U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 1998
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 0-17629
ADM TRONICS UNLIMITED, INC.
(Name of Small Business Issuer in its Charter)
Delaware 22-1896032
(State or Other Juris- (I.R.S. Employer Identifi-
diction of Incorpora- cation Number)
tion or Organization)
224-S Pegasus Avenue, Northvale, New Jersey 07647
(Address of Principal Executive Offices) (Zip Code)
Issuer's Telephone Number (201) 767-6040
Securities Registered under Section 12(b) of the Act:
NONE
Securities Registered under Section 12(g) of the Act:
Common Stock, $.0005 par value
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and
(2) has been subject to the filing requirements for at least the past 90 days:
YES X NO
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB.
State issuer's revenues for its most recent fiscal year
$1,483,218
State the aggregate market value of the voting stock held by non-affiliates
computed by reference tothe price at which the stock was sold, or the average
bid and asked prices of such stock, as of a specified date within the past 60
days prior to the date of filing:
Approximately $16,200,000 as of July 8, 1998
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
43,994,907 shares of Common Stock, $.0005 par value as of July 7, 1998
If the following documents are incorporated by reference, briefly describe them
and identify the Part of the Form 10-KSB (e.g., Part I, Part II, etc.) into
which the document is incorporated: (1) Any annual report to security holders;
(2) Any proxy or information statement; and (3) Any prospectus filed pursuant
to Rule 424(b) or (c) under the Securities Act of 1933:
Not Applicable
Transitional Small Business Disclosure Format (check one):
YES NO X
Item 1. Description of Business
ADM Tronics Unlimited, Inc. (the "Company"), was organized under the laws
of the State of Delaware on November 24, 1969.
Sonotron Technology
Dr. Alfonso Di Mino, while employed by the Company, conceived and
developed a technique pursuant to which a subject being treated is exposed to a
corona discharge beam generated by combining audio and radio frequency waves
(the "Sonotron Technology"). The Sonotron Technology is the subject of a United
States Patent (the "Di Mino U.S. Patent") granted in 1987 to Dr. Di Mino
entitled, "Corona Discharge Thermotherapy Technique." Dr. Di Mino assigned to
the Company the Di Mino U.S. Patent without any consideration therefrom. There
are no arrangements, understandings or agreements whereby Dr. Di Mino will be
provided with any consideration in thefuture with respect to the Di Mino U.S.
Patent. Foreign Patent applications bearing the same title and corresponding
to the Di Mino U.S. Patent have been issued as follows:
European Patent Office - (United Kingdom, West Germany, France, Sweden,
Switzerland, Italy and Holland).
Brazil.
Japan.
A United States patent in connection with a product which appears to be
similar to the Company's Sonotron Device was granted to a third party in early
1994 and that counsel to the entity intending to utilize such patent has
renedered a written opinion to the effect that such product doesnot infringe a
patent held by the Company, and, further that a patent held by the Company would
befound invalid by a court. Although, based upon the description of the third
party's product in the opinion letter, the Company's patent counsel disagrees
with such conclusion and believes that the third party's product infringes three
patents held by the Company, there can be no assurance that any patent held by
the Company will be determined by a court to be valid or to be infringed by the
third party's product. In order for the Company to protect its ability to rely
on any patent protection, the Company must identify, contain and prosecute
infringement by others. Such efforts generally entail substantial legal and
other costs. There can be no assurance that under such circumstances the
Company would have the necessary financial resources to fully prosecute any such
infringement.
The Company has utilized the Sonotron Technology to develop Sonotron
Devices which are designed to treat subjects suffering from the pain of
osteoarthritis and inflammatory joint conditions.
The Company commissioned the Instrumentation Systems Center of the
University of Wisconsin-Madison (the "ISC") to monitor a study of the Sonotron
Device which are for human application to evaluate its effect on the knee joint
in subjects with osteoarthritis and inflammatory joint conditions. The purpose
of the study was to gather data to submit to the United States Food and Drug
Administration (the "FDA"). The study was conducted at five regional centers
on 98 human subjects during 1987 and 1988. Data were analyzed by an analysis on
non-parametric measures to compare the relative responses of the randomly
assigned control and treated subjects. ISC, in a report dated July 18, 1988,
found that two of the ten data sets showed a high probability that the subjects
assessment of pain one week after administration was reduced in the treated,
relative to the untreated, subjects. ISC further found, with respect to two
additional data sets, that certain other data suggested a trend of improvement
one week after administration in the treated, relative to the untreated,
subjects, but with lower probability. None of the 98 subjects in the study
reported adverse reactions to the administration of the Sonotron Technology
which were deemed significant or long lasting. Similar results have been
obtained in subsequent studies.
The Company believes that the Sonotron Technology can be utilized to
reduce lameness in both thoroughbred and standardbred horses. In this
connection, the Company commissioned the School of Veterinary Medicine of the
University of Wisconsin-Madison (the "SVM") to gather data which would confirm
the effectiveness of the Sonotron Device on horses. In a report dated December
10, 1987, the SVM concluded that the evidence from its experiments indicated
that treatment with a Sonotron Device designed for veterinary use had a
significant effect in reducing the level of lameness in ponies which had
arthritis experimentally induced and as the degree of arthritic changes
increased, the reduction in lameness was more dramatic and became statistically
more significant. The SVM further found that there is statistical evidence that
the therapy had a beneficial effect on the level of joint motion in the
arthritic ponies and resulted in reduced joint swelling in ponies with severe
arthritis. A significant reduction occurred in the degree of joint changes
seen radiographically in the ponies with severe arthritis and in the milder
cases of arthritis treated with low doses of the therapy. The SVM further
reported that there were significant reductions in the severity of the growth
of pathological lesions seen in ponies with mild arthritis which received low
doses of therapy and that a trend appears to exist toward seeing reduced
severity of lesions in ponies which had a severe degree of arthritis and were
treated with a Sonotron Device designed for veterinary use. No differences in
the degree of histopathological changes were noted between the treated ponies
and the untreated ponies with mild or severe arthritis. The SVM did not arrive
at any conclusions with respect to whether treatment with a Sonotron Device
designed for veterinary use has a beneficial effect upon chronic degenerative
joint disease in a horse and whether such treatment will be effective upon
naturally occurring cases of equine degenerative joint disease. The Company
has conducted tests utilizing Sonotron Devices designed for veterinary use on
several race horses and has obtained results substantially as those of SVM.
Significant further testing will be required to determine whether or not the
administration of the Sonotron Technology to race horses will support the
establishment of a viable market.
The Company has granted to each of Sonotron Medical Systems, Inc. ("SMI")
and VET Sonotron Systems, Inc. ("VET") a royalty-free, worldwide, exclusive,
irrevocable license to the DiMino U.S. Patent, the foreign patent applications
and the Sonotron Technology. The license granted to SMI permits SMI to
manufacture, to have manufactured and to sell apparatus utilizing the Sonotron
Technology exclusively in connection with human medical applications thereof
(the "SMI License"). The SMI License provides that future improvements or
discoveries relating to the Sonotron Technology, if any, which are made by Dr.
Di Mino or any other officer or employee of the Company or any affiliates
thereof, whether or not patentable, and applicable to human medical
applications, are to be included in the SMI License. The license granted to VET
is substantiallyidentical in its terms to that of the SMI License, except that
the use of the Sonotron Technology by VET is limited exclusively to veterinary
applications. SMI and VET are majority owned subsidiaries of the Company.
The Company acts as a sublicensee of SMI for the purpose of manufacturing
Sonotron Devices. The Company has agreed to manufacture Sonotron Devices to be
used for human medical applications at the Company's cost plus ten percent.
The FDA permits companies to begin to recoup certain expenses by charging
others for use of medical machines, provided that the use of such machines does
not constitute a commercial distribution thereof. Accordingly, the Company is
permitted to maintain a clinic and treatment center utilizing Sonotron Devices,
but may not advertise or otherwise promote Sonotron Devices as being safe and
effective for their intended use. In order to generate revenues from the
Sonotron Devices and to gather information in support of PMA, should it become
necessary, in April 1989 the Company opened a clinic for the treatment of pain.
The clinic consisted of approximately 1,200 square feet of space in the
Company's premises in Northvale, New Jersey. The Company's clinic did not
realize any significant revenues and was closed in 1991. Three additional
clinics have been openedbeginning in 1992, none of which has produced any
significant revenues.
In 1991, SMI appointed a Canadian company as its sole and exclusive
distributor in Canada of the Sonotron Devices. Because the Canadian company was
unable to obtain approval of the Quebec Association of Physicians and Surgeons
in order for Sonotron Devices to be utilized in Quebec for the treatment of pain
and decreased function associated with inflammatory diseases prior to a mutually
agreed upon date, the Distribution Agreement between SMI and such company
terminated.
In 1991 SMI entered into an agreement with Arthronix, Inc. ("Arthronix")
which, assubsequently amended, provided that Arthronix shall become the sole and
exclusive distributor of Sonotron Devices in substantially all of the United
States and all other countries exclusive of Austria, Canada, Germany and
Switzerland for a maximum period of 19 years (the "Arthronix Distribution
Agreement"). The exclusive distributorship with respect to the United States was
not to commence unless the FDA granted PMA with respect to the Sonotron Devices
or the Sonotron Devices could be marketed pursuant to a Premarket Notification,
and the obligation of Arthronix under the Arthronix Distribution Agreement with
respect to Sonotron Devices to be used in the United States was subject to the
occurrence of either of such events. As a result of the settlement of litigation
between SMI and Arthronix, the Arthronix Distribution Agreement was canceled in
November 1993.
In August 1993 the Company entered into an agreement (the "1993
Distribution Agreement") with Arthronix and a Japanese corporation (the
"Japanese Distributor") pursuant to which, on behalf of the Company, Arthronix
granted the Japanese Distributor the exclusive right to sell and distribute the
Sonotron Device within Japan for a one year period. The Japanese Distributor has
represented to SMI that the Japanese Distributor has received all necessary
government approvals to import, sell, distribute and use the Sonotron Device in
Japan. Arthronix has received a commission in connection with the sales to the
Japanese Distributor. The 1993 Distribution Agreement terminated in accordance
with its terms in August 1994. In June 1995, the Company appointed the Japanese
Distributor as the exclusive distributor of Sonotron Devices in Japan, Singapore
and Malaysia. The Japanese Distributor has advised the Company that it does
not intend to distribute any Sonotron Devices pending the resolution of certain
legal proceedings involving it and the Company. Reference is made to the
response to Item 3 hereof.
Reference is made to Note 7 of Notes to Consolidated Financial Statements.
Subsequent to the termination of the Arthronix Distribution Agreement, SMI has
sold additional Sonotron Devices in Belgium, Brazil, Chile, France, Germany,
Israel, Italy, Lebanon, Mexico and South Africa. Unlike the sales to the
Japanese Distributor, the Sonotron Devices delivered to the purchaseres in the
foregoing countries included a limited number of dosages ("Treatment Units") by
means of a telephone connection. Any additional Treatment Units will be sold
by SMI.
In 1992, SMI granted Advent Medical Technology, Inc. ("AMT") the exclusive
right to manage clinics incertain counties in Florida which, if opened, would
utilize Sonotron Devices for human medical purposes. At such time, if any, that
the United States Food and Drug Administration permits marketing of Sonotron
Devices, AMT would have the right to purchase any such clinics from SMI and to
be the exclusive distributor of Sonotron Devices within the eight counties. At
the same time, VET granted to AMT the exclusive right to use, distribute or
sublicense the use of Sonotron Devices designed for veterinary use solely for
veterinary use in Florida. The response to Item 5 of the Company' Current
Report on Form 8-K dated June 9, 1992 is hereby incorporated by reference. The
Company does not believe that AMT has sufficient resources to manage any
clinics. There can be no assurance that any such clinics which the Company may
open will be successful or that the results of the treatment of human subjects
with the Sonotron Devices will be favorable or will support the Company's
application for a PMA.
The Company intends to use data obtained from clinics utilizing the
Sonotron Device as well as additional data it may obtain from others in the
Company's application in support of a PMA, if filed, at the time it is filed
witdata in the foreseeable future, if at all, to fle an application for PMA or
that any data theretofore or thereafter obtained by the Company will be
satisfactoryor will be sufficient to support the Company's application for PMA.
The Company does not intend to make any material changes to the Sonotron Devices
nor have any changes been made since the completion of the research and
development. In the event that Sonotron Devices can not be marketed pursuant to
a Premarket Notification and the data obtained by the Company are not favorable
or, for any other reason, the Company's application for PMA is not filed or,
if filed, is not approved by the FDA, neither the Company nor SMI will be able
to market the Sonotron Devices in the United States to others in connection with
human applications, other than for research purposes. Under such circumstances,
it is probable that the Sonotron Devices will not be able to be marketed with
respect to human applications thereof in manny foreign countries.
During the Company's fiscal years ended March 31, 1997 and 1998, other than
the regular compensation paid by the Company to its executive officers, the
Company did not spend any appreciable amounts on testing, application, clinical
studies and company-sponsored research and development activities in connection
with the Sonotron Technology and other activities determined in accordance with
generally accepted accounting principles. During each of such years no material
amounts were spent on customer-sponsored research and development activities
relating to the development of new products, services or techniques or the
improvement of the foregoing.
Dr. Di Mino has developed a device which utilizes a derivation of the Sonotron
Technology to non-invasively treat neural-cerebral conditions (the "NCCD
Device"). The NCCD Device is a non-invasive electronic therapy device which is
designed to emit certain radio and audio waves at prescribed power outputs to a
patient's brain and spinal cord. The NCCD Device is in the prototype stage.
Limited initial preliminary tests on human subjects on a non-controlled basis
appear to indicate that treatment with the NCCD Device has a beneficial effect
on the symptoms to dramatic overall improvements. Based upon such results,
subject to obtaining sufficient capital, the Company intends to conduct
extensive controlled clinical studies of the NCCD Device. Testing involves
applying radio and audio waves to the patients' spinal cords and cerebrum on a
weekly basis for several weeks to small groups of patients having cerebral
palsy, multiple sclerosis and Parkinson's Disease.
In order to commercially exploit the NCCD Device, the Company must
successfully conduct significant engineering and design work. Such work
includes the design and manufacture of a pre-production model and the production
of approximately 40 similar units for use in the proposed clinical studies.
If the clinical studies establish the efficacy of the NCCD Device, the Company
intends to seek FDA approval of the NCCD Device. The Company also plans to file
applications for certain foreign and domestic patents in connection with the
NCCD Device. There can be no assurance that any clinical studies of the NCCD
Device will yield successful results or that FDA approval will be obtained. The
Company believes that the cost of clinical studies and the engineering and
design work will be approximately $2,000,000 and the completion of such studies
will occur not earlier than December 31, 1999, if at all. Because the company
does not presently have sufficient funds to complete such tests and studies,
the Company has sought and will continue to seek financing for such purposes.
There can be no assurance that the Company will be able to obtain such financing
on terms not unfavorable to the Company, if at all.
During the fiscal year ended March 31, 1998, no customer accounted for
more than 10% of the Company's sales of Sonotron Devices. The termination of
business relations with any of the Company's significant customers would have a
material adverse effect on the Company's business and the financial condition of
the Company.
As of March 31, 1998, the dollar amount of backlog orders for Sonotron
Devices was not material.
Chemical Products for Industrial Use
The Company develops, manufactures and sells chemical products to
industrial users. Such products consist primarily of the following:
1. Water based primers and adhesives;
2. Water based coatings and resins for the printing and packaging industry;
3. Water based chemical additives; and
4. Cosmetic, medical and related adhesives and formulations.
Water based primers and adhesives are chemical compounds used to bind
different plastic films. Examples are the binding of polyethylene to polyester,
nylon, vinyl and cellophane. The Company's products are similar in function to
solvent based primers that are widely used to bind plastic film, papers and
foils. Solvent based systems have come under criticism since they have been
found to be highly pollutant, dangerous to health and generally caustic in
nature. Based upon the Company's experience since 1969, including information
furnished to the Company by certain of its customers, the Company believes that
water based systems have no known polluting effects and pose no known health
hazards. There can, of course, be no assurance that any governmental
restrictions will not be imposed on the Company's water based products or that
such products will be accepted as replacements for solvent based products.
Coatings and resins for the printing industry are used to impart properties
to the printed substrate. The Company's products can be used to coat printed
material for glossy or aesthetic appeal to make such material virtually
impervious to certain types of grease and to impart other characteristics
required or desired for various products and specifications.
The Company has recently introduced a new coating technology for the paper
industry designed for use in the manufacture of recyclable paper packaging. The
new resin technology, trademarked Aqualene, consists of a series of
environmentally safe, water-based coatings which can replace polyethylene in
numerous packaging structures. Polyethylene is used extensively in paper
packaging as a water and grease resistant layer and for sealing purposes.
Although necessary for paper to be used in most packaging applications,
polyethylene is non-recyclable when combined with paper. Therefore,
polyethylene-coated paper must either be incinerated or buried in landfills.
The Company's new coating technology has the properties of polyethylene but
breaks down in standard repulping equipment. Accordingly, Aqualene coated paper
packages can be recycled into new paper products. The potential uses for
Aqualene-coated paper include fast food wraps, folding cartons, pouch packaging,
disposable cups and plates, ream wraps, bakery trays and many other
applications. The Company has begun supplying trial samples of Aqualene to
companies believed to be interested in exploring the possibility of eliminating
polyethylene in their operations and producing recyclable paper stock. The
Company has not received any orders for Aqualene and there can be no assurance
that Aqualene will be commercially accepted.
Certain of the Company's chemical additives are used to impart properties
to inks and other chemical products used in the food packaging and printing
industries. These additives are used for their ability to improve the
performance of such products.
During the Company's fiscal years ended March 31, 1998, 1997 and 1996,
sales of chemical based products accounted for approximately 64%, 64% and 46% of
operating revenues, respectively. No contract exists with any of the Company's
customers which would obligate any customer to continue to purchase products
from the Company.
During the fiscal year ended March 31, 1998, one customer accounted for
more than 10% of the Company's net sales of chemical products. Reference is made
to Note 9 of Notes to Consolidated Financial Statements. The termination of
business relations with such customer would have a material adverse effect on
the Company's business and the financial condition of the Company.
The Company purchases the raw materials used in the manufacture of its
chemical products from numerous sources. The Company believes that all
necessary raw materials for its chemical products are readily available and will
continue to be so in the foreseeable future. The Company has never had, nor
does it anticipate experiencing, any shortages of such materials. The raw
materials consist primarily of water, resins, elastomers and catalysts.
The Company generally maintains sufficient quantities of inventories of its
chemical products to meet customer demands. When orders are received by the
Company for its chemical products, the Company's customers require immediate
shipment thereof. Accordingly, in order to satisfy its customers' needs, the
Company has maintained an inventory ranging, in dollar amounts, from 15% to 30%
of sales of chemical products in the form of either raw materials or finished
goods.
A majority of the Company's sales are distributed to customers directly
from the Company's location. Customers place purchase orders with the Company
and products are then shipped via common carrier truck delivery on an "FOB
shipping point" basis. A portion of the sales are accomplished through
distributors who place purchase orders with the Company for certain quantities
of the Company's chemical products which are shipped by common carrier to their
respective warehouses. These stocking distributors then ship product to the
ultimate customer via common carrier from their inventory of the Company's
products.
None of the Company's chemical products is protected by patents, although
the names of some of such products have been protected by trademarks. The
Company does not believe that any such trademarks are material to its business.
As of March 31, 1998, the dollar amount of backlog orders for the Company's
chemical products believed by the Company to be firm, was not material.
During the Company's fiscal years ended March 31, 1998 and 1997, the
Company made no material expenditures with respect to company-sponsored research
and development activities relating to its chemical business as determined in
accordance with generally accepted accounting principles other than a portion of
the regular salaries of its executive officers which may be allocated thereto.
During such fiscal years the Company did not expend any material funds on
customer-sponsored research and development activities with respect thereto.
Aurex-3
Dr. Di Mino has developed an electronic device (the "Aurex-3") for the
treatment of Tinnitus. Tinnitus is a human medical condition which manifests
itself in a constant and annoying ringing in the ears. The Aurex-3 uses a probe
that transmits a signal. In February 1997, Dr. Di Mino filed a patent
application for a United States patent with respect to the Tinnitus Device.
Dr. Di Mino has advised the Company that any patents issued to him in connection
with the Tinnitus Device will be assigned to the Company. Although significant
testing of the Aurex-3 has not been conducted, pre-production and production
prototypes have been built and testing and marketing strategies have been
developed. In May 1998, a Premarket Notification was filed by the Company with
the FDA. There can be no assurance that any patent will be used therefor or that
the Aurex-3 will achieve its purpose or that FDA approval can be obtained.
Contract Manufacturing
Precision Assembly Corporation, a wholly-owned subsidiary of the Company
("PAC"), is a contract manufacturer of medical and electromedical devices.
These devices are used primarily for medical diagnostic purposes. PAC's
operations consist primarily of manufacturing such devices for unaffiliated
third parties pursuant to plans and specifications furnished to PAC by such
parties. Accordingly, PAC has no proprietary interest in such devices.
PAC was acquired by the Company in December of 1997. From the acquisition
date to March 31, 1998, one customer accounted for approximately 58% of
PAC's sales. The termination of business relations with such customer would
have a material adverse effect on the Company's results of operations.
SofPulse Device
On May 27, 1998, the Company entered into an Asset Purchase Agreement (the
"Agreement") with Electropharmacology, Inc. ("EPI") pursuant to which the
Company agreed to purchase and EPI agreed to sell certain assets utilized by EPI
in connection with EPI's SofPulse electromagnetic stimulation device marketed
under the name MRT-SofPulse or SofPulse for use in treating pain and edema in
post-operative soft tissue injuries (the "SofPulse Device"). The SofPulse
Device was cleared for commercial marketing in January 1991 by the FDA pursuant
to a Premarket Notification. The response to Item 5 of the Company's Current
Report on Form 8-K dated May 27, 1998 is hereby incorporated by reference.
The SofPulse Device broadcasts pulsed electromagnetic signals in the radio
frequency range of 27.12 Mhz and is marketed as an adjunct in the palliative
treatment of pain and edema associated with various medical conditions that
involve superficial soft tissue injury. The SofPulse Device is an easy to
operate, non-invasive device that broadcasts signals which can be administered
through clothing, casts and dressings. As a result, The SofPulse Device can be
conveniently used immediately following trauma or surgery. To date, The SofPulse
Device has been used by clinicians on medical conditions such as acute or
chronic (non-healing or recalcitrant) skin ulcers, edema and pain resulting from
trauma of hand and ankle, pain associated with sprains of the lower back, and
pain and edema following reconstructive and plastic surgery.
EPI's principal sources of revenue from the SofPulse Device have been
rental fees charged to nursing homes and hospitals and sales to certain
distributors and cosmetic surgeons. Only limited revenue from sales and rentals
of the The SofPulse Device have been generated which has achieved only limited
market acceptance. As of July 8, 1998, EPI had placed SofPulse Devices under
rental agreements at nursing homes. In 1997, EPI sold 79 new and refurbished
SofPulse Devices and had varying numbers of SofPulse Devices on rental at
different times of the year. The Company's management believes that the SofPulse
Device can be marketed to cosmetic surgeons, sports team trainers and physicians
pain clinics, physical rehabilitation centers and distributors or
medical equipment rental companies who serve the home care market for the
recovery of post-operative ambulatory patients. Expanding market penetration for
the SofPulse Device is expected to require increased marketing efforts and cost-
effective manufacturing in compliance with the current Good Manufacturing
Practice ("CGMP") guidelines for the domestic market and additional regulations
(such as ISO-9000 and CE-Mark) for international markets.
EPI commenced production and marketing of the current SofPulse Model 912 in
October 1993 replacing previous models designated 911 and MRT100. Since
receiving the right to commercialize its device, EPI has continued to improve
certain features related to the reliability, safety and ease of use of its
product including (i) design improvements that require less power to generate
the intended electromagnetic field; (ii) reduction of weight of the Generator;
and (iii) reduction of magnetic interference. EPI has received certification
from the Canadian Standards Association (CSA) to market the SofPulse Device in
Canada, and the Underwriter Laboratories, Inc. certification in the U.S.
EPI's principal sources of revenue with respect to the SofPulse Device have
been rental fees charged to nursing homes for use of the SofPulse Device and
sale of the SofPulse Device to certain distributors and surgeons. Pricing and
marketing strategies are market dependent and affect both rentals and sales.
EPI's pricing policy for rental rates and sales prices have been based on
several factors that include reimbursement by third party payors and private
health care insurers, domesticand international market variations, and discounts
based on volume. Rental fees are invoiced basedon the number of hours of use of
the SofPulse Device on a monthly basis at a rate agreed upon in rental
agreements with the customers that are generally on a month-to-month basis. In
a certain number of cases, the customer pays a flat monthly fee, with no written
rental agreement, regardless of the extent of use. The SofPulse Model 912
carries a list price of $27,500 for an individual unit sale and the hourly
rental fee for the SofPulse Device is between $30 to $36. EPI has offered
discounts to customers on a case by case basis, for example, in cases where a
distributor or a customer orders multiple SofPulse Devices. EPI has engaged
independent sales representatives and independent distributor groups in certain
regions in the U.S. for marketing the SofPulse Device. Sales representatives and
distributors have been paid on a commission basis (generally 20% of the revenue
attributable to the SofPulse revenue) and have been generally responsible in
their respective geographic markets for identifying, placing and promoting the
utilization of the SofPulse Devices in nursing homes and hospitals, and with
physicians and other health care providers. The independent sales
representatives and distributors represent and deal in various medical product
lines. The Company intends to market the SofPulse Device in the same manner as
has been utilized by EPI.
In May 1997, EPI entered into a strategic alliance agreement with National
Patient Care Systems ("NPCS") of New Jersey (the "Strategic Alliance Agreement")
whereby NPCS acquired control of EPI's then existing fleet of SofPulse Devices
comprising about 540 units and the SofPulse rental business from EPI as well as
certain rights to market SofPulse Device in selected clinical indications in the
United States. Pursuant to the agreement, NPCS was to make certain monthly
payments to EPI, be responsible for sales and marketing expenses relating to
SofPulse rental, purchase a certain minimum number of new SofPulse Devices every
month from EPI and pay certain royalties based on SofPulse rental revenues
generated by NPCS. The Strategic Alliance Agreement was terminated in July 1997
as a consequence of the issuance by the Health Care Financing Administration
("HCFA") of a national policy of non-reimbursement by Medicare for all forms of
electrotherapy for wound healing.
EPI's rental revenues were materially adversely affected as a consequence
of the HCFA policy. HCFA was enjoined from implementing this national policy
under a ruling by a U.S. District Court in Massachusetts on November 18, 1997.
Although the preliminary injunction reduced the rate of decline in EPI's rental
revenue, no significant increase in rental usage of SofPulse by nursing homes
has been experienced subsequent thereto. The company believes that such
injunction is still in effect. Upon reacquisition of the fleet of SofPulse
Devices and all rights granted to NPCS under the agreement, EPI initiated an
effort to sell SofPulse Devices, especially refurbished SofPulse Devices
that were no longer generating rental revenues, to surgeons and to nursing homes
in order to generate revenues without increasing internal sales and marketing
expenses. EPI sold 55 such refurbished units at an average price of about $7,000
per unit most of which were sold during the third and the fourth quarters of
1997. EPI's recent strategy has been and the Company intends to market the
SofPulse Device to nursing homes and hospitals where substantial numbers of
patients may benefit from the SofPulse treatment, to the home health care market
where patients may continue the SofPulse treatment after being released from
hospitals, and to surgeons in several subspecialties (maxillofacial, aesthetic,
emergency and reconstructive) where the SofPulse Device may help in treating
edema or pain and help patients to recover.
Other Products
The Company has developed several cosmetic and pharmaceutical products.
The Company has not realized any significant revenues from such products and
there can be no assurance that any such products will account for significant
revenues or any profits in the future.
Although the Company believes that its proposed products can be
successfully marketed for over-the-counter use through one or more entities
representing numerous retail pharmacies and otherwise, there can be no assurance
that sales of such products will be material or that the Company will be able to
derive any profits therefrom.
Competition
The manufacture, distribution and sale of medical devices and equipment
designed to relieve the suffering of pain in subjects having osteoarthritis is
highly competitive and substantially all of the Company's competitors possess
greater experience, financial resources, operating history and marketing
capabilities than does the Company.
The Company's chemical and contract manufacturing businesses are highly
competitive and substantially all of the Company's competitors possess greater
experience, financial resources, operating history and marketing capabilities
than does the Company. The Company does not believe that there are one or more
dominant competitors in such industry. There can be no assurance that the
Company will be able to effectively compete with any or all of its competitors
on the basis of price, service or otherwise.
Although the company is not aware of any other products presently being
marketed that is substantially equivalent to the Sonotron Device, the Company
competes with numerous other concerns that market devices that are utilized
for the same or similar purposes.
Diapulse Corporation of America, Inc. manufactures and markets devices that
are substantially equivalent to the SofPulse Device. A number of other
manufacturers, both domestic and foreign, and distributors market shortwave
diathermy devices that produce deep tissue heat and that may be used for the
treatment of certain of the medical conditions in which the SofPulse Device is
also indicated. The SofPulse also faces competition from other forms of
treatment such as hyperbaric oxygen chambers, thermal therapies and
hydrotherapy. Other companies with substantially larger expertise and resources
than that available to the Company may develop or market new products that
directly market the SofPulse. In addition, other forms of treatment that compete
with SofPulse treatment may achieve rapid acceptance in the medical community.
Several other companies manufacture medical devices based on the principle
of electromagnetic field technologies for applications in bone healing and
spinal fusion, and may adapt their technologies or products to compete directly
with the SofPulse. These companies include Orthologic Corp., Electro-Biology,
Inc., a subsidiary of Biomet, Inc., Orthofix, Ltd., and Biomagnetics, Inc. The
Company is also aware of other companies that manufacture and market thermal
devices in the same target markets as the Company. Certain of these companies
have significant product sales and have greater financial, technical, personnel
and other resources than the Company. Also, universities and research
organizations may actively engage in research and development to develop
technologies or products that will compete with the SofPulse.
The medical products market is characterized by rapidly changing technology
that may result in product obsolescence or short product life cycles. The
Company's ability to compete will be dependent on the Company's ability to
continually enhance and improve its products and to develop successfully or
acquire and market new products. The technologies that are expected to be
acquired by the Company pursuant to the proposed transactions with the
development stage biotechnology companies and the products or services resulting
therefrom are subject to additional competition from pharmaceutical and
biotechnology companies with substantially greater resources and expertise
compared to the Company. There can be no assurance that the Company will be able
to compete successfully, that competitors will not develop technologies or
products that render the Company's products obsolete or less marketable or that
the Company will be able to enhance successfully its existing products or
develop or acquire new products. furthermore, there can be no assurance that
other technologies or products that are functionally similar to those of the
Company are not currently under development.
The Company is not a significant factor with respect to the any of the
industries in which it is engaged.
Government Regulation
In March 1989, in response to a Premarket Notification filed by the Company
with the FDA, the FDA notified the Company that the Sonotron Device, under the
FDA's standards, is not substantially equivalent to certain medical device
marketed in interstate commerce prior to May 28, 1976. In March 1991, a further
Premarket Notification was filed with the FDA on behalf of the Company with
respect to the then current model of the Sonotron Devices which Notification was
subsequently voluntarily withdrawn by the Company. The FDA advised the Company
that its determination with respect to the initial Premarket Notification was
based upon (a) the new intended use of applying superficial heat at non-
therapeutic temperatures for the treatment of osteoarthritis, and (b) new types
of safety and effectiveness questions that are raised by the new technological
characteristics of the Sonotron Devices when compared to certain devices
marketed before May 28, 1976. In February 1998, the Company filed a new
Premarket Notification accompanied by additional data. In the event that
Sonotron Devices cannot be marketed pursuant to a Premarket Notification, before
Sonotron Devices can be marketed in the United States, the Company will be
required to obtain Premarket Approval (a "PMA") from the FDA before the Sonotron
Devices can be marketed in the United States for commercial distribution in
connection with human applications. There can be no assurance that any approval
can be obtained from the FDA in the foreseeable future, if at all.
The process of submitting a satisfactory PMA is significantly more
expensive, complex and time consuming than the process of establishing
"substantial equivalence" to a device marketed prior to 1976 pursuant to a
Premarket Notification, and requires extensive research and clinical studies.
Randomized, placebo-controlled, double-blind clinical studies may have to be
performed under a clinical protocol with assurance of adherence to the protocol,
informed consent from subjects enrolled in the study, approval of the
Institutional Review Board at each of the centers where the study is being
conducted, maintenance of required documentation, proper monitoring and
recording of all data, and sufficient statistical evaluation to determine if the
results of the treatment with the device are statistically significant in
improving patient outcome compared to the patients who did not receive
the treatment. Upon completion of these tasks, an applicant is required to
assemble and submit to the FDA all relevant clinical, animal testing,
manufacturing, laboratory specifications, and other information. The submission
is reviewed at the FDA, which determines whether or not to accept the
application for filing. If accepted for filing, the application is further
reviewed by the FDA and subsequently may be reviewed by an FDA scientific
advisory panel comprised of physicians, statisticians and other qualified
personnel. A public meeting may be held before the advisory panel in which the
PMA application is reviewed and discussed. Upon completion of such process, the
advisory panel issues a favorable or unfavorable recommendation to the FDA or
recommends approval with conditions. The FDA is not bound by the opinion of the
advisory panel. The FDA may conduct an inspection to determine whether the
Company conforms with CGMP guidelines. If the FDA's evaluation is favorable, the
FDA will subsequently publish a letter approving the PMA application for the
device for a mutually agreed upon indication of use. Interested parties can file
comments on the order and seek further FDA review. The PMA process may take
several years and no assurance can be given concerning the ultimate outcome of
PMA applications submitted by an applicant.
The Company has been registered by the FDA as a Registered Medical Device
Establishment for the manufacture of Sonotron Devices. Such registration is
renewable annually and although the Company does not believe that the
registration will not be renewed annually by the FDA, there can be no assurance
of such renewal. Any failure to obtain an annual renewal could be expected to
have a material adverse effect on the Company.
In January 1991, the FDA advised EPI of its determination to treat the
MRT100, the first model of the SofPulse, as a class III device. The FDA retains
the right to require the manufacturers of certain class III medical devices to
submit a PMA in order to sell such devices or to promote such devices for
specific indications. To the Company's knowledge, EPI has not been asked by the
FDA to seek PMA for SofPulse; however, there can be no assurance that the
Company will not be required to do so and that, if required, the Company will be
able to comply with such requirement for SofPulse.
In the event the Company proposes to market new medical devices, if
developed or acquired, or adapt its current products for a new use, the FDA may
require the Company to comply with Premarket Notification or PMA requirements to
establish independently that a device is safe and effective for its intended
use. The products and services that are expected to arise from the technologies
being acquired by the Company pursuant to the contemplated transactions with the
biotechnology companies, are subject to complex regulations enforced by the
Bureau of Biologics and the Bureau of Drugs of the FDA. The process of
development, seeking clearance for human clinical evaluation under
Investigational New Drug Exemptions, prolonged three phase clinical trials
and the submission of Biologics License Applications or New Drug Applications
require substantially longer time and expenses compared to the submission of a
PMA for a medical device.
After regulatory approvals are obtained, a marketed product and its
manufacturer are subject to continuing regulatory regulations and review such as
CGMP regulations and periodic compliance inspections by the FDA and state
agencies. The Company may become subject to pre-approval inspections by the FDA
prior to commercial manufacture of future products. The Company is required to
register as a medical device manufacturer with the FDA and state agencies.
Under CGMP regulations, the Company is subject to certain procedural and
documentation requirements with respect to manufacturing and control activities.
The Company's suppliers may be subject to periodic inspections by the FDA, as
well as by state and foreign regulatory authorities. The Company believes
its suppliers and manufacturer are in compliance in all material respects with
all applicable local, state and federal regulations. Failure to comply with CGMP
regulations, or to satisfy FDA regulations or inspections, could subject the
Company to civil remedies, including fines, injunctions, recalls or
seizures, as well as potential sanctions, which could have a material adverse
effect on the Company.
The Company is also subject to various FDA regulations and Good Laboratory
Practices, which govern or influence the research, testing, manufacture, safety,
labeling, storage, record keeping, advertising and promotion of medical
products.
Sales of medical products outside the United States are subject to foreign
regulatory requirements that vary widely from country to country. There can be
no assurance that the Company will be successful in maintaining necessary
approvals to market the Sonotron Devices, or obtaining such approval for
additional products that may be developed or acquired by the Company, in
foreign markets.
Third Party Reimbursement
In the United States, health care providers, such as hospitals and
physicians, that purchase or lease medical devices, generally rely on third-
party payors, principally Medicare, Medicaid and private health insurance plans,
including health maintenance organizations, to reimburse all or part of the cost
of the treatment for which the medical device is being used. Successful
commercialization of the Company's products will depend in part upon the
availability of reimbursement for the cost of the treatment from third party
health care payors such as Medicare, Medicaid and private health insurance
plans, including health maintenance organizations. Such third party payors have
increasingly challenged the price of medical products and services, which has
and could continue to have a significant effect on the purchasing patterns of
many health care providers. Several proposals have been made by federal and
state government officials that may lead to health care reforms, including
a government directed national health care system and health care cost-
containment measures. The effect of changes in the health care system or method
of reimbursement for the SofPulse Device or any other medical device which may
be market by theCompany in the United States cannot be determined by the
Company.
While third party payors generally make their own decisions regarding which
medical procedures and services to cover, Medicaid and other third party payors
may apply standards similar to Medicare's in determining whether to provide
coverage for a particular procedure or service. The Medicare statute prohibits
payment for any medical procedures or services that are not reasonable
and necessary for the diagnosis or treatment of illness or injury. The HCFA, an
agency within the Department of Health and Human Services that is responsible
for administering the Medicare program, has interpreted this provision to
prohibit Medicare coverage of procedures that, among
other things, are not deemed safe and effective treatments for the conditions
for which they are being used, or which are still investigational. In July 1997,
HCFA issued a memorandum implementing a national policy of non-reimbursement by
Medicare for the use of any form of electrotherapy in wound healing. The
SofPulse Device is included broadly in the category of products classified as
electrotherapy products and although the SofPulse may not be promoted by the
Company for woundhealing, a number of clinicians at nursing homes have used it
to treat edema and pain surrounding wounds. Although a United States District
Court enjoined HCFA in November, 1997, fromimplementing this national policy and
HCFA notified the fiscal intermediaries in February of 1998 notto abide by the
July 1997 national policy memorandum, EPI did not realize an appreciable
increase in its rental revenues subsequent to these events. Recently, it has
been proposed that Medicare reimbursement be subject to a prospective payment
system that would reimburse products that reduce the cost of patient care in
specific medical conditions. Such a reimbursement system would require
the demonstration that any such product actually reduces cost of patient care
in order for continued reimbursement by Medicare in the future. There is no
assurance that the Company will be able to demonstrate such cost reduction that
is expected to result from the use of SofPulse Devices or any other product.
The Company is unable to predict what additional legislation or
regulations, if any, may be enacted or adopted in the future relating to the
reimbursement for SofPulse Devices or other products, including third party
coverage and reimbursement, or what effect any such legislation or regulations
may have on the Company. Further, significant uncertainty exists as to the
reimbursementstatus of newly approved health care products, and there can be no
assurance that adequatethird-party coverage will be available with respect to
any of the Company's products in the future. Failure by physicians, hospitals,
nursing homes and other users of the Company's products to obtain sufficient
reimbursement for treatments using the Company's products will have a material
adverse effect on the Company.
Insurance
The Company may be exposed to potential product liability claims by
patients who use the Company's products. Therefore, the Company maintains a
general liability insurance policy, which includes aggregate product liability
coverage of $2,000,000. The Company believes that its present insurance
coverage is adequate for the types of products currently marketed. There can be
no assurance, however, that such insurance will be sufficient to cover potential
claims or that the present level of coverage will be available in the future at
a reasonable cost.
Personnel
On July 6, 1998, the Company employed 19 persons, three of which are
executive officers of the Company. Three employees were employed by the Company
on a part-time basis.
SAFE HARBOR STATEMENT PURSUANT TO SECTION 21E OF THE SECURITIES
EXCHANGE ACT OF 1934
Certain statements contained in the responses to Item 1 and Item 6 of this
Annual Report such as statements concerning the Company's future capital
requirements, the Company's ability to obtain the requisite information for
filings with the FDA, the Company's ability to comply with the requirements of
the FDA and other authorities and other statements contained herein regarding
matters that are not historical facts are forward looking statements; actual
results may differ materially from those projected in the forward looking
statements, which statements involve risks and uncertainties, including but not
limited to, the following: the Company's ability to obtain future financing; the
uncertainties relating to the Company's products; and market conditions and
other factors relating to the Company's business. Investors are also directed to
the other risks discussed herein and in other documents filed by the Company
with the Securities and Exchange Commission.
Item 2. Properties
The Company leases approximately 16,000 square feet of combined office,
manufacturing and warehouse space in Northvale, NJ and approximately 6,000
square feet of combined office and manufacturing space in Cedar Knolls, New
Jersey, both from unaffiliated third parties. The Company's written lease
with the Northvale landlord expired on June 30, 1998. The Company anticipates
that it will shortly enter into a new written lease for such premises.
Item 3. Legal Proceedings
On May 10, 1996 Arthronix filed a demand for arbitration against the
Company, SMI, the Japanese Distributor and Validux. The matter is being
conducted through the American Arbitration Association of New York City.
Arthronix has claimed commissions are owed to it in the amount of $111,000
pursuant to the 1993 Distribution Agreement. Arthronix also asserted claims for
a breach of contract and a share of the proceeds on the sales of Sonotron
Devices in the Pacific Rim countries in the alleged amount of at least
$2,700,000. Arthronix further asserted claims for tortious interference and
is seeking punitive and compensatory damages based upon an alleged failure to
execute an extension of the 1993 Distribution Agreement and fraudulent
inducement in connection with the entering into of the 1993 Distribution
Agreement by Arthronix.
On May 30, 1996 the Company, SMI and a wholly-owned subsidiary of the
Company (the"Subsidiary") instituted an action against Arthronix, Joseph P.
Laico and James Bridges in the Superior Court of New Jersey, Bergen County,
Law Division. The Plaintiffs are seeking to recover approximately $615,000
from Arthronix based upon breaches of settlement agreements by Arthronix.
The Complaint also alleges that the 1993 Distribution Agreement was entered
into based upon fraudulent misrepresentations of the individual defendants and
that all of the defendants tortiously interfered with the a contract between
the Company and the Japanese Distributor. The Complaint seeks multiple forms of
relief including entry of judgment for the breach of prior settlement
agreements, unliquidated damages, staying of the above described arbitration
proceedings, a declaratory judgment revoking the 1993 Distribution Agreement,
unliquidated compensatory, damages, punitive damages, late fees, interest and
costs and other equitable relief. In 1997, judgments aggregating approximately
$355,000 and $369,000 were entered by the Court in favor of SMI and the
Subsidiary, respectively. Based upon an appeal filed by Arthronix, the judgment
in favor of SMI was vacated. The Company anticipates that a hearing with
respect to SMI's claim will be held shortly. Arthronix has filed an appeal with
respect to the judgment in favor of the Subsidiary.
Other than the foregoing there are no material pending or threatened legal
proceedings to which the Company or any of its subsidiaries is a party or of
which any of their property is the subject or to the knowledge of the Company,
any proceedings contemplated by governmental authorities.
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
I. (a) Market Information
(1) The Company's Common Stock is principally traded in the over-the-
counter market. The following table sets forth the approximate range of high
and low bid prices for the Company's Common Stock for the Company's fiscal
quarters indicated in which such stock was regularly quoted. The quotations
were obtained from NASDAQ and reflect inter-dealer prices without retail
mark-up, mark-down or commission and may not necessarily represent actual
transactions.
Quarter Ended High Bid(1) Low Bid(1)
June 30, 1996 .56 .28
September 30, 1996 .40 .25
December 31, 1996 .40 .19
March 31, 1997 .38 .25
June 30, 1997 .38 .23
September 30, 1997 .31 .19
December 31, 1997 .28 .16
March 31, 1998 .34 .19
__________
(1) Prices subsequent to March 31, 1997 represent high and low closing sales
prices. Although the Company believes that the continued listing of the
Company's Common Stock on NASDAQ is important for the marketability of the
Common Stock and the prestige of the Company in the financial community, the
Company's Common Stock may be delisted from NASDAQ for failure of the Company
to meet the minimum bid price requirements for continued listing on NASDAQ.
The Company has been notified by NASDAQ that since its Common Stock has not
traded for more than $1.00 for at least ten consecutive trading days, the
Company's Common Stock will be delisted from NASDAQ July 20, 1998. In
accordance with NASDAQ procedures however the Company intends to request a
hearing before NASDAQ. NASDAQ has advised the Company that the delisting
will be stayed pending the outcome of the hearing. The Company believes that any
such hearing will not be held prior to September 1998. Subject to obtaining
requisite approvals of the Company's Board of Directors and shareholders the
Company intends to effect a reverse split of its Common Stock if necessary to
maintain its listing on NASDAQ. There can be no assurance that a reverse
split will be so approved or will be acceptable to NASDAQ.
(b) Holders
On July 8, 1998, the Company's Common Stock was held by approximately
1,580 holders of record.
(c) Dividends
The Company has never paid any cash dividends on its Common Stock and
has no intention of paying cash dividends in the foreseeable future. The Company
intends to retain any earnings it may realize to finance its future growth.
II. On March 31, 1998, the Company sold 1,250,000 shares of its Common
Stock and a warrant for the purchase of 1,000,000 shares (the "Warrant") of its
Common Stock to The Global Opportunity Fund Ltd. ("Global"). No principal
underwriters were involved. The total offering price was $275,000. The Company
paid a commission to a Placement Agent of $25,000. The Company claimed
exemption from registration pursuant to the exemption provided by Section 4(2)
of the Securities Act of 1933, inasmuch as no public offering was involved.
The exercise price of the Warrant, which expires on March 31, 2002, is $.30
per share until March 31, 2000 and thereafter, $.47 per share, subject to
adjustment. The Warrant can be exercised on a "cashless" basis in the event of
appreciation in the market price of the Company's Common Stock. The Company has
agreed to register the shares of its Common Stock purchased by Global
as well as the shares of its Common Stock underlying the Warrant under the
Securities Act of 1933.
Item 6. Management's Discussion and Analysis or Plan of Operation
Fiscal 1998 Compared to 1997
Revenues
Revenues were $1,483,218 in 1998 as compared to $1,574,855 in 1997
representing a decrease of $91,637 or 6%. The decrease was primarily the result
of reduced sales of Sonotron Devices in Japan offset by the addition of sales
from a newly acquired medical device manufacturing subsidiary in December of
1997 and moderately decreased sales to chemical customers. The reduction of
sales of Sonotron Devices in Japan was the result of the arbitration proceeding
commenced against the Company and its distributor of Sonotron Devices in Japan.
The distributor has advised the Company that it will make no further purchases
of Sonotron Devices during the pendency of the arbitration proceeding.
Gross Profit
Gross profit of $838,455 in 1998 was $138,948 or 14%, lower than the gross
profit of $977,403 for 1997. Gross profit was 57% of revenues in 1998 as
compared to 63% of revenues in 1997. The reduction in gross profit is related
to the product mix of sales with varying gross profit margins.
Operating Income (Loss)
Operating loss of ($774,798) in 1998 was $737,868 greater than the
operating loss of ($36,930) in 1997. The increase in operating loss resulted
from a reduction in gross profit coupled with a significant increase in selling,
general and administrative expenses primarily from legal costs and certain one-
time charge-offs associated with the arbitration proceeding coupled with certain
one-time inventory eliminations.
Other Income, Net
Other income of $52,021 in 1998 was $11,661 or 18% lower than other income
of $63,682 in 1997 due to a decrease in interest income from lower amounts
invested and at lower rates of return on amounts invested.
Fiscal 1997 Compared to 1996
Revenues
Revenues were 1,508,995 in 1997 as compared to 1,839,006 in 1996
representing a decrease of $330,011 or 17%. This decrease was the result of
reduced sales of Sonotron Devices in foreign countries and increased sales to
chemical customers.
Gross Profit
Gross profit of $911,543 in 1997 was $324,851 or 26%, lower than the gross
profit of $1,236,394 for 1996. Gross profit was 60% of revenues in 1997 as
compared to 67% of revenues in 1996. The moderate reduction in gross profit is
related to the product mix of sales with varying gross profit margins.
Operating Income (Loss)
Operating loss of ($102,790) in 1997 compared to operating income of
$244,289 in 1966 resulted from a reduction in gross and profit coupled with an
increase in selling, general and administrative expenses.
Other Income, Net
Other income of $63,682 in 1997 was $15,963 or 20% lower than other income
of $79,645 in 1996 due to a decrease in interest income from lower amounts
invested and at lower rates of return on amounts invested.
Liquidity and Capital Resources
At March 31, 1998 the Company had cash of $1,127,840 as compared to
$1,174,965 at March 31, 1997. This moderate decrease is the result of cash
flows from investing activities and financing activities offset by cash
outflows from operating activities.
Operating Activities
The Company had reduced operating results from one-time charge-offs coupled
with significantly higher legal costs due to the arbitration proceeding which
increased selling, general and administrative costs for the fiscal year. This
was coupled with lower international sales of medical electronic devices also
due to the arbitration proceeding. An increase in sales and gross profit in the
Company's medical device segment was realized from an acquisition of a medical
device subsidiary in December 1997 which resulted in improved operating results
for the last fiscal quarter. There was also a moderate decrease in sales of
aqueous chemical products.
Investing Activities
The Company received proceeds of $107,000 from matured certificates of
deposits and $7,150 from repayments of loans to officers. The Company purchased
property and equipment of $14,069 and had expenditures of $1,280 for patents.
Cash of $22,741 was used for the company acquired and $8,851 was a cash balance
received from the company acquired.
Financing Activities
In 1998 the Company received $244,365 in net proceeds from the issuance of
common stock and warrants. The Company repaid $30,259 in loans to the selling
shareholder of the company acquired in December. The Company also had net
borrowings on a demand line of credit of $43,392 and proceeds from notes payable
of $15,312 offset by payments on notes payable of $10,308. This resulted
in the Company realizing $262,502 from financing activities.
The Company does not have any material sources of liquidity or unused
sources of liquid assets.
Readiness for the Year 2000
The Company has taken actions to understand the nature and extent of the
work required to make its systems, products and infrastructure Year 2000
compliant. The Company has determined that certain of its existing internal
accounting and information systems will require replacement or upgrading. The
Company is continuing to evaluate the estimated costs associated with Year 2000
compliance. While the upgrading or replacement of such systems will involve
additional costs, the Company believes, based upon available information, that
it will be able to manage its total Year 2000 transition without any material
expenditures or adverse effect on its business operations, products or financial
condition.
Item 7. Financial Statements
INDEPENDENT AUDITOR'S REPORT
Board of Directors and Stockholders
ADM Tronics Unlimited, Inc.
Northvale, New Jersey
We have audited the accompanying consolidated balance sheet of ADM Tronics
Unlimited, Inc. and subsidiaries as of March 31, 1998, and the related
consolidated statements of operations, changes in stockholders' equity, and cash
flows for each of the two years in the period ended March 31, 1998. 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of ADM Tronics
Unlimited, Inc. and subsidiaries as of March 31, 1998, and the results of their
operations and their cash flows for each of the two years in the period ended
March 31, 1998, in conformity with generally accepted accounting principles.
KAUFMAN, ROSSIN & CO.
Miami, Florida
June 26, 1998
ADM TRONICS UNLIMITED, INC.
CONSOLIDATED BALANCE SHEET
MARCH 31, 1998
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,127,847
Accounts receivable - trade, net of allowance for
doubtful accounts of $15,500 317,888
Inventories:
Raw materials and supplies 261,000
Finished goods 59,535
Other current assets 24,101
Total current assets 1,790,371
PROPERTY AND EQUIPMENT 75,833
EQUIPMENT IN USE AND UNDER LEASE AGREEMENTS, net of
accumulated depreciation of $60,164 82,415
EQUIPMENT HELD FOR SALE 302,218
LOAN RECEIVABLE FROM OFFICER,
bearing interest at 3% per annum, unsecured 59,502
OTHER ASSETS 523,309
TOTAL ASSETS $ 2,833,648
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable $ 397,338
Accrued expenses and other 46,139
Notes payable - current 110,842
Total current liabilities 554,319
NOTES PAYABLE - NON-CURRENT 48,676
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY 2,230,653
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,833,648
ADM TRONICS UNLIMITED, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED MARCH 31, 1998 AND 1997
1998 1997
REVENUES
Sales $ 1,483,218 $ 1,574,855
Interest 52,021 63,682
Total revenues 1,535,239 1,638,537
COSTS AND EXPENSES
Cost of sales 644,763 597,452
Selling, general and administrative 1,613,253 1,014,333
Total costs and expenses 2,258,016 1,611,785
INCOME (LOSS) BEFORE UNREALIZED LOSS ON
EQUITY SECURITIES AVAILABLE FOR SALE AND
INCOME TAXES ( 722,777) 26,752
UNREALIZED LOSS ON EQUITY SECURITIES
AVAILABLE FOR SALE - 20,000
INCOME (LOSS) BEFORE INCOME TAXES ( 722,777) 6,752
INCOME TAXES - -
NET INCOME (LOSS) ($ 722,777) $ 6,752
WEIGHTED AVERAGE NUMBER OF COMMON
AND EQUIVALENT SHARES OUTSTANDING 42,477,832 42,474,907
NET INCOME (LOSS) PER SHARE ($ .02) $ .00
ADM TRONICS UNLIMITED, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
YEARS ENDED MARCH 31, 1998 AND 1997
Shares
(150,000,000
Authorized Capital in
$.0005 par Par Excess of Par Accumulated
value) Value Value Deficit Total
BALANCES -
MARCH 31, 1996 42,474,907 $21,237 $4,819,436 ($ 2,212,360) $2,628,313
Net income - - - 6,752 6,752
BALANCES -
MARCH 31, 1997 42,474,907 21,237 4,819,436 (2,205,608) 2,635,065
Sale of 1,250,000
shares of common
stock and 1,000,000
warrants 1,250,000 625 274,375 - 275,000
Stock and warrant
issue costs - - (30,635) - (30,635)
Common stock
options issued - - 74,00 - 74,000
Net loss - - - (722,777) (722,777)
BALANCES -
MARCH 31, 1998 43,724,907 $21,862 $5,137,176 ($2,928,385)) $2,230,653
ADM TRONICS UNLIMITED, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED MARCH 31, 1998 AND 1997
1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ($ 722,777) $ 6,752
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization 64,737 27,254
Provision for losses on accounts receivable 106,006 -
Provision for loss on note receivable 82,306 -
Unrealized loss on equity securities available for sale - 20,000
Common stock options issued as compensation 74,000 -
Changes in deferred revenue - ( 65,860)
Changes in operating assets and liabilities:
Accounts receivable - trade ( 50,724) ( 114,406)
Inventories 92,299 ( 14,274)
Other current assets 11,425 15,693
Equipment held for sale ( 45,025) 99,048
Deposit receivable 50 -
Accounts payable 38,882 83,968
Accrued expenses and other 23,583 ( 60,525)
Prepayments from customers ( 69,293) -
Total adjustments 328,246 ( 9,102)
Net cash used in operating activities ( 394,531) ( 2,350)
CASH FLOWS FROM INVESTING ACTIVITIES:
Maturities of treasury notes - 100,297
Cash consideration paid for company acquired ( 22,741) -
Cash balance of company acquired 8,851 -
Patents ( 1,280) ( 3,142)
Purchase of property and equipment ( 14,069) ( 33,456)
Net changes in certificates of deposit 107,000 ( 1,610)
Repayments of loans to officer 7,150 1,600
Net cash provided by investing activities 84,911 63,689
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings on demand line of credit 43,392 -
Proceeds from notes payable 15,312 -
Payments on notes payable ( 10,308) -
Repayment of loan to a former shareholder of the
newly acquired subsidiary ( 30,259) -
Net proceeds from issuance of common stock and warrants 244,365 -
Net cash provided by financing activities 262,502 -
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS ( 47,118) 61,339
CASH - BEGINNING 1,174,965 1,113,626
CASH - ENDING $1,127,847 $1,174,965
Supplemental Disclosure of Cash Flow Acitivities:
Interest paid $ 3,709 -
Supplemental Disclosure of Non-Cash Financing Activities:
Common stock options issued as compensation $ 74,000 -
ADM TRONICS UNLIMITED, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
Consolidation
The consolidated financial statements include the accounts of ADM
Tronics Unlimited, Inc. (the Company) and its subsidiaries. All
significant intercompany balances and transactions have been
eliminated in consolidation.
Business Activity
The Company is a manufacturer and engineering concern whose principal
lines of business are the production and sale of chemical products and
the manufacturing and sale of medical devices. The chemical product
line is principally comprised of water-based chemical products used in
the food packaging and converting industries. These products are sold
to customers located in various parts of the United States and Europe.
The medical device product line is comprised of proprietary devices
used in the treatment of joint pain which, at this point, have been
primarily to one customer located in Japan (See Sonotron Devices and
Segment Information) and contract manufactured products which have been
produced primarily for one customer located in the United States.
For the year ended March 31, 1998, chemical and contract manufactured
products accounted for approximately two thirds and one fourth of
sales, respectively, while proprietary devices accounted for the
remainder.
For the year ended March 31, 1997, chemical and proprietary devices
accounted for approximately two-thirds and one-third of sales,
respectively.
Cash and Equivalents
The Company considers all highly-liquid investments with a remaining
maturity of three months or less at the time of purchase and excess
operating funds invested in cash management and money market accounts
to be cash. The money market account (approximately $700,000 at March
31, 1998) is not insured by the FDIC.
Inventories
Inventories are stated at the lower of cost (first-in, first-out
method) or market.
Property and Equipment
Property and equipment are recorded at cost. Depreciation is computed
using the straight-line method over the estimated useful lives of 5 to
10 years. Leasehold improvements are amortized over the lease term or
useful lives, whichever is shorter. Expenditures for major betterments
and additions are charged to the asset accounts while replacements,
maintenance and repairs, which do not improve or extend the lives of
the respective assets, are charged to expense currently.
Sonotron Devices
Sonotron Devices (Devices) are held for sale or lease internationally
and are included in the consolidated balance sheet under "equipment
held for sale" and "equipment in use and under lease agreements," on a
specific identification basis. Devices are available for sale
outright, are available for sale under terms providing for additional
charges based upon usage, and are available to be leased. Until
clearance to market is obtained from the United States Food and Drug
Administration (FDA), the Devices cannot be marketed in the United
States for human applications, other than for research purposes, and
may not be marketable in certain foreign countries.
Included within equipment in use and under lease agreements are units
used internally and units loaned out for marketing and testing. These
devices are depreciated over seven years commencing at the date placed
in service. Revenues from leasing activities have not been significant.
All devices and parts are carried at the lower of cost or market, with
cost being determined on a specific identification basis. An allowance
is provided when, in the judgement of management, the realizable value
declines below cost.
Intangible Assets
Goodwill and patents are stated at cost, are included in other assets
and are amortized on a straight-line basis over the shorter of their
legal or useful lives (10 years for goodwill, 15 to 17 years for
patents).
The Company evaluates its intangible assets in accordance with the
provisions of Statement of Financial Accounting Standards ("SFAS") No.
121, Accounting for the Impairment of Long-lived Assets and Assets to
be Disposed Of. This statement requires assessment of impairment of
long-lived assets whenever factors, events or changes in circumstances
indicate the carrying amount of certain long-lived assets to held and
used may not be recoverable. Assessment of impairment is based on the
expected undiscounted cash flows of the assets. If an asset is
determined to be impaired, an impairment loss is recognized to the
extent the carrying amount of the impaired asset exceeds fair value.
Revenue Recognition
Sales revenues are recognized when products are shipped and lease
revenues are recognized in accordance with individual lease agreements.
Advertising
Advertising (approximately $45,000 and $67,000 in 1998 and 1997,
respectively) is expensed as incurred and is included with selling,
general and administrative expenses in the consolidated statements
of operations.
Income Taxes
Deferred income taxes are provided for the estimated tax effect of
temporary differences between financial and taxable income.
Prior Year Reclassifications
Certain prior year amounts have been reclassified to conform with the
March 31, 1998 financial statement presentation.
Net Income (Loss) Per Share
Effective in the third quarter, the Company adopted Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" (FAS 128).
FAS 128 requires dual presentation of net income per share; Basic and
Diluted. Net income per share - Basic excludes dilution and is
computed by dividing net income by the weighted average number of
common shares outstanding during the reported period. Net income
per share - Diluted reflects the potential dilution that could occur
if stock options and warrants were exercised. Net income (loss) per
share was calculated as follows:
Year Ended March 31
1998 1997
Net income (loss) ($ 722,777) $ 6,752
Weighted average shares outstanding - Basic 42,477,832 42,474,907
Effect of dilutive securities:
Stock options 1,500,787 826,367
Shares outstanding - Diluted 43,978,619 43,301,274
Net income (loss) per share - Basic ($ .02) $ .00
Net income (loss) per share - Diluted $ N/A $ .00
Net loss per share Diluted has not been presented for 1998 as its results
would be anti-dilutive.
Options and warrants to purchase 4,008,192 shares of common stock at prices of
$.30 to $.375 per share were not included in the computation of Net income per
share - Diluted because the options' exercise price was greater that the average
market price of common shares.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Fair Value of Financial Instruments
The carrying values of cash, cash equivalents, accrued expenses and notes
payable approximate their fair values due to the short maturity of these
instruments.
The fair value of the officer loan is determined by calculating the present
value of the note by a current market rate of interest as compared to the stated
rate of interest. The difference between fair value and carrying value is not
deemed to be significant.
NOTE 2. PROPERTY AND EQUIPMENT
Property and equipment at March 31, 1998 was as follows:
Production equipment $ 43,330
Other machinery and equipment 282,459
Office furniture and fixtures 63,752
Leasehold improvements 131,800
Computer equipment 100,141
621,482
Less accumulated depreciation
and amortization 545,649
$ 75,833
Depreciation and amortization on property and equipment for the years ended
March 31, 1998 and 1997 was $20,410 and $27,254, respectively.
NOTE 3. OTHER ASSETS
Other assets at March 31, 1998 consisted of the following:
Deferred income taxes, net of a
valuation allowance of $523,000 $ 265,000
Sonotron refinement costs, net of
accumulated amortization of $29,168 116,676
Goodwill, net of accumulated
amortization of $2,364 68,548
Patents, net of accumulated
amortization of $33,821 51,146
Deposits receivable 21,939
$ 523,309
Sonotron refinement costs represent the costs incurred in connection with the
improvement of the Sonotron devices. These costs are being amortized over five
years, the expected benefit period of the routine refinements. Refinement costs
amortization expense was $29,168 for the year ended March 31, 1998.
Amortization of goodwill and patents was $2,364 and $3,664, respectively for the
year ended March 31, 1998 and amortization of patents was $4,721 for the year
ended March 31, 1997.
NOTE 4. NOTES PAYABLE
Notes payable consisted of the following at March 31, 1998:
Demand line of credit payable to bank; credit limit $100,000;
interest at prime rate (8.50% at March 31, 1998) plus 1%;
collateralized by certificate of deposit. $ 82,014
8.00% note payable to the former shareholder of the newly
acquired subsidiary; interest and principal payable
quarterly; matures January 1, 2000; unsecured 66,250
Other 11,254
Total 159,518
Less current maturities ( 110,842)
$ 48,676
For the year ended March 31, 1998 interest expense on total indebtedness
amounted to $3,631.
NOTE 5. INCOME TAXES
The components of income taxes for the years ended March 31, 1998 and 1997,
are as follows:
1998 1997
Deferred $ 259,000 $ -
Change in valuation allowance ( 259,000) -
Income taxes $ - $ -
The differences between the income taxes and the amount computed by applying the
federal statutory income tax rate of 34% to income before taxes are as follows:
1998 1997
Tax expense at U.S. statutory rates ($ 246,000) $ -
Change in valuation allowace 259,000 -
Other ( 13,000) -
Income taxes $ - $ -
At March 31, 1998, the Company had deferred tax assets of approximately
$859,000, $689,000 resulting from net operating loss carryforwards, $111,000
related to unrealized declines in market value of securities and $59,000 from
other temporary differences. The deferred tax assets are offset by a valuation
allowance in the amount of $594,000. The net deferred tax asset of $265,000 is
included in other assets in the accompanying balance sheet at March 31, 1998.
Deferred tax assets, net of a valuation allowance, are recorded when management
believes it is more likely than not that tax benefits will be realized. The
change in the valuation allowance was based upon the consistent application of
management's valuation procedures and new circumstances surrounding its future
realization. The amount of the deferred tax asset considered realizable,
however, could be reduced inthe near term if estimates of future taxable income
during the carryforward period are reduced.
The Company and its subsidiaries file consolidated income tax returns. As of
March 31, 1998, the Company had consolidated net operating loss carryforwards of
approximately $1,830,000 that will expire during the years 2005 through 2007 and
consolidated capital loss carryforwards of approximately $299,000 that will
expire during the years 2001 and 2002.
NOTE 6. EMPLOYEE BENEFIT PLAN
The Company has a 401(k) Plan covering substantially all employees.
Contributions to the plan are at the discretion of management. Contributions to
the plan for the year ended March 31, 1998 totaled $3,631.
NOTE 7. COMMITMENTS AND CONTINGENCIES
Leases
The Company leases its office and warehouse facilities and certain equipment
under non-cancelable operating leases. Subsequent to March 31, 1998, the
Company extended the lease for its office and a warehouse facility.
The approximate future minimum annual rentals under these leases, including
those entered into subsequent to March 31, 1998 are as follows:
March 31, 1999 $ 139,000
March 31, 2000 112,000
March 31, 2001 85,000
March 31, 2002 81,000
March 31, 2003 81,000
Thereafter 446,000
$ 944,000
Rent expense for all facilities for the years ended March 31, 1998 and March
31, 1997 was $101,612 and $81,354, respectively.
Warranties
Sonotron devices are sold under agreements providing for the repair or
replacement of any devices in need of repair, at the Company's cost, for
up to one year from the date of delivery, unless such need was caused by
misuse or abuse of the device.
At March 31, 1998, no amount has been accrued for potential warranty costs
and such costs are expected to be nominal.
Arthronix
At March 31, 1998 a $300,000 note receivable from Arthronix (unrelated
entity) relating to the settlement of a lawsuit remained outstanding and was
in default.
In connection with the settlement of a second lawsuit with Arthronix at March
31, 1998, a $82,306 note receivable from Arthronix remained outstanding and
is in default. This note is collateralized by substantially all tangible and
intangible assets relating to an Arthronix product line. In addition, this
settlement provided that upon default of any payment on such note, for a
period of 30 days or more, Arthronix would become liable for an additional
$225,000 (the full pre-settlement amount of $372,000 less the $147,000
agreed upon in the settlement).
In May 1996, both notes were in default and the Company commenced legal
action to effect collection of these notes and to obtain the tangible and
intangible assets collateralizing the $82,306 note. In January 1997,
judgments in favor of the Company were entered by the court on both notes,
plus accrued interest for a total amount of approximately $750,000.
Arthronix has since filed two motions to vacate the judgments. The trial
judge vacated one judgement of approximately $355,000 and a hearing is
pending regarding its status. A motion for reconsideration on the other
judgement of approximately $395,000 is presently pending.
Due to the uncertainties relating to the recovery of the balances, at
March 31, 1998, the carrying amount of the $300,000 note continues to be
offset by deferred revenue in the same amount, while the $82,306 note,
the additional amount due on this note as a result of the default
(approximately $225,000), plus all accrued interest on both notes were
offset by reserves in the same amounts.
In response to the Company's actions to obtain the collateral, Arthronix
filed a demand for arbitration claiming that amounts are due them pursuant
to an unrelated agreement dated August 25, 1993 (the Agreement) between
Arthronix, a subsidiary of the Company and a major customer of the
Company which, by its terms, expire on August 24, 1994. Arthronix has
alleged, among other things, breach of contract, tortuous interference,
and failure to execute an extension of such Agreement and is seeking
punitive and compensatory damages in an amount alleged to be approximately
$2.7 million. Additionally, Arthronix alleges it is owed commissions of
$111,612 resulting from sales of Sonotron devices to the major customer
based upon a sales order dated March 31, 1994. In connection with this
matter, the Company filed a counter claim to the arbitration claiming
damages of $1.8 million plus $100,000 return of commissions.
Management believes the claims made by Arthronix to be without merit and is
vigorously defending the arbitration, however, in the opinion of the Company's
counsel, the likelihood of an unfavorable outcome with regard to these
allegations cannot presently be determined.
NOTE 8 STOCK OPTIONS
From time to time, the Company grants stock options to directors, officers
and outside consultants. During the year ended March 31, 1997, the Company
granted 2,192,819 options to certain employees and agreed to grant, subject to
the approval of the Board of Directors, 3,200,000 to
non-employees. The Company has elected to continue using Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
(APB 25) and has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"), in accounting for employee stock options.
Under this application compensation expense is recorded only to the extent
that the market value of the underlying stock exceeded the exercise price at
the date of grant. No compensation expense has been recognized for the
years ended March 31, 1997 and 1998.
Included in the consolidated statement of operations for the year ended March
31, 1998 is $74,000 of professional fees which represents the fair value of
consideration paid in the form of non-employee stock options at the grant
date.
Had employee compensation cost been determined on the basis of fair value
pursuant to SFAS 123, the consolidated net loss and net loss per share for
the year ended March 31, 1998 would have been $810,777 and $.02,
respectively.
A summary of the Company's stock option activity (including 3,200,000 options
which the Company has agreed to grant, subject to the approval of the Board of
Directors), and related information for the years ended March 31, 1998 and
1997, is as follows:
Year ended March 31, 1998 Year ended March 31,1997
Weighted Weighted
Average Average
Exercise Exercise
Options Price Options Price
Outstanding April 1, - $ - 1,777,229 $ 0.18
Granted 5,392,819 0.2885 - -
Exercised - - - -
Forfeited - - 1,777,229 0.18
Outstanding March 31, 5,392,819 0.2885 - -
Exercisable at end 5,201,038 $ 0.2925 - $ -
of year
The exercise prices of stock options, which were fully vested at
March 31, 1998, were as follows:
Exercise Price Number of Options
$ 0.18 2,201,038
0.375 3,000,000
The expiration dates of stock options, which were fully vested at March 31,
1998, were as follows:
Expiration Date Number of Options
March 16, 2000 8,219
February 6, 2002 3,000,000
February 3, 2003 2,192,819
The weighted average fair value of options granted at March 31, 1998 were as
follows:
Number of Weighted Average
Options Fair Value
Exercise price exceeds the
market price at grant date 2,392,819 $ 0.0411
Exercise price is less than
the market price at grant date 3,000,000 $ 0.0243
The determination of the fair value of all stock options granted was based
on (i) a risk-free interest rate of 5.5%, (ii) an expected option life based
on original life of each option,(iii) an expected volatility in the market
price of the Company's common stock of 63%, and (iv) no expected dividends
on the underlying stock.
NOTE 9. MAJOR CUSTOMERS, CREDIT CONCENTRATION, EXPORT SALES AND SEGMENT
INFORMATION
Major Customers
Sales to individual unaffiliated customers in excess of 10% of net sales to
unaffiliated customers are shown below.
Year Ended March 31,
1998 1997
Chemical Segment:
Customer A $ 250,000 $ 364,000
Medical Segment:
Customer B $ 17,000 $ 447,000
Customer C $ 225,177 $ -
Individual accounts receivable balances at March 31, 1998 in excess of 10%
of total accounts receivable are as follows:
Chemical Segment:
Customer A $ 33,000
Custom D $ 32,000
Medical Segment:
CustomerC $ 120,000
Credit Concentration
The Company sells chemicals primarily to the printing and packaging industry
(see Item 1(c) - Narrative Description of Business elsewhere herein for
additional information).
The Company maintains account balances and a certificate of deposit in a
financial institution in excess of federally insured limits.
Export Sales
For the years ended March 31, 1998 and 1997, export sales were approximately
$39,000 and $530,000, respectively. Of these sales, $17,000 and $447,000
were to one major customer in Japan.
Segment Information
The Company operates in two industry segments - the production and sale of
chemicals and the manufacture and sale or lease of medical products.
Information about segment operations follows:
Chemical Medical Total
Year Ended March 31, 1998
Net sales - unaffiliated
customers $ 936,116 $ 547,102 $ 1,483,218
Income (loss) from
operations* ( $ 437,739 ) ( $ 337,059 ) ( $ 774,798 )
Identifiable assets** $ 2,344,700 $ 488,948 $ 2,833,648
Depreciation and
amortization $ 57,015 $ 7,722 $ 64,737
Capital expenditures $ 3,435 $ 10,634 $ 14,069
Year Ended March 31,1997
Net sales - unaffilia
Customers $ 977,037 $ 597,818 $ 1,574,855
Income (loss) from
Operations* ( $ 130,491 ) $ 93,561 ( $ 36,930 )
Identifiable assets** $2,164,299 $ 705,000 $ 2,869,308
Depreciation and
Amortization $ 16,612 $ 10,642 $ 27,254
Capital expenditures $ 33,456 $ - $ 33,456
* Excludes interest income and loss on securities available for sale.
** Includes short term investments, officer loans, deferred tax asset,
and goodwill.
The reconciliation of loss from operations to net income (loss) for the years
ended March 31, 1998 and 1997 is as follows:
1998 1997
Loss from operations ( $ 774,798 ) ( $ 36,930 )
Interest income 52,021 63,682
Loss on securities available for sale - ( 20,000 )
Net income (loss) ( $ 722,777 ) $ 6,752
NOTE 10 SIGNIFICANT TRANSACTIONS
Business Combination
On December 2, 1997 the Company, pursuant to an agreement for sale of stock,
acquired 100% of the outstanding stock of Precision Assembly Corporation
(PAC) for total consideration of $22,741. In connection with this agreement,
the Company agreed to fund $30,259 due from PAC to one of its selling
shareholders upon closing and to assume an additional obligation due from PAC
to this shareholder of $72,500.
This acquisition was accounted for as a purchase.
Proforma Combined Condensed Financial Information (Unaudited)
The following unaudited proforma combined condensed statements of operations
for the years ended March 31, 1998 and 1997 are as if the business
combination had occurred at the beginning of each period presented.
For the year ended March 31,
1998 1997
Operating revenues $ 2,360,177 $ 2,049,490
Operating expenses 3,161,033 2,101,732
Net loss ( 748,835 ) ( 8,560 )
Net loss per share ( .02 ) ( .00 )
The proforma data is provided for information purposes only and does not
proport to be indicative of results which actually would have been obtained
if the combination had been effected at the beginning of each period
presented, or of those results which may be obtained in the future.
Stock Offering
On March 31, 1998, the company completed a private offering pursuant to which
it sold 1,250,000 shares of common stock, plus a warrant to purchase
1,000,000 additional shares for total consideration of $275,000. The warrant
provides for the purchase of 1,000,000 shares at $.30 per share at any time
through March 31, 2000 and thereafter at $.47 per share through March 31,
2002, the termination date.
The Company is obligated within 90 days upon receiving notice from the holder
of the common stock and warrant shares to prepare and file a registration
statement with respect to such securities.
NOTE 11 SUBSEQUENT EVENTS
NASDAQ
The Company has been notified by NASDAQ that becuase the Company's Common Stock
had a closing bid price of less than $1.00 for at least 10 consecutive trading
days, the Company's Common Stock will be delisted from NASDAQ on July 20, 1998.
In accordance with NASDAQ procedures, however, the Company intends to request a
hearing before NASDAQ. NASDAQ has advised the Company that the delisting will
be stayed pending the outcome of the hearing. The Company believes that any
such hearing will not be held prior to September, 1998. Subject to obtaining
requisite approvals of the Comapny's Board of Directors and shareholders, the
Company intends to effect a reverse split of its Common Stock if necessary to
maintain its listing on NASDAQ. There can be no assurance that a reverse split
will be so approved or will be acceptable to NASDAQ.
Acquisition
On May 27, 1998 the Company, pursuant to an asset purchase agreement agreed
to purchase certain tangible and intangible assets and certain operating
rights relating to an FDA cleared medical device used principally in the
treatment of postoperative edema and pain in superficial soft tissues.
Pursuant to the agreement, the Company agreed to pay $150,000 in cash,
2,925,000 shares of the Company's common stock, plus a provision for
contingent consideration consisting of an option to acquire up to 1,500,000
additional shares of the Company's Common Stock at $.425 per share. In
addition, the Company agreed to file a registration statement with respect to
such shares with the Securities and Exchnge Commission (SEC).
Consulting Agreement
On May 27, 1998, the Company entered into a consulting agreement. The terms
of the four-month agreement call for, among other things, that in exchange
for consulting services, the consultant will receive $15,000 in cash and
342,000 shares of the Company's stock. The agreement provides for
registration of such shares with the SEC.
NOTE 12 SIGNIFICANT FOURTH QUARTER ADJUSTMENTS
The Company made provisions to bad debt expense of approximately $93,000
relating to two customer accounts receivable, $82,000 relating to a note
receivable and $13,000 of advance professional fees. All were estimated to
be uncollectible at March 31, 1998. Additionally, the Company accrued for
approximately $80,000 of billed and unbilled attorney's fees and recorded
approximately $29,000 of amortization expense associated with Sonotron
refinement costs.
The effect of the above adjustments increased the net loss by approximately
$297,000.
Item 8. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
Not applicable.
PART III
Item 9. Directors and Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act
I.
(a) Identification of Executive
Officers and Directors
Name Age Position
Dr. Alfonso Di Mino 78 President, Chief Executive Officer and
Director
Vincent Di Mino 72 Vice President of Production and
Director
Andre' Di Mino 42 Executive Vice President, Secretary,
Treasurer, Chief Operating Officer and
Director
Thomas Petrie 53 Director
John Berenyi 51 Director
Dr. Stephen Brenner 49 Director
Dr. Harold Gelb 73 (1)
_____________________________
(1) Dr. Harold Gelb has been chosen to be a Director but has not yet been
elected.
Dr. Alfonso Di Mino has been President and a Director of the Company since
1969.
Vincent Di Mino has been Vice President of Production since 1969 and a
Director of the Company since 1987.
Andre' Di Mino has been Executive Vice President and Chief Operating Officer
since 1987 and Secretary and Treasurer of the Company since 1978. Mr.
Di Mino has been a Director of the Company since 1987.
Thomas Petrie has been the President of PAC for approximately three years.
Prior thereto, Mr. Petrie was a Business Unit Director of Personal Diagnostics.
John Berenyi, is currently senior managing director with Brill Securities, Inc.
having been with this firm since August 1997. For the two years prior, Mr.
Berenyi was with the firm Fechtor, Detwiler serving in a similar capacity.
From September 1994 to August 1995 he was with the firm of Rodman and Renshaw
and from March 1993 to August 1994 he was with Meridian Capital Markets.
Dr. Stephen Brenner is a fellow of the American Academy of Orthopedic Surgery
and an attending physician at Pascack Valley Hospital. He is the founder of
the Orthopedic and Sports Medical Institute which has four offices in New York
and New Jersey.
Dr. Harold Gelb is an expert in the diagnosis and treatment of craniomandibular
disorders in private practice in New York City. He is an author of several
texts on the subject of craniomandibular pain and he lectures worldwide on this
area of medical practice.
(b) Identify Significant Employees
Thomas Petrie may be deemed to be a significant employee.
(c) Family Relationships
Dr. Alfonso Di Mino is the father of Andre' Di Mino and the
brother of Vincent Di Mino. There are no other family relationships between
any of the Company's directors or executive officers.
(d) Involvement in Certain Legal Proceedings
During the last five years, none of the following events occurred
with respect to any executive officer or director of the Company as of the
date hereof.
(i) Any bankruptcy petition was filed by or against any business of
which such person was a general partner or an executive officer at
or within two years before the time of such filing;
(ii) Any conviction in a criminal proceeding or being subject of a
pending criminal proceeding (excluding traffic violations and
other minor offenses);
(iii) Being subject to any order, judgment or decree, not subsequently
reversed, suspended or vacated, of any court of competent
jurisdiction, permanently or temporarily enjoining, barring,
suspending or otherwise limiting his involvement in any type of
business, securities or banking activities; and
(iv) Being found by a court of competent jurisdiction (in a civil
action), the Securities and Exchange Commission or the Commodity
Futures Trading Commission to have violated a federal or state
securities or commodities law, and the judgment has not been
reversed, suspended or vacated.
(g) Promoters and Control Persons
Not Applicable.
II. Section 16(a) Beneficial Ownership Reporting Compliance
Based solely upon a review of any Forms 3 and 4 and amendments thereto
furnished to the Company under Rule 16a-3(a) under the Exchange Act during
its most recent fiscal year and any Forms 5 and amendments thereto furnished
to the Company with respect to its most recent fiscal year, and any written
representations referred to in subparagraph (b)(2)(i) of Item 405 of
Regulation S-B, other than the following, no person who at any time during
the fiscal year ended March 31, 1998 was a director, officer, to the
knowledge of the Company a beneficial owner of more than 10% of any class of
equity securities of the Company registered pursuant to Section 12, failed to
file on a timely basis, as disclosed in the above Forms, reports required by
Section 16(a) of the Exchange Act during the most recent fiscal year or prior
fiscal years.
NAME NUMBER OF LATE NUMBER OF
REPORTS TRANSACTIONS NOT
REPORTED ON A
TIMELY BASIS
Dr. Alfonso Di Mino 1 2
John Berenyi (1) (1)
Dr. Stephen Brenner (1) (1)
Thomas Petrie 1 0
_______________
(1) The information is not known to the Company.
None of the late Reports has been filed.
Item 10. Executive Compensation
The following table (the "Summary Table") sets forth all plan and
non-plan compensation amended to, earned by, or paid to (i) the Company's
chief executive officer and (ii) the Company's four most highly compensated
executive officers other than the chief executive officer who served as such
on March 31, 1998 and whose total annual salary and bonus exceeded $100,000
(the "Named Officer"):
Name and Principal Fiscal Year Annual Compensation Securities
Position Ended Salary Underlying Options
March 31
Dr. Alfonso Di Mino, 1998 $93,600 715,741 shares
President and Chief of Common Stock
Executive Officer 1997 $93,600
1996
$85,000
The following table reflects individual grants of stock options made during
the fiscal year ended March 31, 1998 to the Named Oficer and others.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
(Individual Grants)
Name Number of Percent Exercise Expiration Value of
Shares of Total Price Date Unexercised
Common Options per In-The-Money
Stock Granted to Share Options
Underlying Employees at
Options In Fiscal 3/31/1998
Year
Alfonso DiMino 715,741 33% $.18 2/3/03 $117,382
Andre' Di Mino 577,078 26% $.18 2/3/03 $ 94,641
Vincent Di Mino 700,000 32% $.18 2/3/03 $114,800
Thomas Petrie 200,000 9% $.18 2/3/03 $ 32,800
The options referred to in the foregoing table are not exercisable until
February 1999. During the fiscal year ended March 31, 1998, the Company agreed
but has not yet granted, to grant options for the purchase of 100,000 of Common
Stock each to Messrs. Berenyi and Brenner at $.18 per share which are to become
exercisable in February 1999 which will expire February 2000.
No options issued by the Company were exercised by any of the foregoing
persons during the fiscal year ended March 31, 1998.
During the fiscal years ended March 31, 1998, 1997 and 1996, no other
compensation not otherwise referred to herein was paid or awarded by the
Company to the Named Officer, the aggregate amount of which compensation,
with respect to any such person, exceeded the lesser of $50,000 or 10% of the
annual salary and bonus reported in the Summary Table for such person.
There are no standard or other arrangements pursuant to which any director
of the Company is or was compensated during the Company's last fiscal year for
services as a director, for committee participation or special assignments.
The Company has no employment contract with any person named in the Summary
Table other than Thomas Petrie. In November 1997, PAC entered into a five year
Employment Agreement with Mr. Petrie pursuant to which Mr. Petrie has been
employed as PAC's President and Chief Engineer. The Employment Agreement
provides for an annual salary of $75,000 and a bonus ranging from 3% to 5% of
Pac's net income.
The Company does not have any compensatory plan or arrangement, including
payments to be received from the Company with respect to any person named in
the Summary Table, which plan or arrangement results or will result from the
resignation, retirement or any other termination of such person's employment
with the Company and its subsidiaries or from a change in control of the Company
or a change in such person's responsibilities following a change in control and
the amount involved, including all periodic payments or installments, exceeds
$100,000.
Item 11. Security Ownership of Certain Beneficial Owners and Management
(a), (b)
The following table sets forth certain information as of July 8, 1998
with respect to any person who is known to the Company to be the beneficial
owner of more than 5% of any class of its voting securities and as to each
class of the Company's equity securities beneficially owned by its
directors and directors and officers as a group:
Title Name and Address Amount Approximate
of of Beneficial of Percent
Class Owner Beneficial of
Ownership(1) Class
______________________________________________________________
Common Dr. Alfonso Di Mino 2,334,239(2) 5%(2)
Stock, 224-S Pegasus Ave. shares
$.0005 Northvale, NJ 07647
par value
Common Andre' Di Mino 7,672,696(3) 17%(3)
Stock, 224-S Pegasus Ave. shares
$.0005 Northvale, NJ 07647
par value 1,700,000(4) 4%(4)
shares
3,400,000(5) 8%(5)
shares
Common Vincent Di Mino 1,887,928(6) 4%(6)
Stock, 224-S Pegasus Ave. shares
$.0005 Northvale, NJ 07647
par value
5,100,000(7) 12%(7)
shares
Common Thomas Petrie -0- -
Stock, 32 Deerhaven Lane shares
$.0005 Newfoundland, NJ 07927
par value
Common The American Heritage 4,230,000 9.6%
Stock, Fund, Inc. shares
$.0005 1370 Avenue of the Americas
par value New York, N.Y. 10019
Common Officers and Direc- 16,994,863(8) 39%(8)
Stock, tors as a group shares
$.0005 (6 persons)
par value
______________________________
(1) Unless otherwise noted below, the Company believes that all persons named
in the table have sole voting and investment power with respect to all shares
of Common Stock beneficially owned by them. For purposes hereof, a person is
deemed to be the beneficial owner of securities that can be acquired by such
person within 60 days from the date hereof upon the exercise of warrants or
options or the conversion of convertible securities. Accordingly, the
table does not reflect the Common Stock underlying options granted to the
Company's Directors during the fiscal year ended March 31, 1998. Reference
is made to the response to Item 10 hereof. Each beneficial owner's percentage
ownership is determined by assuming that any such warrants, options or
convertible securities that are held by such person (but not those held by any
other person) and which are exercisable within 60 days from the date hereof,
have been exercised.
(2) Represents (a) 1,004,239 shares of Common Stock directly owned by Dr.
Di Mino, (b) 1,000,000 shares of Common Stock beneficially owned by the spouse
of Dr. Di Mino, in which shares Dr. Di Mino disclaims any beneficial ownership,
and (c) 1,330,000 shares of Common Stock, which includes the 1,000,000 shares
described in (b) above, subject to an agreement dated July 8, 1987 pursuant to
which Dr. Di Mino has the power to vote such shares.
(3) Represents 7,672,696 shares of Common Stock directly owned by Mr. Di Mino.
(4) Represents 1,700,000 shares of Common Stock held by the Andre' Di Mino
Irrevocable Trust, a Trustee and the beneficiary of which is Andre' Di Mino who
may be deemed to be a beneficial owner of the shares held by such Trust.
(5) Represents 1,700,000 shares of Common Stock held each by the Maria Elena
Di Mino and Maurice Di Mino Irrevocable Trusts, a Trustee of which is Andre
Di Mino who may be deemed to be a beneficial owner of the shares held by such
Trusts by reason of his power to vote such shares.
(6) Represents (a) 1,287,928 shares of Common Stock directly owned by Mr.
Di Mino, (b) 300,000 shares of Common Stock beneficially owned by the spouse of
Vincent Di Mino, and (c) 300,000 shares of Common Stock owned by the child of
Mr. Di Mino who resides in his home, in all of which shares set forth in (b)
and (c) of this Note (5) Mr. Di Mino disclaims any beneficial ownership.
(7) Represents 5,100,000 shares of Common Stock of which 1,700,000 such shares
are held by each of the Andre' Di Mino Irrevocable Trust, the Maria Elena
Di Mino Irrevocable Trust and the Maurice Di Mino Irrevocable Trust. Vincent
Di Mino, a Trustee of each of such Trusts, may be deemed to be a beneficial
owner of the shares held by such Trusts by reason of his power to vote such
shares.
(8) See Notes above.
(c) Changes in Control
The Company is not aware of any arrangement which may result in a
change in control of the Company.
Item 12. Certain Relationships and Related Transactions
(a) From time to time, the Company has loaned money to Andre' Di Mino at
an interest rate of 3% per annum. Reference is made to the responses to
Items 9 and 11 hereof. The largest aggregate amount of indebtedness, including
interest, outstanding at any time since the beginning of the Company's fiscal
year ended March 31, 1998 was approximately $84,000 and principal and interest
outstanding as of March 31, 1998 was $79,000.
As payment for consulting services, the Company has agreed to issue options
to a corporation wholly owned by Heiko H. Thieme. The option, which will have a
term of four years and is to become exercisable on January 1, 1999, will permit
the holder to purchase up to 3,000,000 shares of the Company's Common Stock for
$.375 per share during the first two years after issuance and $.50 per share for
the remaining two years. Mr. Thieme is the Chief Executive Officer of The
American Heritage Fund, Inc. and The Global Opportunity Fund Limited.
Other than as otherwise set forth in this Annual Report on From 10-KSB,
during the last two years there was no transaction or proposed transaction to
which the Company was or is to be a party, in which any of the following
persons had or is to have a direct or indirect material interest and the
amount involved in the transaction or a series of similar transactions exceeded
$60,000:
(1) Any director or executive officer of the Company;
(2) Any nominee for election as a director;
(3) Any security holder named in response to Item 11 hereof; and
(4) Any member of the immediate family (including spouse, parents,
children, siblings and in-laws) of any person named in
paragraphs (1), (2) or (3) of this Item 12(a).
(b), (c), (d) Not applicable.
Item 13. Exhibits and Reports of Form 8-K
(a) Exhibits
3.1 Certificate of Incorporation and amendments thereto filed on August 9,
1976 and May 15, 1978. Exhibit 3(a) to the Company's Registration
Statement on Form 10, File No. 0-17629 (the "Form 10"), is hereby
incorporated by reference.
3.2 Certificate of Amendment to Certificate of Incorporation filed
December 9, 1996. Exhibit 3(a) to the Company's Annual Report on
Form 10-KSB for the fiscal year ended March 31, 1997 is hereby
incorporated by reference.
3.3 By-Laws. Exhibit 3(b) to the Form 10 is hereby incorporated by
reference.
4.1 Warrant issued to the Global Opportunity Fund Inc. *
9.1 Trust Agreements of November 7, 1980 by and between Dr. Alfonso Di
Mino et al. Exhibit 9 to the Company's Annual Report on Form 10-KSB
for the fiscal year ended March 31, 1993 is hereby incorporated by
reference.
10.1 Memorandum of Lease by and between the Company and Cresskill
Industrial Park III dated as of August 26, 1993. Exhibit 10(a) to the
Company's Annual Report on Form 10-KSB for the fiscal year ended
March 31, 1994 is hereby incorporated by reference.
10.2 Agreement of July 8, 1987 by and between Donna Di Mino, Dr. Alfonso
Di Mino, et al. Exhibit 10(q) to the Company's Annual Report on Form
10-KSB for the fiscal year ended March 31, 1993 is hereby incorporated
by reference.
10.3 Agreement of July 13, 1993 by and between ADM Medical Ventures
Corporation and Arthronix, Inc. Exhibit 10(r) to the Company's Annual
Report on Form 10-KSB for the fiscal year ended March 31, 1993 is
hereby incorporated by reference.
10.4 Agreement of June 9, 1992 by and between Advent Medical
Technology, Inc. and Arthritic Relief Centers, Inc. Exhibit 2 to the
Company's Current Report on Form 8-K dated June 9, 1992 is hereby
incorporated by reference.
10.5 Agreement of June 9, 1992 by and between Advent Medical
Technology, Inc. and Vet Sonotron Systems, Inc. Exhibit 3 to the
Company's Current Report on Form 8-K dated June 9, 1992 is hereby
incorporated by reference.
10.6 Stock Purchase Agreement and Registration and Rights Agreement
(undated) by and between The American Heritage Fund, Inc. and the
Company. Exhibit 10(i) to the Company's Annual Report on Form 10-KSB
for the fiscal year ended March 31, 1993 is hereby incorporated by
reference.
10.7 Amendment to Agreement of March 16, 1993 by and between Arthritic
Relief Centers, Inc. and Advent Medical Technology, Inc. Exhibit 10(k)
to the Company's Annual Report on Form 10-KSB for the fiscal year
ended March 31, 1993 is hereby incorporated by reference.
10.8 Voting Agreement of March 16, 1993 by and between Vet Sonotron
Systems, Inc. and Advent Medical Technology, Inc. Exhibit 10(l) to the
Company's Annual Report on Form 10-KSB for the fiscal year ended
March 31, 1993 is hereby incorporated by reference.
10.9 Voting Agreement of March 16, 1993 by and between Arthritic Relief
Centers, Inc. and Advent Medical Technology, Inc. Exhibit 10(m) to the
Company's Annual Report on Form 10-KSB for the fiscal year ended
March 31, 1993 is hereby incorporated by reference.
10.10 Agreement for Sale of Stock Between the Company, James C.
Wickstead and Thomas Petrie. **
10.11 Employment Agreement of November 26, 1997 between Thomas Petrie
and Precision Assembly Corp. **
10.12 Asset Purchase Agreement of May 27, 1998 by and among
Electropharmacology, Inc., AA Northvale Medical Associates, Inc. **
10.13 Subscription Agreement of March 31, 1998 between the Company and
The Global Opportunity Fund Limited. **
10.14 Consulting Agreement, dated May 15, 1998, by and between the
Company and Wharton Capital Corp. Exhibit 99.1 to the Company's
Registration Statement on Form S-8, File. No. 333-57823, is hereby
incorporated by reference.
21.1 Subsidiaries of the Company. *
23.1 Consent of Kaufman, Rossin & Co. *
27 Financial Data Schedule. *
_________________________
* Filed herewith.
** To be filed by Amendment
(b) Reports on Form 8-K
Not applicable
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
ADM TRONICS UNLIMITED, INC.
By: \s\ Dr. Alfonso Di Mino, President
Dated: July 14, 1998
In accordance with the Exchange Act this report has been signed below by
the following persons on behalf of the registrant and in the capacities and
on the dates indicated:
Signatures Title Date
\s\Dr. Alfonso Di Mino Chief Executive Officer 7/14/98
and Director
\s\Andre' Di Mino Principal Financial 7/14/98
and Accounting
Officer and Director
\s\Vincent Di Mino Director 7/14/98
\s\Thomas Petrie Director 7/14/98
Director
- - -----------------------
Dr. Stephen Brenner
Director
- - -----------------------
John Berenyi
EXHIBIT 4.1
THIS WARRANT AS WELL AS THE COMMON STOCK ISSUABLE UPON
THE EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED(THE "ACT"), AND
MAY NOT BE OFFERED OR SOLD UNLESS REGISTERED UNDER THE
ACT OR AN EXEMPTION FROM REGISTRATION UNDER THE ACT IS
AVAILABLE.
Void after 5:00 P.M., New York City Time, on March 31, 2002 (the "Termination
Date")
WARRANT TO PURCHASE 1,00,000 SHARES OF THE COMMON STOCK OF
ADM TRONICS UNLIMITED, INC.
This is to Certify That, FOR VALUE RECEIVED, THE GLOBAL OPPORTUNITY FUND
LIMITED (the "Holder"), is entitled to purchase, subject to the provisions of
this Warrant, from ADM TRONICS UNLIMITED, INC., a Delaware corporation (the "
Company"), 1,000,000 shares of the Common Stock of the Company, $.0005 par
value (the "Common Stock"), at a price of $.30 per shareat any time or from
time to time from the date hereof until 5:00 P.M., New York City Time on March
31, 2000 and thereafter at a price of $.47 per share at any time or from time
to time until 5:00 P.M., New York City Time on the Termination Date. The
number of shares to be received upon the exercise of this Warrant and the
price to be paid for each such share may be adjusted from time to time as
hereinafter set forth. The shares deliverable upon such exercise, and as
adjusted from time to time, are hereinafter sometimes referred to as "Warrant
Shares" and the exercise price of this Warrant as in effect at any time as
adjusted from time to time is hereinafter sometimes referred to as the
"Exercise Price."
SECTION 1. EXERCISE OF WARRANT.
This Warrant may be exercised in whole oroption of the Holder, upon
presentation and surrender hereof to the Company or at the office of its
stock transfer agent, if any, for other warrants of different denominations
entitling the holder thereof to purchase in the aggregate the same number of
shares of Common Stock purchasable hereunder. The term "Warrant" as used
herein includes any Warrants into which this Warrant may be divided or
exchanged. Upon receipt by the Company of evidence reasonably satisfactory to
it of the loss, theft, destruction or mutilation of this Warrant, and (in the
case of loss, theft or destruction) of reasonably satisfactory
indemnification, and upon surrender and cancellation of this Warrant, if
mutilated, the Company will execute and deliver a new Warrant of like tenor
and date. Any such new Warrant executed and delivered shall constitute an
additional contractual obligation on the part of the Company, whether or not
this Warrant so lost, stolen, destroyed, or mutilated shall be at any time
enforceable by anyone.
SECTION 5. RIGHTS AND LIABILITIES OF THE HOLDER.
The Holder shall not, by virtue hereof, be entitled to any rights of a
shareholder in the Company, either at law or equity, and the rights of the
Holder are limited to those expressed in the Warrant and are not enforceable
against the Company except to the extent set forth herein. No provision of
this Warrant, in the absence of affirmative action by the Holder to purchase
the Warrant Shares, and no mere enumeration herein of the rights or
privileges of the Holder, shall give rise to any liability of the Holder for
the Exercise Price or as a shareholder of the Company, whether such liability
is asserted by the Company or by creditors of the Company.
SECTION 6. ADJUSTMENTS, NOTICE PROVISIONS AND RESTRICTIONS ON
ISSUANCE OF ADDITIONAL SECURITIES.
SECTION 6.1 Adjustment of Exercise Price. The Exercise Price in
effect from time to time shall be subject to adjustment, as follows:
(a) In case the Company shall (i) declare a dividend or make a
distribution on the outstanding shares of its capital stock that is payable
in shares of its Common Stock, (ii) subdivide, split or reclassify the
outstanding shares of its Common Stock into a greater number of shares, or
(iii) combine or reclassify the outstanding shares of its Common Stock into a
smaller number of shares, the Exercise Price in effect immediately after the
record date for such dividend or distribution or the effective date of such
subdivision, combination or reclassification shall be adjusted so that it
shall equal the price determined by multiplying the Exercise Price in effect
immediately prior thereto by a fraction, of which the numerator shall be the
number of shares of Common Stock outstanding immediately before such
dividend, distribution, split, subdivision, combination or reclassification,
and of which the denominator shall be the number of shares of Common Stock
outstanding immediately after such dividend, distribution, split,
subdivision, combination or reclassification. Any shares of Common Stock
issuable in payment of a dividend shall be deemed to have been issued
immediately prior to the record date for such dividend for purposes of
calculating the number of outstanding shares of Common Stock of the Company
under this Section 6. Such adjustment shall be made successively upon the
occurrence of each event specified above.
(b) In case the Company fixes a record date for the issuance to holders
of its Common Stock of rights, options, warrants or convertible or
exchangeable securities generally entitling such holders to subscribe for or
purchase shares of Common Stock at a price per share less than the Current
Market Price (as such term is defined in Subsection 6.1(d) hereof) per share
of Common Stock on such record date, the Exercise Price shall be adjusted
immediately thereafter so that it shall equal the price determined by
multiplying the Exercise Price in effect immediately prior thereto by a
fraction, of which the numerator shall be the number of shares of Common
Stock outstanding on such record date plus the number of shares of Common
Stock which the aggregate offering price of the total number of shares of
Common Stock so offered would purchase at the Current Market Price per share,
and of which the denominator shall be the number of shares of Common Stock
outstanding on such Record Date plus the number of additional shares of
Common Stock offered for subscription or purchase. Such adjustment option of
the Holder, upon presentation and surrender hereof to the Company or at the
office of its stock transfer agent, if any, for other warrants of different
denominations entitling the holder thereof to purchase in the aggregate the
same number of shares of Common Stock purchasable hereunder. The term
"Warrant" as used herein includes any Warrants into which this Warrant may be
divided or exchanged. Upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of this
Warrant, and (in the case of loss, theft or destruction) of reasonably
satisfactory indemnification, and upon surrender and cancellation of this
Warrant, if mutilated, the Company will execute and deliver a new Warrant of
like tenor and date. Any such new Warrant executed and delivered shall
constitute an additional contractual obligation on the part of the Company,
whether or not this Warrant so lost, stolen, destroyed, or mutilated shall be
at any time enforceable by anyone.
SECTION 5. RIGHTS AND LIABILITIES OF THE HOLDER.
The Holder shall not, by virtue hereof, be entitled to any rights of a
shareholder in the Company, either at law or equity, and the rights of the
Holder are limited to those expressed in the Warrant and are not enforceable
against the Company except to the extent set forth herein. No provision of
this Warrant, in the absence of affirmative action by the Holder to purchase
the Warrant Shares, and no mere enumeration herein of the rights or
privileges of the Holder, shall give rise to any liability of the Holder for
the Exercise Price or as a shareholder of the Company, whether such liability
is asserted by the Company or by creditors of the Company.
SECTION 6. ADJUSTMENTS, NOTICE PROVISIONS AND RESTRICTIONS ON
ISSUANCE OF ADDITIONAL SECURITIES.
SECTION 6.1 Adjustment of Exercise Price. The Exercise Price in
effect from time to time shall be subject to adjustment, as follows:
(a) In case the Company shall (i) declare a dividend or make a
distribution on the outstanding shares of its capital stock that is payable
in shares of its Common Stock, (ii) subdivide, split or reclassify the
outstanding shares of its Common Stock into a greater number of shares, or
(iii) combine or reclassify the outstanding shares of its Common Stock into a
smaller number of shares, the Exercise Price in effect immediately after the
record date for such dividend or distribution or the effective date of such
subdivision, combination or reclassification shall be adjusted so that it
shall equal the price determined by multiplying the Exercise Price in effect
immediately prior thereto by a fraction, of which the numerator shall be the
number of shares of Common Stock outstanding immediately before such
dividend, distribution, split, subdivision, combination or reclassification,
and of which the denominator shall be the number of shares of Common Stock
outstanding immediately after such dividend, distribution, split,
subdivision, combination or reclassification. Any shares of Common Stock
issuable in payment of a dividend shall be deemed to have been issued
immediately prior to the record date for such dividend for purposes of
calculating the number of outstanding shares of Common Stock of the Company
under this Section 6. Such adjustment shall be made successively upon the
occurrence of each event specified above.
(b) In case the Company fixes a record date for the issuance to holders
of its Common Stock of rights, options, warrants or convertible or
exchangeable securities generally entitling such holders to subscribe for or
purchase shares of Common Stock at a price per share less than the Current
Market Price (as such term is defined in Subsection 6.1(d) hereof) per share
of Common Stock on such record date, the Exercise Price shall be adjusted
immediately thereafter so that it shall equal the price determined by
multiplying the Exercise Price in effect immediately prior thereto by a
fraction, of which the numerator shall be the number of shares of Common
Stock outstanding on such record date plus the number of shares of Common
Stock which the aggregate offering price of the total number of shares of
Common Stock so offered would purchase at the Current Market Price per share,
and of which the denominator shall be the number of shares of Common Stock
outstanding on such Record Date plus the number of additional shares of
Common Stock offered for subscription or purchase. Such adjustment shall be
made successively on each date whenever a record date is fixed.
(c) In case the Company fixes a record date for the making of a
distribution to all holders of shares of its Common Stock (i) of shares of
any class of capital stock other than its Common Stock or (ii) of evidences
of its indebtedness or (iii) of assets (other than dividends or distributions
referred to in Subsection 6.1(a) hereof) or (iv) of rights, options, warrant
or convertible or exchangeable securities (excluding those rights, options,
warrants or convertible or exchangeable securities referred to in Subsection
6.1(b) hereof), then in each such case the Exercise Price in effect
immediately thereafter shall be determined by multiplying the Exercise Price
in effect immediately prior thereto by a fraction, of which the numerator
shall be the total number of shares of Common Stock outstanding on such
record date multiplied by the Current Market Price (as such term is defined
in Subsection 6.1(d) hereof) per share on such record date, less the
aggregate fair value as determined in good faith by the Board of Directors of
the Company of said shares or evidences of indebtedness or assets or rights,
options, warrants or convertible or exchangeable securities so distributed,
and of which the denominator shall be the total number of shares of Common
Stock outstanding on such record date multiplied by such Current market Price
per share. Such adjustment shall be made successively each time such a record
date is fixed. In the event that such distribution is not so made, the
Exercise Price then in effect shall be readjusted to the Exercise Price which
would then be in effect if such record date had not been fixed.
(d) For the purpose of any computation under Subsection 6.1(a), 6.1(b)
or 6.1(c) hereof, the "Current Market Price" per share at any date (the
"Computation Date") shall be deemed to be the average of the daily current
market value of the Common Stock as determined in accordance with the
provisions of Section 3 hereof over twenty consecutive trading days ending
the trading day before such date; provided, however, upon the occurrence,
prior to the Computation Date, of any event described in Subsections 6.1(a),
6.1(b) or 6.1(c) which shall have become effective with respect to market
transactions at any time (the "Market-Effect Date") on or after the beginning
of such 20-day period, the current market value, as determined in accordance
with the provisions of Section 3 hereof for each trading day preceding the
Market-Effect Date shall be adjusted, for purposes of calculating such
average, by multiplying such Closing Price by a fraction the numerator of
which is the Exercise Price as in effect immediately after the Market-Effect
Date and the denominator of which is the Exercise Price immediately prior to
the Market-Effect Date, it being understood that the purpose of this proviso
is to ensure that the effect of such event on the market price of the Common
Stock shall, as nearly as possible, be eliminated in order that the
distortion in the calculation of the Current Market Price may be minimized.
(e) All calculations under this Section 6.1 shall be made to the
nearest cent.
SECTION 6.2 Adjustment of Number of Shares. Upon each adjustment of
the Exercise Price pursuant to Subsection 6.1 hereof, this Warrant shall
thereupon evidence the right to purchase, in addition to any other securities
to which the Holder is entitled to purchase, that number of Warrant Shares
(calculated to the nearest one-hundred thousandth of a share) obtained by
multiplying the number of shares of Common Stock purchasable upon exercise of
the Warrant immediately prior to such adjustment by the Exercise Price in
effect immediately prior to such adjustment and dividing the product so
obtained by the Exercise Price in effect immediately after such adjustment.
SECTION 6.3 Verification of Computations. The Company shall select a
firm of independent public accountants, which may be the Company's
independent auditors, and which selection may be changed from time to time,
to verify the computations made in accordance with this Section 6. The
certificate, report of other written statement of any such firm shall be
conclusive evidence of the correctness of any computation made under this
Section 6. Promptly upon its receipt of such certificate, report or
statement from such firm of independent public accountants, the Company shall
deliver a copy thereof to the Holder.
SECTION 6.4 Warrant Certificate Amendments. Irrespective of any
adjustments pursuant to this Section 6, Warrant Certificates theretofore or
thereafter issued need not be amended or replaced, but Warrant Certificates
thereafter issued shall bear an appropriate legend or other notice of any
adjustments and which legend and/or notice has been provided by the Company
to the Holder, provided the Company may, at its option, issue new Warrant
Certificates evidencing Warrants in the form attached hereto to reflect any
adjustment in the Exercise Price and the number of Warrant Shares evidenced
by such Warrant Certificates and deliver the same to the Holder in
substitution for existing Warrant Certificates.
SECTION 7. OFFICER'S CERTIFICATE.
Whenever the Exercise Price, the number of Warrant Shares underlying
this Warrant or either of them shall be adjusted as required by the
provisions of the foregoing Section, the Company shall forthwith file in the
custody of its Secretary or an Assistant Secretary at its principal office
and with its stock transfer agent, if any, an officer's certificate showing
the adjusted Exercise Price and number of Warrant shares determined as
herein provided, setting forth in reasonable detail the facts requiring
such adjustment, including a statement of the number of additional shares of
Common Stock, if any, and such other facts as shall be necessary to show the
reason for and the manner of computing such adjustment. Each such officer's
certificate shall be made available at all reasonable times for inspection
by the Holder or any holder of a Warrant executed and delivered pursuant to
Section 1 hereof and the Company shall, forthwith after each such adjustment,
mail a copy by certified mail of such certificate to the Holder or any such
holder.
SECTION 8. NOTICES TO WARRANT HOLDERS.
So long as this Warrant shall be outstanding, (I) if the Company shall
pay any dividend or make any distribution upon the Common Stock, (ii) if the
Company shall offer to the holders of its Common Stock rights to subscribe
for, purchase, or exchange property for any shares of any class of stock, or
any other rights or options or (iii) if any capital reorganization of the
Company, reclassification of the capital stock of the Company, consolidation
or merger of the Company with or into another corporation, sale, lease or
transfer of all or substantially all of the property and assets of the Company
to another corporation, or voluntary or involuntary dissolution, liquidation
or winding up of the Company shall be effected, then in any such case, the
Company shall cause to be sent by overnight mail or courier service to the
Holder, at least fifteen days prior to the date specified in (x) or (y)
below, as the case may be, a notice containing a brief description of the
proposed action and stating the date on which (x) a record is to be taken for
the purpose of such dividend, distribution or subscription rights,
or (y) such reclassification, reorganization, consolidation, merger,
conveyance, lease, dissolution, liquidation or winding up is to take place
and the date, if any is to be fixed, as of which the holders of Common Stock
or other securities shall receive cash or other property deliverable upon such
reclassification, reorganization, consolidation, merger, conveyance,
dissolution, liquidation or winding up.
SECTION 9. RECLASSIFICATION, REORGANIZATION OR MERGER.
In case of any reclassification, capital reorganization or other change
of outstanding shares of Common Stock of the Company, or in case of any
consolidation or merger of the Company with or into another corporation
(other than a merger with a subsidiary in which merger the Company is the
continuing corporation and which does not result in any reclassification,
capital reorganization or other change of outstanding shares of Common Stock
of the class issuable upon exercise of this Warrant) or in case of any sale,
lease or conveyance to another corporation of the property of the Company as an
entirety (collectively such actions being hereinafter referred to as
"Reorganizations"), the Company shall, as a condition precedent to such
Reorganization transaction, cause effective provisions to be made so that the
Holder shall have the right thereafter by exercising this Warrant at any time
prior to the expiration of the Warrant, to receive in lieu of the amount of
securities otherwise deliverable, the kind and amount of shares of stock and
other securities and property receivable upon such Reorganization by a holder
of the number of shares of Common Stock which might have been purchased upon
exercise of this Warrant and the warrants included in the Shares immediately
prior to such Reorganization. Any such provision shall include provision for
adjustments which shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Warrant. The foregoing provisions of this
Section 9 shall similarly apply to successive Reorganizations.
SECTION 10. ISSUE TAX.
The issuance of certificates representing the Warrant Shares upon the
exercise of this Warrant as well as securities underlying the Share Warrants
shall be made without charge to the Holder for any issuance tax in respect
thereof.
SECTION 11. EXCHANGE PROVISIONS
At any time during which this Warrant is exercisable in accordance with
its terms, the Holder may, at its option, exchange this Warrant, in whole or
in part (a "Warrant Exchange"), into the number of Warrant Shares determined
in accordance with this Section 11, by surrendering this Warrant at the
principal office of the Company or at the office of its stock transfer agent,
accompanied by a notice stating such Holder's intent to effect such exchange,
the number of Warrant Shares to be exchanged and the date on which the Holder
requests that such Warrant Exchange occur (the "Notice of Exchange"). The
Warrant Exchange shall take place on the date specified in the Notice of
Exchange or, if later, the date the Notice of Exchange is received by the
Company (the "Exchange Date"). Certificates for the shares issuable upon
such Warrant Exchange and, if applicable, a new warrant of like tenor
evidencing the balance of the shares remaining subject to this Warrant,
shall be issued as of the Exchange Date and delivered to the Holder within
seven (7) days following the Exchange Date. In connection with any Warrant
Exchange, this Warrant shall represent the right to subscribe for and
acquire the number of Warrant Shares (rounded to the next highest integer)
equal to (i) the number of Warrant Shares specified by the Holder in its
Notice of Exchange (the "Total Number") less (ii) the number of Warrant
Shares equal to the quotient obtained by dividing (A) the product of the Total
Number and the existing Exercise Price by (B) the Fair Market Value
determined as set forth in the following sentence. If the Common Stock is
listed on a National Securities Exchange or admitted to unlisted trading
privileges on such exchange or listed for trading on the NASDAQ system, Fair
Market Value shall be the average of the last reported sale prices of the
Common Stock on such exchange or system for the twenty (20) business days
ending on the last business day prior to the date for which the determination
is being made; or if the Common Stock is not so listed or admitted to
unlisted trading privileges, Fair Market Value shall be the average of the
means of the last reported bid and asked prices reported by the National
Quotation Bureau, Inc. for the twenty (20) business days ending on the last
business day prior to the date for which the determination is being made; or
if the Common Stock is not so listed or admitted to unlisted trading
privileges and bid and asked prices are not so reported, the
Fair Market Value shall be the book value thereof as at the end of the most
recent fiscal year of the Company ending prior to the Exchange Date,
determined in accordance with generally accepted accounting principles.
SECTION 13. GOVERNING LAW, JURISDICTION AND VENUE.
This Warrant shall be governed by and construed and enforced in
accordance with the laws of the State of New York. The Company hereby
consents to the exclusive jurisdiction and venue of the courts of the State
of New York with respect to any matter relating to this Warrant and the
performance of the Company's obligations hereunder and the Company hereto
hereby further consents to the personal jurisdiction of such courts. Any
action suit or proceeding brought by or on behalf of the Company relating to
such matters shall be commenced, pursued, defended and resolved only in such
courts and any appropriate appellate court having jurisdiction to hear an
appeal from any judgment entered in such courts.
ADM TRONICS UNLIMITED, INC.
By: \s\Andre' Di Mino, Executive Vice President
Dated: March 31, 1998
EXHIBIT 21.1
SUBSIDIARIES
Subsidiary Name State of Incorporation
Sonotron Medical Sysrtems, Inc. Delaware
Vet-Sonotron Systems, Inc Delaware
Pegaus Laboratories, Inc. New Jersey
AA Northvale Medical Associates, Inc. New Jersey
Arthritic Relief Centers, Inc. Nevada
ADM Medical Ventures, Inc. Nevada
Enviro-Pack Development Corporation New Jersey
Precision Assembly Corporation New Jersey
EXHIBIT 23.1
CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 filed on June 26, 1998, and July 9, 1998 by ADM
Tronics Unlimited, Inc. of our report dated June 26, 1998 which appears
in its annual report on Form 10-KSB for the fiscal year ended March 31, 1998.
\s\ Kaufman, Rossin & Co.
Miami, Florida
July 14, 1998
