EXHIBIT 99.01
CAUTIONARY STATEMENTS FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
The Private Securities Litigation Reform Act of 1995 provides public
companies with a "safe harbor" from liability for forward-looking statements if
those statements are accompanied by meaningful cautionary statements identifying
important factors that could cause actual results to differ materially from
those contained in the forward-looking statements. The Company hereby identifies
the following important factors which could cause the Company's actual results
to differ materially from those contained in any forward-looking statement made
by the Company from time to time in any report, proxy statement, registration
statement or other written communication or in oral forward-looking statements
made from time to time by the Company's offices or agents.
IF WE ARE UNABLE TO CONTINUE AS A GOING CONCERN, YOU COULD LOSE YOUR ENTIRE
INVESTMENT.
The report of our independent auditors on our December 31, 2002 financial
statements contains an explanatory paragraph stating that substantial doubt
exists about our ability to continue as a going concern. If we are unable to
continue as a going concern, your entire investment in our common stock could be
lost. Our ability to improve our working capital position will depend, in part,
on our ability to raise additional capital in the form of equity or debt
financing, strategic alliances with corporate partners and others, or through
other sources not yet identified.
WE NEED TO RAISE ADDITIONAL CASH DURING 2003
We expect to continue to operate at a net loss and experience negative
cash flow from operating activities through the foreseeable future. Our existing
cash and cash equivalents will be insufficient to fund operations through 2003
without raising additional debt or equity capital.
We have received advance payments and a short-term loan from one of our
customers in exchange for a security interest in most of our assets. Given our
financial status, we have no ability to borrow from institutional lenders. We
are exploring options for additional capital, but we cannot assure you that we
will be able to secure additional capital on reasonable terms or at all. If we
cannot obtain additional funds when required, we may be unable to realize our
current plans and may be forced to cease operations.
WE HAVE A HISTORY OF LOSSES AND WE EXPECT LOSSES TO CONTINUE FOR THE
FORESEEABLE FUTURE
Although we have generated differing levels of revenue over the last
several years, we have not had profitable operations. We expect to continue to
incur losses for the foreseeable future. We have expended a substantial amount
of our resources in sales and marketing efforts and researching and developing
technology relating to our products.
We expect to incur substantial operating losses in the foreseeable
future as we invest in our therapeutic and skin care consumer products
businesses. Our losses may increase in the future, and even if we achieve our
revenue targets, we may not be able to sustain or increase profitability on a
quarterly or annual basis. The amount of future net losses, and the time
required to reach profitability, are both highly uncertain. We cannot assure you
that we will ever be able to achieve or sustain profitability.
OUR SUCCESS DEPENDS ON A SINGLE FAMILY OF PRODUCTS
We have adopted a strategy of focusing our efforts on our therapeutic
consumer products business. As a result, our revenue and profitability depend on
sales of our topical ointment-based products for the application of
over-the-counter drugs. A reduction in demand for these products would
have a material adverse effect on our business. Accordingly, we cannot assure
you that sales of our therapeutic consumer products represent long-term consumer
acceptance of these products, or that any increase in therapeutic consumer
products sales is indicative of future growth rates for sales of these products.
The sustainability of current levels of therapeutic consumer products sales and
the future growth of such sales, if any, will depend on, among other factors:
- continued consumer trial of our products;
- generation of repeat consumer sales;
- further development and sales of our TheraPatch brand name
products;
- development of further relationships with resellers of our
products;
- competition from substitute products;
- effective consumer advertising.
We cannot assure you that we will maintain or increase our current
level of therapeutic consumer products sales or profits in future periods.
OUR SUCCESS DEPENDS ON OUR RELATIONSHIPS WITH RESELLERS OF OUR PRODUCTS
A significant portion of the sales of our therapeutic consumer products
are derived from agreements with other companies that act as resellers of our
products. Under these agreements, our products are marketed and sold under
another company's brand name and by another company's sales force. Our success
depends in part upon our ability to enter into additional reseller agreements
with new third parties while maintaining our existing reseller relationships. We
believe our relationships with our existing third party resellers have been a
significant factor in the success to date of our therapeutic consumer products
business, and any deterioration or termination of these relationships would
seriously adversely affect our business.
OUR FUTURE SUCCESS DEPENDS ON OUR ABILITY TO MANAGE ANY GROWTH IN OUR
THERAPEUTIC CONSUMER PRODUCTS BUSINESS
If we are successful in increasing the sales of our therapeutic
consumer products we may be required to expand our operations, particularly in
the areas of research and development, sales and marketing, and manufacturing.
If we are required to expand our operations in these areas, those expansions
will likely result in new and increased responsibilities for management
personnel and place significant strain on our management, operating and
financial systems and other resources. To accommodate any such growth and
compete effectively, we will be required to implement improved information
systems, procedures and controls, and to expand, train, motivate and manage our
work force. Our future success will depend to a significant extent on the
ability of our current and future management personnel to operate effectively
both independently and as a group. We cannot assure you that our personnel,
systems, procedures and controls will be adequate to support our future
operations.
We manufacture our therapeutic consumer products in quantities
sufficient to satisfy our current level of sales. To meet any increases in
sales, we may need to increase our production significantly beyond our present
manufacturing capacity. Accordingly, we may be required to increase our
manufacturing capacities. We cannot assure you that increasing our capacity can
be accomplished on a profitable basis.
THE MARKET FOR OUR PRODUCTS IS COMPETITIVE AND WE MAY NOT HAVE THE
RESOURCES REQUIRED TO COMPETE EFFECTIVELY
The markets for the therapeutic consumer products we sell are
relatively new and therefore subject to rapid and significant change. We face
significant competition in the development and marketing of these products. We
cannot assure you that we will be able to compete effectively in the sale of our
products. Competitors in the United States and abroad are numerous and include,
among others, major pharmaceutical and consumer product companies. Our
competitors may succeed in developing technologies and products that are more
effective than those we are developing and could render our therapeutic consumer
products obsolete and noncompetitive. Many of our competitors have substantially
greater financial and technical resources, marketing capabilities and regulatory
experience. In addition, these companies compete with us in recruiting and
retaining highly qualified personnel. As a result, we cannot assure you that we
will be able to compete successfully with these organizations.
PATENTS AND OTHER PROPRIETARY RIGHTS PROVIDE UNCERTAIN PROTECTION OF
OUR PROPRIETARY INFORMATION AND OUR INABILITY TO PROTECT A PATENT OR OTHER
PROPRIETARY RIGHT MAY ADVERSELY AFFECT OUR BUSINESS
The patent position of companies engaged in the sale of products such
as ours is uncertain and involves complex legal and factual questions. Issued
patents can later be held invalid by the patent office issuing the patent or by
a court. We cannot assure you that our patents will not be challenged,
invalidated or circumvented or that the rights granted thereunder will provide
us a competitive advantage. In addition, many other organizations are engaged in
research and development of products similar to our therapeutic consumer
products. Such organizations may currently have, or may obtain in the future,
legally blocking proprietary rights, including patent rights, in one or more
products or methods under development or consideration by us. These rights may
prevent us from commercializing new technology, or may require us to obtain a
license from the organizations to use their technology.
We also rely on trade secrets and other unpatented proprietary
information in the manufacturing of our therapeutic consumer products. To the
extent we rely on confidential information to maintain our competitive position,
there can be no assurance that other parties will not independently develop the
same or similar information.
There has been substantial litigation regarding patent and other
intellectual property rights in the consumer products industry. Litigation could
result in substantial costs and a diversion of our effort, but may be necessary
to enforce any patents issued to us, protect our trade secrets or know-how,
defend against claimed infringement of the rights of others or determine the
scope and validity of the proprietary rights of others. We cannot assure you
that third parties will not pursue litigation that could be costly to us. An
adverse determination in any litigation could subject us to significant
liabilities to third parties, require us to seek licenses from or pay royalties
to third parties or prevent us from manufacturing or selling our products, any
of which could have a material adverse effect on our business.
WE ARE SUBJECT TO REGULATION BY REGULATORY AUTHORITIES INCLUDING THE
FDA WHICH MAY AFFECT THE MARKETING OF OUR PRODUCTS
The research, development, manufacture, labeling, distribution,
marketing and advertising of our products, and our ongoing research and
development activities, are subject to extensive regulation by governmental
regulatory authorities in the United States and other countries. Failure to
comply with regulatory requirements for marketing our products could subject us
to regulatory or judicial enforcement actions, including, but not limited to,
product recalls or seizures, injunctions, civil penalties, criminal prosecution,
refusals to approve new products and suspensions and withdrawals of existing
approvals. Currently, the majority of our therapeutic consumer products are
regulated as over-the-counter products. We cannot assure you that the FDA will
continue to regulate these products as over-the-counter products. If the FDA
changed its approach to regulating our products, we would be faced with
significant additional costs and may be unable to sell some or all of our
products. Any such change would have a material adverse effect on our business.
Delays in obtaining regulatory approvals for any new products could have
a material adverse effect on our business. Even if regulatory approval of a new
product is granted, such approval may include significant limitations on the
indicated uses of the product or the manner in which or conditions under which
the product may be marketed.
WE MAY BE REQUIRED TO FURTHER REDUCE OR ELIMINATE SOME OR ALL OF OUR
SALES AND MARKETING EFFORTS OR RESEARCH AND DEVELOPMENT ACTIVITIES IF WE FAIL TO
OBTAIN ADDITIONAL FUNDING THAT MAY BE REQUIRED TO SATISFY OUR FUTURE CAPITAL
EXPENDITURE NEEDS
In 2002 we significantly reduced our sales and marketing expenditures
due to financial constraints. Our future liquidity and capital requirements will
depend upon numerous factors, including the costs and timing of sales and
marketing, manufacturing and research and development activities, the extent to
which our therapeutic consumer products gain market acceptance and competitive
developments. Any additional required financing may not be available on
satisfactory terms, if at all. If we are unable to obtain financing, we may be
required to further reduce or eliminate some or all of our sales and marketing
efforts or research and development activities.
WE HAVE LIMITED STAFFING AND WILL CONTINUE TO BE DEPENDENT UPON KEY
EMPLOYEES
Our success is dependent upon the efforts and abilities of our key
employees. If key individuals leave, we could be adversely affected if suitable
replacement personnel are not quickly recruited. We have experienced departures
and layoffs that will not be filled due to a hiring freeze. Our future success
depends upon our ability to continue to attract and retain qualified scientific,
marketing and technical personnel. There is intense competition for qualified
personnel in all functional areas and competition will make it difficult to
attract and retain the qualified personnel necessary for the development and
growth of our business.
THE PRICE OF OUR COMMON STOCK COULD BE HIGHLY VOLATILE DUE TO A NUMBER
OF FACTORS
The trading price of our common stock may fluctuate widely as a result
of a number of factors, including:
- trading of our common stock on the OTC Bulletin Board;
- performance of our therapeutic consumer products in the
market;
- regulatory developments in both the United States and foreign
countries;
- market perception and customer acceptance of our therapeutic
consumer products;
- increased competition;
- relationships with resellers of our products;
- economic and other external factors; and
- period-to-period fluctuations in financial results.
In addition, the price of our common stock has from time to time
experienced significant price and volume fluctuations that may be unrelated to
our operating performance.