| Although we earned net income of approximately dlra3cmam217cmam000, dlra453cmam000 an d dlra675cmam000, respectively, in our most recent fiscal years ended December 31, 2005 , December 31, 2004 and 2003, we incurred net losses of dlra6cmam454cmam000, dlra5cmam196cmam000 an d dlra4cmam204cmam000, respectively, in the fiscal years ended December 31, 2002, Decembe r 31, 2000 and December 31, 1999 |
| In the fiscal year ended December 31, 2001, w e earned net income of dlra216cmam000, but that amount included net settled litigatio n payments paid to us of approximately dlra700cmam000 related to licensing fees |
| As o f December 31, 2005, we had working capital of approximately dlra20cmam682cmam000 |
| Since w e continue to increase our spending on research and development in connection wit h Pharmaapstas product development, we are uncertain whether we will generat e sufficient revenues to meet expenses or to operate profitably in the future |
| WE HOLD PATENTS WHICH WE MAY NOT BE ABLE TO DEVELOP INTO PHARMACEUTICAL MEDICAT IONS Our success depends in part on Pharmaapstas ability to research and develo p prescription medications based on our patents which are: o A Patent (Nodtta 6cmam555cmam573 B2) entitled "e Method and Composition for th e Topical Treatment of Diabetic Neuropathy "e |
| o A Patent (Nodtta 6cmam592cmam896 B2) entitled "e Medicinal Composition and Metho d of Using It "e (for Treatment of Sialorrhea and other Disorders) for a product to relieve Sialorrhea (drooling) in patients suffering fro m Amyotrophic Lateral Sclerosis (ALS), otherwise known as Lou Gehrig &apos s Disease |
| The patent extends through August 6, 2021 |
| o A Patent (Nodtta 6cmam596cmam313 B2) entitled "e Nutritional Supplement an d Method of Using It "e for a product to relieve Sialorrhea (drooling) i n patients suffering from Amyotrophic Lateral Sclerosis (ALS), otherwis e known as Lou Gehrigapstas Disease |
| The patent extends through April 15 , 2022 |
| o A Patent (Nodtta 6cmam753cmam325 B2) entitled "e Composition and Method fo r Prevention, Reduction and Treatment of Radiation Dermatitis, "e a composition for the preventing, reducing or treating radiatio n dermatitis |
| The patent extends through November 5, 2021 |
| o A Patent (Nodtta 6cmam827cmam945 B2) entitled "e Nutritional Supplement & Method s of Using Same "e for a naturally derived compound developed for th e treatment of arthritis and related inflammatory disorders |
| The paten t extends through August 22, 2023 |
| -9- These potential new products are in the development stage and we cannot give an y assurances that we can develop commercially viable products from these paten t applications |
| Prior to any new product being ready for sale, we will have t o commit substantial resources for research, development, preclinical testing , clinical trials, manufacturing scale-up and regulatory approval |
| We fac e significant technological risks inherent in developing these products |
| We ma y abandon some or all of our proposed new products before they become commerciall y viable |
| Even if we develop and obtain approval of a new product, if we canno t successfully commercialize it in a timely manner, our business and financia l condition may be materially adversely affected |
| WE WILL NEED TO OBTAIN ADDITIONAL CAPITAL TO SUPPORT LONG-TERM PRODUC T DEVELOPMENT AND COMMERCIALIZATION PROGRAMS Our ability to achieve and sustain operating profitability depends in large par t on our ability to commence, execute and complete clinical programs for, an d obtain additional regulatory approvals for, prescription medications develope d by Pharma, particularly in the US and Europe |
| We cannot assure you that w e will ever obtain such approvals or achieve significant levels of sales |
| Ou r current sales levels of Cold-Eeze(R) products and health and wellness product s may not generate all the funds we anticipate will be needed to support ou r current plans for product development |
| We may need to obtain additiona l financing to support our long-term product development and commercializatio n programs |
| We may seek additional funds through public and private stoc k offerings, arrangements with corporate partners, borrowings under lines o f credit or other sources |
| The amount of capital we may need to complete product development of Pharma &apos s products will depend on many factors, including; o the cost involved in applying for and obtaining FDA and internationa l regulatory approvals; o whether we elect to establish partnering arrangements for development , sales, manufacturing and marketing of such products; o the level of future sales of our Cold-Eeze(R) and health and wellnes s products, expense levels for our international sales and marketin g efforts; o whether we can establish and maintain strategic arrangements fo r development, sales, manufacturing and marketing of our products; and o whether any or all of our outstanding options and warrants ar e exercised and the timing and amount of these exercises |
| If we need to rais e additional funds and such funds are not available on reasonable terms, we ma y have to reduce our capital expenditures, scale back our development of ne w products, reduce our workforce and out-license to others products o r technologies that we otherwise would seek to commercialize ourselves |
| An y additional equity financing will be dilutive to stockholders, and any deb t financing, if available, may include restrictive covenants |
| OUR CURRENT PRODUCTS AND POTENTIAL NEW PRODUCTS ARE SUBJECT TO EXTENSIV E GOVERNMENTAL REGULATION Our business is regulated by various agencies of the states and localities wher e our products are sold |
| Governmental regulations in foreign countries where w e plan to commence or expand sales may prevent or delay entry into a market o r prevent or delay the introduction, or require the reformulation, of certain o f our products |
| In addition, we cannot predict whether new domestic or foreig n legislation regulating our activities will be enacted |
| Any new legislation coul d have a material adverse effect on our business, financial condition an d operations |
| Non-compliance with any applicable requirements may subject us o r the manufacturers of our products to sanctions, including warning letters , fines, product recalls and seizures |
| COLD REMEDY AND HEALTH AND WELLNESS PRODUCTS The manufacturing, processing , formulation, packaging, labeling and advertising of our cold remedy and healt h and wellness products are subject to regulation by several federal agencies , including: o the FDA; o the Federal Trade Commission ( "e FTC "e ); -10- o the Consumer Product Safety Commission; o the United States Department of Agriculture; o the United States Postal Service; o the United States Environmental Protection Agency; and o the Occupational Safety and Health Administration |
| In particular, the FDA regulates the safety, labeling and distribution o f dietary supplements, including vitamins, minerals and herbs, food additives , food supplements, over-the-counter and prescription drugs and cosmetics |
| The FT C also has overlapping jurisdiction with the FDA to regulate the promotion an d advertising of vitamins, over-the-counter drugs, cosmetics and foods |
| I n addition, our cold remedy products are homeopathic remedies which are regulate d by the Homeopathic Pharmacopoeia of the United States ( "e HPUS "e ) |
| HPUS sets th e standards for source, composition and preparation of homeopathic remedies whic h are officially recognized in the Federal Food, Drug and Cosmetics Act of 1938 |
| PHARMA The preclinical development, clinical trials, product manufacturing an d marketing of Pharmaapstas potential new products are subject to federal and stat e regulation in the United States and other countries |
| Clinical trials and produc t marketing and manufacturing are subject to the rigorous review and approva l processes of the FDA and foreign regulatory authorities |
| Obtaining FDA and othe r required regulatory approvals is lengthy and expensive |
| Typically, obtainin g regulatory approval for pharmaceutical products requires substantial resource s and takes several years |
| The length of this process depends on the type , complexity and novelty of the product and the nature of the disease or othe r indication to be treated |
| Preclinical studies must comply with FDA regulations |
| Clinical trials must also comply with FDA regulations and may require larg e numbers of test subjects, complex protocols and possibly lengthy follow-u p periods |
| Consequently, satisfaction of government regulations may take severa l years, may cause delays in introducing potential new products for considerabl e periods of time and may require imposing costly procedures upon our activities |
| If we cannot obtain regulatory approval of new products in a timely manner or a t all we could be materially adversely affected |
| Even if we obtain regulator y approval of new products, such approval may impose limitations on the indicate d uses for which the products may be marketed which could also materiall y adversely affect our business, financial condition and future operations |
| OUR BUSINESS IS VERY COMPETITIVE AND INCREASED COMPETITION COULD HAVE A SIGNIFICANT IMPACT ON OUR EARNINGS Both the non-prescription healthcare product and pharmaceutical industries ar e highly competitive |
| Many of our competitors have substantially greater capita l resources, research and development staffs, facilities and experience than w e do |
| These and other entities may have or may develop new technologies |
| Thes e technologies may be used to develop products that compete with ours |
| We believe that our primary cold remedy product, Cold-Eeze(R), has a competitiv e advantage over other cold remedy products because it has been clinically prove n to reduce the severity and duration of common cold symptoms |
| We believe Dariu s has an advantage over its competitors because it directly sells its proprietar y health and wellness products through its extensive network of independen t distributors |
| Competition in Pharmaapstas expected product areas would most likel y come from large pharmaceutical companies as well as other companies , universities and research institutions, many of which have resources far i n excess of our resources |
| The Company believes that its ability to compete depends on a number of factors , including price, product quality, availability, reliability and name recognitio n of its cold remedy, health and wellness products and Pharmaapstas ability t o successfully develop and market prescription medications |
| There can be n o assurance that we will be able to compete successfully in the future |
| If we ar e unable to compete, our earnings may be significantly impacted |
| In particular, the loss of the services of Guy J Quigley, ou r Chairman of the Board, President and Chief Executive Officer could have a material adverse effect on our operations |
| We have an employment agreement wit h Mr |
| Quigley which expired on December 31, 2005 |
| Our future success and growt h also depends on our ability to continue to attract, motivate and retain highl y qualified employees |
| If we are unable to attract, motivate and retain qualifie d employees, our business and operations could be materially adversely affected |
| -11- OUR FUTURE SUCCESS DEPENDS ON THE CONTINUED EMPLOYMENT OF RICHARD A ROSENBLOOM , MD, PHD, WITH PHARMA Pharmaapstas potential new products are being developed through the efforts of Dr |
| The loss of his services could have a material adverse effect on ou r product development and future operations |
| OUR FUTURE SUCCESS IS DEPENDENT ON THE CONTINUED ACCEPTANCE OF THE DIREC T SELLING PHILOSOPHY, THE MAINTENANCE OF OUR NETWORK OF EXISTING INDEPENDEN T DISTRIBUTOR REPRESENTATIVES AND THE RECRUITMENT OF ADDITIONAL SUCCESSFU L INDEPENDENT DISTRIBUTOR REPRESENTATIVES Darius markets and sells herbal vitamins and dietary supplements for the huma n condition through its network of independent distributor representatives |
| It s products are sold to independent distributor representatives who either use th e products for their own personal consumption or resell them to consumers |
| Th e independent distributor representatives receive compensation for sales achieve d by means of a commission structure or compensation plan on certain product sale s of certain personnel within their downstream independent distributo r representative network |
| Since the independent distributor representatives ar e not employees of Darius, they are under no obligation to continue buying an d selling Darius &apos products and the loss of key high-level distributors coul d negatively impact our future growth and profitability |
| OUR FUTURE SUCCESS DEPENDS ON THE CONTINUED SALES OF OUR PRINCIPAL PRODUCT For the fiscal year ended December 31, 2005, our Cold-Eeze(R) product s represented approximately 55prca of our total sales |
| While we have diversified int o health and wellness products, our line of Cold-Eeze(R) products continues to b e a major part of our business |
| Accordingly, we have to depend on the continue d acceptance of Cold-Eeze(R) products by our customers |
| However, there can be n o assurance that our Cold-Eeze(R) products will continue to receive marke t acceptance |
| The inability to successfully commercialize Cold-Eeze(R) in th e future, for any reason, would have a material adverse effect on our financia l condition, prospects and ability to continue operations |
| WE HAVE A CONCENTRATION OF SALES TO AND ACCOUNTS RECEIVABLE FROM SEVERAL LARG E CUSTOMERS Although we have a broad range of customers that includes many larg e wholesalers, mass merchandisers and multiple outlet pharmacy chains, our fiv e largest customers account for a significant percentage of our sales |
| These fiv e customers accounted for 29prca of total sales for the fiscal year ended Decembe r 31, 2005 and 29prca of total sales for the fiscal year ended December 31, 2004 |
| I n addition, customers comprising the five largest accounts receivable balance s represented 47prca and 48prca of total accounts receivable balances at December 31 , 2005 and 2004, respectively |
| We extend credit to our customers based upon a n evaluation of their financial condition and credit history, and we do no t generally require collateral |
| If one or more of these large customers cannot pa y us, the write-off of their accounts receivable would have a material advers e effect on our operations and financial condition |
| The loss of sales to any on e or more of these large customers would also have a material adverse effect o n our operations and financial condition |
| WE ARE DEPENDENT ON THIRD-PARTY MANUFACTURERS AND SUPPLIERS FOR OUR HEALTH AN D WELLNESS PRODUCTS AND THIRD-PARTY SUPPLIERS FOR CERTAIN OF OUR COLD REMED Y PRODUCTS We do not manufacture any of our Health and Wellness products, nor do w e manufacture any of the ingredients in these products |
| In addition, we purchas e all active ingredients that are raw materials used in connection with ou r Cold-Eeze(R) product from a single unaffiliated supplier |
| Should any of thes e relationships terminate, we believe that the contingency plans which we hav e formulated would prevent a termination from materially affecting our operations |
| However, if any of these relationship is terminated, there may be delays i n production of our products until an acceptable replacement facility is located |
| We continue to look for safe and reliable multiple-location sources for product s and raw materials so that we can continue to obtain products and raw material s in the event of a disruption in our business relationship with any singl e manufacturer or supplier |
| While we have identified secondary sources for some o f our products and raw materials, our inability to find other sources for some o f our other products and raw materials may have a material adverse effect on ou r operations |
| In addition, the terms on which manufacturers and suppliers wil l make products and raw materials available to us could have a material effect o n our success |
| WE ARE UNCERTAIN AS TO WHETHER WE CAN PROTECT OUR PROPRIETARY RIGHTS The strength of our patent position may be important to our long-term success |
| We currently own five patents in connection with products that are bein g developed by Pharma |
| In addition, we have been granted an exclusive agreemen t for worldwide representation, manufacturing, marketing and distribution right s to a zinc/gluconate/glycine lozenge formulation |
| That formulation has bee n patented in the United States, Germany, France, Italy, Sweden, Canada and Great -12- Britain and a patent is pending in Japan |
| However, this patent in the Unite d States expired in August 2004 and expired in June 2005 in all countries excep t Japan |
| There can be no assurance that these patents and our exclusive license wil l effectively protect our products from duplication by others |
| In addition, we ma y not be able to afford the expense of any litigation which may be necessary t o enforce our rights under any of our patents |
| Although we believe that ou r current and future products do not and will not infringe upon the patents o r violate the proprietary rights of others, if any of our current or futur e products do infringe upon the patents or proprietary rights of others, we ma y have to modify our products or obtain an additional license for the manufactur e and/or sale of such products |
| We could also be prohibited from selling th e infringing products |
| If we are found to infringe on the proprietary rights o f others, we are uncertain whether we will be able to take corrective actions in a timely manner, upon acceptable terms and conditions, or at all, and the failur e to do so could have a material adverse effect upon our business, financia l condition and operations |
| We also use non-disclosure agreements with our employees, suppliers, consultant s and customers to establish and protect the ideas, concepts and documentation o f our confidential non-patented and non-copyright protected proprietary technolog y and know-how |
| However, these methods may not afford complete protection |
| Ther e can be no assurance that third parties will not obtain access to o r independently develop our technologies, know-how, ideas, concepts an d documentation, which could have a material adverse effect on our financia l condition |
| THE SALES OF OUR PRIMARY PRODUCT FLUCTUATES BY SEASON A significant portion of our business is highly seasonal, which causes majo r variations in operating results from quarter to quarter |
| The third and fourt h quarters generally represent the largest sales volume for our cold remed y products |
| There can be no assurance that we will be able to manage our workin g capital needs and our inventory to meet the fluctuating demand for our products |
| Failure to accurately predict and respond to consumer demand may cause us t o produce excess inventory |
| Conversely, if products achieve greater success tha n anticipated for any given quarter, we may not have sufficient inventory to mee t customer demand |
| OUR EXISTING PRODUCTS AND OUR NEW PRODUCTS UNDER DEVELOPMENT EXPOSE US T O POTENTIAL PRODUCT LIABILITY CLAIMS Our business exposes us to an inherent risk of potential product liabilit y claims, including claims for serious bodily injury or death caused by the sale s of our existing products and the clinical trials of our products which are bein g developed |
| These claims could lead to substantial damage awards |
| We currentl y maintain product liability insurance in the amount of, and with a maximum payou t of, dlra15 million |
| A successful claim brought against us in excess of, or outsid e of, our insurance coverage could have a material adverse effect on our result s of operations and financial condition |
| Claims against us, regardless of thei r merit or eventual outcome, may also have a material adverse effect on th e consumer demand for our products |
| WE ARE INVOLVED IN LAWSUITS REGARDING CLAIMS RELATING TO CERTAIN OF OU R COLD-EEZE(R) PRODUCTS We are, from time to time, subject to various legal proceedings and claims , either asserted or unasserted |