<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial information extracted from the
Form 10KSB of Pure World, Inc. for the year ended December 31, 1996 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000356446
<NAME> PURE WORLD, INC.
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 10,865
<SECURITIES> 62
<RECEIVABLES> 1,194
<ALLOWANCES> 120
<INVENTORY> 1,991
<CURRENT-ASSETS> 14,318
<PP&E> 1,912
<DEPRECIATION> 402
<TOTAL-ASSETS> 19,547
<CURRENT-LIABILITIES> 2,096
<BONDS> 0
0
0
<COMMON> 76
<OTHER-SE> 17,375
<TOTAL-LIABILITY-AND-EQUITY> 19,547
<SALES> 6,643
<TOTAL-REVENUES> 8,499
<CGS> 4,292
<TOTAL-COSTS> 8,252
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13
<INCOME-PRETAX> 234
<INCOME-TAX> 5
<INCOME-CONTINUING> 229
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 229
<EPS-PRIMARY> 0.03
<EPS-DILUTED> 0.03
</TABLE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
MARK ONE:
[X] Annual Report Under Section 13 or 15(d) of the Securities Exchange Act
of 1934 [Fee Required]
For the fiscal year ended December 31, 1996
[ ] Transition Report Under Section 13 or 15(d) of the Securities Exchange
Act of 1934 [No Fee Required] For the transition period from _________________
to _________________.
Commission file number 0-10566
PURE WORLD, INC.
---------------------------------------------
(Name of small business issuer in its charter)
Delaware 95-3419191
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
376 Main Street, P.O. Box 74, Bedminster, New Jersey 07921
----------------------------------------------------------
(Address of principal executive offices with Zip Code)
Issuer's telephone number, including area code (908) 234-9220
Securities registered under Section 12(b) of the Exchange Act:
--------------------------------------------------------------
NONE
Securities registered under Section 12(g) of the Exchange Act:
--------------------------------------------------------------
Common Stock, par value $.01 per share
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the issuer was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes X No
--- ---
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 III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ X ]
Issuer's revenues for the fiscal year ended December 31, 1996 were
approximately $8.5 million.
At February 28, 1997, there were 7,620,378 shares of common stock
outstanding. The aggregate market value of the common stock held by
non-affiliates of the registrant, based on the closing price of such stock on
such date as reported by NASDAQ, was approximately $14,450,000.
Transitional Small Business Disclosure Format Yes No X
--- ---
<PAGE>
PART I
Item 1. - DESCRIPTION OF BUSINESS
-----------------------
Background
- ----------
On August 4, 1994, Pure World, Inc. (the "Company" or "Pure World")
completed the disposition of its prior business, real estate asset management.
On January 3, 1995, the Company acquired 80% (later increased to 83%) of the
outstanding common stock of Dr. Madis Laboratories, Inc. ("DML"), a New Jersey
corporation engaged for almost forty years in the manufacture and sale of
botanical extracts used in the cosmetics, food and flavor, and nutraceutical
industries. The name of DML was later changed to Madis Botanicals, Inc.
("Madis"). Pure World subsequently formed a separate wholly-owned subsidiary,
Pure World Botanicals, Inc. ("PWBI").
General
- -------
Through its subsidiaries, Madis and PWBI, the Company develops,
manufactures and sells natural ingredients which principally are derived from
plant materials (referred to herein also as botanicals or herbs) using the
Company's proprietary extraction technology. Extraction is the process by which
the commercial ingredients of plants are drawn out by applying a solution
("menstruum") consisting of water or a combination of water and alcohol to the
raw materials. The resultant extract can be converted into fluid extract, solid
extract (paste) or powdered extract which can be tableted or encapsulated. The
Company has produced more than one thousand botanical extracts which are used by
the cosmetic, food and flavor, nutraceutical and pharmaceutical industries to
manufacture finished products for the consumer market. The term nutraceuticals
incorporates a wide range of natural products, such as vitamins, minerals,
anti-oxidants and herbs which enhance health by supplementing diets. (See
"Dietary Supplement Health and Education Act of 1994" and "New Nutraceutical
Products").
Manufacturing Facility (the "Madis Facility")
- ---------------------------------------------
The Company believes it has the largest botanical extraction facility in
North America. Situated on 4.5 acres, the 125,000 square foot Madis Facility
contains custom designed stainless steel equipment including milling equipment;
percolators; vacuum stills; filters; automatic extractors; ribbon blenders;
homogenizers; and high capacity spray, fluid bed and vacuum dryers. Extraction
capacity exceeds 15,000 pounds of crude botanical material per day.
The Company's large-capacity spray dryers produce free-flowing powders for
tableting, encapsulation or dissolution in liquids. With an annual spray-drying
capacity of more than 8,000,000 pounds, the Company estimates that its current
utilization is only approximately one-third of capacity of which approximately
10% is for its own account and the balance for the account of toll customers.
<PAGE>
Quality Control in Manufacturing
- --------------------------------
In its registered Food and Drug Administration ("FDA") facility, Madis is
authorized to manufacture The United States Pharmacopeia ("U.S.P.") and
pharmaceutical grade products such as casanthranol (a further processed product
of the bark of the Cascara tree used in natural laxatives), coal tar (used by
the cosmetic industry for dandruff control shampoos) and benzoin (used as an
aromatic and local antiseptic and skin protectant). The Madis Facility is kosher
certified and operates under current Good Manufacturing Practices ("GMP") to
assure consistently high quality in the manufacture of its products. The Madis
Facility is routinely inspected by the FDA. The facility and manufacturing
process also routinely undergoes audits by customers, which include
pharmaceutical and large consumer product firms. To the best of its information,
the Madis Facility has never failed an audit.
Laboratory
- ----------
The Madis Facility contains six laboratories: quality control; research and
development; instrumental analytical; flavor; cosmetic; and microbiology, which
are all currently in use and fully equipped. The microbiology laboratory,
believed to be the first on-site microbiology laboratory in the industry,
evaluates finished products for microbiological purity. Madis' microbiological
standards of less than five thousand organisms per gram are believed to be the
most rigorous among its competitors.
Quality control and research and development are conducted in the two main
laboratories which are divided between the "wet" laboratory and the instrumental
analytical laboratory. The wet laboratory is devoted to physical/chemical
analysis of products against Madis' customer and compendial specifications. The
instrumental analytical laboratory is equipped with state-of-the-art equipment
including a Multi-state Mass Spectrometer (LC/Ms/Ms) on line with two High
Performance Liquid Chromatographs (HPLC) and two Gas Chromatographs (GC). Thin
Layer Chromatography (TLC), Infrared Spectroscopy (IR) and Ultra-violet
Spectrophotometry (UV) are also routinely used in research and development.
The Laboratory and the Manufacturing Process
- --------------------------------------------
The manufacturing process begins and ends in the laboratory. Incoming plant
materials are evaluated to verify species, variety and quality. Generally, at
least three and sometimes more than a dozen samples of a plant are evaluated by
the laboratory's proprietary methods prior to purchase. The scientists determine
the right menstruum for each plant extract and the optimal method of extraction
and drying to maintain product integrity and ensure manufacturing efficiency.
Only after a raw material obtains laboratory approval is price a determinative
factor in the purchasing process. When an approved material arrives it is tested
again against the preshipment sample and if it matches, it is forwarded to
production along with the menstruum to be used. The Company estimates that only
forty percent of samples are accepted for production. Throughout Madis'
proprietary manufacturing processes, called the Unitized(TM) process, the plant
raw material is subjected to a series of laboratory control tests which examine
physical and chemical properties such as active constituents, color, flavor and
purity. The material is then either stored in a finished state called a native
extract which is available for further processing when an order is received or
further processed into a liquid, solid or powdered extract ready for delivery to
the customer who will then use it for their finished product. Prior to delivery,
each item undergoes final micro-biological and analytical testing. The Company
calls its quality control program Truth in Testing(TM).
<PAGE>
Raw Materials
- -------------
The Company buys its raw materials from a variety of growers, collectors
and brokers. To date the Company has not experienced any shortage of raw
materials that has effected its business other than an occasional increase in
price. Nonetheless the demand for botanical products has experienced exponential
growth in recent years and the demand pressure for some products may outstrip
the capacity of the suppliers. Moreover the Company has developed a new line of
standardized products (see "New Nutraceutical Products") which have guaranteed
potency, meaning that the products contain a stipulated amount of active
ingredients. The Company believes that it has sufficient inventory for its
standardized line for the next six months and that its inventory can be replaced
without significant cost increase, however botanicals are subject to substantial
variations due to weather, ground conditions and political problems in the
source country and therefore supply will always be somewhat unpredictable. The
Company has in place, in most instances, multiple geographic sources of raw
material to minimize this potential problem. Also, the quality of botanicals
varies from season to season and year to year, which can impose a limitation on
the ability to produce standardized products and which can result in substantial
price changes which may or may not be passed on to the consumer depending on
demand for the affected product.
Government Regulation and Intellectual Property
- -----------------------------------------------
Madis is regulated by the Food and Drug Administration ("FDA") and the New
Jersey Department of Health in matters of cleanliness, labeling and
manufacturing practices and conforms to the FDA's proposed "Good Manufacturing
Procedures" for the Dietary Supplement industry. Madis is also regulated by the
Occupational Safety and Health Administration in matters of general safety in
the operation of its manufacturing facility, and the Bureau of Alcohol, Tobacco
and Firearms in its use of alcohol in its production process as well as state
and federal environment agencies on a variety of environmental issues affecting
air and ground water. The United States Department of Agriculture may also
inspect the raw materials and plant facilities used in production. To date, the
Company has no material problems in any of these regulatory areas.
The Company has considerable proprietary technology used in its
manufacturing processes, quality control and reseach and development. Although
it has no patents, the loss or misappropriation of its technology would injure
the Company. The Company has numerous trademarks which it uses to differentiate
its technology and products and it protects its proprietary technology by
confidentiality agreements with employees and prospective customers and other
contractees.
Madis is a member in good standing of the Institute of Food Technologies,
the Cosmetic Toiletries and Fragrance Association, the Society of Cosmetic
Chemists, the American Herbal Products Association, the Synthetic Organic
Chemical Manufacturing Association, the National Nutritional Foods Association,
the American Society of Pharmacognosy, and the American Society for
Microbiology. The Madis production facilities are certified by the FDA for food,
pharmaceutical and cosmetic ingredient production and have kosher-product
certification.
<PAGE>
Dietary Supplement Health and Education Act of 1994 ("DSHEA")
- -------------------------------------------------------------
In 1994, DSHEA was enacted to establish the framework for the regulation of
nutraceuticals which were being manufactured and marketed not as drugs but as
dietary supplements. Except for certain pharmaceuticals manufactured to the
standards of the U.S.P. published by the FDA, the Company's nutraceutical
products are categorized as dietary supplements under DSHEA and not drugs which
require FDA approval. The legislation recognized the importance of nutrition and
benefits of dietary supplements in promoting health and preventive health
measures. DSHEA defines dietary supplements as vitamins, minerals, herbs or
other botanicals, amino acids, or other dietary substances which enhance or
increase the total dietary intake. It provides that where an ingredient is first
marketed as a dietary supplement and is subsequently approved as a new drug, it
can continue to be sold as a supplement unless the Secretary of Health and Human
Services rules that it would not be safe to do so. Conversely, if an ingredient
is undergoing review as a drug, it cannot be marketed as a supplement unless the
Secretary determines it would be safe to do so.
The FDA has publicly stated its concern that any claims about the efficacy
of supplements receive prior approval by that agency. It is anticipated that the
FDA will publish regulations about making claims and will adopt current GMPs for
the manufacture of nutraceuticals. The Company believes that its GMPs are at
least as stringent as any that the FDA is considering.
New Nutraceutical Products
- --------------------------
Historically, most of the nutraceutical products sold by the Company were
based on the amount of raw material used in the manufacturing process, i.e., the
amount of kilograms of crude material required to produce each kilogram of the
plant extract. These extracts, generally called "drug ratios", were the
principal nutraceutical products sold by the Company until 1996.
Increasingly, the dietary supplement market is turning to nutraceuticals
that contain a specified amount of a plant ingredient, called the "active
ingredient" or "marker". Many of these products were first developed in Europe
and are supported by clinical studies which document the efficacy of the active
ingredients and that the product is made with a specific level of the active
ingredient. Generally these products are called "standardized" or "guaranteed
potency" extracts. Many of the Company's competitors, particularly those in
Europe, refine products to increase the level of the active ingredient above the
level found naturally in the plant. The Company believes that the active
ingredient in some botanicals is only a "marker", meaning that it denotes at
least one of a plant's active ingredients but it may be only one, among many
important ingredients to be found in the plant. Therefore the Company's extracts
contain the whole profile of the plant with the active ingredients and/or
markers guaranteed to a certain level being only one part of the profile. The
Company believes the synergistic effect from different chemical components of a
plant mixture are an important part of the efficacy of the extract. The Company
utilizes HPLC and Mass Spectrometry to match the profile of the raw plant
material with the resultant botanical extract.
To date, the Company has developed seventeen (17) standardized products and
expects to add at least another twenty (20) during 1997.
<PAGE>
Competition
- -----------
The Company has numerous competitors, in each of the industry segments it
serves both domestically and abroad, principally European. Many of the European
competitors are larger than the Company and have more history in making
standardized products. Only one domestic producer of standardized nutraceuticals
has resources equivalent to the Company. In the flavors and cosmetics segments,
the Company believes it is the largest manufacturer of botanical extracts. The
Company does not manufacture finished flavors therefore it does not compete with
companies such as International Flavors and Fragrances Inc., Givaudan-Roure
Corporation or Tastemaker, Inc.
Employees
- ---------
At February 28, 1997, the Company had 53 full-time employees, 45 of whom
were employed by Madis.
Products Liability Insurance
- ----------------------------
The Company has experienced no product liability claims to date, however
the development and marketing of botanical extracts entails an inherent risk
that product liability claims may be asserted against it in the future. The
Company currently has obtained product liability coverage, which it deems
adequate, but there can be no assurance that the Company can maintain adequate
insurance on acceptable terms in the future. Any claim against the Company would
negatively affect the reputation of the Company and a judgment above the policy
limits would have an adverse financial effect on the Company.
<PAGE>
Item 2. - DESCRIPTION OF PROPERTY
-----------------------
On February 1, 1994, the Company entered into a five-year lease agreement
with an affiliate for 1,700 square feet of office space at a monthly rate of
approximately $3,600.
Madis leases a 125,000 square-foot facility in South Hackensack, New
Jersey, from an affiliated corporation owned by the minority shareholders of
Madis for $20,000 per month, net, plus one percent of the gross revenues of
Madis up to an additional $200,000 per annum. The lease has a term of five years
and expires in December 1999 with renewable options for fifteen additional
years. This facility includes a 20,000 square-foot office area; 10,000
square-feet for laboratories; manufacturing space of 70,000 square feet; and
warehousing space of 25,000 square feet.
Madis also leases a warehouse facility in Teterboro, New Jersey for
$120,000 per year from an unrelated party. The lease has a three year term at
rates up to $130,000 per year.
In connection with a Plan of Reorganization discussed in Item 6 -
"Management's Discussion and Analysis of Financial Condition and Results of
Operations", Madis was required to undertake up to $280,000 in costs to perform
specified remedial environmental activities at the South Hackensack facility,
including the removal of certain underground storage tanks, which was
accomplished in 1995. The remaining accrued liability at December 31, 1996 was
approximately $127,000. The Company believes this accrued liability will be
sufficient to perform any required remaining remediation activity.
Item 3. - LEGAL PROCEEDINGS
-----------------
The Company is involved from time to time in various lawsuits that arise in
the course of its business and the outcome of which, if adverse, would not have
a material affect on the financial condition and results of operations of the
Company.
Item 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
The Company held its Annual Meeting of Stockholders on October 28, 1996.
All nominees to the Company's Board of Directors were elected.
<TABLE>
The following is a vote tabulation for all nominees:
<CAPTION>
For Withheld
<S> <C> <C>
Paul O. Koether 6,376,019 45,858
Mark W. Jaindl 6,376,178 45,699
William Mahomes, Jr. 6,376,163 45,714
Alfredo Mena 6,376,163 45,714
</TABLE>
<PAGE>
PART II
Item 5. - MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
--------------------------------------------------------
At February 28, 1997, the Company had approximately 2,800 stockholders of
record. The Company's common stock currently trades on the NASDAQ/National
Market System under the symbol "PURW."
The following table sets forth the high and low closing prices for the
common stock for the periods indicated, as reported by NASDAQ on the National
Market System.
<TABLE>
Calendar Quarter Ended:
<CAPTION>
High Low
------ ------
<S> <C> <C>
1996
March 31 $ 4 1/16 $ 2 1/8
June 30 3 9/16 2 3/16
September 30 2 1/4 1 11/16
December 31 2 1/2 1 11/16
1995
March 31 $ 1 3/4 $ 1 3/8
June 30 1 15/16 1 7/16
September 30 3 1/2 1 7/8
December 31 3 1/16 1 7/8
</TABLE>
The Company had not declared or paid any dividends on its common stock in
1996 and 1995 and does not foresee doing so in the immediate future.
Item 6. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
-----------------------------------------------------------------
Acquisition of Madis Botanicals, Inc.
- -------------------------------------
On January 3, 1995, one of the Company's wholly-owned subsidiaries merged
(the "Merger") with Dr. Madis Laboratories, Inc. ("DML"), a New Jersey
corporation located in South Hackensack, New Jersey. The surviving corporation
in the Merger operates under the name of Madis Botanicals, Inc. ("Madis") and is
owned 83% by the Company and 17% by the former shareholders of DML. In addition,
the Company issued to the former DML shareholders options to acquire 250,000
shares of the Company's Common Stock at its then approximate fair value of $2.10
per share. Madis, a manufacturer of natural products, had sales of approximately
$6.6 million in 1996 and $6.2 million in 1995.
The Merger was effected in connection with a Plan of Reorganization (the
"Plan") filed by DML in Chapter 11 proceedings under the Federal Bankruptcy Law.
The Plan was confirmed on November 29, 1994 by the United States Bankruptcy
Court in Newark, New Jersey. Under the terms of the Merger, the Company financed
the Plan which provided for the payment to the creditors of $3.2 million, of
which approximately $2.3 million was advanced by the Company and approximately
$900,000 was paid by Madis from funds on hand. The balance of DML's indebtedness
was assumed by the Madis and was paid as due from working capital.
<PAGE>
Two principal shareholders of DML, who were also executive officers,
received employment agreements under which one served as Chairman Emeritus of
Madis until his death on March 13, 1997 at an annual salary of $100,000 and the
other serves as an executive officer for a period of four years commencing
January 3, 1995 at an annual salary of $150,000. The premises occupied by Madis
are leased from a corporation owned by the former DML shareholders at an annual
rent of $240,000, net, plus 1% of gross revenues up to an additional $200,000
per annum. For additional information about the premises, see Note 9 of Notes to
Consolidated Financial Statements.
Liquidity and Capital Resources
- -------------------------------
At December 31, 1996, the Company had cash and cash equivalents of $10.9
million. Cash equivalents consisted of treasury bills with maturities of less
than three months and yields ranging from 4.96% to 5.16%. The Company also had
marketable securities with a market value of approximately $909,000 at December
31, 1996. Marketable securities consisted of trading securities ($62,000) and
securities available-for-sale ($847,000). See Notes 1 and 3 of Notes to
Consolidated Financial Statements for additional information. The Company has no
funded debt. The management of the Company believes that its financial resources
and anticipated cash flows will be sufficient for future operations and possible
acquisitions of other operating businesses.
Net cash of $735,000 was provided by operations in 1996 compared to a net
use of cash of approximately $2.0 million in 1995. Net income of $229,000 and
net trading security transactions of approximately $1.8 million were the primary
causes of the increase in cash flow in 1996 compared to 1995. Net trading and
U.S. Treasury securities transactions used cash of $584,000 in 1995. The
increase in cash flows from operations in 1996 were partially offset by a net
growth in inventory of $430,000, which was due almost entirely to the
introduction of KavaPure(TM) in 1996. KavaPure(TM) is available in fluid and
softgel capsules in the retail market and in powdered, fluid and softgel forms
in other markets.
Investing activities provided cash of $900,000 in 1996, compared to a use
of cash of approximately $2.2 million in 1995. In November 1996, the Company and
American Industrial Properties REIT ("IND") entered a settlement agreement
resolving all disputes and litigation that arose between them as a result of the
Company's efforts to influence the management of and protect its investment in
IND. The settlement agreement provided that IND pay $825,000 to the Company as
reimbursement for costs incurred in connection with the disputes and as
consideration for releases and a standstill agreement. The Company also sold its
investment in IND to an unrelated third party for an aggregate price of
approximately $2.5 million. IND agreed to make numerous changes to its Bylaws
designed to remedy the corporate governance problems which the Company pointed
to in the disputes. The sale of the investment in IND resulted in a net gain of
approximately $619,000. The reimbursement of expenses incurred in prior years of
$394,000 to protect the Company's investment in IND was recorded as other
income, while the remaining reimbursement of $431,000 offset expenses incurred
in 1996.
In May 1996, the Company made an investment in non-voting common stock
representing 25% ownership of Gaia Herbs, Inc. ("Gaia") for approximately $1.0
million. Gaia manufactures and distributes natural products. Gaia is a
privately-held company and does not publish financial results. The Company is
accounting for this investment under the cost method.
The net purchase of furniture and equipment of $332,000 in 1996,
principally reflects the acquisition of a new management information system and
the continuous enhancement of and addition to laboratory and production
equipment at Madis. In 1995, the net acquisition of furniture and equipment was
$177,000.
<PAGE>
Cash flows used in investing activities in 1995 of approximately $2.2
million consisted principally of the purchase of Madis of $1.7 million and the
loans to minority shareholders of Madis, net of repayment.
In February 1994, the Company announced a plan to purchase up to two
million shares of the Company's common stock, subject to market conditions and
other considerations (the "Repurchase Plan") as determined by the Board of
Directors. As of December 31, 1996, 567,746 shares had been acquired under the
Repurchase Plan for an aggregate cost of approximately $806,000. The Company
repurchased 21,204 shares in 1995 for an aggregate cost of approximately
$31,000. In 1996, 70,579 shares were repurchased for an aggregate cost of
approximately $127,000. All shares repurchased in 1995 and 1996 have been
canceled and returned to the status of authorized but unissued shares.
Results of Operations
- ---------------------
The Company's consolidated operations resulted in net income of $229,000,
or $.03 per share in 1996, compared to net income of $41,000, or $.01 per share
in 1995. The consolidated results of operations for 1996 reflect the net gain on
the sale of the Company's investment in IND of $619,000 and the reimbursement of
expenses of $825,000 as described above.
Madis and Pure World Botanicals, Inc., a 100% owned subsidiary of the
Company ("PWBI"), had consolidated combined sales in 1996 of approximately
$6,643,000 compared to sales of approximately $6,173,000 in 1995, an increase of
approximately $470,000 or 7.6%. Cost of goods sold was $4.3 million and gross
margin was $2.3 million in 1996, compared to cost of goods sold of $3.9 million
and gross margin of $2.3 million in 1995. Gross margin as a percentage of sales
was 35.4% and 37% in 1996 and 1995 respectively. The decrease in gross margin as
a percentage of sales was due principally to increased production costs in 1996.
In 1996, the Company recorded net gains on marketable securities of
$918,000, compared to net gains of $407,000 in 1995. Net gains on marketable
securities in 1996 were composed of net realized gains of $1,159,000 and net
unrealized losses of $241,000. Gains on marketable securities in 1995 were
composed of realized gains of $143,000 and net unrealized gains of $264,000.
Total stockholders' equity was increased at December 31, 1996 by $282,000 to
reflect the increase in current market value in securities available-for-sale
from their cost basis. See Note 1 of Notes to Consolidated Financial Statements
for additional information on the accounting for securities available-for-sale.
Interest, dividend and other income was $938,000 in 1996, an increase of
$67,000, or 7.7% from the $871,000 recorded in 1995. Interest income was
$502,000 in 1996, a decrease of $136,000 or 21.3% from the $638,000 recorded in
1995. This decrease was due to lower investable balances and prevailing interest
rates in 1996 compared to 1995. Dividend income was $39,000 in 1996 compared to
$178,000 in 1995, a decrease of $139,000. The decrease in dividends was due to
the marketable securities mix. All other income increased from $55,000 in 1995
to $397,000 in 1996. The increase in all other income was due principally to the
reimbursement of expenses in connection with the IND settlement agreement as
described above. In 1995 all other income of $55,000 consisted principally of
the sale of fully depreciated and unneeded equipment at Madis.
General and administrative expenses (consisting of personnel, professional
and all other expenses) were $4.0 million in 1996, compared to $3.5 million in
1995, an increase of approximately $500,000. Personnel expenses were $1,813,000
in 1996, an increase of $376,000, or 26.2%, from $1,437,000 in 1995. The
principal reason for the increase was added management and laboratory personnel
at Madis as well as cost of living and merit increases given to the employees of
the Company and Madis. Professional fees were $698,000 in 1996, a decrease of
$267,000, or 27.7%, from the 1995 amount of $965,000. The reimbursement of
expenses from the IND dispute as described above was the major reason for the
decrease in expenses. The reduction in all other legal expenses related to the
acquisition and management of Madis was offset by other professional fees
incurred in new product development. Other general and administrative expenses
were $1,462,000 in 1996, an increase of $356,000 or 32.2% from $1,106,000 in
1995. Travel and entertainment expense increased by $129,000; advertising
expense increased by $114,000; general office expense increased by $94,000, and
all other expense had a net increase of $19,000. These expenses were principally
due to an increased sales effort in 1996 and the introduction of new products,
especially KavaPure(TM).
<PAGE>
Item 7. - FINANCIAL STATEMENTS
--------------------
The financial statements filed with this item are listed below:
Independent Auditors' Report
Consolidated Financial Statements:
Consolidated Balance Sheet as of December 31, 1996
Consolidated Statements of Operations for the Years ended December 31,
1996 and 1995
Consolidated Statements of Stockholders' Equity for the Years ended
December 31, 1996 and 1995
Consolidated Statements of Cash Flows for the Years ended December 31,
1996 and 1995
Notes to Consolidated Financial Statements
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
of Pure World, Inc.:
We have audited the accompanying consolidated balance sheet of Pure World, Inc.
and subsidiaries as of December 31, 1996, and the related consolidated
statements of operations, stockholders' equity and cash flows for the two years
then ended. 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 audits.
We conducted our audits 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 audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Pure World, Inc. and subsidiaries
as of December 31, 1996, and the results of their operations and their cash
flows for the two years then ended in conformity with generally accepted
accounting principles.
/S/ DELOITTE & TOUCHE LLP
Parsippany, New Jersey
March 14, 1997
<PAGE>
<TABLE>
PURE WORLD, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
December 31, 1996
(in $000's)
<CAPTION>
ASSETS
<S> <C>
Current Assets:
Cash and cash equivalents $10,865
Trading securities 62
Accounts receivable, net of allowance for
uncollectible accounts and returns and
allowances of $120 1,074
Inventories 1,991
Other current assets 326
-------
Total current assets 14,318
-------
Securities available-for-sale 847
Investment in Gaia Herbs, Inc. 1,010
Furniture and equipment, net 1,510
Notes receivable from affiliates 603
Goodwill, net of accumulated amortization of $177 1,238
Other assets 21
-------
Total assets $19,547
=======
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 312
Accrued expenses and other liabilities 1,784
-------
Total liabilities 2,096
-------
Commitments and Contingencies -
Stockholders' equity:
Common stock, par value $.01;
30,000,000 shares authorized;
7,634,378 shares issued and outstanding 76
Additional paid-in capital 43,643
Accumulated deficit ( 26,550)
Unrealized gains on securities
available-for-sale 282
-------
Total stockholders' equity 17,451
-------
Total liabilities and stockholders' equity $19,547
=======
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
PURE WORLD, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in $000's, except per share data)
<CAPTION>
Year Ended December 31,
-----------------------
1996 1995
------ ------
<S>
Revenues: <C> <C>
Sales $ 6,643 $ 6,173
Net gains on marketable securities 918 407
Interest, dividend and other income 938 871
------- -------
8,499 7,451
------- -------
Expenses:
Cost of goods sold 4,292 3,891
Personnel 1,813 1,437
Professional fees 698 965
Other 1,462 1,106
------ -------
8,265 7,399
------ -------
Income before income taxes 234 52
Provision for income taxes 5 11
------- -------
Net income $ 229 $ 41
======= =======
Net income per share $ .03 $ .01
======= =======
Weighted average shares
outstanding (in 000's) 7,683 7,709
======= =======
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
PURE WORLD, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in 000's)
<CAPTION>
Unrealized
Gains/(Losses) Total
Additional On Securities Stock-
Total Shares Common Paid-In Accumulated Available Holders
Outstanding Stock Capital Deficit for-Sale Equity
------------ ------ ---------- ----------- ------------- -------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994 7,726 $ 77 $43,800 ($26,820) ($742) $16,315
Change in net unrealized gains/
losses on securities
available-for-sale -- -- -- -- 641 641
Net income -- -- -- 41 -- 41
Repurchase and cancellation
of common stock ( 21) -- ( 31) -- -- ( 31)
----- ---- ------- ------- ---- -------
Balance, December 31, 1995 7,705 77 43,769 (26,779) (101) 16,966
Change in net unrealized gains/
losses on securities
available-for-sale -- -- -- -- 383 383
Net income -- -- -- 229 -- 229
Repurchase and cancellation
of common stock ( 71) ( 1) ( 126) -- -- ( 127)
----- ---- ------- ------- ---- --------
Balance, December 31, 1996 7,634 $ 76 $43,643 ($26,550) $282 $17,451
===== ==== ======= ======= ==== =======
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
PURE WORLD, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in $000's)
<CAPTION>
Year Ended December 31,
-----------------------
1996 1995
------ ------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 229 $ 41
Adjustments:
Depreciation and amortization 330 211
Net trading and U.S. Treasury
securities transactions 1,775 ( 584)
Gain on sale of securities
available-for-sale ( 641) -
Change in inventories ( 430) ( 102)
Change in receivables ( 164) ( 147)
Change in accounts payable and other
accruals ( 288) ( 1,490)
Other, net ( 76) 95
------- -------
Net cash provided by (used in)
operating activities 735 ( 1,976)
------- -------
Cash flows from investing activities:
Purchase of a business less cash acquired - ( 1,717)
Purchase of furniture and equipment, net ( 332) ( 177)
Proceeds from sale of securities
available-for-sale 2,530 -
Purchase of securities available-for-sale ( 444) ( 127)
Loans to affiliates ( 100) ( 303)
Repayments of loans to affiliates 123 160
Investment in Gaia Herbs, Inc. ( 1,010) -
Other, net 133 -
------- -------
Net cash provided by (used in)
investing activities 900 ( 2,164)
------- -------
Cash flows from financing activities:
Repurchase of common stock ( 127) ( 31)
Other, net - 101
------- -------
Net cash provided by (used in) financing
activities ( 127) 70
------- -------
Net increase (decrease) in cash
and cash equivalents 1,508 ( 4,070)
Cash and cash equivalents at beginning
of year 9,357 13,427
------- -------
Cash and cash equivalents at
end of year $10,865 $ 9,357
======= =======
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
PURE WORLD, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1996 and 1995
1. Summary of Significant Accounting Policies
------------------------------------------
Basis of Consolidation
----------------------
The consolidated financial statements include the accounts of Pure
World, Inc. (the "Company" or "Pure World") its 83% owned subsidiary
Madis Botanicals, Inc. ("Madis") and its 100% owned subsidiary Pure
World Botanicals, Inc. ("PWBI") after elimination of all material
intercompany accounts and transactions. The Company, through its
subsidiaries, manufactures natural products for the nutraceutical,
flavor and cosmetic industries.
The acquisition of Madis described in Note 2 of Notes to Consolidated
Financial Statements occurred on January 3, 1995 and was accounted for
using the purchase method. Therefore, Madis' financial condition,
results of operations, and cash flows are included in the consolidated
financial statements from that date forward.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amount of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
Cash and Cash Equivalents
-------------------------
Cash and cash equivalents consist primarily of cash on hand, cash in
banks and treasury bills purchased with an original maturity of three
months or less.
Marketable Securities
---------------------
Marketable securities are classified into three categories: debt
securities that the Company has the positive intent and ability to hold
to maturity are classified as held-to-maturity securities and reported
at amortized cost; debt and equity securities that are bought and held
principally for the purpose of selling them in the near term are
classified as trading securities and reported at fair value, with
unrealized gains and losses included in the results of operations; and
debt and equity securities not classified as either held-to-maturity
securities or trading securities are classified as available-for-sale
securities and reported at fair value with unrealized gains and losses
excluded from the results of operations and reported as a separate
component of stockholders' equity.
The Company accounts for securities transactions on a trade-date basis.
For computing realized gains or losses on sale of marketable
securities, cost is determined on a first-in, first-out basis. The
effect of all unsettled transactions is accrued in the consolidated
financial statements.
<PAGE>
PURE WORLD, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1996 and 1995
Inventories
-----------
Merchandise inventories are valued at the lower of cost or market. Cost
is determined by the first-in, first-out (FIFO) method of accounting.
Investment in Gaia Herbs, Inc.
------------------------------
In May 1996, the Company made an investment in non-voting common stock
representing 25% ownership of Gaia Herbs, Inc. ("Gaia") for
approximately $1.0 million. Gaia manufactures and distributes natural
products. Gaia is a privately-held company and does not publish
financial results. The Company is accounting for this investment under
the cost method.
Furniture and Equipment
-----------------------
The Company records all furniture and equipment at cost. Depreciation
is computed using the straight-line method over the related estimated
useful life of the asset. Gains or losses on dispositions of furniture
and equipment are included in operating results. Furniture and
equipment of Madis as of January 3, 1995 was adjusted to their fair
values in connection with the acquisition of Madis.
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("FAS
121") which the Company adopted in 1996. The Company evaluates the
carrying value of its long-lived assets whenever there is a significant
change in the use of an asset and adjusts the carrying value, if
necessary, to reflect the amount recoverable through future operations.
The adoption of FAS 121 had no effect on the Company's results of
operations or financial condition.
Goodwill
--------
Goodwill has been established in connection with the acquisition of
Madis. Goodwill is being amortized using the straight-line method over
a fifteen-year period.
Fair Value of Financial Instruments
-----------------------------------
The carrying amounts reported in the balance sheet for cash and cash
equivalents, investments, accounts receivable and payables approximate
their fair value.
<PAGE>
PURE WORLD, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1996 and 1995
Income Taxes
------------
The Company follows the requirements of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS No.
109). SFAS No. 109 requires an asset and liability approach
for the accounting for income taxes.
Net Income per Share
--------------------
Net income per share is calculated by dividing net income by the
weighted average number of outstanding common stock and common
equivalent stock, which consists of the dilutive effect of the assumed
exercise of certain outstanding stock options when applicable.
2. Acquisition of Madis
--------------------
On January 3, 1995, one of the Company's wholly-owned subsidiaries
merged (the "Merger") with Dr. Madis Laboratories, Inc., a New Jersey
corporation located in South Hackensack, New Jersey ("DML"). The
surviving corporation in the Merger operates under the name Madis
Botanicals, Inc. and is owned 83% by the Company and 17% by the former
shareholders of DML. In addition, the Company issued to the former DML
shareholders options to acquire 250,000 shares of the Company's Common
Stock at its approximate fair value at the date of acquisition.
The Merger was effected in connection with a Plan of Reorganization
(the "Plan") filed by DML in Chapter 11 proceedings under the Federal
Bankruptcy law. The Plan was confirmed on November 29, 1994 by the
United States Bankruptcy Court in Newark, New Jersey. Under the terms
of the Merger, the Company financed the Plan which provided for
Madis creditors to be paid approximately $3.2 million, of which
approximately $2.3 million was advanced by the Company and
approximately $900,000 was paid by Madis from funds on hand. The
balance of DML's indebtedness was assumed by Madis and was paid
as due from working capital.
Two principal shareholders of DML, who were also executive officers,
received employment agreements under which one served as Chairman
Emeritus of Madis until his death on March 13, 1997 at an annual salary
of $100,000 and the other serves as an executive officer for a period
of four years commencing January 3, 1995 at an annual salary of
$150,000. The premises occupied by Madis are leased from an affiliated
corporation owned by the minority shareholders of Madis at an annual
rent of $240,000, net, plus 1% of gross revenues up to an additional
$200,000 per annum.
<PAGE>
PURE WORLD, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1996 and 1995
The acquisition of Madis has been accounted for as a purchase. The
excess of the purchase price over the fair value of the net
identifiable assets acquired has been recorded as goodwill and is
being amortized using the straight-line method over fifteen years.
Minority interest is immaterial.
The following is a summary of the allocation of the purchase
price of approximately $3.2 million (in 000's):
<TABLE>
<S> <C>
Current assets $ 2,200
Property and equipment 1,300
Other assets 100
Current liabilities ( 1,200)
Other liabilities ( 600)
Goodwill 1,400
------
$ 3,200
=======
</TABLE>
3. Marketable Securities
---------------------
At December 31, 1996, marketable securities consisted of the following
(in $000's):
<TABLE>
<CAPTION>
Gross Gross
Cost Holding Holding Fair
Basis Gains Losses Value
----- ------- ------- -----
<S> <C> <C> <C> <C>
Trading securities $ 75 $ - $ 13 $ 62
Securities
available-for-sale 565 282 - 847
------ ------ ----- ------
Total marketable
securities $ 640 $ 282 $ 13 $ 909
====== ====== ===== ======
</TABLE>
All marketable securities are investments in common stock.
Realized gains and losses of $1,161,00 and $2,000, respectively, as
well as net unrealized losses of $241,000 were included in the results
of operations for the year ended December 31, 1996. The net unrealized
gains on securities available-for-sale included as a separate
component of consolidated stockholders' equity was approximately
$282,000 at December 31, 1996.
<PAGE>
PURE WORLD, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1996 and 1995
4. Inventories
-----------
Inventories are comprised of the following (in 000's):
<TABLE>
<S> <C>
Raw materials $ 451
Work-in-process 17
Finished goods 1,523
------
Total inventories $1,991
======
</TABLE>
5. Common Stock
------------
Stock Repurchase
----------------
In February 1994, the Company announced a plan to purchase up to two
million shares of the Company's common stock, subject to market
conditions and other considerations (the "Repurchase Plan") as
determined by the Board of Directors. As of December 31, 1996, 567,746
shares had been acquired under the Repurchase Plan for an aggregate
cost of approximately $806,000.
The Company repurchased 21,204 shares in 1995 for an aggregate cost of
approximately $31,000. In 1996, 70,579 shares were repurchased for an
aggregate cost of approximately $127,000. All shares repurchased in
1995 and 1996 have been canceled and returned to the status of
authorized but unissued shares.
Stock Options
-------------
In August 1991, the Board of Directors of the Company adopted a
Non-Qualified Stock Option Plan (the "Option Plan"). Under the Option
Plan, non-qualified options to purchase up to an aggregate of 500,000
shares of common stock of the Company may be granted by the Board of
Directors to officers, directors and employees of the Company at their
fair market value at the date of grant. Options will expire five years
from date of grant and will be exercisable as to one-half of the shares
on the date of grant of the option and as to the other half, on the
first anniversary of the date of grant of the option, or under such
other terms as determined by the Board of Directors.
The following table summarizes option transactions under the Option
Plan for the year ended December 31, 1995 and 1996:
<TABLE>
<CAPTION>
Price
Shares Range
------ ------
<S> <C> <C>
Options outstanding at
December 31, 1994 255,000 1.3125 - $1.75
Options granted in 1995 235,000 $1.71875
Options canceled -
Options exercised -
-------
Options outstanding at
December 31, 1995 and 1996 490,000 $1.3125 - $1.75
=======
</TABLE>
<PAGE>
PURE WORLD, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1996 and 1995
In addition, in 1995 in connection with the Madis acquisition, the
Company issued to the former DML shareholders options outside of the
Option Plan to acquire 250,000 shares of the Company's common stock at
its then approximate fair value of $2.10 per share. Three employees of
Madis were also given a total of 60,000 options outside of the Option
Plan with prices ranging from $2.00 - $2.10, the approximate fair
market value at the time of grant, in connection with their employment.
In 1996, 57,000 options were granted outside of the Option Plan to
various employees of the Company and Madis with prices ranging between
$1.8125 and $2.25, the approximate fair market value at the time of the
grant.
The Company applies Accounting Principles Board (APB) Opinion 25 and
related interpretations in accounting for its options. Accordingly, no
compensation cost has been recognized for stock options issued.
Had compensation cost for the issued stock options been determined
based upon the fair values at the rates of awards under those plans
consistent with the method of FASB Statement 123, the Company's net
income and net income per share would have been reduced to the pro
forma amounts indicated below:
<TABLE>
<CAPTION>
Net income: 1996
----
<S> <C>
As reported (in 000's) $229
Pro forma (in 000's) $ 76
Net income per common share:
As reported $.03
Pro forma $.01
</TABLE>
All options granted to date have an exercise price equal to the market
price of the Company's stock on the grant date. For purposes of
calculating the compensation cost consistent with FAS No. 123, the fair
value of each option grant was estimated on the grant date using the
Black-Scholes option-pricing model with the following assumptions used:
no dividend yield; expected volatility of 48 percent; risk free
interest rates between 5.25 percent and 7.63 percent; and weighted
average expected lives of 5 years.
6. Settlement of Dispute and Litigation with American Industrial
Properties REIT
-------------------------------------------------------------
In November 1996, the Company and American Industrial Properties REIT
("IND") entered a settlement agreement resolving all disputes and
litigation that arose between them as a result of the Company's efforts
to influence the management of and protect its investment in IND. The
settlement agreement provided that IND pay $825,000 to the Company as
reimbursement for costs incurred in connection with the disputes and as
consideration for releases and a standstill agreement. The Company also
sold its investment in IND to an unrelated third party for an aggregate
price of approximately $2.5 million. IND agreed to make numerous
changes to its Bylaws designed to remedy the corporate governance
problems which the Company pointed to in the disputes. The sale of the
investment in IND resulted in a net gain of approximately $619,000. The
reimbursement of expenses incurred in prior years of $394,000 to
protect the Company's investment in IND was recorded as other income,
while the remaining reimbursement of $431,000 offset expenses incurred
in 1996.
<PAGE>
PURE WORLD, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1996 and 1995
7. Compensation Arrangements
-------------------------
In April 1990, the Company entered into an employment and deferred
compensation agreement (the "Agreement") with the Company's Chairman
for an initial three-year term commencing on April 1, 1990 (the
"Effective Date") at an annual salary of $185,000, which may be
increased but not decreased at the discretion of the Board of
Directors. In December 1992, the Board of Directors voted unanimously
to increase the Chairman's salary to $215,000 per annum effective
December 1, 1992.
The term is to be automatically extended one day for each day elapsed
after the Effective Date. The Chairman may terminate his employment
under the Agreement under certain conditions specified in the
Agreement, and the Company may terminate the Chairman's employment
under the Agreement for cause. In the event of the Chairman's death
during the term of the Agreement, his beneficiary shall be paid a
monthly death benefit equal to $215,000 per year for three years
payable in equal monthly installments. Should the Chairman become
"disabled" (as such term is defined in the Agreement) during the term
of the Agreement, he shall be paid an annual disability payment equal
to 80 percent of his base salary plus cash bonuses in effect at the
time of the disability. Such disability payments shall continue until
the Chairman attains the age of 70. The Company accrued approximately
$35,000 in each of 1995 and 1996 for the contingent payments provided
under the terms of the Agreement.
In connection with the Madis acquisition, two employees were
given employment agreements commencing January 3, 1995. The Chairman
Emeritus of Madis (who passed away on March 13, 1997) entered into an
employment contract with Madis for a three-year period at an annual
salary of $100,000. An executive officer of Madis entered into an
employment agreement with Madis for a term of four years at an annual
salary of $150,000. Both of the employment arrangements may be
terminated for cause, as defined in the contract.
8. Income Taxes
------------
At December 31, 1996, the Company had net operating loss carryforwards
of approximately $21 million for Federal income tax reporting purposes,
which expire in the years 2002 to 2011. Additionally, the Company has
investment and research and development tax credit carryforwards
aggregating approximately $200,000 and $870,000, respectively, which
expire from 1997 through 2000. The ultimate realization of the tax
benefits from the net operating loss and tax credit carryforwards is
dependent upon future taxable earnings of the Company.
The Company's federal income tax returns for the years ended March 31,
1987 and 1988 and for the nine months ended December 31, 1988 were
examined by the Internal Revenue Service ("IRS"). The IRS challenged
the deductibility of certain payments aggregating approximately $8.1
million made during those periods in connection with certain litigation
settlements and legal fees primarily related to the settlement of a
class action lawsuit. The Company disagrees with the IRS. Even though
the Company intends to vigorously defend its position when it utilizes
the NOL, there can be no assurance that the Company's position will be
sustained.
<PAGE>
PURE WORLD, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1996 and 1995
The components of income tax expense (benefit) were as follows (in $000's):
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
Federal-current $ 7 $ -
State-current ( 2) 11
Deferred - -
------ ------
Total $ 5 $ 11
====== ======
</TABLE>
Deferred income taxes reflect the tax effects of (a) temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes, and (b) operating loss
and tax credit carryforwards. The tax effects of significant items comprising
the Company's net deferred tax asset as of December 31, 1996 are as follows (in
000's):
<TABLE>
<CAPTION>
Deferred tax assets:
<S> <C>
Net operating loss carryforwards $7,244
Alternative minimum tax ("AMT")
and other credit carryforwards 1,177
Other, net 352
------
$8,773
======
Valuation allowance ($8,773)
======
Net deferred tax asset $ -
======
</TABLE>
A reconciliation of the provision for income tax expense to the expected
income tax expense (income before income taxes times the statutory tax rate of
34%) is as follows (in 000's):
<TABLE>
<CAPTION>
1996 1995
-------- -------
<S> <C> <C>
Income before income taxes $ 234 $ 52
Statutory federal income
tax rate 34% 34%
------ ------
Expected income tax 80 18
Dividends received deduction ( 9) ( 34)
Alternative minimum tax 7 -
State tax ( 1) 7
Change in valuation allowance ( 108) 54
Other, net 36 ( 34)
------ ------
Provision for income taxes $ 5 $ 11
====== ======
</TABLE>
<PAGE>
PURE WORLD, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1996 and 1995
The Tax Reform Act of 1986, as amended, provides for a parallel tax
system which requires the calculation of AMT and the payment of the
higher of the regular income tax or AMT. The Company also has an AMT
credit carryforward of approximately $112,000 which will be allowed as
a credit carryover against regular tax in the future in the event the
regular tax exceeds the AMT tax.
9. Commitments, Contingencies and Related Party Transactions
---------------------------------------------------------
The Chairman of the Company is the Chairman of a brokerage firm which
provided investment services to the Company during the years ended
December 31, 1996 and 1995. Brokerage commissions paid by the Company
totaled approximately $33,000 in 1996 and $42,000 in 1995.
The Chairman of the Company is also the President of Sun Equities
Corporation ("Sun"), the Company's principal stockholder. The Company
reimburses Sun for the Company's proportionate share of the cost of
certain group medical insurance and office supplies. Such
reimbursements for the years ended December 31, 1996 and 1995 amounted
to approximately $76,000 and $64,000, respectively.
Rosenman & Colin, LLP ("R&C") performed substantial legal work for the
Company and its subsidiaries in 1996 and 1995. Natalie I. Koether,
President of the Company and of Madis and the wife of the Chairman of
the Company, is of counsel to R&C. Aggregate fees and expenses billed
to the Company and its subsidiaries were approximately $118,000 in 1996
and $630,000 in 1995. The professional fees represented work performed
primarily for proxy contests undertaken in connection with IND and the
acquisition and management of Madis.
Madis leases a 125,000 square-foot facility in South Hackensack, New
Jersey, from an affiliated corporation ("Madis Affiliate") owned by the
minority shareholders of Madis for $20,000, net, per month plus one per
cent of the gross revenues of Madis up to an additional $200,000 per
year over a term of five years expiring in December 1999 with renewal
options for fifteen additional years. This facility includes a
20,000 square-foot office area; 10,000 square-feet for laboratories,
manufacturing space of 70,000 square feet; and warehousing space of
25,000 square feet.
Madis also leases a warehouse facility in Teterboro, New Jersey for
$120,000 per year from an unrelated party for a term of three years
beginning January 1, 1997 at rates up to $130,000 per year.
The Company rents office space on a month-to-month basis from an
affiliate. Such rent expense was approximately $43,000 in 1996 and
in 1995.
In connection with the Merger, the Madis Affiliate borrowed $200,000
from the Company (the "First Loan") in 1995, and the Madis Affiliate
and its shareholders borrowed $205,000 in 1994 from the Company
(the "Second Loan"). Both Loans bore interest at the rate of 2% above
the Citibank prime rate (but in no event more than 13%) and are
collateralized by the Madis facility. The First Loan was repayable
at $10,000 per month plus interest commencing February 1, 1995 until
it was satisfied and thereafter the Second Loan will be repaid at the
rate of $10,000 per month plus interest until it is satisfied. The
First Loan has been paid off in 1996 and the current balance of the
Second Loan was approximately $185,000 at December 31, 1996.
<PAGE>
PURE WORLD, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1996 and 1995
In connection with the Plan, Madis was required to undertake up to
$280,000 in costs to perform specified remedial environmental
activities at the South Hackensack facility, including the removal of
certain underground storage tanks, which was accomplished in 1995.
The remaining accrued liability at December 31, 1996 was approximately
$127,000. The Company believes this accrued liability will be sufficient to
perform all required remaining remediation activity.
During 1995, the Company loaned money to an officer of the Company and
to an officer of Madis to acquire common stock ("Stock") of the Company
in the open market. These loans, amounting to $86,000, are non-recourse
loans collateralized by the Stock, bearing interest at the minimum rate
required under the Internal Revenue Code to avoid imputation of interest.
Also in 1995 in connection with the acquisition of Madis, the Company
loaned $210,000 to Voldemar Madis, who serves as Vice-Chairman of the
Company and of Madis. In the past, Mr. Madis had made loans for the same
amount to DML while it operated under the protection of Federal Bankruptcy
Law. These loans were not repaid when DML was removed from bankruptcy.
The loan made to Mr. Madis by the Company bears interest at a rate of
8.125%, has a five-year term, and is collateralized by Mr. Madis'
personal residence. The loan to Mr. Madis has a principal balance of
$204,000.
<PAGE>
Item 8. - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
-----------------------------------------------------------------
Not applicable.
<PAGE>
PART III
Item 9. - DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
------------------------------------------------------------
The four members of the Board of Directors were elected at the 1996 Annual
Meeting of Stockholders and will serve until the next Annual Meeting of
Stockholders or until their successors are duly elected and qualified. The
Company's officers are elected by and serve at the leave of the Board.
There is no arrangement or understanding between any executive officer and
any other person pursuant to which such officer was elected. Paul O. Koether,
the Chairman of the Company, and Natalie I. Koether, the President of the
Company, are spouses.
The directors and executive officers of the Company at February 28, 1997
were as follows:
<TABLE>
<CAPTION>
Position and Office
Presently Held with Director
Name of Person Age the Company Since
- -------------- --- ------------------- -------------
<S> <C> <C> <C>
Paul O. Koether 60 Chairman 1988
and Director of the
Company; Chairman
of Madis
Mark W. Jaindl 37 Director 1994
Alfredo Mena 44 Director 1992
William Mahomes, Jr. 50 Director 1993
Natalie I. Koether 57 President of the -
Company and Madis
Voldemar Madis 56 Vice Chairman of the -
Company and Madis
Mark Koscinski 39 Senior Vice President -
of the Company; Vice
President, Treasurer
and Secretary of Madis
John W. Galuchie, Jr. 44 Executive Vice President, -
Treasurer and Secretary
of the Company
- --------------------
</TABLE>
Paul O. Koether is principally engaged in the following businesses: (i) the
Company, as Chairman since April 1988, President from April 1989 to February
1997, a director since March 1988, and for more than five years as the Chairman
and President of Sun Equities Corporation ("Sun"), a private, closely-held
corporation which is the Company's principal stockholder; (ii) as Chairman of
Madis Botanicals, Inc., ("Madis") a majority-owned subsidiary of the Company,
since January 1995 and as a director since December 1994; (iii) as Chairman and
director since July 1987 and President since October 1990 of Kent Financial
Services, Inc. ("Kent") which engages in various financial services, including
the operation of a retail brokerage business through its wholly-owned
subsidiary, T. R. Winston & Company, Inc. ("Winston") and the general partner
since 1990
<PAGE>
of Shamrock Associates, an investment partnership which is the principal
stockholder of Kent; (iv) various positions with affiliates of Kent, including
Chairman since 1990 and a registered representative since 1989 of Winston; and
(v) since July 1992, as Chairman of American Metals Service, Inc., which is
currently seeking to acquire an operating business. Prior to August 1994, Mr.
Koether also served as Chairman and director of NorthCorp Realty Advisors, Inc.
("NorthCorp"), formerly a subsidiary of the Company.
Mark W. Jaindl. From May 1982 to October 1991, and again since May 1995,
Mr. Jaindl has served as Chief Financial Officer of Jaindl Farms, which is
engaged in diversified businesses, including the operation of a 12,000-acre
turkey farm, a John Deere dealership and a grain operation. Mr. Jaindl is Vice
Chairman of American Bank of the Lehigh Valley, a commercial bank located in
Allentown, Pennsylvania. He also serves as the Chief Financial Officer of Jaindl
Land Company, a developer of residential, commercial and industrial properties
in eastern Pennsylvania. From June 1992 until May 1995 he was Senior Vice
President of the Company. He was Senior Vice President of Madis from December
1994 until May 1995 and a director of Madis since December 1994 and he has
served as a director of American Metals Service, Inc. since July 1992. Mr.
Jaindl was a director of NorthCorp from June 1992 until September 1994 and was
Interim President of NorthCorp from February 1994 until August 1994.
Alfredo Mena. Since October 4, 1995, Mr. Mena has served as the
Presidential Commissioner for Privatization and Modernization of El Salvador. He
has been the President of CIA. Salvadorena de Inversiones, S.A. de C.V. since
1986 and had served as its Director and General Manager from 1974 to 1986. CIA.
Salvadorena de Inversiones, S.A. de C.V. is engaged in coffee growing,
processing and exporting. Mr. Mena is a citizen of El Salvador.
William Mahomes, Jr. Since March 1997 Mr. Mahomes has been with the law
firm of Winstead Sechrest & Minich, P.C. From 1994 to March 1997, Mr. Mahomes
was a Senior Shareholder of the law firm of Locke Purnell Rain Harrell. From
1990 to 1994 he was an international partner in the Dallas office of Baker &
McKenzie. Prior to that, from 1987 to 1990, he served as Vice President and
General Counsel of Pro-Line Corporation, which is engaged in the manufacture and
distribution of hair care products. Mr. Mahomes currently serves on the Board of
Directors of a variety of organizations, including the Bethlehem Foundation, The
Salvation Army, MESBIC Financial Corporation, St. Philip's Academy, Dallas Black
Chamber of Commerce, the Dallas Opera and the Texas Real Estate Council.
Natalie I. Koether is engaged principally in the following activities: (i)
President of the Company since February 1, 1997 and President and Director of
Madis since November 1995; (ii) Counsel with the law firm of Rosenman & Colin,
LLP, from September 1993. From February 1989 to September 1993, Mrs. Koether was
the partner-in-charge of the New York and New Jersey offices of Keck Mahin Cate
& Koether, a national law firm.
Voldemar Madis is principally engaged in the following businesses: (i) Vice
Chairman of the Company and of Madis since November 1, 1995 and (ii) President
of IVM Corporation ("IVM"). IVM is a real estate holding company. From 1973
through 1994, Mr. Madis was the President of Dr. Madis Laboratories, Inc.
("DML"). Both IVM and DML operated under the protection of Federal Bankruptcy
Law for the five-year period prior to January 3, 1995 when DML was acquired by
the Company. IVM is the owner of the premises occupied by Madis. The terms of
the lease are described in "Item 2 - Description of Property". For more
information on DML see "Item 6 - Management's Discussion and Analysis of
Financial Condition and Results of Operations".
<PAGE>
Mark Koscinski, a certified public accountant is engaged in the following
activities: (i) the Company as Senior Vice President and principal accounting
and financial officer since August 1993; (ii) Vice President of Sun since August
1993; (iii) Vice President, Treasurer and Secretary and a Director of Madis
since December 1994; and (iv) Vice President of Kent and Winston since August
1993. Mr. Koscinski was Vice President of Accounting Operations of Chemical
Bank, New York from October 1992 to August 1993. Prior to that, Mr. Koscinski
was the Controller of the Howard Savings Bank (the "Howard") in New Jersey for
more than five years. The Howard was placed into receivership by the Federal
Deposit Insurance Corporation on October 2, 1992.
John W. Galuchie, Jr., a certified public accountant, is engaged in the
following businesses: (i) the Company, as Executive Vice President, Treasurer
and Secretary since April 1988 and director from January 1990 until October
1994; (ii) Kent, as Vice President and Treasurer since September 1986 and a
director from June 1989 to August 1993; (iii) Winston, as President and
Treasurer since September 1989. Mr. Galuchie was a director of NorthCorp from
June 1992 until August 1996 and Secretary from November 1992 to August 1994.
Item 10. - EXECUTIVE COMPENSATION
----------------------
The table below sets forth for the years ended December 31, 1996, 1995 and
1994, the compensation of any person who, as of December 31, 1996, was the Chief
Executive Officer of the Company or who was among the four most highly
compensated executive officers of the Company other than the Chief Executive
Officer with annual compensation in excess of $100,000 ("Executive Officers").
<TABLE>
<CAPTION>
Long-Term
Name and Annual Compensation<F1> <F2> Compensation
Principal Position Year Salary Bonus Options(#)
- ------------------ ---- ------------------------- ------------
<S> <C> <C> <C> <C>
Paul O. Koether 1996 $215,000 $ - -
Chairman 1995 215,000 - 50,000
1994 215,000 35,000 -
Natalie I. Koether 1996 $244,760 $ - -
President 1995 55,807 - 100,000
1994 60,000 - -
Mark Koscinski<F3> 1996 $108,000 $15,101 10,000
Senior Vice President 1995 88,250 3,500 15,000
1994 57,750 15,000 10,000
Voldemar Madis 1996 $152,885 $ 6,101 -
Vice Chairman<F5> 1995 150,000 - 36,115<F4>
1994 - - -
- ----------------------------------------------------------
<PAGE>
<FN>
<F1> The Company currently has no bonus plan.
<F2> Certain Executive Officers received incidental personal benefits during the
fiscal years covered by the table. The value of these incidental benefits did
not exceed the lesser of either $50,000 or 10% of the total annual salary and
bonus reported for any of the Executive Officers. Such amounts are excluded from
the table.
<F3> In 1995, the Company loaned Mr. Koscinski $43,425 to acquire 25,000 shares
of Company stock in the open market (the "Shares"). The Shares are held as
security for the loan which shall accrue interest at the interest rate necessary
to avoid the imputation of interest under the Internal Revenue Code of 1986. The
loan or loan interest shall be paid solely from the proceeds of any sale by Mr.
Koscinski of the Shares. In no event will Mr. Koscinski be otherwise liable for
the loan or loan interest.
<F4> Options granted in conjunction with the acquisition of Madis Botanicals,
Inc. on January 3, 1995.
<F5> Mr. Madis was President of Dr. Madis Laboratories, Inc., the
predecessor corporation of Madis ("DML"), and is President of IVM Corporation
("IVM"). Both IVM and DML operated under the protection of Federal Bankruptcy
Law for the five-year period prior to January 3, 1995, when DML was acquired by
the Company. IVM is the owner of the premises occupied by Madis. The terms of
the lease to the Company by IVM are described in "Item 2- Description of
Property".
</FN>
</TABLE>
Options Granted
- ---------------
Under the Company's 1991 Non-Qualified Stock Option Plan (the "Plan"),
non-qualified options to purchase up to an aggregate of 500,000 shares of the
Company's Common Stock may be granted by the Board of Directors to officers,
directors and employees of the Company, its subsidiaries or parent. The exercise
price for the shares may not be less than the fair market value of the Common
Stock on the date of grant. Options will expire five years from the date of
grant and will be exercisable as to one-half of the shares on the date of grant
and as to the other half, after the first anniversary of the date of grant, or
at such other time, or in such other installments as may be determined by the
Board of Directors or a committee thereof at the time of grant. The options are
non-transferable (other than by will or by operation of the laws of descent) and
are exercisable generally only while the holder is employed by the Company or by
a subsidiary or parent of the Company or, in the event of the holder's death or
permanent disability while employed by the Company, within one year after such
death or disability.
The table below contains information concerning the fiscal year-end value
of unexercised options held by the Executive Officers.
<TABLE>
<CAPTION>
Fiscal Year-End Options Values
----------------------------------------------------------
Value of Unexercised
Number of Unexercised In-the-Money
Options at 12/31/96 Options at 12/31/96
Name Exercisable/Unexercisable Exercisable/Unexercisable
------ ------------------------- -------------------------
<S> <C> <C> <C> <C>
Paul O. Koether 150,000 - $ 85,938 $ -
Natalie I. Koether 125,000 - $ 73,438 $ -
Mark Koscinski 27,000 8,000 $ 19,031 $ 500
Voldemar Madis 21,669 14,446 $ 4,605 $ 3,070
</TABLE>
<PAGE>
401(k) Plan
- -----------
The Company has established a Retirement Savings Plan pursuant to Section 401(k)
of the Internal Revenue Code (the "401(k) Plan"). The 401(k) Plan permits
employees of the sponsor to defer a portion of their compensation on a pre-tax
basis. Employees who meet the 401(k) Plan's eligibility requirements may defer
up to 15% of their compensation (base pay plus any bonuses and overtime) for the
year. No participant, however, may have deferred more than $9,500 in 1996, which
amount is indexed each year for inflation. The Company did not match employee
contributions 1996 or 1995. Federally mandated discrimination testing limits the
amounts which highly paid employees may defer based on the amounts contributed
by all other employees. Participant elective deferral accounts are fully vested
and participant matching contribution accounts in the 401(k) Plan are vested in
accordance with a graduated vesting schedule over a period of six years of
service. All participant accounts in the 401(k) Plan are invested at the
direction of the participants among several different types of funds offered by
a large mutual fund management company selected by the Company. Distributions of
account balances are normally made upon death, disability or termination of
employment after normal retirement date (age 60) or early retirement date (age
55). However, distribution may be made at any time after an employee terminates
employment. Participants may make withdrawals from their deferred accounts in
the event of financial hardship but may not borrow from their accounts. Amounts
payable to an employee are dependent on the employee's account balance, which is
credited and debited with appropriate earnings, gains, expenses and losses of
the underlying investment. Benefits are determined by contributions and
investment performance over the entire period an employee participates in the
401(k) Plan. Payment is made in a single cash sum no later than sixty days
following the close of the year in which the event giving rise to the
distribution occurs.
The Company does not have any other bonus, profit sharing, or compensation
plans in effect.
Employment Agreements
- ---------------------
In April 1990 the Company entered into an employment agreement (the
"Agreement") with Mr. Koether, the Company's Chairman, for an initial three-year
term commencing on April 1, 1990 (the "Effective Date") at an annual salary of
$185,000 ("Base Salary"), which may be increased but not decreased at the
discretion of the Board of Directors. The term is to be automatically extended
one day for each day elapsed after the Effective Date. In December 1992, the
Board of Directors voted to increase the Chairman's Base Salary to $215,000
effective December 1, 1992.
The Chairman may terminate his employment under the Agreement at any time
for "good reason" (defined below) within 36 months after the date of a Change in
Control (defined below) of the Company. Upon his termination, he shall be paid
the greater of (i) the Base Salary and any bonuses payable under the Agreement
through the expiration date of the Agreement or (ii) an amount equal to three
times the average annual Base Salary and bonuses paid to him during the
preceding five years.
Change in Control is deemed to have occurred if (i) any individual
or entity, other than individuals beneficially owning, directly or
indirectly, common stock of the Company representing 30% or more of the
Company's stock outstanding as of April 1, 1990, is or becomes the
beneficial owner, directly or indirectly, of 30% or more of the Company's
<PAGE>
outstanding stock or (ii) individuals constituting the Board of Directors on
April 1, 1990 ("Incumbent Board"), including any person subsequently elected to
the Board whose election or nomination for election was approved by a vote of at
least a majority of the Directors comprising the Incumbent Board, cease to
constitute at least a majority of the Board. "Good reason" means a determination
made solely by Mr. Koether, in good faith, that as a result of a Change in
Control he may be adversely affected (i) in carrying out his duties and powers
in the fashion he previously enjoyed or (ii) in his future prospects with the
Company.
Mr. Koether may also terminate his employment if the Company fails to
perform its obligations under the Agreement (including any material change in
Mr. Koether's duties, responsibilities and powers or the removal of his office
to a location more than five miles from its current location) which failure is
not cured within specified time periods.
In conjunction with the acquisition of Madis on January 3, 1995 by the
Company, Madis entered into an employment agreement with Voldemar Madis to serve
as an executive officer of Madis. Under the terms of the agreement, Mr. Madis
will be employed for four years from the date of the agreement at an annual
salary of $150,000. The agreement may be terminated for cause, as defined.
<PAGE>
Item 11. - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------------------------------------
The following table sets forth the beneficial ownership of Common Stock of
the Company as of February 28, 1997, by each person who was known by the Company
to beneficially own more than 5% of the Common Stock, by each director and
officer and directors and officers as a group:
<TABLE>
<CAPTION>
Number of Shares Approximate
Name and Address of Common Stock Percent
of Beneficial Owner Beneficially Owned<F1> of Class
- ------------------- --------------------- -----------
<S> <C> <C>
Paul O. Koether
211 Pennbrook Road
Far Hills, N.J. 07931 3,103,996<F2> <F3> 38.35%
Natalie I. Koether
211 Pennbrook Road
Far Hills, N.J. 07931 3,103,996<F4> 38.35%
Sun Equities Corporation
376 Main Street
Bedminster, N.J. 07921 2,234,296 27.60%
Mark W. Jaindl
3150 Coffeetown Road
Orefield, PA 18069 153,220<F5> 1.89%
William Mahomes, Jr.
5400 Renaissance Tower
1201 Elm Street
Dallas, TX 75201 15,000 <F7>
Alfredo Mena
P. O. Box 520656
Miami, Florida 33152 17,000 <F7>
Voldemar Madis
375 Huyler Street
So. Hackensack, NJ 07606 21,669 <F7>
Mark Koscinski
376 Main Street
Bedminster, NJ 07921 62,000 <F7>
Dimensional Fund Advisors, Inc.
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401 440,500<F6> 5.44%
All directors and
officers as a group
(8 persons) 3,424,085<F1> 42.30%
- ------------------------------
<PAGE>
<FN>
<F1> The beneficial owner has both sole voting and sole investment powers with
respect to these shares except as set forth in this footnote or in other
footnotes below. Included in such number of shares beneficially owned are shares
subject to options currently exercisable or becoming exercisable within sixty
days: Paul O. Koether (150,000 shares); Natalie I. Koether (125,000 shares);
Mark W. Jaindl (70,000 shares); William Mahomes, Jr. (15,000 shares); Alfredo
Mena (15,000 shares); Voldemar Madis (21,669 shares); Mark Koscinski (27,000
shares) and all directors and officers as a group (473,669 shares).
<F2> Includes (1) 32,400 shares held by a trust for the benefit of Mr. Koether's
daughter for which he serves as the sole trustee; (2) 347,500 shares
beneficially owned by his wife, including 100,000 shares owned by Emerald
Partners of which she is the sole general partner and 2,000 shares owned by
Sussex Group, Inc. of which she is the President, a director and controlling
stockholder, 125,000 shares which she has the right to acquire upon exercise of
stock options and 120,500 shares held in custodial accounts; and (3) 33,900
shares owned by Mr. Koether's daughter. Mr. Koether may also be deemed to be the
beneficial owner of the 2,234,296 shares owned by Sun, of which Mr. Koether is a
principal stockholder and Chairman, 153,000 shares held in discretionary
accounts of certain of his brokerage customers and 12,900 shares held in Mr.
Koether's IRA account. Mr. Koether disclaims beneficial ownership of all of the
foregoing shares.
<F3> Includes 40,000 shares owned by Winston. Mr. Koether is an officer and
director of Winston and of Kent, Winston's parent company, and may be deemed the
beneficial owners of such shares. Mr. Koether disclaims such beneficial
ownership.
<F4> Includes (1) 100,000 shares owned by Emerald Partners of which Mrs. Koether
is the sole general partner and 2,000 shares owned by Sussex Group, Inc. of
which she is the President, director and controlling stockholder; (2) 125,000
shares which she has the right to acquire upon exercise of stock options; (3)
120,500 shares held in custodial accounts; and (4) 272,200 shares beneficially
owned by her husband, described above in footnotes (2) and (3). Mrs. Koether may
also be deemed to be the beneficial owner of the 2,234,296 shares owned by Sun,
of which she is a principal stockholder and her husband is a principal
stockholder and Chairman. Mrs. Koether disclaims beneficial ownership of all of
the foregoing shares.
<F5> Includes 11,720 shares held in Mr. Jaindl's IRA account and 4,000 shares
held by a trust for the benefit of his son, for which Mr. Jaindl serves as a
trustee.
<F6> Dimensional Fund Advisors Inc. ("Dimensional"), a registered investment
advisor, is deemed to have beneficial ownership of 440,500 shares of Pure World,
Inc. stock as of December 31, 1996, all of which shares are held in portfolios
of DFA Investment Dimensions Group, Inc., a registered open-end investment
company, or in series of the DFA Investment Trust Company, a Delaware business
trust, or the DFA Group Trust and DFA Participation Group Trust, investment
vehicles for qualified employee benefit plans, all of which Dimensional Fund
Advisors Inc. serves as investment manager. Dimensional disclaims beneficial
ownership of all such shares.
<F7> Represents less than one percent.
</FN>
</TABLE>
<PAGE>
Item 12. - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- -------- ----------------------------------------------
The Company reimbursed Sun approximately $76,000 and $64,000 in 1996 and 1995,
respectively, for the Company's proportionate share of certain general and
administrative expenses.
Rosenman & Colin LLP ("R&C") performed substantial legal work for the Company
for which it billed the Company an aggregate of approximately $118,000 in 1996
and $630,000 in 1995. The professional fees represented work performed primarily
in association with the proxy contests undertaken in connection with one of the
Company's investments and the acquisition and management of Madis. Natalie I.
Koether, Esq., President of the Company and Madis and wife of the Chairman of
the Company, is of Counsel to R&C.
In connection with the acquisition of NorthCorp in June 1992, the Company issued
80,000 shares of its common stock to Winston as a finder's fee. The transaction
was introduced to the Company by an officer of Winston who was otherwise
unaffiliated with the Company. Winston's parent company, Kent, may be deemed to
be an affiliate of the Company. The Company paid brokerage commissions of
approximately $33,000 in 1996 and $42,000 in 1995 to Winston in connection with
the Company's purchases and sales of marketable securities.
<PAGE>
PART IV
Item 13. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
The following exhibits are filed as part of this report:
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Method of Filing
- ------- ------- ----------------
<S> <C> <C>
3.1 (a) Restated Certificate of Incorporated by reference to
Incorporation of the Company Computer Memories Incorporated
Form 10-K for the year
ended March 31, 1987.
(b) Certificate of Amendment Incorporated by reference to
of Restated Certificate of Exhibit A to Computer Memories
Incorporation of the Company Incorporated Proxy Statement
dated February 16, 1990.
(c) Certificate of Amendment of Incorporated by reference to
Restated Certificate of Incor- American Holdings, Inc.
poration of the Company Form 10-KSB for the year ended
December 31, 1992.
(d) Certificate of Amendment of Filed herewith.
Restated Certificate of Incor-
poration of the Company
3.2 By-laws, as amended Incorporated by reference to
American Holdings, Inc.
Form 10-KSB for the year ended
December 31, 1992.
10.1 Employment Agreement, dated as Incorporated by reference to
of April 6, 1990, by and between Computer Memories Incorporated
Computer Memories Incorporated Form 10-Q for the quarter
and Paul O. Koether ended June 30, 1990.
10.2 1991 Computer Memories Incorporated Incorporated by reference to
Non-Qualified Stock Option Plan Exhibit A to Computer Memories
Incorporated Proxy Statement
dated July 7, 1992.
<PAGE>
Exhibit
Number Exhibit Method of Filing
- ------ ------- ----------------
10.3 Agreement and Plan of Merger Incorporated by reference to
dated as of December, 1994 American Holdings, Inc. Form
8-K dated January 18, 1995.
10.4 Employment Agreement with Incorporated by reference to
Dr. V. Madis, Chairman Emeritus American Holdings, Inc. Form
of Dr. Madis Laboratories, Inc. 8-K dated January 18, 1995.
10.5 Stock Purchase Agreement, dated Incorporated by reference to
as of September 22, 1993, by and American Holdings, Inc. Form
between the Company and Nancy 10-KSB for the year ended
Nasher December 31, 1993.
10.6 Severance Agreements among the Incorporated by reference to
Company, NorthCorp and Messrs. American Holdings, Inc. Form
Dorsey and Young, dated February 10-KSB for the year ended
17, 1994 December 31, 1993.
10.7 Employment Agreement with Incorporated by reference to
V. Madis American Holdings, Inc. Form
8-K dated January 18, 1995.
10.8 Lease Agreement for premises of Incorporated by reference to
Dr. Madis Laboratories, Inc., American Holdings, Inc. Form
375 Huyler Street, South 8-K dated January 18, 1995.
Hackensack, New Jersey
10.9 Plan of Reorganization of Incorporated by reference to
Dr. Madis Laboratories, Inc. American Holdings, Inc. Form
8-K/A (Amendment No. 1) dated
March 17, 1995.
10.10 Disclosure Statement Related Incorporated by reference to
to Plan of Reorganization of American Holdings, Inc. Form
Dr. Madis Laboratories, Inc. 8-K/A (Amendment No. 1) dated
March 17, 1995.
21 Subsidiaries of the Registrant Filed herewith.
27 Financial Data Schedule Filed herewith.
(b) Reports on Form 8-K
-------------------
On November 14, 1996, the Company filed a current report on Form 8-K that
it was engaged in ongoing reporting discussions to resolve its dispute
with American Industrial Properties REIT (the "Trust") including the
settlement of all litigation pending at that time.
On November 26, 1996, the Company filed a Current Report on Form 8-K
announcing that it and the Trust had entered into a settlement agreement
resolving all disputes, including litigation that had arisen between them.
For additional information, see Note 6 of Notes to Consolidated Financial
Statements.
</TABLE>
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
PURE WORLD, INC.
March 27, 1997 By: /s/ Paul O. Koether
--------------------
Paul O. Koether
Chairman of the Board
By: /s/ Mark Koscinski
------------------
Mark Koscinski
Senior Vice President
(Principal Financial and
Accounting 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.
Signature Capacity Date
- ------------------------- --------------------- ---------------
/s/ Paul O. Koether Chairman of the Board March 27, 1997
- ------------------------- and Director
Paul O. Koether (Principal Executive
Officer)
/s/ William Mahomes, Jr. Director March 27, 1997
- -------------------------
William Mahomes, Jr.
/s/ Alfredo Mena Director March 27, 1997
- -------------------------
Alfredo Mena
/s/ Mark W. Jaindl Director March 27, 1997
- -------------------------
Mark W. Jaindl
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
AMERICAN HOLDINGS, INC., a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware, DOES HEREBY
CERTIFY:
FIRST: That a meeting of the Board of Directors of American Holdings,
Inc., resolutions were duly adopted setting forth a proposed amendment of the
Restated Certificate of Incorporation of said corporation, declaring said
amendment to be advisable and directing that the proposed amendment be
considered at the next annual meeting of the stockholders of said corporation.
The resolution setting forth the proposed amendment is as follows:
RESOLVED, that the Restated Certificate of Incorporation of
this Corporation be amended by deleting ARTICLE FIRST as currently in effect and
substituting the following:
"FIRST. The name of the Corporation is Pure World, Inc."
SECOND: That thereafter, pursuant to a resolution of its Board of
Directors, the annual meeting of the stockholders of said corporation was duly
called and held, upon notice in accordance with Section 222 of the General
Corporation Law of the State of Delaware at which meeting the necessary number
of shares as required by statute were voted in favor of the amendment.
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, American Holdings, Inc. has caused this certificate to
be signed by John W. Galuchie, Jr., its Secretary, this 27th day of September
1995.
BY: /s/ John W. Galuchie, Jr.
-------------------------
John W. Galuchie, Jr.
Secretary
<TABLE>
<CAPTION>
PURE WORLD, INC.
LIST OF SUBSIDIARIES
NAME OF SUBSIDIARY STATE OF INCORPORATION
- ------------------ ----------------------
<S> <C>
American Holdings, Inc. Delaware
Eco-Pure, Inc. Delaware
Madis Botanicals, Inc. Delaware
Pure World Botanicals, Inc. Delaware
Strategic Information Systems, Inc. Delaware
</TABLE>
