product development will be successfully
`completed,
`that any necessary regulatory approvals or clearances will be
`granted by the FDA or other governmental authorities on a timely basis, if at
`all, or that commercial acceptance will be achieved. Failure by the Company to
`develop, obtain regulatory approvals or clearances for, or successfully market
`domestically and internationally, new technologies or new applications of PPS
`and Speculite technologies could have a material adverse effect on the
`Company's business, financial condition, results of operations and prospects.
`See "Business——Product and Technology Applications." In connection with the
`launch of new products or otherwise,
`the Company may require additional
`funding in the future, and the Company may seek to raise additional capital
`through bank loan facilities, debt or equity offerings, or other sources of
`funding. The Company recognizes that additional funding may not be available
`when needed or that funds may not be available on terms acceptable to the
`Company, either of which would have a material adverse effect on the Company‘s
`business, financial condition, results of operation and prospects. See
`"Management's Discussion and Analysis of Financial Condition and Results of
`Operations--Liquidity and Capital Resources."
`
`RELIANCE ON PATENTS AND PROPRIETARY TECHNOLOGY
`
`The Company's success will depend in large part on the Company's and its
`manufacturers' ability to establish and maintain patent protection for its
`proprietary technologies, products and processes, preserve its trade secrets
`and operate without infringing the proprietary rights of other parties. There
`can be no assurance that any United States or international patents issued or
`licensed to the Company and its suppliers will not be successfully challenged,
`invalidated or circumvented or that patent applications to which the Company
`holds rights will result in the issuance of patents. Although the Company is
`not currently aware of any claim by third parties that any of the Company's
`products or technology infringe upon any patents or proprietary rights of