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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
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MICROFLUIDICS INTERNATIONAL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 04-2793022
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
30 OSSIPEE ROAD, P.0. BOX 9101
NEWTON, MASSACHUSETTS 02164-9101
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(Address of principal executive offices) (Zip Code)
COMMISSION FILE NUMBER: 0-11625
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (617) 969-5452
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, $.01 PAR VALUE
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to the
filing requirements for the past 90 days.
Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not 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-K or any amendment to this
Form 10-K. [_]
The aggregate market value of Common Stock held by non-affiliates of the
registrant as of March 26, 1996 was $8,564,822.
The number of shares outstanding of the registrant's Common Stock as of March
26, 1996 was 5,075,450 shares.
DOCUMENTS INCORPORATED BY REFERENCE
The registrant intends to file a definitive proxy statement pursuant to
Regulation 14A within 120 days of the end of the fiscal year ended December 31,
1995. Portions of such proxy statement are incorporated by reference into Part
III of this report.
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ITEM 1. BUSINESS:
COMPANY OVERVIEW:
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Microfluidics International Corporation ("Microfluidics" or the "Company"),
through its wholly-owned subsidiaries, Microfluidics Corporation ("MFC") and
MediControl Corporation ("MediControl"), which is currently inactive,
specializes in producing and marketing proprietary Microfluidizer/(R)/ devices
used for the creation of micro droplets and dispersions in liquid streams for
very fine mixing and blending applications. Microfluidizer devices have wide-
spread applications in the chemical processing, pharmaceutical, biotechnology,
cosmetics and food processing industries.
Microfluidizer equipment is used to formulate emulsions, dispersions and
liposomes, and is used in cell rupture. Emulsions are intimate mixtures of oil
and water (or other normally immiscible components). They are found in a broad
variety of common products, including processed foods, medicines and
photographic films. Dispersions are mixtures of fine solids suspended in liquids
and are often employed in products such as inks, pigments and coatings. The
Company believes that the processing technique of the Microfluidizer equipment
enhances the stability and consistency of emulsions and dispersions due to the
equipment's unique ability to consistently produce uniform micron scale
particles in many applications. Liposomes are biodegradable, cell-like
structures used to entrap medications or nutrients, and are typically used in
cosmetics or pharmaceutical products. In addition, Microfluidizer equipment may
be used in biotechnology applications to harvest, through cell rupture, the
desired product contents of plant and animal cells.
The Company was incorporated in Delaware in 1983. The Company, formerly
named Biotechnology Development Corporation, changed its name effective June 8,
1993 to Microfluidics International Corporation. Its principal executive offices
are located at 30 Ossipee Road, in Newton, Massachusetts, and its telephone
number is (617) 969-5452.
THE TECHNOLOGY:
- --------------
The Company's Microfluidizer devices are based on a patent and related
technology that was licensed by MFC from Arthur D. Little & Co. in 1983 and
subsequently purchased by MFC in 1985. The Company holds two United States
patents related to the apparatus and process used to intimately mix liquids and
disperse particulate solids in microemulsions.
The Company's Microfluidizer is used in the processing industries to mix
materials that are normally very difficult to mix. The Microfluidizer allows
manufacturers in such industries as chemicals, pharmaceuticals, cosmetics,
biotechnology and food processing, to produce higher quality products with
better characteristics on a more consistent basis than with other blending and
mixing techniques.
In the Microfluidizer, two or more ingredients are pumped into the device
under high pressure. The fluid streams are then injected at very high speeds
into the proprietary interaction chamber where the particles collide and
interact. This collision of fluids causes the thorough mixing and integration of
the component ingredients. The result is a uniform, consistent, lump-free
product which can be anything from paint to a vaccine. The process can also be
used in biotechnology cell-rupture applications. The precision with which the
Microfluidizer can be used to break up materials allows the encapsulating cell
wall to be ruptured without damage to or contamination of the cell contents. The
advantage of Microfluidics' equipment is its ability to: (i) reduce the particle
size of ingredients to minute levels using extremely high pressures (up to
40,000 pounds per square inch ("psi"); and (ii) precisely control the process
so all component ingredients are uniformly affected by interaction.
The Company believes its patented Microfluidizer device, with its unique
ability to consistently produce micron and sub-micron-size particles, allows
users to manufacture new and improved formulations with enhanced
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product stability and formulation consistency. The Company's technology is
distinguished by its ability to provide uniform treatment of all elements of a
formulation. A fixed geometry mixing chamber and consistent pressure pump
technology result in high intensity forces of shear (flow), impact and
cavitation (vapor bubble implosion) in the interaction chamber. The process
stream can operate at near constant pressures of up to 40,000 psi. In contrast,
the Company believes that other mixing technologies are limited by non-uniform
pressure and variable geometry processes, which generally have much lower
practical operating pressures and result in less uniform formulations that are
inferior to those produced with the Microfluidizer.
The Company believes that its proprietary interaction chamber
differentiates its equipment from the equipment of its competitors. In the
Company's equipment, all processed material must flow through fixed channels
under constant pressure to a confined liquid collision zone. The resulting
shear, impact and cavitation forces uniformly affect all materials in the zone,
reducing the size of droplets or particles in the material flow to a uniform
micron-size scale. Smaller and more uniform particles result in increased
surface area that can substantially improve the compatibility of formulation
ingredients, allowing a much higher level of intimate mixing and homogeneity.
Among the many benefits provided by the Microfluidizer process for various
industries are:
* extended shelf life
* enhanced flavor and texture
* consistent color and fragrance
* improved delivery of drugs and cosmetics
* elimination of additives and solvents
* more uniform product appearance
* more effective (higher yield) cell rupture
In February 1995, the Company introduced the Diamond Interaction Chamber as
a product enhancement to the Microfluidizer. This chamber uses diamond surfaces
in the high wear regions of the chamber, rather than the Company's proprietary
ceramic materials. While the standard ceramic interaction chamber is generally
acceptable for most applications, the Diamond Interaction Chamber was designed
to reduce wear in the chamber from applications that introduce abrasive
materials into the process stream, such as metal oxides, and cause significant
wear to areas of high energy transfer. Proprietary material preparation,
machining and assembly methodologies for the Company's Diamond Interaction
Chamber were developed during 1993 and 1994.
The Company believes that the equipment of its competitors generally
incorporate mechanical components in the mixing valves that move continually
during processing, allowing variable size particles to pass through and
resulting in non-uniform, inconsistent products. In contrast, the Company's
equipment contains no in-line moving parts in the high energy mixing zone. In
addition, while the Company believes that competing equipment frequently needs
to repeat a mixing process cycle (pass), Microfluidics' equipment can achieve
results that are similar to its competitor's results with fewer mixing
processes. An additional advantage of the Microfluidizer equipment is that it
can be scaled up to larger, higher volume product requirements in a reliable
manner.
COMMERCIAL APPLICATIONS:
- -----------------------
The Microfluidizer equipment can be used to mix and formulate emulsions,
dispersions and liposomes, and for cell rupture.
Emulsions are homogenous mixtures of oil and water components (or other
normally immiscible components), which, if mixed properly, do not readily
separate. Emulsions make up many products, such as processed foods, medicines,
photographic films, hydraulic fluids and polymers. The Company believes that,
generally, an emulsion processed with a Microfluidizer unit will exhibit
improved stability and require reduced concentrations of costly emulsifying
agents that are needed to enhance product stability.
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Dispersions are mixtures of fine solids suspended in liquid so that
the two do not separate readily after processing. Similar to emulsions,
dispersions are used in a variety of consumer and industrial products, including
pigments for paints and inks, iron oxide for magnetic tapes and mascara,
phosphorescent coatings for TV screens and fluorescent lamps, barium titanate
for capacitors, toners and inks, aluminum hydroxide (antacid) and ketchup.
Liposomes are biodegradable cell-like structures, formed from materials
such as cholesterol and lecithin, that can be used to entrap medications or
nutrients. Pharmaceutical and cosmetic manufacturers use liposomes as a delivery
system to target active ingredients for specific anatomical sites and to prolong
their efficacy. To date, liposomes have been used commercially primarily in the
area of medical diagnostic agents and cosmetics. Applications include the
encapsulation of dye to be used as a marker in medical diagnostic tests and the
encapsulation of ingredients for deeper skin penetration, as well as
pharmaceutical, food and specialized agricultural applications.
In the biotechnology industry, Microfluidizer equipment is currently used
to harvest, by cell rupture, the contents of plant or animal cells. The
precision with which the Microfluidizer can be used to break up materials allows
the encapsulating cell wall to be ruptured without damage to or contamination of
the cell contents. As a result, the Microfluidizer equipment minimizes the
amount and presence of cell wall debris, thus resulting in maximum yields.
With the introduction of the Diamond Interaction Chamber, the Company has
targeted the markets for processing abrasive materials by wet milling and wet
grinding, which cause the deagglomeration and dispersion of these materials into
slurries.
The Company continually seeks to expand the applications for which the
Microfluidizer technology can be used. The Company is exploring other
applications for the Microfluidizer technology in research and licensing
arrangements with Worcester Polytechnic Institute ("WPI") and Catalytica, Inc.
("Catalytica"). See "Research and Development".
THE PRODUCTS:
- ------------
Microfluidics currently manufactures and markets the following lines of
equipment that range in price from $9,000 to $500,000:
The HC Series: The HC Series, also known as "Homogenizers," is a
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laboratory-scale series of equipment that is intended to impart moderate levels
of energy into a customer's product with greater flow rates than the more energy
intensive Microfluidizers. Operating pressures of products in the Company's HC
Series can range from under 500 psi to as high as 8,000 psi, and will process as
much as two liters of fluids per minute.
The 110 Series: The 110 Series, a laboratory product line, is designed
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primarily for research and development applications. The original pneumatically
driven laboratory-scale Microfluidizer has been supplemented by a newer, more
costly, electrically driven unit. Standard models can operate at pressures as
high as 25,000 psi and have a flow rate that exceeds one-half of a liter of
product per minute.
The M-140K: The M-140K, introduced in June of 1994, is a laboratory-
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scale unit developed for customers in chemical, biotechnology, pharmaceutical,
cosmetic and food processing industries who require elevated operating pressures
to achieve better performance. The M-140K can achieve operating pressures up to
40,000 psi. The M-140K has a built-in hydraulic system and utilizes a double
ended intensifier pump that provides a highly uniform pressure profile. It has
been designed with important safety features such as an explosion proof motor,
starter and electrical controls.
The 210 Series: The 210 Series is primarily marketed to manufacturers who
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have created a successful new or improved formulation on a 110 series unit and
would like to increase their productive capacity. The 210 Series
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unit is typically used for testing formulations at greater volume levels before
initiating full scale production. For some customers (such as pharmaceutical
product manufacturers), the 210 series may have the capacity to function as a
production unit.
The 610 Series: The 610 Series consists of custom built models used for
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large-scale manufacturing. These units have flow rates of up to 50 gallons
per minute and generate operating pressures up to 40,000 psi.
MARKETING AND SALES:
- -------------------
The Company's strategy is to sell laboratory Microfluidizer systems such
as the 110 Series or the M-140K into customers' research and development
departments where chemists, formulators, scientists and process engineers are
searching for new and better formulations of their products. If the laboratory
Microfluidizer systems are accepted, Microfluidizer systems such as the 210
Series or the 610 Series are introduced into a customer's operations department
where a customer may use Microfluidizer technology for production levels of its
new or improved products.
Marketing is conducted through advertising, direct mail, seminars, trade
shows and telemarketing. In addition, the Company has an active program of field
demonstrations, as well as demonstrations to potential users in the Company's
applications laboratory. International distributors and sales agents are
supported with trade advertising, collateral literature and trade show
materials. The distributors also advertise directly on their own behalf and
attend regional and international trade shows. As an aid to the marketing and
sales activity for the equipment, the Company provides a complete applications
testing laboratory service. This service includes free processing and analysis
of a prospective customer's sample formulation. Additionally, a prospective
customer may pay for subsequent laboratory time and services on a fee for
services basis, which includes equipment rentals.
Foreign sales, in general, contributed approximately $2,498,000,
representing approximately 47% of total revenues in 1995. Sales in Asia
contributed approximately $1,514,000, or 29%, of revenue in 1995. Sales in
Europe contributed approximately $984,000, or 19%, of revenue in 1995.
CUSTOMERS:
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The Company's customers are companies with processing needs in the
chemical, pharmaceuticals, food, cosmetic and biotechnology industries,
including E.I. DuPont, Polaroid, Kodak, 3M, Burroughs-Wellcome, Chiron, PPG,
Amgen, Genentech and Hershey. Mizuho Industrial Co., a distributor, accounted
for 21% of revenues in 1995. One other customer (PPG) accounted for 10% of
revenues in 1995. A reduction or delay in orders from Mizuho or other
significant customers could have a material adverse effect on the Company's
results of operations.
COMPETITION:
- -----------
The Company believes that its Microfluidizer equipment competes with
high and low pressure homogenizers and high energy mechanical dispersing
equipment. Homogenizers are directly descended from the first milk homogenizer,
introduced around 1900. Mechanical dispersers employ high shear technology,
which consists of blades rotating in a vessel containing the material to be
dispersed. The Company believes that machines produced by other manufacturers
have, in general, more moving parts and operate at lower pressures and at less
intense energy. Colloid mills are also used to produce emulsions and
dispersions. Other types of rotor-stator mixing equipment, which are sometimes
referred to as low-shear mixers, are generally not competitive in function with
the Company's equipment, but may be useful in pre-mixing product for subsequent
processing by other means.
With respect to emulsions, the Company believes that, generally, an
emulsion processed with a Microfluidizer unit will exhibit improved stability
characteristics and require reduced concentrations of costly emulsifying agents.
Competing homogenizer equipment operates by impacting the pressurized ejection
of a
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formulation upon a ring of metal. The Company believes that these devices have
several operational disadvantages, including variable treatment of formulation
elements, particle size reduction limitations, cleaning difficulty, energy
inefficiency and imprecise temperature control.
With respect to dispersions, the available competing equipment ("media
mills") uses milling media (beads of ceramic, metal, etc.) to facilitate
dispersion of the solid component in the liquid. This technology, however,
often results in crushed formulation particles. In contrast, the Microfluidizer
process does not damage the primary solid. In addition, when using a media
mill, the media used is often fragmented in the mixing process, thus
contaminating the final dispersion. Using its fluid stream mixing process, the
Microfluidizer unit avoids the need for an additional processing step to remove
such impurities.
The Company believes that most competing technologies in cell rupture
processing frequently contaminate the cell contents with membrane debris and/or
by introducing contamination from media breakdown, requiring additional
downstream separation and purification and resulting in lower yield. Further,
such technologies usually require multiple passes to adequately process cells.
There are several competing technologies that can be used to
manufacture liposomes. However, the Company believes that these production
methods suffer from their lot size limitations, lack of consistency, requisite
use of detergents or emulsifiers and an inability to operate in a continuous
process mode. In addition, to the Company's knowledge, only the Microfluidizer
system has demonstrated the ability to produce small, uniform, unilamellar
(single membrane) liposomes on a commercial production scale.
RESEARCH AND DEVELOPMENT:
- ------------------------
The Company's research and development efforts are focused on
developing new mixing techniques for the process industries and further
enhancing the functionality, reliability and performance of existing products.
Research and development costs were $691,446 in 1995.
COOPERATIVE RESEARCH ARRANGEMENTS:
- ---------------------------------
The Company subsidizes research and development activities centered
around Microfluidizer technology at a number of research universities.
Currently, the Company is subsidizing research and development in the following
fields at the following universities: The University of Massachusetts, Lowell -
biotechnology; Lehigh University - polymer chemistry; University of Lavaal
(Quebec) - food science; Worcester Polytechnic Institute ("WPI") - catalytic
chemistry; Rutgers University - ceramics; and Purdue University -
pharmaceuticals. In addition to their research activities, these universities
provide the Company with contacts at industrial companies that may utilize the
Microfluidizer technology.
Worcester Polytechnic Institute (WPI)
-------------------------------------
The Company has supported research and development at WPI since 1988. In
1992, the Company entered into a cooperative venture with WPI to develop, patent
and license for commercial applications the Microfluidizer process technology in
the following fields: (i) the production of catalysts used in chemical and
petroleum processing; (ii) the manufacture of advance ceramic materials; and
(iii) the destruction of volatile organic contaminants in process waste water.
The Company and WPI applied for United States and foreign patents in 1992 and
1993, respectively, which cite the Microfluidizer technology as enabling the
above process technologies. The two applied-for United States patents were both
granted and issued in the United States in 1995. Patent issuance for these
process technologies is either pending or in the latter stages of prosecution in
several foreign jurisdictions.
Based upon market research and technical evaluation to date, the Company
is focusing its activities on the synthesis of advanced zeolite and metal oxide
catalysts using the WPI process technology. A catalyst is a substance that
initiates, accelerates and determines the course of a chemical reaction. The
Company believes that properties
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of proprietary catalysts may improve industrial process economics by making more
efficient use of raw materials, reducing energy requirements and increasing
product yields. The Company believes that the catalytic materials produced by
the Microfluidizer process may result in improved efficiency and extended life,
compared with conventional catalysts.
Catalytica, Inc.
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In 1993, the Company entered into a licensing agreement with Catalytica,
Inc. and WPI, and concurrently formed a collaboration with Catalytica. WPI
granted to Microfluidics and Catalytica, jointly, an exclusive, worldwide
license to develop and commercialize the Microfluidizer process technology
developed at WPI for the synthesis of nanometer size, high purity, solid state
metal oxide materials. Microfluidics and Catalytica are currently focusing on
technically refining this process with the objectives of producing advanced
catalyst for resale or licensing the process to catalysts manufacturers.
In November of 1994, the Company and Catalytica were jointly awarded a $2
million matching funds grant under the Advanced Technology Program of the United
States Department of Commerce's National Institute of Standards and Technology.
The Advanced Technology Program is designed to assist in funding emerging,
economically important projects with well defined research and development,
technology and business objectives. The grant was awarded to the Company and
Catalytica to develop and demonstrate the ability, using patented Microfluidizer
equipment, to synthesize nanometer size catalysts providing enhanced performance
for use in the chemical and petroleum refining industries. The project targets
three types of nanometer-size catalysts: mixed metal oxides used in chemical
manufacturing, non-crystalline zeolites used for petrochemical production and
colloidal catalysts used for processing by the petroleum refining industry.
During the remaining two years of the project, the Company has budgeted
expenditures of approximately $320,000 and $350,000, respectively. Under this
grant, the Company will be reimbursed 48% of its expenditures. The first year of
the project sought to demonstrate technical aspects such as synthesis techniques
and catalyst performance, followed by prototyping proof of principle and scale
up for pilot production in year two, and customer evaluation in year three.
There can be no assurances that this project will result in technology useful
for the chemical and petroleum refining industries or that any revenue will be
generated from the results of this project.
In connection with the Catalytica cooperative venture, the Company has
provided its equipment to the University of Illinois (Champagne Urbana) for
research in the area of cavitational processing.
PATENTS AND PROPRIETARY RIGHTS PROTECTION:
- -----------------------------------------
To protect its proprietary rights, the Company relies on a combination of
U.S. patent laws, trademark laws, trade secrets, confidentiality agreements,
contractual provisions and technical measures, including x-ray transparent
components and a tamper-resistant, self-contained interaction chamber. In the
event of patent infringement or breach of confidentiality, there can be no
assurance that these measures will be adequate or that the Company will have
sufficient resources to prosecute or prevail in an action against a third party.
In addition, the Company has not sought patent or trademark protection for its
interaction chamber in any country other than the United States and, as such,
its proprietary rights are not subject to the protection of patent or trademark
laws of foreign countries where the Company's equipment is sold. The Company's
process patent expires March 13, 2007 and its equipment patent expires August 6,
2002.
MANUFACTURING
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At present, the Company subcontracts the manufacture of many of the
components of its equipment to many third parties, with the Company undertaking
the remaining fabrication, assembly and performance testing. The Company has
selected certain primary suppliers based upon pricing terms and the quality of
their products. The Company believes that there are adequate available
alternate manufacturing sources and suppliers for the Company's components and
raw materials.
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GOVERNMENT REGULATION:
- ---------------------
Certain of the Company's customers utilize the Microfluidizer equipment in
processes and production that are subject to governmental regulation. For
example, the manufacturing and marketing of pharmaceutical products requires the
approval of the Food and Drug Administration ("FDA") within the United States
and of comparable agencies in foreign countries. The FDA has established
mandatory procedures, safety standards and protocols that apply to the
manufacture, clinical testing and marketing of new pharmaceutical products in
the United States. The process of seeking and obtaining FDA approval of a new
product often takes a number of years and often involves the expenditure of
substantial resources. The FDA approval process contributes to the extremely
long lead times that are attendant to manufacturing equipment orders for these
applications.
Further, in addition to product approvals, the FDA imposes requirements as
to manufacturing practices, record keeping and reporting ("Good Manufacturing
Practices" or "GMP"). GMP-regulated companies are subject to inspections by the
FDA (inclusive of Microfluidizer equipment) and product approvals may be
withdrawn if GMP are not met.
At present, the Company's customers include several companies who are
making FDA approved drugs and preparations for external use and a few companies
who utilize Microfluidizer equipment for the formulation or production of FDA
approved parenteral (injectable) drugs or compounds.
Various laws, regulations and recommendations relating to safe working
conditions, laboratory practices and the purchase, storage, movement, import and
export, use and disposal of harmful or potentially harmful substances that may
be used in connection with the Company's research work are or may be applicable
to its activities. These laws include, among others, the United States Atomic
Energy Act, the Clean Air Act, the Clean Water Act, the Occupational Safety and
Health Act, the National Environmental Policy Act, the Toxic Substances Control
Act, the Resource Conservation and Recovery Act, national restrictions on
technology transfer, import, export and customs regulations and other present
and possible future local, state or Federal regulation. The extent of adverse
governmental regulation which might result from future legislation or
administrative action cannot be accurately predicted. Certain agreements that
may be entered into by the Company involving exclusive license rights may also
be subject to national or supranational antitrust regulatory control, the effect
of which cannot be predicted.
BACKLOG:
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The Company's backlog of accepted and unfilled orders at March 26, 1996
and March 20, 1995 was $635,697 and $435,627, respectively. Revenue is not
recognized until equipment is shipped. Backlog as of any particular date should
not be relied upon as indicative of the Company's net revenues for any future
period.
EMPLOYEES:
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The Company has approximately 35 full-time employees. None of the
Company's employees are covered by a collective bargaining agreement, and the
Company considers its relations with its employees to be excellent. The Company
believes that its future success will depend in large part on its ability to
attract and retain highly skilled employees.
ITEM 2. PROPERTIES
The Company rents approximately 32,000 square feet of offices, production
and research and development facilities in Newton, Massachusetts for
administrative, development and production activities at an annual expense of
approximately $150,000. The lease term expires on May 31, 1998. The Company
believes that this facility will be adequate for operations for the next three
years.
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ITEM 3. LEGAL PROCEEDINGS
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Until January 17, 1994, the Company's Common Stock was traded on the Nasdaq
Small Cap Market. Thereafter, the Company's Common Stock was traded on the
Nasdaq Stock Market under the symbol MFIC. The following table sets forth the
range of quarterly high and low bid quotations for the period from January 1,
1994 to December 31, 1995, as furnished by the National Association of
Securities Dealers Automated Quotation System. The quotations represent
interdealer quotations without adjustment for retail markups, markdowns, or
commissions, and may not necessarily represent actual transactions.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Quarters Ended 12/31 9/30 6/30 3/31 12/31 9/30 6/30 3/31
1995 1995 1995 1995 1994 1994 1994 1994
Common Stock
Low 1-15/32 2-7/8 3-1/8 3-1/2 3 4 4-1/2 5
High 3-5/8 4-3/8 4-3/8 4-3/8 4-5/8 5-5/8 6-3/4 7-1/2
</TABLE>
As of March 26, 1996 there were approximately 486 holders of record of the
Company's Common Stock.
The Company has never paid any cash dividends on its capital stock and
presently anticipates that no dividends on its Common Stock will be declared in
the foreseeable future. The Company's current policy is to retain all of its
earnings to finance future growth. In addition, the Company's arrangement with
its commercial lender prohibits the payment of dividends without prior approval.
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ITEM 6. SELECTED FINANCIAL DATA
The selected financial information presented below is derived from the
consolidated financial statements of the Company for the five years ended
December 31, 1995. The information set forth below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" included as Item 7 and the financial statements and
related notes included elsewhere in this Form 10-K.
SELECTED INCOME STATEMENT DATA
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended Year Ended Year Ended
December 31, December 31, December 31, December 31, December 31,
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Total Revenues........................ $ 5,273,399 $7,298,416 $6,778,098 $4,496,645 $2,766,102
Operating expenses.................... 6,556,747 6,796,397 5,897,569 4,085,009 3,245,749
Operating income (loss)............... (1,283,348) 502,019 880,529 411,636 (479,647)
Net interest.......................... 98,675 43,608 23,705 6,977 (14,826)
Gain on sale of investments and
assets............................... 174,776 34,096 94,599
----------- ---------- ---------- ---------- ----------
Net income (loss) before taxes and
extraordinary item................... (1,009,897) 545,627 938,330 513,212 (495,689)
Income tax benefit (provision)........ (1,107,422) 791,058 (55,979) (211,058) 21,649
Net income (loss) before
extraordinary item and cumulative
effect of accounting change.......... (2,117,319) 1,336,685 882,351 302,154 (474,040)
Extraordinary item.................... 186,807
Cumulative effect of change in
accounting for income taxes.......... 290,609
----------- ---------- ---------- ---------- ----------
Net income (loss)..................... ($2,117,319) $1,336,685 $1,172,960 $ 488,961 $ (474,040)
=========== ========== ========== ========== ==========
Net income (loss per primary share
before extraordinary item and
cumulative effect of an
accounting change.................... $ (.43) $ .26 $ .20 $ .08 $ (.15)
Extraordinary item per primary
share................................ .05
Cumulative effect of change in
accounting for income taxes per
primary share........................ .07
----------- ---------- ---------- ---------- ----------
Net income (loss) per primary share... $ (.43) $ .26 $ .27 $ .13 $ (.15)
=========== ========== ========== ========== ==========
SELECTED BALANCE SHEET DATA
Working Capital....................... $ 5,599,714 $6,626,006 $5,758,763 $2,371,938 $1,590,703
Total Assets.......................... 6,715,986 9,192,505 7,455,910 3,714,664 2,365,628
Long term obligations................. $ 722,780
Stockholders' equity.................. $ 6,029,081 $8,069,524 $6,467,414 $2,735,827 $1,301,918
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
--------
1995 was a year of conscientious change in strategy and in the way that the
Company conducts its business. What was expected to be a year of both growth
and profitability, based upon investments made in 1994, did not materialize.
The most significant factor that affected 1995 results from operations was
a 28% decline in revenue from the previous year level. This revenue decline was
primarily in North America and was reflected in lower system shipments in most
product line categories. Fourth quarter sales rose to higher levels than those
posted in the third quarter.
Significant management changes took place in 1995. In July, the Company's
President resigned. Michael A. Lento was appointed President in September 1995.
Mr. Lento had been Vice President of Marketing at the Company since September
1994 and prior to that had managed the Company's cooperative venture with
Catalytica, Inc. Subsequent management changes have included the resignation of
the Company's Vice President of Engineering, Vice President of Sales, and
Controller. The Controller position has been filled and the Company is
currently interviewing candidates for the other positions.
Within the Unites States in 1995, the Company shifted from a predominantly
direct sales force to the appointment and use of manufacturers representatives
and sales agents with previous experience in the sale of materials processing
equipment. Sales activity and performance in the Company's overseas markets
remain stable and in Europe are showing signs of growth. The Company has
strengthened its relationships with its existing distributors in Asia. In
Europe, the Company has replaced a number of sales agents that were not
performing at acceptable levels, while also appointing several additional sales
agents. The Company's new sales agents, together with the efforts of the
Company's resident European manager in Frankfurt, have increased the Company's
activities in Europe and the Company believes that it can achieve significant
growth in this market.
The Company's cash and cash equivalent position rose in 1995 by almost
$230,000 to over $1,900,000. In light of the Company's debt-free balance sheet,
the Company believes that it has adequate resources and reserves to allow it to
accomplish its business plan.
The Company has adopted a customer-focused approach to reaching a broader
market base with its message of "Innovation through Microfluidizer/(R)/
technology".
11
<PAGE>
RESULTS OF OPERATIONS
FISCAL 1995 COMPARED TO FISCAL 1994
-----------------------------------
Total revenue for fiscal 1995 was $5,273,399, as compared to $7,298,416 in
fiscal 1994, a decrease of $2,025,017, or approximately 28%. This decline was
primarily the result of a decrease in North American revenues from approximately
$4,753,000 in 1994 to $2,775,000 in 1995.
Sales of both the 110 Series and 210 Series decreased by approximately
$857,000 from 1994 to 1995. In addition, the Company's sale of large volume
production units in fiscal 1995 was two units, down from five units in fiscal
1994, and represented a decrease of approximately $840,000. Foreign revenue for
the year was $2,497,248, representing approximately 47% of total revenue, as
compared to $2,543,566 or 35% of total revenue in fiscal 1994. The increase in
foreign revenues as a percentage of sales was significantly impacted by a
corresponding decrease in North American sales.
Cost of goods sold for fiscal 1995 was $2,813,801, or 53% of revenue, as
compared to $2,968,030, or 41% of revenue, in fiscal 1994. This increase was
primarily the result of an increase in material costs and direct labor as a
percentage of sales, and the write off of obsolete inventory. The Company's
product lines each have different profit margins, as well as multiple profit
margins within each product line. In year-to-year comparisons, there may be
significant changes in the cost of goods sold as a percentage of revenue,
depending on the mix of products sold. Generally, full scale production units
yield lower profit margins than laboratory or pilot production units and
electric hydraulic units yield lower profit margins than air driven units.
Operating expenses for fiscal 1995 were $3,742,946 as compared to
$3,828,367 for fiscal 1994, a decrease of $85,421, or 2%. Research and
development expenses decreased to $691,466 in fiscal 1995 from $762,620 in
fiscal 1994, primarily due to a grant reimbursement from the United States
Department of Commerce in the amount of $118,638 for 1995 in connection with the
Company's continued research efforts with Worcester Polytechnic Institute and
Catalytica, Inc. Sales and Marketing expenses increased to $1,895,274, or 36%
of revenue, from $1,764,060, or 24% of revenue, in fiscal 1994 as a result of
the Company's continued efforts to expand and strengthen its sales force.
General and administrative expenses deceased to $1,156,206 in fiscal 1995 from
$1,301,687 in fiscal 1994.
Interest income increased 115% to $98,675 in fiscal 1995 from $43,608 in
fiscal 1994, reflecting the amount of cash available for investment due to the
collection of accounts receivable in 1995. There were no interest expenses
incurred in either fiscal 1995 or fiscal 1994.
In fiscal 1995, the Company recognized a gain of $93,239 on the sale of a
portion of its holdings in PolyMedica Industries, Inc. The market value for the
remaining 13,940 shares owned by the Company at December 31, 1995 was $83,640.
On December 27, 1995, the Company sold to ChemMark Development, Inc.
("ChemMark") its business of manufacturing and distributing proprietary cosmetic
liposomal formulations, sold under the trade name Dermasome/(R)/. In return for
ChemMark's payment of $50,000, the Company transferred to ChemMark its
Dermasome/(R)/ trademark, its customer list, its products list, all unfilled
Dermasome/(R)/ orders, and all products and product literature. Additionally,
the Company granted to ChemMark a two year, world-wide, exclusive license to use
the Company's proprietary technology and know-how to manufacture and
12
<PAGE>
distribute Dermasome products. In exchange, the Company received a one-time,
non-refundable $50,000 rights grant acquisition fee, and the payment over the
license term of a percentage royalty equal to ten percent (10%) of the net sales
realized by ChemMark on the sale of products derived from the Company's
technology. Notwithstanding the amount of such percentage royalty, ChemMark is
obligated to pay a minimum royalty payment in the amount of $100,000, payable in
22 equal monthly installments of $4,167.67, with a final payment of $8,333.34
due upon the second anniversary of the agreement. As security for ChemMark's
performance of its obligations to the Company, the Company retains a security
interest in the Trademark. The Company recognized a gain of $81,537 upon the
sale of the Dermasome/(R)/ business.
The tax provision of $1,107,422 principally results from the recording of a
valuation allowance for net operating loss carryforwards, tax credit
carryforwards, and other deferred tax assets, which may not be realized.
LIQUIDITY AND CAPITAL RESOURCES
The cash and cash equivalents balance at December 31, 1995 was $1,903,418,
an increase of $229,607 from the December 31, 1994 balance of $1,673,811. This
increase was the result of a reduction in accounts receivables (from $2,991,184
at December 31, 1994 to $1,751,199 at December 31, 1995, a decrease of 41%) of
over $1,197,000, as well as proceeds of $100,000 related to the sale and license
transaction related to the Dermasome/(R)/ business and a $93,239 gain on the
sale of 10,000 shares of PolyMedica Industries, Inc. stock. The Company
continues to maintain a line of credit with the Bank of Boston equal to the
lesser of $750,000 or 80% of the domestic accounts receivable that are less than
60 days old. The available line, as of March 26, 1996, was $276,796. The
accounts receivable balance as of March 26, 1996 was $1,222,973. Inventory
decreased by 14% due to a decrease in sales and improved controls over inventory
levels. Accounts payable decreased by 48% primarily due to a decrease in
inventory.
The Company may, from time to time, consider acquisition of complementary
businesses, products or technologies, although it has no present understandings,
commitments or agreements with respect to any such acquisitions. The Company
believes that anticipated cash flows from operations and current sources of
liquidity will be adequate to fund operations for at least the next year.
FISCAL 1994 COMPARED TO FISCAL 1993
-----------------------------------
Total revenue increased $520,318, or approximately 8%, to $7,298,416 in
fiscal 1994 from $6,778,098 in fiscal 1993. This increase was primarily the
result of a 27% increase in the sale of electric hydraulic laboratory and pilot
production units and related spare parts over fiscal 1993 levels. The
Company's sale of five full production units in fiscal 1994 was down from eight
such sales in fiscal 1993. Foreign revenue for the year was $2,543,566,
representing approximately 35% of total revenue, as compared to $2,286,994, or
34% of total revenue, in fiscal 1993. The increase in foreign revenues was
significantly impacted by one additional sale of a full scale production unit.
13
<PAGE>
Cost of goods sold for fiscal 1994 was $2,968,030, or 41% of revenue, as
compared to $2,922,298, or 43% of revenue, in fiscal 1993. Operating expenses
for fiscal 1994 were $3,828,367, as compared to $2,975,271 for fiscal 1993, an
increase of $853,096, or 29%. Research and development expenses increased 78%
to $762,620 in fiscal 1994 from $427,568 in fiscal 1993, primarily due to a
$180,000 expenditure in connection with the Company's continued research efforts
with Worcester Polytechnic Institute and Catalytica, Inc. and the Company's
internal developments, including the Diamond Interaction Chamber and a number of
design enhancements to its existing products. Sales and marketing expenses
increased 39% to $1,764,060 (24% of revenue) in fiscal 1994 from $1,268,804 (19%
of revenue) in fiscal 1993. This increase resulted from the Company's efforts in
1994 to expand and strengthen its sales force. General and administrative
expenses increased 2% to $1,301,687 in fiscal 1994 from $1,278,899 in fiscal
1993.
Interest income increased 84% to $43,608 in fiscal 1994 from $23,705 in
fiscal 1993, reflecting the amount of cash available for investment due to the
private placement the Company completed in fiscal 1993. There were no interest
expenses incurred in either fiscal 1994 or fiscal 1993.
In fiscal 1993, the Company recognized a gain of $34,096 on the sale of a
portion of its holdings in PolyMedica Industries, Inc. There were no sales of
these shares in fiscal 1994. The market value for the remaining 23,940 shares
owned by the Company at December 31, 1994 was $104,738.
In 1993 the Company adopted the liability method of accounting for income
taxes in accordance with Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes." SFAS 109 requires the recognition of deferred
tax assets (net of any valuation allowance) and liabilities based on the
expected future tax consequences of events that have been included in the
financial statements or tax returns. Under this method, deferred tax assets and
liabilities are determined based upon the difference between the financial
statement and tax basis of assets and liabilities using the expected tax rates
in effect for the year in which the differences are expected to reverse. The
effect of adopting SFAS 109 resulted in a cumulative increase in book income of
$290,609 for 1993.
The Company's provision/(benefit) for income taxes was due mainly to its
continued profitability through 1994. Therefore, the majority of prior years
valuation allowance under SFAS 109 was no longer required. The deferred benefit
related to the release of the valuation allowance for 1995 was $728,151.
The accounts receivable balance at December 31, 1994 was $2,991,184, an 85%
increase over the balance of $1,616,208 at December 31, 1993. The majority of
this increase was due to sales for full scale production units in the latter
half of the fourth quarter of 1994, which are on different payment terms. The
accounts receivable balance as of March 20, 1995 was $1,208,092. Inventory
increased by 57% due to anticipated fourth quarter orders that did not
materialize. Accounts payable increased by 32%, primarily due to the increase in
inventory. Customer advances decreased by approximately 40% primarily because
advance payments received in 1993 were offset against final invoices issued when
full scale production units were shipped in 1994. The customer advance
represented an overpayment on behalf of a customer.
NEW ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 123 "Accounting for Stock-
Based Compensation" (SFAS 123), will require the Company to either elect expense
recognition or the disclosure-only alternative for stock-based employee
compensation. SFAS 123 must be adopted in the
14
<PAGE>
Company's 1996 financial statements with comparable disclosures for the prior
year. While the Company is reviewing the adoption and impact of SFAS 123, it
expects to adopt the disclosure-only alternative and, accordingly, this standard
will have no impact on the Company's results of operations or its financial
position.
BUSINESS OUTLOOK
This report contains forward-looking statements within the meaning of the
"safe-harbor" provisions of the Private Securities Litigation Reform Act of
1995. Such statements are based on management's current expectations and are
subject to a number of factors and uncertainties that could cause actual results
to differ materially from those described in the forward-looking statements.
Such factors and uncertainties include, but are not limited to, the uncertainty
that the performance advantages of the Microfluidizer equipment will be realized
commercially or that a commercial market for Microfluidizer equipment will
continue to develop; the dependence by the Company on key customers; the loss of
the services of one or more of the Company's key employees, which could have a
material adverse impact on the Company; the development of competing or superior
technologies and products from manufacturers, many of which have substantially
greater financial, technical and other resources than the Company; the cyclical
nature of the materials processing industry, which has historically negatively
affected the Company's sales of Microfluidizer equipment during industry
downturns and which could do so in the future; the availability of additional
capital to fund expansion on acceptable terms, if at all; and general economic
conditions.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following consolidated financial statements of the Company and its
subsidiaries appear on the following pages of this Form 10-K.
<TABLE>
<CAPTION>
Page
<S> <C>
Report of Independent Accountants F-1
Consolidated Balance Sheets as of December 31, 1995 and 1994 F-2 & F-3
Consolidated Statements of Operations for the years ended
December 31, 1995, 1994 and 1993 F-4
Consolidated Statements of Cash Flows for the years ended
December 31, 1995, 1994 and 1993 F-5
Consolidated Statements of Changes in Stockholders' Equity
for the years ended December 31, 1995, 1994 and 1993 F-6
Notes to Consolidated Financial Statements F-7
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
15
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS
- ---------
The information concerning directors of the Company required under this
item is incorporated herein by reference to the Company's definitive proxy
statement pursuant to Regulation 14A, to be filed with the Commission not later
than 120 days after the close of the Company's fiscal year ended December 31,
1995.
EXECUTIVE OFFICERS
- ------------------
The information concerning executive officers of the Company required under
this item is incorporated herein by reference to the Company's definitive proxy
statement pursuant to Regulation 14A, to be filed with the Commission no later
than 120 days after the close of the Company's fiscal year ended December 31,
1995.
ITEM 11. EXECUTIVE COMPENSATION
The information required under this item is incorporated herein by
reference to the Company's definitive proxy statement pursuant to Regulation
14A, to be filed with the Commission not later than 120 days after the close of
the Company's fiscal year ended December 31, 1995.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required under this item is incorporated herein by
reference to the Company's definitive proxy statement pursuant to Regulation
14A, to be filed with the Commission not later than 120 days after the close of
the Company's fiscal year ended December 31, 1995.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required under this item is incorporated herein by
reference to the Company's definitive proxy statement pursuant to Regulation
14A, to be filed with the Commission within 120 days after the close of the
Company's fiscal year ended December 31, 1995.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a)1. CONSOLIDATED FINANCIAL STATEMENTS.
The following financial statements are included in Item 8:
Consolidated Balance Sheets as of December 31, 1995 and 1994
16
<PAGE>
Consolidated Statements of Operations for the years ended
December 31, 1995, 1994 and 1993
Consolidated Statements of Cash Flows for the years ended
December 31, 1995, 1994 and 1993
Consolidated Statements of Changes in Stockholders' Equity for
the years ended December 31, 1995, 1994 and 1993
Notes to Consolidated Financial Statements
Report of Independent Accountants
(a)2. FINANCIAL STATEMENT SCHEDULES.
All schedules are omitted because they are not applicable or the
required information is shown in the financial statements or the
notes thereto.
(a)3. LIST OF EXHIBITS.
Exhibit
Number Description of Exhibit
------ ----------------------
3.3(a) Certificate of Incorporation for the Company, as amended (filed as
Exhibit 2A to Registration Statement No. 0-11625 on Form 8-A and
incorporated herein by reference).
3.3(b) By-Laws for the Company, as amended (filed as Exhibit 3(b) to
Registration Statement No. 2-85290 on Form S-1 and Incorporated
herein by reference).
3.10(a) 1987 Stock Plan (filed as Exhibit 10(g) to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1987 and
incorporated herein by reference).
3.10(b) 1988 Stock Plan (filed as Exhibit 10(g) to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1988 and
incorporated herein by reference).
3.10(c) 1989 Non-Employee Directors Stock Option Plan (filed as Exhibit
10(h) to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1988 and incorporated herein by reference).
3.10(d) Loan Agreement between The First National Bank of Boston and
Microfluidics International Corporation dated as of December 10,
1993 (filed as Exhibit 10.1 to Form 8-K filed on December 27, 1993
and incorporated herein by reference).
3.10(e) Lease for 30 Ossipee Road, Newton, Massachusetts dated April 22,
1993 between Microfluidics International Corporation and J. Frank
Garrity, Trustee of 1238 Chestnut Street Trust under Declaration of
Trust dated May 23, 1969, recorded with Middlesex South Registry of
Deeds in Book 11682, Page 384 (filed as Exhibit 3.10(e) to the
17
<PAGE>
Company's Form 10-K for the fiscal year ended December 31, 1993 and
incorporated herein by reference).
3.10(f) Letter of Understanding between Microfluidics International
Corporation and Worcester Polytechnic Institute dated as of April 3,
1993 (filed as Exhibit 3.10(f) to the Company's Form 10-K for the
fiscal year ended December 31, 1993 and incorporated herein by
reference).
3.10(g) Agreement between Microfluidics International Corporation and
Catalytica, Inc. dated as of October 18, 1993 (filed as Exhibit
3.10(g) to the Company's Form 10-K for the fiscal year ended
December 31, 1993 and incorporated herein by reference).
3.10(h) License Agreement among Microfluidics International Corporation,
Worcester Polytechnic Institute and Catalytica, Inc. dated as of
October 18, 1993 (filed as Exhibit 3.10(h) to the Company's Form 10-
K for the fiscal year ended December 31, 1993 and incorporated
herein by reference).
*3.10(i) Agreement, dated July 27, 1995, between Microfluidics
International Corporation and Michael T. Rumley.
*3.10(j) Letter, dated August 16, 1995, from Microfluidics International
Corporation to Michael T. Rumley.
*3.10(k) Letter, dated December 31, 1995, from Microfluidics International
Corporation to Irwin J. Gruverman.
*3.10(l) Warrant for the Purchase of Shares of Common Stock, dated July 15,
1993, in favor of Ladenburg, Thalman & Co. Inc.
*3.21 Subsidiaries of the Registrant.
*3.24 Consent of Coopers & Lybrand L.L.P.
*3.27 Financial Data Schedule
_____________________
* Filed herewith
(b) REPORTS ON FORM 8-K.
Not applicable.
(c) EXHIBITS.
The Company hereby files as part of this Form 10-K the Exhibits listed
in Item 14(a)(3) as set forth above.
(d) FINANCIAL STATEMENT SCHEDULES.
18
<PAGE>
See (a)(2) above.
19
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------
To the Board of Directors and
Stockholders of Microfluidics
International Corporation:
We have audited the accompanying consolidated balance sheets of Microfluidics
International Corporation and Subsidiaries as of December 31, 1995 and 1994, and
the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the three years in the period ended December 31, 1995.
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, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Microfluidics
International Corporation and Subsidiaries as of December 31, 1995 and 1994, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 1995, in conformity with
generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
February 23, 1996
F-1
<PAGE>
MICROFLUIDICS INTERNATIONAL CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
1995 1994
--------- -----------
<S> <C> <C>
ASSETS
Cash and cash equivalents $1,903,418 $1,673,811
Marketable securities (Note C) 83,640 104,738
Accounts receivable (less allowance of $47,382
and $5,464 in 1995 and 1994, respectively) 1,751,199 2,991,184
Other receivables 29,820 26,838
Inventory (Note D) 2,456,389 2,844,689
Prepaid expenses 62,153 107,727
---------- ----------
Total current assets 6,286,619 7,748,987
Equipment and leasehold improvements, at cost
Furniture, fixtures and office equipment 297,228 219,450
Machinery and equipment 223,829 198,706
Leasehold improvements 111,249 110,403
---------- ----------
632,306 528,559
Less: Accumulated depreciation and amortization (457,910) (418,637)
---------- ----------
174,396 109,922
Patents, licenses and other intangible assets (net of
accumulated amortization of $296,218 in 1995
and $369,476 in 1994 (Note E) 254,971 229,062
Deferred tax asset (Note I) 1,104,534
---------- ----------
Total assets $6,715,986 $9,192,505
========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-2
<PAGE>
MICROFLUIDICS INTERNATIONAL CORPORATION
CONSOLIDATED BALANCE SHEETS (CONTINUED)
<TABLE>
<CAPTION>
December 31,
1995 1994
--------- -----------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses $ 513,640 $ 994,005
Accrued compensation 124,555 6,433
Accrued vacation pay 48,710 62,300
Income taxes payable 12,243
Customer advance 48,000
----------- ----------
Total current liabilities 686,905 1,122,981
Commitments and contingencies (Note L)
Stockholders' equity (Notes G, J and K)
Common Stock, par value $.01 per share,
20,000,000 shares authorized; 5,058,203
and 5,021,348 shares issued and outstanding
in 1995 and 1994, respectively 50,582 50,212
Additional paid-in capital 10,319,350 10,254,572
Accumulated deficit (3,969,920) (1,852,601)
Unrealized appreciation on marketable securities 83,640 62,843
Less: Treasury Stock, at cost, 107,019 and 101,839
at December 31, 1995 and 1994,
respectively (Note J) (454,571) (445,502)
----------- -----------
Total stockholders' equity 6,029,081 8,069,524
----------- -----------
Total liabilities and stockholders' equity $ 6,715,986 $ 9,192,505
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE>
MICROFLUIDICS INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years ended December 31,
1995 1994 1993
----------- ---------- ----------
<S> <C> <C> <C>
Revenues $ 5,273,399 $7,298,416 $6,778,098
Cost of goods sold 2,813,801 2,968,030 2,922,298
Research and development 691,466 762,620 427,568
Selling, general and administrative 3,051,480 3,065,747 2,547,703
----------- ---------- ----------
Total cost and expenses 6,556,747 6,796,397 5,897,569
----------- ---------- ----------
Income (loss) from operations (1,283,348) 502,019 880,529
Interest income 98,675 43,608 23,705
Gain on sale of investments (Note C) 93,239 34,096
Gain on sale of assets (Note N) 81,537
----------- ---------- ----------
Income (loss) before income taxes (1,009,897) 545,627 938,330
Income tax benefit (provision) (Note I) (1,107,422) 791,058 (55,979)
----------- ---------- ----------
Income (loss) before cumulative effect
of an accounting change (2,117,319) 1,336,685 882,351
Cumulative effect of change in accounting
for income taxes (Note I) 290,609
----------- ---------- ----------
Net income (loss) $(2,117,319) $1,336,685 $1,172,960
=========== ========== ==========
Income (loss) per Common Share
Primary:
Average shares outstanding 4,939,989 5,047,849 4,363,322
Income (loss) before cumulative
effect of an accounting change $ (.43) $ .26 $ .20
Cumulative effect of change in
accounting for income taxes .07
----------- ---------- ----------
Net income (loss) per Primary Share $ (.43) $ .26 $ .27
=========== ========== ==========
Fully diluted:
Average shares outstanding 4,939,989 4,998,689 4,363,359
Income (loss) before extraordinary
item and cumulative effect of
an accounting change $ (.43) $ .26 $ .20
Cumulative effect of change in
accounting for income taxes .07
Extraordinary item
----------- ---------- ----------
Net income (loss) per Fully diluted Share $ (.43) $ .26 $ .27
=========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
MICROFLUIDICS INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended December 31,
1995 1994 1993
----- ---- ----
<S> <C> <C> <C>
Cash flows from (used by) operations:
Net income (loss) $(2,117,319) $ 1,336,685 $1,172,960
Reconciliation of net income (loss) to cash
used by operations:
Depreciation and amortization 93,410 80,528 76,174
Compensation paid in Common Stock 45,000
Bad debt expense 40,000 6,000
Gain on sale of investments (93,239) (34,096)
Gain on sale of assets (81,537)
Change in accounting for income tax (290,609)
Income tax (benefit) provision 1,146,429 (805,820)
Changes in operating working capital items:
(Increase) decrease receivables,
and other receivables 1,197,003 (1,401,814) (315,391)
(Increase) decrease inventories 388,300 (1,032,354) (371,019)
(Increase) decrease prepaid expenses 45,574 13,946 (86,111)
Increase (decrease) current liabilities (436,076) 134,485 9,659
----------- ----------- ----------
Net cash from (used by) operations 182,545 (1,674,344) 212,567
Cash flows from (used by) investing activities:
Purchase of intangibles (96,680)
Proceeds from sale of investments 93,239 34,096
Proceeds from sale of assets 101,800
Capital equipment and leasehold improvements (107,376) (51,470) (80,327)
----------- ----------- ----------
Net cash (used by) investing activities (9,017) (51,470) (46,231)
Cash flows from (used by) financing activities:
Issuance of Common Stock under employee stock
purchase plan 21,724 21,740 9,071
Issuance of Common Stock under employee stock
option plan 42,729 180,842 67,977
Issuance of Common Stock upon the exercise of
options 172,500
Treasury stock purchased (8,374) (37,604)
Issuance of Common Stock through Private
Placement 2,296,683
----------- ----------- ----------
Net cash from (used by) financing activities 56,079 202,582 2,508,627
Net increase (decrease) in cash and cash
equivalents 229,607 (1,523,232) 2,674,963
Cash and cash equivalents at beginning of year 1,673,811 3,197,043 522,080
----------- ----------- ----------
Cash and cash equivalents at end of year $ 1,903,418 $ 1,673,811 $3,197,043
=========== =========== ==========
Supplemental disclosure of cash flow information:
Cash paid during the year for corporate income
taxes -- $ 42,000 $ 50,500
=========== =========== ==========
Common Stock issued for consulting services -- $ 45,000
=========== =========== ==========
Treasury stock acquired by the exercise
of employees' stock repurchases (Note J) $ (695) $ (52,500) $ (355,647)
=========== =========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE>
MICROFLUIDICS INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
for the years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
NUMBER
UNREALIZED OF
NUMBER OF COMMON APPRE- SHARES
SHARES OF STOCK ADDITIONAL CIATION ON OF
COMMON AT PAR PAID-IN ACCUMULATED MARKETABLE TREASURY TREASURY
STOCK VALUE CAPITAL DEFICIT SECURITIES STOCK STOCK TOTAL
--------- ------- ----------- ------------- ---------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1992 3,830,630 $38,305 $ 7,097,123 $(4,362,246) 9,195 $ (37,355) $2,735,827
Proceeds from ESOP 2,068 21 9,050 9,071
Searle options exercised
(Note G) 115,000 1,150 171,350 172,500
Stock options exercised 290,725 2,907 433,113 436,020
Treasury stock (Note J) 82,644 (355,647) (355,647)
Private placement (Note K) 633,000 6,330 2,290,353 2,296,683
Net Income 1,172,960 1,172,960
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1993 4,871,423 48,713 10,000,989 (3,189,286) $ 0 91,839 (393,002) 6,467,414
- -----------------------------------------------------------------------------------------------------------------------------------
Unrealized appreciation on
marketable securities 62,843 62,843
Stock options exercised 143,925 1,439 231,903 233,342
Proceeds from ESOP 6,000 60 21,680 21,740
Treasury stock (Note J) 10,000 (52,500) (52,500)
Net income 1,336,685 1,336,685
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1994 5,021,348 50,212 10,254,572 (1,852,601) 62,843 101,839 (445,502) 8,069,524
- -----------------------------------------------------------------------------------------------------------------------------------
Unrealized Appreciation on
marketable securities 20,797 20,797
Stock options exercised 27,875 280 43,144 43,424
Proceeds from ESOP 8,980 90 21,634 21,724
Treasury stock (Note J) 5,180 (9,069) (9,069)
Net Loss (2,117,319) (2,117,319)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 5,058,203 $50,582 $10,319,350 $(3,969,920) $83,640 107,019 $(454,571) $6,029,081
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE>
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
1. CONSOLIDATION
The consolidated financial statements of the Company include the accounts
of the Company and its wholly owned subsidiaries, Microfluidics
Corporation ("MFC") and MediControl Corporation ("MediControl").
All significant intercompany transactions have been eliminated.
2. CASH EQUIVALENTS
The Company considers securities with maturities of three months or less,
when purchased, to be cash equivalents.
3. MARKETABLE SECURITIES
During 1994, the Company adopted Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" (SFAS 115). The adoption of SFAS 115 resulted in an increase
in stockholders' equity of $20,797 and $62,843 in 1995 and 1994,
respectively. In accordance with this statement, prior years' financial
statements have not been restated to reflect the change in accounting
method.
At December 31, 1995 and 1994, marketable equity securities have been
categorized as available for sale and, as a result, are stated at fair
value. Unrealized holding gains and losses, net of tax, are included as a
component of stockholders' equity until realized.
4. INVENTORIES
Inventories are stated at the lower of cost or market. Approximate cost
is determined on a first-in, first-out basis. Certain inventories are
held on customer premises on a trial basis preparatory to sale.
F-7
<PAGE>
5. EQUIPMENT AND LEASEHOLD IMPROVEMENTS
The Company's equipment and leasehold improvements are recorded at
cost. Depreciation is computed on the straight-line method, based
upon useful lives of three to five years. Leasehold improvements are
amortized on the straight-line method based upon the lesser of the
estimated useful lives or term of the lease. Expenditures for
maintenance and repairs are expensed as incurred. Upon retirement or
sale of property and equipment, the cost of the disposed asset and the
related accumulated depreciation are removed from the accounts and any
resulting gain or loss is credited or charged to operations.
6. INTANGIBLES
Patents, patent applications and rights are stated at acquisition
cost. Amortization of patents is recorded using the straight-line
method over the legal lives of the patents. The excess of cost over
fair value of net assets acquired is amortized over 5 years. The
Company periodically reviews the carrying value of intangible assets
and impairments are recognized when the expected future operating cash
flows derived from such intangible assets is less than their carrying
value.
7. INCOME TAXES
The Company provides for income taxes based on the provisions of
Statement of Financial Accounting Standards (SFAS) No. 109,
"Accounting for Income Taxes," which requires recognition of deferred
tax assets and liabilities based on the expected future tax
consequences of events that have been included in the financial
statements or tax returns. Under this method, deferred tax assets and
liabilities are determined based upon the difference between the
financial statement and tax basis of assets and liabilities using
enacted tax rates in effect for the year in which the differences are
expected to be reversed. Under SFAS No. 109, the effect on deferred
tax assets and liabilities of a change in tax rates is recognized as
income or loss in the period that includes the enactment date.
8. REVENUE RECOGNITION
Product sales and related cost of sales are reflected in income when
goods are shipped for final sale.
9. NEW ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 123 "Accounting for
Stock-Based Compensation" (SFAS 123), will require the Company to
either elect expense recognition or the disclosure-only alternative
for stock-based employee compensation. SFAS 123 must be adopted in
the Company's 1996 financial
F-8
<PAGE>
statements with comparable disclosures for the prior year. While the
Company is reviewing the adoption and impact of SFAS 123, it expects
to adopt the disclosure only alternative and accordingly this standard
will have no impact on the Company's results of operations or its
financial position.
10. EARNINGS (LOSS) PER SHARE
Primary and fully diluted earnings per common and common equivalent
share are computed by dividing net income by the weighted average
number of shares of common stock and common stock equivalents
outstanding during the year. The calculation of fully diluted income
(loss) per common share uses a different market price assumption than
primary earnings (loss) per common share for the reacquisition of
common shares.
Net income (loss) per common share is calculated by dividing net
income (loss) by the weighted average number of shares of common stock
and common stock equivalents outstanding during the year. Options and
warrants are not reflected in the calculation of net income
(loss) per common share when their inclusion would be anti-dilutive.
11. USE OF ESTIMATES
The process of preparing financial statements in conformity with
generally accepted accounting principles requires the use of estimates
and assumptions that affect the reported amounts of 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 these estimates.
B. INDUSTRY SEGMENT AND MAJOR CUSTOMERS:
The Company has one business segment: the development, manufacture,
marketing and sale of process and formulation equipment. The Company's
sales are primarily to companies with processing needs in the chemical,
pharmaceutical, food, cosmetic, and biotechnology industries.
Mizuho Industrial Co. (a distributor) accounted for 21% of revenues in
1995, 20% of revenues in 1994 and 19% of revenues in 1993. Sales in Europe
were approximately $984,000, $625,000 and $395,000, and sales in Asia were
approximately $1,514,000, $1,919,000 and $1,892,000 in 1995, 1994 and 1993,
respectively, of the total revenues. One other customer (PPG) accounted for
10% of revenues in 1995. A reduction or delay in orders from Mizuho or
other significant customers could have a material adverse effect on the
Company's results of operations.
F-9
<PAGE>
C. INVESTMENTS:
At December 31, 1995 and 1994, the Company held 13,940 and 23,940 shares,
respectively, of PolyMedica Industries, Inc. at zero cost through its wholly
owned subsidiary MediControl. The market value of these shares at December
31, 1995 and 1994 was $83,640 and $104,738, respectively.
During 1995, the Company sold 10,000 shares of PolyMedica Industries, Inc.
at a gain of $93,239. On October 28, 1994 the Company received from
PolyMedica Industries, Inc. a stock dividend of 1,140 shares. During 1993,
the Company sold 2,000 shares of PolyMedica Industries, Inc. at a gain of
$34,906.
D. INVENTORY
The components of inventories at the respective dates are as follows:
<TABLE>
<CAPTION>
December 31,
1995 1994
---------- ----------
<S> <C> <C>
Raw materials $1,530,614 $1,577,841
Work in process 418,738 162,532
Finished goods 507,037 1,104,316
---------- ----------
$2,456,389 $2,844,689
========== ==========
</TABLE>
E. INTANGIBLE ASSETS:
The Company purchased the rights and title of certain liposome and
microemulsion technology devices from Arthur D. Little in 1985. The
unamortized license fee and patent are included in intangible assets and are
being amortized using the straight line method over the useful life of the
patent, 17 years. Patents and other intangible assets were purchased in 1991
as a result of a share exchange by MediControl stockholders. These patents
and other intangible assets are being amortized using the straight line
method over five years. In addition, the Company capitalized $96,680 of
patent costs related to the cooperative-venture described in Note M.
Amortization charged to expense was $53,412 in 1995 and $54,276, in 1994 and
1993, respectively.
F. LINE OF CREDIT
In December 1993, the Company entered into a loan and security agreement
(the "Agreement") for a line of credit with a local bank. The available line
or borrowing base is equal to the lesser of $750,000 or 80% of net
outstanding amount of base accounts, as defined in the agreement.
F-10
<PAGE>
The line is collateralized by all inventory, accounts receivable, general
intangibles, machinery and equipment and all other property of the Company,
excluding leased inventory and certain intangible assets. There were no
borrowings under this line of credit arrangement during 1995 or 1994.
G. DEBT
Effective September 30, 1989, the Company issued to G.D. Searle & Company
("Searle") a 9% Debenture due September 30, 1994 in the original principal
amount of $750,000 (the "Searle Debenture"). Interest under the Searle
Debenture was payable in one installment on the unpaid balance at the due
date. The Company also granted to Searle an irrevocable, immediately
exercisable option to purchase up to 600,000 shares of the Company's Common
Stock at a purchase price of $1.50 per share (the "Searle Option") and
certain rights to market the Company's products.
Effective March 9, 1992 and June 30, 1993, Searle exercised the Searle
Option and purchased 600,000 shares of the Company's Common Stock. Searle
paid the aggregate exercise price by surrendering the Searle Debenture.
H. EMPLOYEE BENEFITS:
Effective January 1, 1990, the Company offered a 401(k) profit-sharing plan
(the "Plan"), to its employees. All Company and related entity employees who
are eighteen years of age and have completed one hour of service are
eligible to participate in the Plan. Employees may contribute from 1% to 20%
of their compensation. The Company's contribution is discretionary, with
contributions made from time to time as management deems advisable. The
Company made no matching contributions during 1995, 1994 or 1993. Plan
administration expenses of $2,755, $2,110 and $1,660 were incurred by the
Company in 1995, 1994 and 1993, respectively. The Company instituted a
cafeteria plan in 1992, giving the employees certain pre-tax advantages on
specific payroll deductions, at an administrative cost of $500 each in each
of 1995, 1994 and 1993.
I. INCOME TAXES
In 1993, the Company adopted SFAS 109, "Accounting for Income Taxes." The
cumulative effect of this change of $290,609 was determined at January 1,
1993, and reported in the Company's prior year financial statement.
F-11
<PAGE>
The provision/(benefit) for income taxes for the current year is as
follows:
<TABLE>
<CAPTION>
FEDERAL STATE TOTAL
<S> <C> <C> <C>
DECEMBER 31, 1995:
Current $ - $ 6,643 $ 6,643
Deferred $939,615 $161,164 $1,100,779
-------- -------- -----------
Total $939,615 $167,807 $1,107,422
======== ======== ===========
DECEMBER 31, 1994:
Current $ - $ 14,762 $ 14,762
Deferred ($644,656) ($161,164) ($ 805,820)
-------- -------- -----------
Total ($644,656) ($146,402) ($ 791,058)
======== ======== ===========
</TABLE>
The current year income tax provision of $6,643 represents state tax. The
deferred income tax expense of $1,100,779 results from net operating loss
carryforwards, tax credit carryforwards and other deferred tax assets, which
may not be realized.
The approximate tax effect of each type of temporary difference and
carryforward before and after allocation of the valuation allowance is as
follows:
<TABLE>
<CAPTION>
December 31, 1995 1994
---------- ----------
<S> <C> <C>
Net Operating Loss $1,112,967 $ 866,721
Research and Development Credit 174,655 127,347
Inventory Capitalization 176,688 186,423
Other 30,437 27,106
SFAS 115 (33,456) (41,895)
Depreciation and Amortization (17,747) (458)
---------- ----------
Net Deferred Tax Asset Before Valuation 1,443,544 1,165,244
---------- ----------
Valuation Allowance (1,443,544) (60,710)
---------- ----------
Net Deferred Tax Asset After Valuation $ 0 $1,104,534
========== ==========
</TABLE>
The Company has a net operating loss tax carryforward of approximately
$3,273,000 and research and development tax credit carryforwards of
approximately $175,000, expiring at various dates beginning in 1999 through
2010. Ownership changes may result in future limitations on the utilization
of net operating losses and research and development tax credit
carryforwards.
F-12
<PAGE>
Based on the financial results known at December 31, 1995, the Company has
established a complete valuation allowance against the deferred tax asset
due to the uncertainty of earning sufficient taxable income to realize the
benefit of these assets. Therefore the Company has increased the valuation
allowance by $1,382,834 in 1995 to reflect this uncertainty.
The following schedule reconciles the difference between the federal income
tax rate and the effective income tax rate:
<TABLE>
<CAPTION>
December 31, 1995 1994 1993
------ ------- ------
<S> <C> <C> <C>
Federal Income Tax Rate 34.0% 34.0% 34.0%
State Income Tax, Net - 6.3% 12.0%
Permanent Differences 6.0% 3.2% 4.0%
Unbenefitted NOL (40.0%) - -
Valuation Allowance 148.0% - -
Recognition of Deferred Tax Assets - (188.5%) (44.0%)
----- ------ -----
Total Effective Tax Rate 148.0% (145.0%) 6.0%
===== ====== =====
</TABLE>
J. OPTIONS:
The Company adopted the 1988 Stock Plan as the successor plan to the 1987
Stock Plan, which authorizes the grant of Stock Rights for up to 1,750,000
shares of Common Stock and the 1989 Non-Employee Director Stock Option Plan
which, as amended at the 1991 shareholders' meeting, authorizes the grant of
nonqualified stock options for up to 240,000 shares of Common Stock.
Information concerning stock options are as follows:
F-13
<PAGE>
<TABLE>
<CAPTION>
December 31,
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Outstanding, at beginning of year 783,150 768,025 975,650
Option shares:
Granted 281,500 178,300 169,500
Exercised 27,875 143,925 290,725
Cancelled 40,175 19,250 86,400
------ ------- -------
Outstanding, at end of year 996,600 783,150 768,025
======= ======= =======
Price range of outstanding options
at year end $1.16-7.44 $1.16-7.44 $1.16-6.56
</TABLE>
There were 495,563 shares of Common Stock subject to exercisable options at
December 31, 1995, with a price range of $1.16-$7.44. In 1995, options to
purchase 27,875 shares were exercised at prices ranging from $1.16-$2.32. In
1994, options to purchase 143,925 shares were exercised at prices ranging
from $1.16-$4.625 per share. In 1993, options to purchase 290,725 shares
were exercised at prices ranging from $1.16 to $3.13 per share.
On January 3, 1995, the Company issued options for an additional 22,500
shares at a price of $3.88 per share under the 1989 Non-Employee Director
Stock Plan.
During 1995, 1994 and 1993, employees delivered shares to the Company in
payment for shares they were purchasing upon exercise of the stock options
they held. The aggregate amount of shares received during 1995, 1994, and
1993 were 5,180, 10,000, and 82,644 shares respectively.
K. STOCKHOLDER'S EQUITY:
In 1993, the Company raised additional capital through a private sale of
633,000 shares of its common stock. The shares were sold at $4.20 per share,
less expenses of approximately $360,000, resulting in net proceeds to the
Company of approximately $2,300,000. The financial advisors who facilitated
the financing were awarded warrants for the purchase of 44,681 shares of
restricted common stock. The warrants were exercisable from November 5, 1993
through April 28, 1995 at $6 per share.
F-14
<PAGE>
As partial compensation for financial advisory services rendered to the
Company by Ladenburg Thalmann & Co., Inc., an investment banking firm
("Ladenburg"), the Company on July 15, 1993 granted to Ladenburg a warrant
to purchase up to 75,000 shares at a per share purchase price of $4.50
commencing on July 14, 1994 and exercisable until July 14, 1998.
L. COMMITMENTS AND CONTINGENCIES:
At December 31, 1995 the Company had an operating lease for the rental of
its facilities which requires the following minimum payments during the
following years:
<TABLE>
<CAPTION>
Minimum Payments
----------------
<S> <C>
1996 157,500
1997 172,500
1998 90,000
--------
Total $420,000
========
</TABLE>
Rent expense for 1995, 1994 and 1993 was approximately $150,000, $162,000
and 122,000, respectively. The current lease is due to terminate on May 31,
1998.
M. COOPERATIVE VENTURE:
In 1992, the Company formed a cooperative venture with Worcester Polytechnic
Institute to develop, patent, and license for commercial application the
Microfluidizer processing technology in certain fields. Expenditures for
this venture were approximately $48,000 in 1995 and $180,000 in 1994. The
costs in connection with patent applications of $96,680 have been included
in intangible assets at December 31, 1995. Amortization began in December,
1995.
In September of 1993, the Company signed a license and research and
development agreement with Catalytica, Inc., as joint licensee, to further
the studies of the venture with Worcester Polytechnic Institute, as
licensor. In 1995, the Company spent $247,162 related to this venture, of
which the Company was reimbursed $118,638 from a government grant awarded
jointly to Catalytica, Inc. and the Company in relation to this project. The
remainder of the expenditures were included in research and development
expense.
N. SALE OF ASSETS:
On December 27, 1995, the Company sold to ChemMark Development, Inc.
("ChemMark") its business of manufacturing and distributing proprietary
cosmetic
F-15
<PAGE>
liposomal formulations, sold under the trade name Dermasome/(R)/. In return
for ChemMark's payment of $50,000, the Company transferred to ChemMark its
Dermasome/(R)/ trademark, its customer list, its products list, all unfilled
Dermasome/(R)/ orders, and all products and product literature.
Additionally, the Company granted to ChemMark a two year, world-wide,
exclusive license to use the Company's proprietary technology and know-how
and to manufacture and distribute Dermasome products. In exchange, the
Company received a one-time, non-refundable $50,000 rights grant acquisition
fee, and the payment over the license term of a percentage royalty equal to
ten percent (10%) of the net sales realized by ChemMark on the sale of
products derived from the Company's technology. Notwithstanding the amount
of such percentage royalty, ChemMark is obligated to pay a minimum royalty
payment in the amount of $100,000, payable in 22 equal monthly installments
of $4,167.67, with a final payment of $8,333.34 due upon the second
anniversary of the agreement. As security for ChemMark's performance of its
obligations to the Company, the Company retains a security interest in the
trademark. The Company recognized a gain of $81,537 upon the sale of the
Dermasome/(R)/ business.
O. RELATED PARTY TRANSACTIONS:
During 1995, 1994 and 1993, the Company and an entity controlled by Mr.
Gruverman, the Company's Chairman, entered into an arrangement whereby such
entity reimbursed the Company for a portion of certain administrative
expenses. The Company was reimbursed approximately $31,155, $21,800 and
$16,400 by such entity during 1995, 1994 and 1993, respectively. The Company
reimbursed the entity controlled by Mr. Gruverman $53,478, $32,898 and
$56,580 for consulting services (other than those of Mr. Gruverman) paid by
such entity on behalf of the Company in 1995, 1994 and 1993, respectively.
F-16
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized, in the city of Newton,
Commonwealth of Massachusetts, on the 26th day of March, 1996.
MICROFLUIDICS INTERNATIONAL CORPORATION
By: /s/ Michael A. Lento
--------------------
Michael A. Lento
President
<PAGE>
Pursuant to the requirements of the Securities and Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Irwin J. Gruverman Chief Executive Officer March 26, 1996
- -------------------------- (Principal Executive Officer),
Irwin J. Gruverman Chairman of the Board of
Directors and Secretary
/s/ Michael A. Lento President and Treasurer March 26, 1996
- ------------------------- (Principal Financial and
Michael A. Lento Accounting Officer)
/s/ Robert L. Bogomolny Director March 26, 1996
- --------------------------
Robert L. Bogomolny
/s/ Marshall S. Sterman Director March 26, 1996
- --------------------------
Marshall S. Sterman
/s/ Michael K. Hooker Director March 26, 1996
- --------------------------
Michael K. Hooker
/s/ James N. Little Director March 26, 1996
- ----------------------
James N. Little
</TABLE>
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
- ------- ----------------------
3.3(a) Certificate of Incorporation for the Company, as amended (filed as
Exhibit 2A to Registration Statement No. 0-11625 on Form 8-A and
incorporated herein by reference).
3.3(b) By-Laws for the Company, as amended (filed as Exhibit 3(b) to
Registration Statement No. 2-85290 on Form S-1 and Incorporated herein
by reference).
3.10(a) 1987 Stock Plan (filed as Exhibit 10(g) to the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1987 and
incorporated herein by reference).
3.10(b) 1988 Stock Plan (filed as Exhibit 10(g) to the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1988 and
incorporated herein by reference).
3.10(c) 1989 Non-Employee Directors Stock Option Plan (filed as Exhibit 10(h)
to the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1988 and incorporated herein by reference).
3.10(d) Loan Agreement between The First National Bank of Boston and
Microfluidics International Corporation dated as of December 10, 1993
(filed as Exhibit 10.1 to Form 8-K filed on December 27, 1993 and
incorporated herein by reference).
3.10(e) Lease for 30 Ossipee Road, Newton, Massachusetts dated April 22, 1993
between Microfluidics International Corporation and J. Frank Garrity,
Trustee of 1238 Chestnut Street Trust under Declaration of Trust dated
May 23, 1969, recorded with Middlesex South Registry of Deeds in Book
11682, Page 384 (filed as Exhibit 3.10(e) to the Company's Form 10-K
for the fiscal year ended December 31, 1993 and incorporated herein by
reference).
3.10(f) Letter of Understanding between Microfluidics International
Corporation and Worcester Polytechnic Institute dated as of April 3,
1993 (filed as Exhibit 3.10(f) to the Company's Form 10-K for the
fiscal year ended December 31, 1993 and incorporated herein by
reference).
3.10(g) Agreement between Microfluidics International Corporation and
Catalytica, Inc. dated as of October 18, 1993 (filed as Exhibit
3.10(g) to the Company's Form 10-K for the fiscal year ended December
31, 1993 and incorporated herein by reference).
3.10(h) License Agreement among Microfluidics International Corporation,
Worcester Polytechnic Institute and Catalytica, Inc. dated as of
October 18, 1993 (filed as Exhibit 3.10(h) to the Company's Form 10-K
for the fiscal year ended December 31, 1993 and incorporated herein by
reference).
*3.10(i) Agreement, dated July 27, 1995, between Microfluidics International
Corporation and Michael T. Rumley.
<PAGE>
Exhibit
Number Description of Exhibit
- ------- ----------------------
*3.10(j) Letter, dated August 16, 1995, from Microfluidics International
Corporation to Michael T. Rumley.
*3.10(k) Letter, dated December 31, 1995, from Microfluidics International
Corporation to Irwin J. Gruverman.
*3.10(l) Warrant for the Purchase of Shares of Common Stock, dated July 15,
1993, in favor of Ledenburg, Thalmann & Co. Inc.
*3.21 Subsidiaries of the Registrant.
*3.24 Consent of Coopers & Lybrand L.L.P.
*3.27 Financial Data Schedule
_____________________
*Filed herewith
<PAGE>
AGREEMENT
---------
It is hereby agreed by and between Michael T. Rumley, hereinafter referred
to as "Mr. Rumley" and Microfluidics International Corporation, together with
its wholly owned subsidiaries, hereinafter jointly referred to as the "Company,"
for good and sufficient consideration more fully described below, that:
1. Employment Status. Effective July 28, 1995 (the "Termination Date"),
-----------------
Mr. Rumley resigned from both employment with and/or any officer or director
position(s) he holds or has held for the Company. As of such Termination Date,
Mr. Rumley's salary ceased and any entitlement he has or might have under any
Company-provided benefit program terminated except as required by federal or
state law or otherwise described below.
2. Consideration.
-------------
(a) Salary Continuation.
-------------------
1. For the six-month period from July 29, 1995 through January 28,
1996, the Company shall pay Mr. Rumley a total of Four Thousand Four Hundred and
Sixty Dollars and Fifty Cents ($4,460.50) on a bi-weekly basis, the first such
payment to be made on the first regularly scheduled pay day on or immediately
following the Effective Date of this Agreement, as defined below in Section
8.*
2. Commencing January 29, 1996, the Company shall pay Mr. Rumley Two
Thousand Nine Hundred and Seventy-Three Dollars and Sixty-Six Cents ($2,973.66)
on a bi-weekly basis until the earlier of July 28, 1996 or the day on which Mr.
Rumley becomes either employed or involved in activities for which he is
remunerated. If Mr. Rumley becomes employed or involved in activities for which
he is remunerated, Mr. Rumley shall receive Four Hundred and Forty-Six Dollars
and Five Cents ($466.05) on a bi-weekly basis from the date of either such
employment or involvement until July 28, 1996.*
3. All payments set forth in this clause (a) of Section 2 shall be
made in accordance with the Company's normal payroll practices and are subject
to applicable (if any) federal, state and/or local withholding, payroll and
other taxes.
(b) Mr. Rumley shall have the opportunity to purchase the computer/printer
provided to him by the Company for Twelve Hundred Dollars ($1,200), which amount
shall be deducted from any accrued, unused vacation pay to which Mr. Rumley
shall be entitled. Any remaining accrued, unused vacation pay to which Mr.
Rumley might be entitled shall be paid to him as of the Termination Date.
(c) The Company shall endeavor to facilitate sale of Mr. Rumley's
exercisable stock options, but in making such endeavor shall not suffer any
negative impact or tax consequences.
- ----------------
*Payments are gross amounts, from which appropriate withholding will be
deducted.
<PAGE>
3. Settlement of Amounts Due Employee. The amounts set forth above in
----------------------------------
Section 2, together with any amounts previously provided to Mr. Rumley by the
Company, shall be complete and unconditional payment, settlement, satisfaction
and accord with respect to all obligations and liabilities of the Company and
any of its affiliated companies (including their respective successors, assigns,
shareholders, officers, directors, employees and/or agents) to Mr. Rumley, and
all claims, causes of action and damages by Mr. Rumley against the Company
and/or any such other parties regarding Mr. Rumley's employment with and
termination from employment with the Company, including, without limitation, all
claims for back wages, salary, draws, commissions, bonuses, vacation pay,
expenses, compensation, severance pay, attorney's fees, compensatory damages,
exemplary damages, or other costs or sums.
4. Confidentiality. Mr. Rumley agrees not to make any negative or adverse
---------------
remarks whatsoever concerning the business, operations, technologies, products,
services, marketing strategies, pricing policies, management affairs and
financial condition of the Company, its affiliated companies and/or their
successors, assigns, shareholders, officers, directors, employees and/or agents.
Mr. Rumley agrees he shall not divulge or publish, directly or indirectly, any
information whatsoever regarding the substance, terms or existence of this
Agreement and/or any discussions or negotiations relating to this Agreement to
any person or organization, except to him immediate family members, counsel or
accountant.
5. Release.
-------
(a) In exchange for the amounts and actions described in Section 2 and
other good and valuable consideration, receipt of which is hereby acknowledged,
Mr. Rumley and his representatives, agents, estate, successors and assigns,
absolutely and unconditionally hereby release and forever discharge the Company,
its affiliated companies and/or their successors, assigns, directors,
shareholders, officers, employees and/or agents, both individually and in their
official capacities, from any and all actions or causes of action, suits,
claims, complaints, contracts, liabilities, agreements, promises, debts and
damages, whether existing or contingent, known or unknown, which arise out of
Mr. Rumley's employment with or termination from the Company. This release is
intended by Mr. Rumley to be all encompassing and to act as a full and total
release of any claims that Mr. Mr. Rumley may have or has had against the
Company, its affiliated companies and/or their successors, assigns, directors,
shareholders, officers, employees and/or agents, both individually and in their
official capacity with the Company, including, but not limited to, any federal,
state or local law or regulation dealing with either employment or employment
discrimination such as those laws or regulations concerning discrimination on
the basis of age, race, color, religion, creed, sex, sexual orientation,
national origin, ancestry, marital status, physical or mental disability, or
status as a disabled or military veteran; any contract, whether oral or written,
express or implied; or common law.
(b) Mr. Rumley agrees not only to release and discharge the Company, its
affiliated companies and/or their respective successors, assigns, shareholders,
officers, directors, employees and/or agents from any and all claims as stated
above that Mr. Rumley could make on his own behalf or on behalf of others, but
also those claims which might be made by any other person or organization on
behalf of Mr. Rumley, and Mr. Rumley specifically waives any right to become,
and promises not to become, a member of any class in a case in which a claim or
claims against the Company, its affiliated companies and/or their respective
successors, assigns, shareholders, officers, directors, employees and/or agents
are made involving any matters which arise out of Mr. Rumley's employment with
or termination from employment with the Company. Mr. Rumley agrees that the
Company has made the payment(s)
2
<PAGE>
specified in Section 2, the Company will have satisfied any and all legal and/or
contractual obligations to him. Nothing in this Agreement is to be construed as
an admission by the Company, its affiliated companies and/or their respective
successors, assigns, shareholders, officers, directors, employees and/or agents
of any liability of unlawful conduct whatsoever.
6. Waiver of Rights and Claims Under the Age Discrimination and
------------------------------------------------------------
Employment Act of 1967.
- ----------------------
(a) Mr. Rumley has been informed that since he is 40 years of age or older,
he has or might have specific rights and/or claims under the Age Discrimination
and Employment Act of 1967. In consideration for the amounts described in
Section 2 hereof, which are in excess of anything to which Mr. Rumley already is
entitled, Mr. Rumley specifically waives such rights and/or claims to the extent
that such rights and/or claims arose prior to the date this Agreement was
executed.
(b) Mr. Rumley was advised by the Company of his right to consult with an
attorney prior to executing this Agreement.
(c) Mr. Rumley was further advised when he was presented by the Company
with the original draft of this Agreement on July 27, 1995, that he had at least
21 days within which to consider its terms and to consult with or seek advice
from an attorney or any other person of his choosing, until the close of
business on August 17, 1995.
7. Representations and Governing Law.
---------------------------------
(a) This Agreement represents the complete and sole understanding between
the parties, supersedes any and all other agreements and understandings, whether
oral or written. This agreement may not be modified, altered or rescinded
except upon written consent of the Company and Mr. Rumley. The invalidity or
unenforceability of any provision of this Agreement shall not affect the other
provisions of this Agreement, but this Agreement shall be revised, construed and
reformed to the fullest extent possible to effectuate the purposes of this
Agreement. This Agreement shall be binding upon and inure to the benefit of the
Company and Mr. Rumley and their respective heirs, successors and assigns.
(b) This Agreement shall be governed by and construed in accordance with
the laws of the Commonwealth of Massachusetts, without giving effect to the
principles of conflicts of law thereof.
(c) Mr. Rumley represents that he has read the foregoing Agreement, fully
understands the terms and conditions of such Agreement, and is voluntarily
executing the same. In entering into this Agreement, Mr. Rumley does not rely
on any representation, promise or inducement made by the Company, with the
exception of the consideration described in this document.
3
<PAGE>
8. Effective Date. Mr. Rumley may revoke this Agreement during the
--------------
period of seven (7) days following its execution by Mr. Rumley, until the close
of business on August 3, 1995, and this Agreement shall not become effective or
enforceable until this revocation period has expired.
Executed this 27th day of July, 1995.
/s/ Michael T. Rumley
---------------------
Michael T. Rumley
MICROFLUIDICS INTERNATIONAL CORPORATION
By: /s/ Irwin J. Gruverman
----------------------
Title: Chief Executive Officer
-----------------------
4
<PAGE>
[TO BE KEPT SEPARATE FROM
AGREEMENT/WAIVER]
Michael Rumley acknowledges that he was informed and understands that he
has at least 21 days within which to consider the attached Agreement/Waiver, has
consulted with an attorney regarding such Agreement and has considered carefully
every provision of the Agreement, and that after having engaged in those
actions, prefers to and has requested that he enter into the Agreement/Waiver
prior to the expiration of the 21-day period.
Dated: 7/27/95 /s/ Michael T. Rumley
------- ---------------------
Michael T. Rumley
Witness: /s/ Jack M. Swig
----------------
MICROFLUIDICS INTERNATIONAL CORPORATION
Dated: 7/27/95 By: /s/ Irwin J. Gruverman
------- ----------------------
Its Chief Executive Officer
5
<PAGE>
MICROFLUIDICS INTERNATIONAL CORPORATION
30 Ossipee Road
Newton, Ma 02164
Dear Michael:
You have asked for an explanation of your employment status under the
Agreement you executed on July 27, 1995, which became effective seven (7) days
later on August 3, 1995. You believe that Sections 1 and 2(c) of the Agreement
are inconsistent and create confusion about your employment status for the
period July 29, 1995 through January 28, 1996.
We have reviewed the Agreement and do not agree that there is any
inconsistency. However, we are willing to interpret the Agreement so that your
employment terminates on January 28, 1996, and that you gave us (6) months
notice of such termination on July 28, 1995. Your resignation from your office
or director positions remains effective as of July 28, 1995.
For the period from July 29, 1995 through January 28, 1996, you will be
considered an employee on special assignment. As a result, you will be eligible
for certain specific benefits offered by the Company, 401(k) participation,
stock options and life insurance. You will not be eligible for vacation accrual
or any other benefits, since you will be involved only on special assignments.
I trust this letter clarifies any question you might have under the
Agreement which you executed on July 27, 1995 and which became effective on
August 3, 1995. If so, I suggest that you execute this letter in the area
provided below and that the original of this letter be attached to the original
of the Agreement and made a part thereof. To the extent there is any
inconsistency between this document and the letter, the letter shall take
precedence.
Microfluidics International Corporation
/s/ Irwin J. Gruverman
----------------------
Irwin J. Gruverman, CEO
/s/ Michael T. Rumley
- ---------------------
Michael T. Rumley
Date: 8/16/95
-------
<PAGE>
MICROFLUIDICS INTERNATIONAL CORPORATION
30 Ossipee Road
Newton, Ma 02164
December 31, 1995
Irwin J. Gruverman
16 Tanglewood Road
Needham, MA 02194
Dear Mr. Gruverman:
This will confirm our Agreement concerning your compensation as Chairman and CEO
of MFIC, and charges you will incur in connection with your activities for G & G
Diagnostics Corporation.
You may maintain an office in our premises at 30 Ossipee Road and will pay MFIC
$800.00 per month for space, incidental administrative support, minor supplies
usage, and limited use of telephone and copying resources. You will reimburse
MFIC for express charges, outside accounting help and materials and services
purchased through our system.
Subject to approval by the Board, we will pay you at a rate of $72,000 per year,
beginning January 1, 1996. Of that amount, 1/3 will be paid in restricted MFIC
stock, at a price of $1.50/share, at this time. The balance will be paid in
cash, in 4 equal increments, at the beginning of each quarter. A bonus of up to
$28,000 will be paid, contingent on meeting performance goals to be agreed. You
agree that MFIC will withhold money from your compensation to pay appropriate
taxes. You will be included in MFIC's insurance and medical programs as in past
years, at no cost to you, as part of your compensation.
Jack Swig will be an employee of MFIC. He will be available to G & G on a half-
time basis, and G & G will reimburse 50% of his salary fringes and tax costs to
MFIC on a quarterly basis.
MICROFLUIDICS INTERNATIONAL, INC.
/s/ Michael Lento /s/ Irwin Gruverman
- --------------------------- ------------------------------------
Michael Lento, President Irwin Gruverman
Individually and as President of G&G
Diagnostics Corporation
/s/ Irwin Gruverman
- -------------------
Irwin Gruverman, CEO
<PAGE>
WARRANT FOR THE PURCHASE OF SHARES OF COMMON STOCK
No. 75,000 Shares
------
FOR VALUE RECEIVED, Microfluidics International Corporation (the
"Company"), a Delaware corporation, hereby certifies that Ladenburg, Thalmann &
Co. Inc., or its permitted assigns are entitled to purchase from the Company, at
any time or from time to time commencing July 15, 1994, and prior to 5:00 P.M.,
New York City time then current, on July 14, 1998, 75,000 fully paid and non-
assessable shares of the common stock, $0.01 par value, of the Company at the
purchase price of $337,500 (computed on the basis of $4.50 per share).
(Hereinafter, (i) said common stock, together with any other equity securities
which may be issued by the Company with respect thereto or in substitution
therefor, is referred to as the "Common Stock," (ii) the shares of the Common
Stock purchasable hereunder are referred to as the "Warrant Shares," (iii) the
aggregate purchase price payable hereunder for the Warrant Shares is referred to
as the "Aggregate Warrant Price," (iv) the price payable hereunder for each of
the shares of the Warrant Shares is referred to as the "Per Share Warrant Price"
and (v) this warrant and all warrants hereafter issued in exchange or
substitution for this warrant are referred to as (the "Warrants"). The
Aggregate Warrant Price is not subject to adjustment. The Per Share Warrant
Price is subject to adjustment as hereinafter provided; in the event of any such
adjustment, the number of Warrant Shares shall be adjusted by dividing the
Aggregate Warrant Price by the Per Share Warrant Price in effect immediately
after such adjustment.
1. EXERCISE OF WARRANT.
-------------------
(a) This Warrant may be exercised, in whole at any time or in part from
time to time, commencing July 15, 1994 (the "Commencement Date"), and prior
to 5:00 P.M., New York City time then current, on July 14, 1998, (the
"Expiration Date"), by the holder of this Warrant (the "Holder") by the
surrender of this Warrant (with the subscription form at the end hereof
duly executed) at the address set forth in Subsection 9(a) hereof, together
with proper payment of the Aggregate Warrant Price, or the proportionate
part thereof if this Warrant is exercised in part. Payment for the Warrant
Shares shall be made by certified or official bank check, payable to the
order of the Company. If this Warrant is exercised in part, this Warrant
must be exercised for a number of whole shares of the Common Stock, and the
Holder is entitled to received a new Warrant covering the number of Warrant
Shares in respect of which this Warrant has not been exercised and setting
forth the proportionate part of the Aggregate Warrant Price applicable to
such Warrant Shares. Upon such exercise and surrender of this Warrant, the
Company will (i) issue a certificate or certificates in the name of the
Holder for the largest number of whole shares of the Common Stock to which
the Holder shall be entitled and, if this Warrant is exercised in whole, in
lieu of any fractional share of the Common Stock to which the Holder shall
be entitled, pay cash equal to the fair value of such fractional share
(determined in such reasonable manner as the Board of Directors of the
Company shall determine), and (ii) deliver the other securities and
properties receivable upon the exercise of this Warrant, or the
proportionate part thereof if this Warrant is exercised in part, pursuant
to the provisions of this Warrant.
(b) In lieu of exercising this Warrant in the manner set forth in paragraph
1(a) above, this Warrant may be exercised between the Commencement Date and
the Expiration Date by surrender of the Warrant without payment of any
other consideration, commission or remuneration, together with the cashless
exercise subscription form at the end hereof, duly
<PAGE>
executed. The number of shares to be issued in exchange for the Warrant
shall be the product of (x) the excess of the market price of the Common
---------
Stock on the date of surrender of the Warrant and the exercise subscription
form over the Per Share Warrant Price and (y) the number of shares subject
----
to issuance upon exercise of the Warrant, divided by the market price of
the Common Stock on such date. Upon such exercise and surrender of this
Warrant, the Company will (i) issue a certificate or certificates in the
name of the Holder for the largest number of whole shares of the Common
Stock to which the Holder shall be entitled and, in lieu of any fractional
share of the Common Stock to which the Holder shall be entitled, pay cash
equal to the fair value of such fractional share (determined in such
reasonable manner as the Board of Directors of the Company shall
determine), and (ii) deliver the other securities and properties receivable
upon the exercise of this Warrant, pursuant to the provisions of this
Warrant.
2. RESERVATION OF WARRANT SHARES.
-----------------------------
The Company agrees that, prior to the expiration of this Warrant, the
Company will at all times have authorized and in reserve, and will keep
available, solely for issuance or delivery upon the exercise of this
Warrant, such number of shares of the Common Stock and such amount of other
securities and properties as from time to time shall be deliverable to the
Holder upon the exercise of this Warrant, free and clear of all
restrictions on sale or transfer (except such as may be imposed under
applicable Federal and State securities laws) and free and clear of all
preemptive rights and all other rights to purchase securities of the
Company.
3. PROTECTION AGAINST DILUTION.
---------------------------
(a) If, at any time or from time to time after the date of this Warrant,
the Company shall distribute to the holders of its outstanding Common
Stock, (i) securities, other than shares of Common Stock, or (ii) property,
other than cash, without payment therefor, with respect to Common Stock,
then, and in each such case, the Holder, upon the exercise of this Warrant,
shall be entitled to receive the securities and property which the Holder
would hold on the date of such exercise if, on the date of this Warrant,
the Holder had been the holder of record of the number of shares of the
Common Stock subscribed for upon such exercise and, during the period from
the date of this Warrant to and including the date of such exercise, had
retained such shares and the securities and properties receivable by the
Holder during such period. Notice of each such distribution shall be
forthwith mailed to the Holder.
(b) If, at any time or from time to time after the date of this Warrant,
the Company shall (i) pay a dividend (excluding a cash dividend) or make a
distribution on its capital stock in shares of Common Stock, (ii) subdivide
its outstanding shares of Common Stock into a greater number of shares,
(iii) combine its outstanding shares of Common Stock into a smaller number
of shares or (iv) issue by reclassification of its Common Stock any shares
of capital stock of the Company, the Per Share Warrant Price in effect
immediately prior to such action shall be adjusted so that the Holder of
any Warrant thereafter exercised shall be entitled to receive the number of
shares of Common Stock or other capital stock of the Company which he would
have owned or been entitled to received immediately following the happening
of any of the events described above had such Warrant been exercised
immediately prior thereto. An adjustment made pursuant to this (b) shall
become effective immediately after the record date in the case of a
dividend or distribution and shall become effective immediately after the
effective date in the case of a subdivision, combination or
reclassification. If, as a result of an adjustment made pursuant to
2
<PAGE>
this (b), the holder of any Warrant thereafter surrendered for exercise
shall become entitled to receive shares of two or more classes of capital
stock or shares of Common Stock and other capital stock of the Company, the
Board of Directors (whose determination shall be conclusive and shall be
described in a written notice to the Holder of any Warrant promptly after
such adjustment) shall determine the allocation of the adjusted Per Share
Warrant Price between or among shares of such classes or capital stock or
shares of Common Stock and other capital stock.
(c) Except as provided in 3(e), in case the Company shall hereafter issue
or sell any shares of Common Stock for a consideration per share less than
the Per Share Warrant Price in effect immediately prior to such issuance or
sale, the Per Share Warrant Price shall be adjusted as of the date of such
issuance or sale so that the same shall equal the price determined by
dividing (i) the sum of (A) the number of shares of Common Stock
outstanding immediately prior to such issuance or sale multiplied by the
Per Share Warrant Price plus (B) the consideration received by the Company
upon such issuance or sale by (ii) the total number of shares of Common
Stock outstanding after such issuance or sale.
(d) Except as provided in 3(e), in case the Company shall hereafter issue
or sell any rights, options, warrants or securities convertible into Common
Stock entitling the holders thereof to purchase the Common Stock or to
convert such securities into Common Stock at a price per share determined
by dividing (i) the total amount, if any, received or receivable by the
Company in consideration of the issuance or sale of such rights, options,
warrants or convertible securities plus the total consideration, if any,
payable to the Company upon exercise or conversion thereof (the "Total
Consideration") by (ii) the number of additional shares of Common Stock
issuable upon exercise or conversion of such securities less than the then
Per Share Warrant Price in effect on the date of such issuance or sale, the
Per Share Warrant Price shall be adjusted as of the date of such issuance
or sale so that the same shall equal the price determined by dividing (i)
the sum of (A) the number of shares of Common Stock outstanding on the date
of such issuance or sale multiplied by the Per Share Warrant Price plus (B)
the Total Consideration by (ii) the number of shares of Common Stock
outstanding on the date of such issuance or sale plus the maximum number of
additional shares of Common Stock issuable upon exercise or conversion of
such securities.
(e) No adjustment in the Per Share Warrant Price shall be required in the
case of (i) the issuance of up to 395,226 shares of Common Stock upon the
exercise of options which may be granted under the Company's Stock Option
Plans as in effect on the date hereof, (ii) the issuance of shares pursuant
to the exercise of this Warrant or (iii) the sale of up 850,000 shares of
common stock pursuant to a Reg S prior to August 31, 1993.
(f) In case of any consolidation or merger to which the Company is a party
other than a merger or consolidation in which the Company is the continuing
corporation, or in case of any sale or conveyance to another entity of the
property of the Company as an entirety or substantially as an entirety, or
in the case of any statutory exchange of securities with another entity
(including any exchange effected in connection with a merger of any other
corporation with the Company), the Holder of this Warrant shall have the
right thereafter to convert such Warrant into the kind and amount of
securities, cash or other property which he would have owned or have been
entitled to receive immediately after such consolidation, merger, statutory
exchange, sale or conveyance had this Warrant been exercised immediately
prior to the effective date of such consolidation, merger, statutory
exchange, sale or conveyance and in any such case, if
3
<PAGE>
necessary, appropriate adjustment shall be made in the application of the
provisions set forth in this Section 3 with respect to the rights and
interests thereafter of the Holder of this Warrant to the end that the
provisions set forth in this Section 3 shall thereafter correspondingly be
made applicable, as nearly as may reasonably be, in relation to any shares
of stock or other securities or property thereafter deliverable on the
exercise of this Warrant. The above provisions of this 3(f) shall
similarly apply to successive consolidations, mergers, statutory exchanges,
sales or conveyances. Notice of any such consolidation, merger, statutory
exchange, sale or conveyance, and of said provisions so proposed to be
made, shall be mailed to the Holder not less than 20 days prior to such
event. A sale of all or substantially all of the assets of the Company for
a consideration consisting primarily of securities shall be deemed a
consolidation or merger for the foregoing purposes.
(g) No adjustment in the Per Share Warrant Price shall be required unless
such adjustment would require an increase or decrease of at least $0.05 per
share of Common Stock; provided, however, that any adjustments which by
-------- -------
reason of this (g) are not required to be made shall be carried forward and
taken into account in any subsequent adjustment; and provided further,
--- -------- -------
however, that adjustments shall be required and made in accordance with the
provisions of this Section 3 (other than this (g)) not later than such time
as may be required in order to preserve the tax-free nature of a
distribution to the Holder of this Warrant or Common Stock. All
calculations under this Section 3 shall be made to the nearest cent or to
the nearest 1/100th of a share, as the case may be. Anything in this
Section 3 to the contrary notwithstanding, the Company shall be entitled to
make such reductions in the Per Share Warrant Price, in addition to those
required by this Section 3, as it in its discretion shall deem to be
advisable in order that any stock dividend, subdivision of shares or
distribution of rights to purchase stock or securities convertible or
exchangeable for stock hereafter made by the Company to its shareholders
shall not be taxable.
(h) Whenever the Per Share Warrant Price is adjusted as provided in this
Section 3 and upon any modification of the rights of the Holder of this
Warrant in accordance with this Section 3, the Company shall, at its own
expense, within ten (10) days of such adjustment or modification, deliver
to the holder of this Warrant a certificate of the Principal Financial
Officer of the Company setting forth the Per Share Warrant Price and the
number of Warrant Shares after such adjustment or the effect of such
modification, a brief statement of the facts requiring such adjustment or
modification and the manner of computing the same. In addition, within
thirty (30) days of the end of the Company's fiscal year next following any
such adjustment or modification, the Company shall, at its own expense,
deliver to the Holder of this Warrant a certificate of a firm of
independent public accountants of recognized standing selected by the Board
of Directors (who may be the regular auditors of the Company) setting forth
the same information as required by such Principal Financial Officer
Certificate.
(i) If the Board of Directors of the Company shall declare any dividend or
other distribution in cash with respect to the Common Stock, other than out
of earned surplus, the Company shall mail notice thereof to the Holder not
less than 10 days prior to the record date fixed for determining
shareholders entitled to participate in such dividend or other
distribution.
4
<PAGE>
4. FULLY PAID STOCK; TAXES.
-----------------------
The Company agrees that the shares of the Common Stock represented by each
and every certificate for Warrant Shares delivered on the exercise of this
Warrant in accordance with the terms hereof shall, at the time of such
delivery, be validly issued and outstanding, fully paid and non-assessable,
and not subject to preemptive rights, or other contractual rights to
purchase securities of the Company, and the Company will take all such
actions as may be necessary to assure that the par value or stated value,
if any, per share of the Common Stock is at all times equal to or less than
the then Per Share Warrant Price. The Company further covenants and agrees
that it will pay, when due and payable, any and all Federal and state
stamp, original issue or similar taxes which may be payable in respect of
the issue of any Warrant Share or certificate therefor.
5. REGISTRATION UNDER SECURITIES ACT OF 1933.
-----------------------------------------
(a) The Company agrees that if, at any time during the period commencing on
July 15, 1994 and ending on July 14, 1998, the Holder and/or the Holders of
any other Warrants and/or Warrant Shares who or which shall hold not less
than 50% of the Warrants and/or Warrant Shares outstanding at such time and
not previously sold pursuant to this Section 5, request that the Company
file a registration statement under the Securities Act of 1933 (the "Act")
covering all or any of the Warrant Shares, the Company will (i) promptly
notify the Holder and all other registered holders, if any, of other
Warrant and/or Warrant Shares that such registration statement will be
filed and that the Warrant Shares which are then held, and/or which may be
acquired upon the exercise of Warrants, by the Holder and such holders will
be included in such registration statement at the Holder's and such
Holders' request, (ii) cause such registration statement to cover all
Warrant Shares which it has been so requested to include, (iii) use its
best efforts to cause such registration statement to become effective as
soon as practicable and to remain effective and current and (iv) take all
other action necessary under any Federal or state law or regulation of any
governmental authority to permit all Warrant Shares which it has been so
requested to include in such registration statement to be sold or otherwise
disposed of and will maintain such compliance with each such Federal and
state law and regulation of any governmental authority for the period
necessary for the Holder and such Holders to effect the proposed sale or
other disposition.
(b) The Company agrees that if, at any time and, from time to time during
the period commencing on July 15, 1994 and ending on July 14, 2000, the
Board of Directors of the Company shall authorize the filing of a
registration statement (any such registration statement being sometimes
hereinafter called a "Subsequent Registration Statement") under the Act
(otherwise than pursuant to 5(a) hereof) in connection with the proposed
offer of any of its securities by it or any of its shareholders, the
Company will (i) promptly notify the Holder and all other registered
Holders, if any, of other Warrants and/or Warrant Shares that such
Subsequent Registration Statement will be filed and that the Warrant Shares
which are then held, and/or which may be acquired upon the exercise of the
Warrants, by the Holder and such Holders will be included in such
Subsequent Registration Statement at the Holder's and such Holders'
request, (ii) cause such Subsequent Registration Statement to cover all
Warrant Shares which it has been so requested to include, (iii) cause such
Subsequent Registration Statement to become effective as soon as
practicable and to remain effective and current and (iv) take all other
action necessary under any Federal or state law or regulation of any
governmental authority to permit
5
<PAGE>
all Warrant Shares which it has been so requested to include in such
Subsequent Registration Statement to be sold or otherwise disposed of and
will maintain such compliance with each such Federal and state law and
regulation of any governmental authority for the period necessary for the
Holder and such Holders to effect the proposed sale or other disposition.
(c) Whenever the Company is required pursuant to the provisions of this
Section 5 to include Warrant Shares in a registration statement, the
Company shall (i) furnish each Holder of any such Warrant Shares and each
underwriter of such Warrant Shares with such copies of the prospectus,
including the preliminary prospectus, conforming to the Act (and such other
documents as each such Holder or each such underwriter may reasonably
request) in order to facilitate the sale or distribution of the Warrant
Shares, (ii) use its best efforts to register or qualify such Warrant
Shares under the blue sky laws (to the extent applicable) of such
jurisdiction or jurisdictions as the Holders of any such Warrant Shares and
each underwriter of Warrant Shares being sold by such Holders shall
reasonably request and (iii) take such other actions as may be reasonably
necessary or advisable to enable such Holders and such underwriters to
consummate the sale or distribution in such jurisdiction or jurisdictions
in which such Holders shall have reasonably requested that the Warrant
Shares be sold.
(d) The Company shall pay all expenses incurred in connection with any
registration or other action pursuant to the provisions of this Section,
including the attorneys' fees and expenses of the holder(s) of the Warrant
Shares covered by such registration incurred in connection with such
registration or other action, other than underwriting discounts and
applicable transfer taxes relating to the Warrant Shares.
(e) The market price of Common Stock shall mean the price of a share of
Common Stock on the relevant date, determined on the basis of the last
reported sale price of the Common Stock as reported on the NASDAQ National
Market System ("NASDAQ") or, if there is no such reported sale on the day
in question, on the basis of the average of the closing bid and asked
quotations as so reported, or, if the Common Stock is not listed on NASDAQ,
the last reported sale price of the Common Stock on such other national
securities exchange upon which the Common Stock is listed, or, if the
Common Stock is not listed on any national securities exchange, on the
basis of the average of the closing bid and asked quotations on the day in
question in the over-the-counter market as reported by the National
Association of Securities Dealers' Automated Quotations System, or if not
so quoted, as reported by National Quotation Bureau, Incorporated, or
similar organization.
6. INDEMNIFICATION.
---------------
(a) The Company agrees to indemnify and hold harmless each selling holder
of Warrant Shares and each person who controls any such selling holder
within the meaning of Section 15 of the Act, and each and all of them, from
and against any and all losses, claims, damages, liabilities or actions,
joint or several, to which any selling holder of Warrant Shares or they or
any of them may become subject under the Act or otherwise and to reimburse
the persons indemnified as above for any legal or other expenses (including
the cost of any investigation and preparation) incurred by them in
connection with any litigation or threatened litigation, whether or not
resulting in any liability, but only insofar as such losses, claims,
damages, liabilities or actions arise out of, or are based upon, (i) any
untrue statement or alleged untrue statement of a material fact contained
in any registration statement pursuant to which Warrant Shares were
6
<PAGE>
registered under the Act (hereinafter called a "Registration Statement"),
any preliminary prospectus, the final prospectus or any amendment or
supplement thereto (or in any application or document filed in connection
therewith) or document executed by the Company based upon written
information furnished by or on behalf of the Company filed in any
jurisdiction in order to register or qualify the Warrant Shares under the
securities laws thereof or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make
the statements therein, in the light of the circumstances under which they
were made, not misleading, or (ii) the employment by the Company of any
device, scheme or artifice to defraud, or the engaging by the Company in
any act, practice or course of business which operates or would operate as
a fraud or deceit, or any conspiracy with respect thereto, in which the
Company shall participate, in connection with the issuance and sale of any
of the Warrant Shares; provided, however, that (i) the indemnity agreement
-------- -------
contained in this (a) shall not extend to any selling holder of Warrant
Shares in respect of any such losses, claims, damages, liabilities or
actions arising out of, or based upon, any such untrue statement or alleged
untrue statement, or an such omission or alleged omission, of such
statement or omission was based upon and made in conformity with
information furnished in writing to the Company by a selling holder of
Warrant Shares specifically for use in connection with the preparation of
such Registration Statement, any final prospectus, any preliminary
prospectus or any such amendment or supplement thereto. The Company agrees
to pay any legal and other expenses for which it is liable under this (a)
from time to time (but not more frequently than monthly) within 30 days
after its receipt of a bill therefor.
(b) Each selling holder of Warrant Shares, severally and not jointly, will
indemnify and hold harmless the Company, its directors, its officers who
shall have signed the Registration Statement and each person, if any, who
controls the Company within the meaning of Section 15 of the Act to the
same extent as the foregoing indemnity from the Company, but in each case
to the extent, and only to the extent, that any statement in or omission
from or alleged omission from such Registration Statement, any final
prospectus, any preliminary prospectus or any amendment or supplement
thereto was made in reliance upon information furnished in writing to the
Company by such selling holder specifically for use in connection with the
preparation of the Registration Statement, any final prospectus or the
preliminary prospectus or any such amendment or supplement thereto;
provided, however, that the obligation of any holder of Warrant Shares to
-------- -------
indemnify the Company under the provisions of this (b) shall be limited to
the product of the number of Warrant Shares being sold by the selling
holder and the market price of the Common Stock on the date of the sale to
the public of these Warrant Shares. Each selling holder of Warrant Shares
agrees to pay any legal and other expenses for which it is liable under
this (b) from time to time (but not more frequently than monthly) within 30
days after receipt of a bill therefor.
(c) If any action is brought against a person entitled to indemnification
pursuant to the foregoing s (a) or (b) (an "indemnified party") in respect
of which indemnity may be sought against a person granting indemnification
(an "indemnifying party") pursuant to such s, such indemnified party shall
promptly notify such indemnifying party in writing of the commencement
thereof; but the omission so to notify the indemnifying party of any such
action shall not release the indemnifying party from any liability it may
have to such indemnified party otherwise than on account of the indemnity
agreement contained in (a) or (b) of this Section 6. In case any such
action is brought against an indemnified party and it notifies an
indemnifying party of the commencement thereof, the indemnifying party
against which a claim is to be made will be
7
<PAGE>
entitled to participate therein at its own expense and, to the extent that
it may wish, to assume at its own expense the defense thereof, with counsel
reasonably satisfactory to such indemnified party; provided, however, that
-------- -------
(i) if the defendants in any such action include both the indemnified party
and the indemnifying party and the indemnified party shall have reasonably
concluded based upon advice of counsel that there may be legal defenses
available to it and/or other indemnified parties which are different from
or additional to those available to the indemnified party, the indemnified
party shall have the right to select separate counsel to assume such legal
defenses and otherwise to participate in the defense of such action on
behalf of such indemnified party or parties and (ii) in any event, the
indemnified party shall be entitled to have counsel chosen by such
indemnified party participate in, but not conduct, the defense at the
expense of the indemnifying party. Upon receipt of notice from the
indemnifying party to such indemnified party of its election so to assume
the defense of such action and approval by the indemnified party of
counsel, the indemnifying party will not be liable to such indemnified
party under this Section 6 for any legal or other expenses subsequently
incurred by such indemnified party in connection with the defense thereof
unless (i) the indemnified party shall have employed such counsel in
connection with the assumption of legal defenses in accordance with proviso
(i) to the next preceding sentence (it being understood, however, that the
indemnifying party shall not be liable for the expenses of more than one
separate counsel), (ii) the indemnifying party shall not have employed
counsel reasonably satisfactory to the indemnified party to represent the
indemnified party within a reasonable time after notice of commencement of
the action or (iii) the indemnifying party has authorized the employment of
counsel for the indemnified party at the expense of the indemnifying party.
An indemnifying party shall not be liable for any settlement of any action
or proceeding effected without its written consent.
(d) In order to provide for just an equitable contribution in circumstances
in which the indemnity agreement provided for in (a) of this Section 6 is
unavailable to a selling holder of Warrant Shares in accordance with its
terms, the Company and the selling holder of Warrant Shares shall
contribute to the aggregate losses, claims, damages and liabilities, of the
nature contemplated by said indemnity agreement, incurred by the Company
and the selling holder of Warrant Shares, in such proportions as is
appropriate to reflect the relative benefits received by the Company and
the selling holder of Warrant Shares from any offering of the Warrant
Shares; provided, however, that if such allocation is not permitted by
-------- -------
applicable law or if the indemnified party failed to give the notice
required under (c) of this Section 6, then the relative fault of the
Company and the selling holder of Warrant Shares in connection with the
statements or omissions which resulted in such losses, claims, damages and
liabilities and other relevant equitable considerations will be considered
together with such relative benefits.
(e) The respective indemnity and contribution agreements by the Company and
the selling holder of Warrant Shares in s (a), (b), (c) and (d) of this
Section 6 shall remain operative and in full force and effect regardless of
(i) any investigation made by any selling holder of Warrant Shares or by or
on behalf of any person who controls such selling holder or by the Company
or any controlling person of the Company or any director or any officer of
the company, (ii) payment for any of the Warrant Shares or (iii) any
termination of this Agreement, and shall survive the delivery of the
Warrant Shares, and any successor of the Company, or of any selling holder
of Warrant Shares, or of any person who controls the Company or of any
selling holder of Warrant Shares, as the case may be, shall be entitled to
the benefit of such respective indemnity and contribution agreements. The
respective indemnity and contribution agreements by the Company and the
selling holder of Warrant Shares contained in s (a), (b), (c) and (d) of
8
<PAGE>
this Section 6 shall be in addition to any liability which the Company and
the selling holder of Warrant Shares may otherwise have.
7. LIMITED TRANSFERABILITY.
-----------------------
(a) This Warrant is not transferable or assignable by the Holder except (i)
to Ladenburg, Thalmann & Co. Inc., any successor firm or corporation of
Ladenburg, Thalmann & Co. Inc., (ii) to any of the officers or employees of
Ladenburg, Thalmann & Co. Inc. or of any such successor firm or (iii) in
the case of an individual, pursuant to such individual's last will and
testament or the laws of descent and distribution and is so transferable
only upon the books of the Company which it shall cause to be maintained
for the purpose. The Company may treat the registered holder of this
Warrant as he or it appears on the Company's books at any time as the
Holder for all purposes. The Company shall permit any holder of a Warrant
or his duly authorized attorney, upon written request during ordinary
business hours, to inspect and copy or make extracts from its books showing
the registered holders of Warrants. All Warrants will be dated the same
date as this Warrant.
(b) By acceptance hereof, the Holder represents and warrants that this
Warrant is being acquired, and all Warrant Shares to be purchased upon the
exercise of this Warrant will be acquired, by the Holder solely for the
account of such Holder and not with a view to the fractionalization and
distribution thereof and will not be sold or transferred except in
accordance with the applicable provisions of the Act and the rules and
regulations of the Securities and Exchange Commission promulgated
thereunder, and the Holder agrees that neither this Warrant nor any of the
Warrant Shares may be sold or transferred except under cover of a
Registration Statement under the Act which is effective and current with
respect to such Warrant Shares or pursuant to an opinion, in form and
substance reasonably acceptable to the Company's counsel, that registration
under the Act is not required in connection with such sale or transfer.
Any Warrant Shares issued upon exercise of this Warrant shall bear the
following legend:
"The Securities represented by this certificate have not been
registered under the Securities Act of 1933 and are restricted
securities within the meaning thereof. Such securities may not be
sold or transferred except pursuant to a Registration Statement under
such Act which is effective and current with respect to such
securities or pursuant to an opinion of counsel reasonably
satisfactory to the issuer of such securities that such sale or
transfer is exempt from the registration requirements of such Act."
8. LOSS, ETC., OF WARRANT.
----------------------
Upon receipt of evidence satisfactory to the Company of the loss, theft,
destruction or mutilation of this Warrant, and of indemnity reasonably
satisfactory to the Company, if lost, stolen or destroyed, and upon
surrender and cancellation of this Warrant, if mutilated, and upon
reimbursement of the Company's reasonable incidental expenses, the Company
shall execute and deliver to the Holder a new Warrant of like date, tenor
and denomination.
9
<PAGE>
9. WARRANT HOLDER NOT SHAREHOLDERS.
-------------------------------
Except as otherwise provided herein, this Warrant does not confer upon the
Holder any right to vote or to consent to or receive notice as a
shareholder of the Company, as such, in respect of any matters whatsoever,
or any other rights or liabilities as a shareholder, prior to the exercise
hereof.
10. COMMUNICATION.
-------------
No notice or other communication under this Warrant shall be effective
unless, but any notice or other communication shall be effective and shall
be deemed to have been given if, the same is in writing and is mailed by
first-class mail, postage prepaid, addressed to:
(a) the Company at 30 Ossipee Road, Newton, MA 02164 or such other
address as the Company has designated in writing to the Holder; or
(b) the Holder at c/o Howard L. Blum, Jr., 540 Madison Avenue, New
York, NY 10022, or such other address as the Holder has designated in
writing to the Company.
11. HEADINGS.
--------
The headings of this Warrant have been inserted as a matter of convenience
and shall not affect the construction hereof.
12. APPLICABLE LAW.
--------------
This Warrant shall be governed by and construed in accordance with the law
of the State of New York without giving effect to the principles of
conflicts of law thereof.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its
Chairman of the Board and its corporate seal to be hereunto affixed and attested
by its Secretary this 15th day of July, 1993.
ATTEST:/s/ Jack M. Swig
----------------
Microfluidics International Corporation
/s/ Irwin J. Gruverman By: /s/ Irwin J. Gruverman
- ---------------------- ----------------------
Secretary Chairman of the Board
[Corporate Seal]
10
<PAGE>
SUBSCRIPTION
------------
The undersigned, ______________________________________, pursuant to the
provisions of the foregoing Warrant, hereby agree to subscribe for and purchase
____________________ shares of the Common Stock of_____________________________
covered by said Warrant, and makes payment therefor in full at the price per
share provided by said Warrant.
Dated: ________________________ Signature:___________________________________
Address:_____________________________________
SUBSCRIPTION FOR CASHLESS WARRANT SUBSCRIPTION
----------------------------------------------
The undersigned, ________________________________________, pursuant to the
provisions of the foregoing Warrant, hereby agree to subscribe to that number of
shares of the Common Stock as are issuable in accordance with the formula set
forth in paragraph 1(b) of the Warrant, and makes payment therefor in full by
surrender and delivery of this Warrant.
Dated: ________________________ Signature:___________________________________
Address:_____________________________________
ASSIGNMENT
----------
FOR VALUE RECEIVED __________________________ hereby sells, assigns and
transfers unto _________________________________ the foregoing Warrant and all
rights evidenced thereby, and does irrevocably constitute and appoint
____________________________, attorney, to transfer said Warrant on the books of
________________________.
Dated: ________________________ Signature:___________________________________
Address:_____________________________________
11
<PAGE>
PARTIAL ASSIGNMENT
------------------
FOR VALUE RECEIVED _________________________________________________ hereby
assigns and transfers unto _________________________________________________ the
right to purchase _________ shares of the Common Stock of Microfluidics
International Corporation by the foregoing Warrant, and a proportionate part of
said Warrant and the rights evidenced hereby, and does irrevocably constitute
and appoint _____________________________________________, attorney, to transfer
that part of said Warrant on the books of __________________________________.
Dated: ________________________ Signature:___________________________________
Address:_____________________________________
12
<PAGE>
SUBSIDIARIES
------------
Microfluidics Corporation, a Delaware Corporation
MediControl Corporation, a Delaware Corporation
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We consent to the incorporation by reference in the registration statements
of Microfluidics International Corporation on Forms S-8 (File Nos. 33-3242, 33-
6300, 33-19372 and 33-38928) of our report dated February 23, 1996, on our
audits of the consolidated financial statements of Microfluidics International
Corporation as of December 31, 1995 and 1994, and for the years ended December
31, 1995, 1994 and 1993, which report is included in this Annual Report on Form
10-K.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
March 29, 1996
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<PAGE>
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<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 1,903,418
<SECURITIES> 83,640
<RECEIVABLES> 1,751,199
<ALLOWANCES> 0
<INVENTORY> 2,456,389
<CURRENT-ASSETS> 6,286,619
<PP&E> 632,306
<DEPRECIATION> 254,971
<TOTAL-ASSETS> 6,715,986
<CURRENT-LIABILITIES> 686,905
<BONDS> 0
0
0
<COMMON> 50,582
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 6,715,986
<SALES> 0
<TOTAL-REVENUES> 5,273,399
<CGS> 2,813,801
<TOTAL-COSTS> 6,556,747
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (1,009,897)
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,009,897)
<INCOME-TAX> 1,107,422
<INCOME-CONTINUING> (2,117,319)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,117,319)
<EPS-PRIMARY> (0.43)
<EPS-DILUTED> (0.43)
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