-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SIwQ8iZrbLnz+xrMH8Em8pvRK52lNe3s0uKOSAiZ57HITKpL0VMT2hWd9/kd8OeY YUE6sPqsGUS9Xs+J8Sqx5w== /in/edgar/work/20000714/0000849401-00-000004/0000849401-00-000004.txt : 20000920 0000849401-00-000004.hdr.sgml : 20000920 ACCESSION NUMBER: 0000849401-00-000004 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000714 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ADM TRONICS UNLIMITED INC/DE CENTRAL INDEX KEY: 0000849401 STANDARD INDUSTRIAL CLASSIFICATION: [2891 ] IRS NUMBER: 221896032 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10KSB SEC ACT: SEC FILE NUMBER: 000-17629 FILM NUMBER: 672890 BUSINESS ADDRESS: STREET 1: 224 S PEGASUS AVE CITY: NORTHVALE STATE: NJ ZIP: 07647 BUSINESS PHONE: 2017676040 MAIL ADDRESS: STREET 1: 224 S PEGASUS AVE CITY: NORTHVALE STATE: NJ ZIP: 07647 10KSB 1 0001.txt U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-KSB (Mark One) X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended March 31, 2000 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 $2,825,461 State the aggregate market value of the voting stock held by non-affiliates computed by reference to the 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 $9,289,000 as of June 26, 2000 State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: 47,382,0377 shares of Common Stock, $.0005 par value as of June 26, 2000 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 the future 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. Patent counsel to the entity intending to utilize such patent has rendered a written opinion to the effect that such product does not infringe a patent held by the Company, and, further that a patent held by the Company would be found 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 Di Mino 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 substantially identical 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. Since 1989, four clinics have operated at various times, none of which 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 1992, SMI granted to Advent Medical Technology, Inc. ("AMT") the exclusive right to manage clinics in certain 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's 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 Premarket Approval (a "PMA") from the FDA. 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 PMA, if filed, at the time it is filed with the FDA. There can be no assurance that the Company will obtain sufficient data in the foreseeable future, if at all, to file a an application for PMA or that any data theretofore or thereafter obtained by the Company will be satisfactory or 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 such changes been made since the completion of the research and development. In the event that Sonotron Devices cannot 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 many foreign countries. During the Company's fiscal years ended March 31, 1999 and 2000, 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 some 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 any of the foregoing. Dr. Di Mino has developed a device which utilizes 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. Since 1997, the NCCD Device has been in the prototype stage. Limited initial preliminary tests on humans on a non-controlled basis appear to indicate that treatment with the NCCD Device has a beneficial effect on the symptoms related to certain neural- cerebral disorders. The results ranged from minor improvement in certain limited 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, 2000, 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, 2000, although sales of Sonotron Devices were not significant, one customer accounted for approximately 89% of those sales. Because the Company is seeking to increase future sales to that customer, termination of business relations with that customer could have a material adverse effect on the Company's future business and financial condition. As of March 31, 2000, 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. In 1999, the Company introduced a 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 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 warps, 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 significant 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, 2000, 1999 and 1998, sales of chemical based products accounted for approximately 35%, 45% and 64% of operating revenues, respectively. No contract exists with any of the Company's customers which would obligate a customer to continue to purchase products from the Company. During the fiscal year ended March 31, 2000, no customer accounted for more than 10% of the Company's net sales of chemical products. 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. 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, 2000, 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, 2000 and 1999, 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 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 vibratory and audio 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. In August 1998, the United States Patent Office issued a patent with respect to the Aurex-3 and the FDA notified the Company that the Premarket Notification was accepted. Accordingly, the Company may market the product in the United States for its intended indication. Since August 1998 the Company has been finalizing manufacturing plans for the Aurex-3. In July 1999 the Company began taking advance orders for Aurex-3 units from distributors and patients and began to deliver the units in November 1999. There can be no assurance that the Company will be able to manufacture the Aurex-3 in sufficient quantities. Contract Manufacturing Precision Assembly Corporation, a wholly-owned subsidiary of the Company ("PAC"), is a contract manufacturer of medical and electromedical devices. 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. During the fiscal year ended March 31, 2000, one customer accounted for approximately 67% of PAC's sales, which also represented approximately 34% of the Company's sales. The termination of business relations with such customer would have a material adverse effect on the Company's results of operations and financial condition. Reference is made to Note 9 of Notes to Consolidated Financial Statements. 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 had 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 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 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 were from 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 were based on several factors that include reimbursement by third party payors and private health care insurers, domestic and international market variations, and discounts based on volume. Rental fees are invoiced by the Company based on 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. The Company 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. The Company 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 markets the SofPulse Device in generally the same manner as was 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. The Company has entered into a distribution agreement with Mediq/PRN to initiate a home rental program for post-operative patients that have undergone a plastic or cosmetic surgery procedure. The agreement requires Mediq to maintain an inventory of Sofpulse units, which have been provided by and remain the property of the Company, at its 98 offices across the country. Mediq is responsible for delivering and picking up the units from patients and invoicing and collecting rental fees. The Company is responsible for providing the units to Mediq and providing technical support and clinical information. The agreement provides that the Company will receive 55% of rental revenues and Mediq will retain 45%. To assist in marketing the home rental program to plastic surgeons, the Company has entered into a marketing agreement with Byron Medical of Arizona. Byron is responsible for promoting the use of the Sofpulse to plastic and cosmetic surgeons throughout the United States by direct mail, trade shows and telemarketing. The Company has agreed to pay Byron a commission of 7.5% of rental revenues received from leads generated by Byron. Needle Eater In April 1999 the Company acquired certain assets related to the Needle- Eater, a patented device used to safely dispose of used or contaminated syringes and other medical sharps. The Company acquired the worldwide rights to the patent covering the technology in the Needle-Eater product; an inventory of finished units and parts; the rights to trademarks; and, information needed to assist it in manufacturing the units. The Company paid $14,206 to the previous owner of the Needle-Eater, and issued options to purchase an aggregate of 500,000 shares of the Company's common stock at an exercise price of $.625 per share, 200,000 of which expired and the balance expiring in March 2001. The Company also agreed to pay a consulting fee of $750 per month for 24 months and a royalty of 5% on gross sales of Needle-Eater products for the life of the patent as well as certain other compensation. Reference is made to Note 10 of Notes to Consolidated Financial Statements. Ultra-Violet Blood Irradiation The Company, through a wholly owned subsidiary, has engaged in biotech- nology research concentrating its efforts in the development of a medical therapeutic technology to treat viral and bacterial infections in humans and animals. The technology utilizes a process, commonly referred to as UBI or Ultra-Violet Blood Irradiation, wherein a measured sample of blood is intra- venously removed from a patient, exposed to a specific ultra-violet ("UV") light source, collected in a container and then returned to the patient, all in a closed system. The procedure is believed to assist in reducing infection by stimulating the patient's own immune system. The precursor to the technology is a process known as the Knott Technique for Blood Irradiation which was developed by Dr. Emmet K. Knott in 1938 ("The Knott Technique"). The Knott Technique was used extensively throughout the United States and in several foreign countries as a treatment for viral and bacterial infections in humans and animals. With the development and widespread use of antibiotic drugs during the late 1950s and early 1960s, the Knott Technique fell out of favor. The Company believes that disfavor of the Knott Technique was primarily due to the complexity and time required for intravenous removal of blood from a patient necessary to perform blood irradiation in comparison to the simplicity of oral and injectable admin- istration of antibiotics. Even though practically supplanted by the universal use of antibiotics, the Knott Technique and derivations related thereto continued to be used by some physicians. In recent years, due to the advent of antibiotic resistant drugs and newly identified viral and bacterial infectious agents where no antibiotics exist, there has been a renewed interest in alternative methods of treatment. Accordingly, a revival of interest from physicians and patients in blood irradiation therapy has occurred. The device used in performing the Knott Technique, however, has not been manufactured since 1963 and cannot now be manufactured in its original form due to certain restrictions on its electrical design and components. The Company is pursuing the development of a blood irradiation device with state-of-the-art design and components that it believes can perform the necessary functions of the Knott Technique on a safer, more economical and efficient basis. The Company's subsidiary has begun a private offering of its common stock. If the offering is successful, the proceeds will primarily be used to further develop the blood irradiation technology developed by the Company and prepare it for manufacturing and clearance to market in the U.S. and other countries. Depending upon the amount of the proceeds, additional capital may be needed to seek to accomplish those objectives. There can be no assurance that the offering will be successful or that the subsidiary can successfully manufacture the product or receive government approval to market the product anywhere in the world. Through March 31, 2000, the Comapny spent approximately $135,000 in research and development costs. 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 devices 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 Device 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 a 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 medical devices. Such registration is renewable annually and although the company does not believe that the regis- tration 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 MRT 100, 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 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 devel- opment, 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 suc 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. 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, healthcare 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 marketed by the Company in the United States cannot be deter- mined 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 wound healing, 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, from implementing this national policy and HCFA notified the fiscal intermediaries in February of 1998 not to abide by the July 1997 national policy memorandum, EPI did not realize an appreciable increase in its rental revenues subsequent to these events. Recently, Medicare reimbursement became 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 requires the demonstration that any such product actually reduces the 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 reimbursement status of newly approved health care products, and there can be no assurance that adequate third-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 June 26, 2000, the Company employed 19 persons, three of which are executive officers of the Company. Six 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 and warehouse space from an unaffiliated third party. PAC leases approximately 8,500 square feet from an unaffiliated third party. The leases expire in June, 2008 and February 2004, respectively. Item 3. Legal Proceedings 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. Reference is made to Note 7 of Notes to Consolidated Financial Statements. 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. Prior to December 16, 1998, the Common Stock was quoted on the Nasdaq Stock Market. Quotations with respect to such time were obtained from the Nasdaq Stock Market. Subsequent thereto, the Common Stock has been quoted on the OTC Bulletin Board and quotations were obtained therefrom. All quotes reflect inter-dealer prices without retail mark-up, mark-down or commission and may not necessarily represent actual transactions. Quarter Ended High Bid Low Bid June 30, 1998 .56 .28 September 30, 1998 .75 .63 December 31, 1998 1.06 .88 March 31, 1999 .53 .49 June 30, 1999 .47 .45 September 30, 1999 .32 .30 December 31, 1999 .31 .30 March 31, 2000 .42 .37 (b) On June 15, 2000, the Company's Common Stock was held by approximately 1,419 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. In April 1999, the Company issued an option for the purchase of 500,000 shares of its Common Stock to SPS Medical Equipment Corporation at $.625 per share in consideration of consulting services. No principal under- writers were involved. 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. Item 6. Management's Discussion and Analysis or Plan of Operation Fiscal 2000 Compared to 1999 Revenues Revenues were $2,698,597 in 2000 as compared to $2,098,997 in 1999 representing an increase of $599,600 or 29%. The increase was principally the result of revenues received from a substantial manufacturing contract during the fiscal year. Gross Profit Gross profit of $1,462,822 in 2000 was $45,337 or 3%, higher than the gross profit of $1,417,485 for 1999. Gross profit was 52% of revenues in 2000 as compared to 67% of revenues in 1999. The decrease in gross profit is related to the product mix of sales with varying gross profit margins. Operating Income (Loss) Operating loss of ($571,818) in 2000 was $174,259 less than the operating loss of ($746,077) in 1999. The reduction in operating loss resulted from an increase in gross profit offset by a decrease in selling, general and administrative expenses primarily from legal costs and expenses associated with an arbitration proceeding and the termination of various consulting agreements. Other Income, Net Other income of $126,864 in 2000 was $86,229 or 212% higher than other income of $40,635 in 1999 primarily due to a settlement received from an arbitration proceeding. Fiscal 1999 Compared to 1998 Revenues Revenues were $2,098,997 in 1999 as compared to $1,483,218 in 1998 representing an increase of $615,779 or 42%. The increase was the result of revenues received from new products acquired by the Company during the fiscal year. Gross Profit Gross profit of $1,417,485 in 1999 was $579,030 or 69%, higher than the gross profit of $838,455 for 1998. Gross profit was 68% of revenues in 1999 as compared to 57% of revenues in 1998. The increase in gross profit is related to the product mix of sales with varying gross profit margins. Operating Income (Loss) Operating loss of ($746,077) in 1999 was $28,721 less than the operating loss of ($774,798) in 1998. The reduction in operating loss resulted from an increase in gross profit offset by an increase in selling, general and administrative expenses primarily from legal costs and certain one-time chargeoffs associated with the arbitration proceeding. Other Income, Net Other income of $40,635 in 1999 was $11,386 or 22% lower than other income of $52,021 in 1998 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, 2000 the Company had cash of $322,208 as compared to $496,405 at March 31, 1999. This decrease is the result of cash used in investing activities and operating activites, offset by cash provided by financing activities. Operating Activities An increase in sales and gross profit in the Company's medical device segment and the reduction of selling, general and administrative expenses improved operating results. There was also an increase in sales of aqueous chemical products. Investing Activities Cash consideration of $48,826 was paid for the acquisition of a medical device business and $19,645 was paid for purchases of property and equipment and new patent costs. Financing Activities The Company paid $103,841 on notes payable offset by an increase in borrowings on a demand line of credit of $300,000. The Company does not have any material sources of liquidity or unused sources of liquid assets. 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, 2000, 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, 2000. 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, 2000, and the results of their operations and their cash flows for each of the two years in the period ended March 31, 2000, in conformity with generally accepted accounting principles. /s/Kaufman, Rossin & Co. Miami, Florida June 9, 2000 F-1 ADM TRONICS UNLIMITED, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET MARCH 31, 2000 ASSETS CURRENT ASSETS Cash and cash equivalents $322,208 Accounts receivable - trade, net of allowance for doubtful accounts of $95,000 259,938 Inventories: Raw materials and supplies 321,004 Finished goods 21,541 Other current assets 36,329 Total current assets $ 961,020 PROPERTY AND EQUIPMENT,net 147,709 EQUIPMENT IN USE AND UNDER LEASE AGREEMENTS, net of accumulated depreciation of $255,623 723,110 EQUIPMENT HELD FOR SALE 848,626 LOAN RECEIVABLE FROM OFFICER, bearing interest at 3% per annum, unsecured 63,191 OTHER ASSETS 213,719 TOTAL ASSETS $2,957,375 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 136,181 Accrued expenses and other 38,016 Notes payable 341,250 Total current liabilities $ 515,447 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY 2,441,928 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $2,957,375 SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-2 ADM TRONICS UNLIMITED, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED MARCH 31, 2000 AND 1999 2000 1999 REVENUES Sales $2,698,597 $2,098,997 Interest 126,864 40,635 Total revenues $2,825,461 $2,139,632 COSTS AND EXPENSES Cost of sales $1,235,775 $ 681,512 Selling, general and administrative 2,034,640 2,163,562 Total costs and expenses $3,270,415 $2,845,074 LOSS BEFORE INCOME TAXES $ (444,954) $ (705,442) INCOME TAXES (265,000) NET LOSS $ (444,954) $(970,442) WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 47,382,037 46,779,615 NET LOSS PER SHARE ($.01) ($.02) gross profit of $1,417,485 for 1999. Gross profit was 54% of revenues in 2000 as compared to 68% of revenues in 1999. The decrease in gross profit is related to the product mix of sales with varying gross profit margins. Operating Income (Loss) Operating loss of ($571,818) in 2000 was $174,259 less than the operating loss of ($746,077) in 1999. The reduction in operating loss resulted from an increase in gross profit offset by a decrease in selling, general and administrative expenses primarily from legal costs and expenses associated with an arbitration proceeding and the termination of various consulting agreements. Other Income, Net alue $.0005 par value) BALANCES MARCH 31, 1998 43,724,907 21,862 5,137,176 (2,928,385) 2,230,653 Issuance of 3,307,130 1,654 1,260,842 - 1,262,496 common stock in connection with acquisition of business Issuance of common stock for consulting services 350,000 175 246,700 - 246,875 Common stock - - 96,000 - 96,000 options issued for consulting services Net loss - - - (970,442) (970,442) BALANCES MARCH 31, 1999 47,382,037 $23,691 $6,740,718 ($3,898,827) $2,865,582 Common stock options issued for certain tangible and intangible assets - - 20,000 - 20,000 Common stock options issued for consulting services - - 1,300 - 1,300 Net loss - - - (444,954) (444,954) BALANCES MARCH 31, 2000 47,382,037 $ 23,691 $ 6,762,018 ($4,343,781) $2,441,928 SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-4 ADM TRONICS UNLIMITED, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED MARCH 31, 2000 AND 1999 2000 1999 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss ($444,954) ($970,442) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 258,534 160,142 Provision for losses on accounts receivable 45,992 16,438 Common stock options issued as compensation 1,300 96,000 Common stock issued as compensation - 246,875 Changes in operating assets and liabilities: Accounts receivable - trade 48,046 (52,526) Inventories 105,747 (127,757) Other current assets 66,271 (78,499) Equipment in use and under lease agreements (128,801) 118,600 Equipment held for sale (97,463) 135,511 Deposit receivable 108 150 Deferred tax asset - 265,000 Accounts payable (137,302) (123,456) Accrued expenses and other (21,369) 13,246 Total adjustments 141,063 669,724 Net cash used in Operating activities (303,891) (300,718) CASH FLOWS FROM INVESTING ACTIVITIES: Cash consideration paid for business acquired $ - $(266,544) Cash consideration paid for Needle Eater tangible and intangible assets (48,820) - Patents (14,577) - Purchase of property and equipment (5,068) (44,064) Repayments (advances) of loans to officer 2,000 (5,689) Net cash provided by (used in) Investing activities (66,465) (316,297) CASH FLOWS FROM FINANCING ACTIVITIES: Net borrowings on demand line of credit $ 203,356 $ 14,630 Payments on notes payable - (29,057) Payments on loan to a former shareholder of the newly acquired subsidiary (7,197) - Net cash provided by (used in) Financing activities 196,159 (14,427) NET DECREASE IN CASH AND EQUIVALENTS (174,197) (631,442) CASH - BEGINNING 496,405 1,127,847 CASH - ENDING $ 322,208 $ 496,405 SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-5 ADM TRONICS UNLIMITED, INC. AND SUBSIDIARIES CONSOLIDATED STAEMENTS OF CASH FLOWS, CONTINUED YEARS ENDED MARCH 31, 2000 AND 1999 Supplemental Disclosures: Interest paid $ 23,868 $ 10,131 Income taxes paid $ - $ - Supplemental Disclosure of Non-cash Investing and Financing Activities: Common stock issued in connection with acquisition of business $ - $1,262,496 Fair value of assets received in connection with acquisition of business $ - $1,529,040 Common stock options issued as consideration for consulting services $ 1,300 $ 96,000 Common stock issued as consideration for consulting services $ - $ 246,875 Fair value of assets received in connection with Needle Eater purchase $ 68,820 $ - Common stock options issued in connection with Needle Eater purchase $ 20,000 $ - SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-6 ADM TRONICS UNLIMITED, INC. Notes to Consolidated Financial Statements NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 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, Australia and Europe. Medical equipment is manufactured in accordance with customer specification on a contract basis. The medical device product line is comprised of proprietary devices used in the treatment of joint pain, postoperative edema and tinnitus. These products are sold or leased to customers located in various parts of the United States and Asia. For the years ended March 31, 2000 and 1999, the chemical product line accounted for approximately 35% and 63% of sales while the medical device product line accounted for 65% and 37%, 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 $300,000 at March 31, 2000) 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. F-7 Sonotron Devices Sonotron Devices (Devices) are held for sale or lease 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. Unless and 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 Devices used internally and Devices loaned out for marketing and testing. Devices in use 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. Sofpulse Units In connection with a business acquisition in May 1998, the Company acquired all rights to a FDA approved device (Sofpulse Unit or Unit) and 418 Sofpulse units. These Units are held for sale or lease domestically 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. Units are available for sale outright, are available for sale under terms providing for additional charges based upon usage, and are available to be leased. Included within equipment in use and under lease agreements are Units leased to third parties, Units used internally and Units loaned out for marketing and testing. These Units are depreciated over seven years commencing at the date placed in service. Revenues from leasing activities were approximately $280,000 and $460,000 for the years ended March 31, 2000 and 1999, respectively. All Units 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, patents and patents assigned 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 and 2 years for patents assigned). F-8 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 be 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 $31,000 and $27,000 in 2000 and 1999, 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. Net Loss Per Share The Company applies Statement of Financial Accounting Standards No. 128, "Earnings Per Share" (FAS 128). Net loss per share excludes dilution and is computed by dividing net income by the weighted average number of common shares outstanding during the reported periods. Net loss per share - Diluted has not been presented for 2000 and 1999 as its results would be anti-dilutive. 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. F-9 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. Year 2000 Uncertainities Although the Company has not identified any computer system or program problems, there is still a possibility that at sometime during the Year 2000 their computer systems and programs, as well as equipment that uses embedded computer chips, may be unable to distinguish between the years 1900 and 2000. This may create system errors and failures re- sulting in the disruption of normal business operations. Although it is unlikely, there may be some third parties, such as governmental agencies, utilities, telecommunication companies, vendors and customers that at times may not be able to continue business with the Company due to their own Year 2000 problems. NOTE 2. PROPERTY AND EQUIPMENT Property and equipment at March 31, 2000 was as follows: Production equipment $ 3,251 Other Machinery and equipment 184,863 Office furniture and fixtures 94,681 Leasehold improvements 131,800 Computer equipment 53,685 468,280 Less accumulated depreciation and amortization 320,571 $147,709 Depreciation and amortization on property and equipment for the years ended March 31, 2000 and 1999 was $48,975 and $40,336, respectively. F-10 NOTE 3. OTHER ASSETS Other assets at March 31, 2000 consisted of the following: Sonotron refinement costs, net of accumulated amortization of $87,504 $57,940 Goodwill, net of accumulated amortization of $16,546 54,366 Patents, net of accumulated amortization of $42,444 53,900 Patents assigned, net of accumulated amortization of $25,832 25,832 Deposits and other assets 21,681 $213,719 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 years ended March 31, 2000 and 1999, respectively. Amortization of goodwill was $7,091 for the years ended March 31, 2000 and 1999, amortization of patents was $5,211 and $3,413, respectively for the same years and amortization of patents assigned was $25,832 for the year ended March 31, 2000. NOTE 4. NOTES PAYABLE Notes payable consisted of the following at March 31, 2000: Note payable - Bank $300,000 8% note payable to the former shareholder of a subsidiary; interest and principal payable quarterly; matured January 1, 2000; unsecured; in default 41,250 Total $341,250 For the years ended March 31, 2000 and 1999 interest expense on total indebtedness amounted to $23,868 and $10,131, respectively. Note payable - bank is a commercial line of credit for up to $400,000, with interest at prime plus 1% (10.50%) at March 31, 2000, interest due monthly, principal due June 30, 2000, secured by the Company's inventory, accounts receivables, equipment and several intangibles. At March 31, 2000, the Company was in default of the terms on the 8% note payable and accordingly is accruing interest at 13%, the stated default rate on the note. The Company elected to withhold payments due beginning in April 1999 due to a related dispute. See Note 7. F-11 NOTE 5. INCOME TAXES The components of income taxes for the years ended March 31, 2000 and 1999, are as follows: 2000 1999 Deferred $ 17,000 $285,000 Change in valuation allowance (17,000) (550,000) Income Taxes $ - ($265,000) 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: 2000 1999 Tax benefit at U.S. statutory rates ($151,000) ($240,000) Change in valuation allowance 17,000 550,000 Expiration of capital loss carryforward 111,000 - Other temporary differences 23,000 ( 45,000) Income Taxes $ - $265,000 At March 31, 2000, the Company had deferred tax assets of approximately $1,161,000, comprised of $1,130,000 resulting from net operating loss carryforwards and $31,000 from other other temporary differences. The deferred tax assets are offset by a valuation allowance in the amount of $1,161,000. 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 Company and its subsidiaries file consolidated income tax returns. As of March 31, 2000, the Company had consolidated net operating loss carryforwards of approximately $3,003,000 that will expire during the years 2005 through 2020. 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, 2000 and 1999 totaled $3,246 and $3,085, respectively. F-12 NOTE 7. COMMITMENTS AND CONTINGENCIES Leases The Company leases its office and warehouse facilities and certain equipment under non-cancelable operating leases. The approximate future minimum annual rentals under these leases at March 31, 2000 are as follows: March 31, 2001 $135,300 March 31, 2002 133,800 March 31, 2003 135,800 March 31, 2004 131,300 Thereafter 345,800 Total $882,000 Rent expense for all facilities for the years ended March 31, 2000 and March 31, 1999 was $149,000 and $150,000, 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, 2000, no amount has been accrued for potential warranty costs and such costs are expected to be nominal. Arthronix Settlement Agreement In March 1999, the Company and Arthronix, a former Distributor of Sonotron Devices, entered into a settlement agreement providing for the resolution of all outstanding suits, counter suits, claims, arbitration awards and satisfaction of all amounts otherwise due upon the payment by Arthronix of $77,000 to the Company. This amount was received by the Company on June 30, 1999 and is included in interest and other revenue in the consolidated statement of operations for the year ended March 31, 2000. Legal Action The Company and a subsidiary are defendants in a legal action filed by the subsidiary's previous landlord. The action relates to approximately $90,000 in rental payment discrepancies, of which approximately $50,000 relate to months prior to the Company's acquisition of the subsidiary. Management believes that this legal action is frivolous and without merit. No court dates have been set, and the Company intends to vigorously contest these claims. The outcome of these actions as well as the extent of the Company's liability, if any, cannot be determined at this time. F-13 NOTE 8. STOCK OPTIONS From time to time, the Company grants stock options to directors, officers and outside consultants. During the years ended March 31, 2000 and 1999, the Company did not grant options to employees. However, during the year ended March 31, 1999, the Company granted 3,900,0000 options to non-employees. Included in the consolidated statement of operations for the years ended March 31, 2000 and 1999 is $1,300 and $96,000, respectively of consulting services which represents the fair value of consideration paid in the form of non-employee stock options at the grant date. A summary of the Company's stock option activity and related information for the years ended March 31, 2000 and 1999, is as follows: Year ended March 31, 2000 1999 Options Weighted Options Weighted Average Average Exercise Exercise Price Price Outstanding April 1, 9,292,819 0.4373 5,392,819 $0.2885 Granted 500,000 0.6250 3,900,000 0.5623 Excerised - - - - Expired (400,000) (0.4025) - - Outstanding March 31, 9,392,819 0.4152 9,292,819 0.4373 Exercisable at end of 9,392,819 $ 0.4152 6,275,285 $0.2981 The expiration dates and exercise prices of stock options, which were fully vested at March 31, 2000, were as follows: Expiration Date Number of Options Exercise Price June 2, 2000 200,000 $0.18 to 0.375 March 31, 2001 300,000 $0.625 June 2, 2001 700,000 $0.375 November 1, 2001 3,000,000 $0.625 December 31, 2002 3,000,000 $0.375 February 3, 2003 2,192,819 $0.18 F-14 Note 8 Stock Options (continued) The weighted average fair value of options outstanding at March 31, 2000 were as follows: Number of Weighted Options Average Fair Value at Date of Grant Exercise price exceeded the 6,300,000 $0.0200 market price at grant date Exercise price equaled the 800,000 $0.0479 market price at grant date Exercise price was less than 2,292,819 $0.0416 the market price at grant date The determination of the fair value of all stock options granted was calculated using the Black - Scholes option-pricing model 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. SEGMENT INFORMATION, GEOGRAPHICAL INFORMATION, MAJOR CUSTOMERS AND CREDIT CONCENTRATION Segment Information The Company adopted the provisions of SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information" effective April 1, 1999. The Company operates in two reportable segments, the production and sale of chemicals and the manufacture and sale or lease of medical products. The reportable segments are strategic business units that offer different products and services. They are managed separately based on differences in customer base, marketing strategies or regulatory environment. The accounting policies of the segments are the same as those described in Note 1. The Company evaluates performance on profit or loss from operations before income taxes. F-15 NOTE 9. SEGMENT INFORMATION, GEOGRAPHICAL INFORMATION, MAJOR CUSTOMERS AND CREDIT CONCENTRATION (Continued) Information about segment operations follows: Chemical Medical Total Year Ended March 31, 2000 Revenues from external customers $ 950,947 $1,747,650 $2,698,597 Interest revenue $ 21,393 $ 263 $ 21,656 Interest expense $ - $ 23,868 $ 23,868 Depreciation and amortization $ 62,222 $ 196,312 $ 258,534 Segment loss ($ 297,567) ($ 147,387) ($ 444,954) Segment assets $1,192,843 $1,764,532 $2,957,375 Expenditures for segment assets $ 5,068 $ - $ 5,068 Year ended March 31, 1999 Revenues from external customers $ 937,484 $1,161,513 $2,098,997 Interest revenue $ 31,003 $ 9,632 $ 40,635 Interest expense $ - $ 10,131 $ 10,131 Depreciation and amortization $ 55,692 $ 104,450 $ 160,142 Segment loss ($ 559,206) ($ 146,236) ($ 705,442) Segment assets $1,526,312 $1,817,229 $3,343,541 Expenditures for segment assets (including acquisition of business) $ 23,265 $ 126,841 $ 150,106 F-16 NOTE 9. SEGMENT INFORMATION, GEOGRAPHICAL INFORMATION, MAJOR CUSTOMERS AND CREDIT CONCENTRATION (Continued) Geographical Information Sales to unaffiliated customers, based on location of customer, is as follows: Year Ended March 31, 2000 1999 Chemical Segment: United States $892,969 $866,874 Australia 24,214 48,636 Other foreign countries 33,764 21,974 $950,947 $937,484 Medical Segment: United States $1,558,731 $1,078,281 Southeast Asia 115,425 50,084 Other foreign countries 73,494 33,148 $1,747,650 $1,161,513 Major Customers Sales to individual unaffiliated customers in excess of 10% of net sales to unaffiliated customers are shown below. Year ended March 31, 2000 1999 Medical Segment: Customer A $1,164,120 $389,263 Individual accounts receivable balances at March 31, 2000 in excess of 10% of total accounts receivable are as follows: Medical Segment: Customer A $ - $ 90,146 F-17 NOTE 9. SEGMENT INFORMATION, GEOGRAPHICAL INFORMATION, MAJOR CUSTOMERS AND CREDIT CONCENTRATION (Continued) Product Information The approximate percentage of sales to unaffiliated customers, based on products, is as follows: Year ended March 31, 2000 1999 Chemical Segments: Adhesives and primers 52% 46% Resins and coatings 42% 51% Additives and others 6% 3% Medical Segment: Contract manufactured medical 82% 52% Sofpulse units 2% 40% Sonotron devices 8% 8% Other medical devices 8% - Credit Concentration The Company maintains account balances and a certificate of deposit in a financial institution in excess of federally insured limits. NOTE 10. SIGNIFICANT TRANSACTION AND EVENT Needle Eater In April 1999, the Company, pursuant to an asset purchase agreement, purchased certain tangible and intangible assets and certain operating rights relating to a medical device "Needle Eater" that grinds and disposes of syringes and other medical sharps. In connection therewith, the Company paid $48,826 in cash, granted options to purchase 500,000 shares of the Company's common stock at an exercise price of $.625 expiring over two years, and executed a consulting agreement providing for monthly payments of $750 for twenty four months. Under this agreement, the Company received fifteen Needle Eater devices, related supplies and assignment of certain Patent rights. The Company intends to manufacture and sell Needle Eater devices nationally and via the internet. Additionally, the asset purchase agreement contains a provision for contingent consideration whereby on March, 2001 and each year thereafter until March, 2012, the Company must pay the seller the greater of $50,000 or 5% of net sales relating to the product for that year. If however, 5% of sales are less than $50,000, the Company has the option to only pay the 5% of sales amount and return all rights to the product acquired back to the seller. During the year ended March 31, 2000, the Company sold approximately 60 Needle Eater devices resulting in revenues of approximately $64,000. F-18 NOTE 10. SIGNIFICANT TRANSACTION AND EVENT (Continued) Private Placement During the year ended March 31, 2000, the Company, through its wholly owned subsidiary Immuno-Therapy Corporation (ITC), began research and development activities relating to the development of a blood irradiation device intended to be effective in the treatment of certain viral and bacterial infections in humans and animals. Through March 31, 2000, the Company spent approximately $135,000 in research and development costs. ITC intends to fund future research and development costs through the sale of common stock, and on March 10, 2000 commenced a private placement offering (Offering). The Offering is to certain accredited investors for up to 500,000 shares of ITC's common stock, at $5.00 per share on a "best efforts all or none" basis as to 100,000 shares, and on a "best efforts" basis as to 400,000 shares. As of June 9, 2000, 18,100 shares have been subscribed for by prospective purchasers and $90,500 is being held in escrow. Should ITC fail to sell a minimum of 100,000 shares prior to August 1, 2000, all escrowed funds will be returned to prospective purchasers and the Offering will be cancelled. The Company believes the offering will be successful and intends to continue funding irradiation device research and development costs from current liquidity. Proforma Combined Condensed Financial Information (Unaudited) The following unaudited proforma combined condensed statements of operations for the year ended March 31, 1999 is as if the business combination that occurred on May 27, 1998 had occurred at the beginning of the period. Operating Revenues $2,288,442 Net loss (1,304,177) Net loss per share (.03) The proforma data is provided for information purposes only and does not purport 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. F-19 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 80 President, Chief Executive Officer and Director Vincent Di Mino 74 Vice President of Production and Director Andre' Di Mino 44 Executive Vice President, Secretary, Treasurer, Chief Operating Officer and Director Dr. Harold Gelb 75 Director Thomas Petrie 55 Director 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. Dr. Harold Gelb has been a Director since July, 1998. Dr. Gelb has been a practicing dentist for more than 25 years. Dr. Harold Gelb is an expert in the diagnosis and treatment of craniomandibular disorders. He is an author of several texts on the subject of craniomandibular pain and has lectured worldwide on that area of practice. Thomas Petrie has been a Director since January, 1998 and the President of PAC for approximately five years. Prior thereto, Mr. Petrie was a Business Unit Director of Personal Diagnostics. (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, 2000 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. Item 10. Executive Compensation The following table (the "Summary Table") sets forth the salary, bonus and other annual compensation earned by (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, 2000 and whose total annual salary and bonus exceeded $100,000 (the "Named Officer"): Name and Principal Fiscal Year Annual Securities Position Ended March Compensation Underlying 31 Salary Options Dr. Alfonso Di Mino 2000 $93,600 -0- President and Chief Executive Officer 1999 $93,600 -0- 1998 $93,600 715,741 shares of Common Stock No individual grants of stock options were made during the fiscal year ended March 31, 2000 to the Named Officer. No options issued by the Company were exercised by the Named Officer during the fiscal year ended March 31, 2000. On that date, there were 715,741 shares of Common Stock underlying unexercised options held by the Named Officer all of which were exercisable, were in-the-money and had a value of $150,306. The Company did not reprice any stock option or SAR previously awarded to the Named Officer. During the fiscal years ended March 31, 2000, 1999 and 1998, 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 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 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 June 26, 2000 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 of Approximate of Class of Beneficial Owner Beneficial Percent Ownership(1) of Class (1) Common Stock, Dr. Alfonso Di Mino 3,049,980(2) shares 9%(2) $.0005 par 224-S Pegasus Ave. Northvale, NJ 07647 Common Stock Andre' Di Mino 8,249,774(3) shares 25%(3) $.0005 par value 224-S Pegasus Ave. Northvale, NJ 07647 1,700,000(4) shares 5%(4) 3,400,000(5) shares 10%(5) 28,470(6) shares (12) Common Stock, Vincent Di Mino 2,587,928(7) shares 8%(7) $.0005 par value 224-S Pegasus Ave. Northvale, NJ 07647 5,100,000(8) shares 15%(8) Common Stock, Burton Friedlander 6,313,900(9) shares 19%(9) $.0005 par value 104 Field Point Road. Greenwich CT 06830 Common Stock, Dr. Harold Gelb 500,000(10) shares 2%(10) $.0005 par value 425 E 58th Street New York, NY 10022 Common Stock, Thomas Petrie 200,000(11) shares (12) $.0005 par value 32 Dearhaven Lane Newfoundland, NJ 07927 Common Stock, Heiko H. Theime 7,617,500(13) shares 23%(13) $.0005 par value 1370 Ave of the Americas New York, NY 10019 Common Stock, Officers and Directors 19,716,152(14) shares 59%(14) $.0005 par value as a Group (5 persons) (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 benefically owned by them. For purposes hereof, a person is deemed to be the benefical 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. each beneficial owners' percentage ownership is determined by assuming that 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) 715,741 shares of common stock that may be acquired by Dr. Di Mino upon exercise of options, (c) 1,000,000 shares of common stock benefically owned by the spouse of Dr. Di Mino, in which shares Dr. Di Mino disclaims any benefical ownership, and (d) 1,330,000 shares of common stock including the 1,000,000 shares described in (c) above, subject to an agreement dated July 8, 1987 pursuant to which Dr. Di Mino has the power to vote such shares. (3) Represents (a) 7,672,696 shares of Common Stock directly owned by Mr. Di Mino and (b) 577,078 shares of Common Stock that may be acquired by Mr. Di Mino upon exercise of options. (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 shares held by a voting trust of which Mr. Di Mino is the voting trustee. (7) Represents (a) 1,287,928 shares of Common Stock directly owned by Mr. Di Mino, (b) 700,000 shares of Common Stock that may be acquired by Dr. Di Mino upon exercise of options, (c) 300,000 shares of Common Stock beneficially owned by the spouse of Vincent Di Mino, and (d) 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 (c) and (d) of this Note Mr. Di Mino disclaims any beneficial ownership. (8) 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. (9) Represents (a) 417,300 shares of common stock directly owned by Mr. Friedlander, (b) 3,000,000 of common stock that may be acquired by Mr. Friedlander upon exercise of an option, and (c) 2,896,600 shares of Common Stock owned by Friedlander International Limited. (10) Represents shares of Common Stock that may be acquired by Dr. Gelb upon exercise of options. (11) Represents shares of Common Stock that may be acquired by Mr. Petrie upon exercise of options. (12) Less than 1% (13) Represents (a) 3,000,000 shares of Common Stock that may be acquired upon exercise of a warrant, (b) 2,000,000 shares of Common Stock owned by The American Heritage Fund, Inc., (c) 1,617,500 shares of Common Stock owned by The Global Opportunity Fund Limited, and (d) 1,000,000 shares of Common Stock that may be acquired by The Global Opportunity Fund Limited upon exercise of a warrant. (14) 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, 2000 was approximately $65,891. The approximate amount of principal and interest outstanding as March 31, 2000 was $63,191. As payment for consulting services, the Company has issued a warrant to Heiko H. Thieme. The warrant expires on December 31, 2002 and permits 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. As payment for consulting services, on November 27, 1998 the Company has issued an option to Burton Friedlander. The option expires on November 1, 2001 and permits the holder to purchase up to 3,000,000 shares of the Company's Common Stock for $.625 per share. 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. Exhibit 4.1 to Amendment No. 1 to the Company's Annual Report on Form 10-KSB for the fiscal year ended March 31, 1998 is hereby incorporated by reference. 4.2 Warrant issued to Heiko H. Thieme. Exhibit 4.2 to the Company's Annual Report on Form 10-KSB for the fiscal year ended March 31, 1999 is hereby incorporated by reference. 4.3 Warrant issued to Burton Friedlander.* 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. 10.1B Extension of Lease Agreement by and between the Company and M. Vincent Costa and Victoria M. Costa dated March 29, 1999.* 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 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. 10.4 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. 10.5 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. 10.6 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. 10.7 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. 10.8 Agreement for Sale of Stock Between the Company, James C. Wickstead and Thomas Petrie. Exhibit 10.10 to Amendment No. 1 to the Company's Annual Report on Form 10-KSB for the fiscal year ended March 31, 1998 is hereby incorporated by reference. 10.9 Employment Agreement of November 26, 1997 between Thomas Petrie and Precision Assembly Corp. Exhibit 10.11 to Amendment No. 1 to the Company's Annual Report on Form 10-KSB for the fiscal year ended March 31, 1998 is hereby incorporated by reference. 10.10 Asset Purchase Agreement of May 27, 1998 by and among Electropharmacology, Inc., AA Northvale Medical Associates, Inc. Exhibit 10.12 to Amendment No. 1 to the Company's Annual Report on Form 10-KSB for the fiscal year ended March 31, 1998 is hereby incorporated by reference. 10.11 Subscription Agreement of March 31, 1998 between the Company and The Global Opportunity Fund Limited. Exhibit 10.13 to Amendment No.1 to the Company's Annual Report on Form 10-KSB for the fiscal year ended March 31, 1998 is hereby incorporated by reference. 10.12 Consulting Agreement, dated May 15, 1998, by and between the Company and Wharton Capital Corp. Exhibit 99.1 to the Company's Registration State- ment on Form S-8, File. No. 333-57823, is hereby incorporated by reference 10.13 Asset Purchase Agreement between Enviro-Pack Development Corporation (a subsidiary of the Company) and SPS Medical Equipment Corporation dated March 30, 1999 to be filed by amendment. 21.1 Subsidiaries of the Company. * 23.1 Consent of Kaufman, Rossin & Co. * 27 Financial Data Schedule. * _________________________ * Filed herewith. (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 Dated: July 14, 2000 Dr. Alfonso Di Mino, President 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 7/14/00 and Director /s/Andre' Di Mino Principal Financial and 7/14/00 Accounting Officer and Director /s/Vincent Di Mino Director 7/14/00 Dr. Harold Gelb Director /s/Thomas Petrie Director 7/14/00 EXHIBIT 4.3 WARRANT TO PURCHASE 3,000,000 SHARES OF THE COMMON STOCK OF ADM TRONICS UNLIMITED, INC. This is to Certify That, FOR VALUE RECEIVED, BURTON FRIEDLANDER (the "Holder"), is entitled to purchase, subject to the provisions of this Warrant, from ADM TRONICS UNLIMITED, INC., a Delaware corporation (the "Company"), 3,000,000 shares of the Common Stock of the Company, $.0005 par value (the "Common Stock"), at a price of $.625 per share at any time or from time to time from the date hereof until 5:00 P.M., New York City Time on November 1, 2001, the Termination Date. Any such purchase shall be in not less than 1,000,000 share increments. 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 or in part, but in not less than 1,000,000 share increments, at any time or from time to time during the period commencing on the date hereof and terminating at 5:00 P.M., New York City Time, on the Termination Date (the "Exercise Period") provided, however, that (i) if the Termination Date is a day on which banking institutions in the State of New York are authorized by law to close, then on the next succeeding day which shall not be such a day, and (ii) in the event of any merger, consolidation or sale of substantially all the assets of the Company resulting in any distribution to the Company's stockholders on or before the Termination Date, the Holder shall have the right to exercise this Warrant commencing at such time through the Termination Date which shall entitle the Holder to receive, in lieu of Warrant Shares, the kind and amount of securities and property (including cash) receivable by a holder of the number of shares of Warrant Shares into which this Warrant might have been exercisable immediately prior thereto. For purposes of this Warrant, the term "Warrant Shares" shall include such securities and property. This Warrant may be exercised by presentation and surrender hereof to the Company at its principal office, or at the office of its stock transfer agent, if any, with the Purchase Form annexed hereto duly executed and accompanied by payment of the Exercise Price for the number of Warrant Shares specified in such form. Such payment may be made, at the option of the Holder, by check or wire transfer. As soon as practicable after each such exercise of the Warrant, the Company shall issue and deliver to the Holder a certificate or certificates representing the Warrant Shares issuable upon such exercise, registered in the name of the Holder or the Holder's designee. If this Warrant should be exercised in part only, the Company shall, upon surrender of this Warrant for cancellation, execute and deliver a new Warrant evidencing the rights of the Holder thereof to purchase the balance of the Warrant Shares purchasable thereunder. Upon receipt by the Company of this Warrant at its office, or by the stock transfer agent of the Company at its office, in proper form for exercise, the Holder shall be deemed to be the holder of record of the Warrant Shares issuable upon such exercise, notwithstanding that the stock transfer books of the Company shall then be closed or that certificates representing such shares shall not then be physically delivered to the Holder. SECTION 2. RESERVATION OF SHARES. The Company shall at all times reserve for issuance and/or delivery upon exercise of this Warrant such number of Warrant Shares as shall be required for issuance and delivery upon exercise of this Warrant. SECTION 3. FRACTIONAL SHARES. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant. With respect to any fraction of a share called for upon any exercise hereof, the Company shall pay to the Holder an amount in cash equal to such fraction multiplied by the current market value of a share, determined as follows: (a) 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 NASDAQ, the current market value shall be the last reported sale price of the Common Stock on such exchange or system on the last business day prior to the date of exercise of this Warrant or if no such sale is made on such day, the average of the closing high bid and low asked prices for such day on such exchange or system; or (b) If the Common Stock is not so listed or admitted to unlisted trading privileges but bid and asked prices are reported by the National Quotation Bureau, Inc. or any successor thereto, the current market value shall be the average of last reported high bid and low asked prices reported by the National Quotation Bureau, Inc. on the last business day prior to the date of the exercise of this Warrant; or (c) If the Common Stock is not so listed or admitted to unlisted trading privileges and bid and asked prices are not so reported, the current market value shall be an amount, the book value of a share thereof as at the end of the fiscal quarter of the Company ending immediately prior to the date of the exercise of the Warrant. SECTION 4. EXCHANGE, TRANSFER, ASSIGNMENT OR LOSS OF WARRANT. This Warrant is exchangeable, without expense, at the 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 may 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. 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 Jersey. The Company hereby consents to the exclusive jurisdiction and venue of the courts of the State of New Jersey located in Bergen County, New Jersey 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 Dated: October 26, 1999 EXHIBIT 10.1B EXTENSION OF LEASE AGREEMENT THIS AGREEMENT, is made and entered into on March 29, 1999 between M. Vincent Costa & Victoria M. Costa and ADM Tronics. WHEREAS, CRESSKILL INDUSTRIAL PARK III was the Landlord (hereinafter "LANDLORD") and ADM TRONIS is the Tenant (hereinafter "TENANAT") in a ceratin Lease AGREEMENT dated April 10, 1987 (hereinafter the "Lease"), for premises located at 224-S Pegasus Avenue North, Northvale, New Jersey; and WHEREAS, Landlord and Tenant desire to enter into an agreement regarding the Lease; and WHEREAS, The Cresskill Industrial Park III conveyed title to the subject premises to M. Vincent Costa and Victoria M. Costa. NOW, THEREFORE, in consideration of the mutual promises contained herein, the parties hereto agree as follows: 1. Paragraph 1(l.) is amended as follows: Tenant Notice Address ADM Tronics 224-S Pegasus Avenue Northvale, New Jersey 07647 Landlord Notice Address M. Vincent Costa & Victoria M. Costa 701 Palisade Avenue Englewood Cliffs, New Jersey 07632 2. The parties acknowledge and agree that the Lease was to terminate on June June 30, 1993. 3. The parties hereto acknowledge the the Lease was extended for a five (5) year period which commenced July 1, 1993 and terminated on June 30, 1998. 4. The parties hereby agreed to extend the Lease until June 30, 2008. 5. The annual basic rent shall be the sum of $81,354 per year payable in monthly installments of $6,779.50 which commenced on July 1, 1998 and shall be paid until June 30, 2003. All of the remaining terms of the Lease shall remain as set forth in the Lease Agreement, except as modified herein. 224 Pegasus Avenue Associates represents and warrants it is the owner of the leased premises and now the Landlord. 6. Commencing July 1, 2003, the rent shall be increased to $85,228.00 per year payable in monthly installments of $7,102.33 until June 30, 2008. 7. Paragraph 8 shall be amended to include the following: Any added assessments and/or taxes or fees imposed against the premises due to construction or modification by any other tenant of the building shall be excluded from the portion of expenses payable by ADM. 8. Paragraphs 9, 10 and 11 shall be deleted. 9. Paragraph 31 shall be deleted. 10. Paragraph 50.1, 50.2, 50.3, 50.4 and 50.5 and paragraph 9 and 10 of the Extension Agreement dated August 26, 1993 are deleted. 11. In the event the remaining portion of the subject premises is leased to any tenenat other than the existing tenant, Daburn, Landlord shall notify the Tenant of said change in tenancy. 12. It is expressly understood and agreed that in the event Landlord, or any of its successors or assigns shall, receive a bona fide offer to purchase the premises, or any part thereof, or any interest therein, then and in that event, Landlord shall notify Tenant, in writing, by certified mail, return receipt requested, of the full terms and conditions of any such offer of purchase, including but not limited to, the purchase price, deposit, time for closing and the name of the offeror and purchaser. Tenant shall then have twenty-one (21) days within which to elect to purchase the Premises according to the same terms and conditions, including but not limited to, purchase price, as shall have been offered to Landlord, as hereinabove set forth. If Tenant shall elect to purchase the Premises, as herein permitted, it shall notify Landlord with the aforesaid twenty-one (21) days, in writing, by certified mail, return receipt requested, and shall simultaneously with said election notice, deposit with Landlord a binder check in the amount of ten (10%) percent of the purchase price to be credited against the deposit provided for in the contract of sale and, promptly, within fourteen (14) days, sjhall enter into such formal contract of sale according to the same terms and conditions as contained in Landlord's notice to Tenant as set forth above, except that the contract shall provide for a closing sixty (60) days after the execution of the contract and for delivery of a bargain and sale deed, free and clear of all liens and encumbrances, except restrictions and easements, if any, presently of record as set forth in Exhibit A-1. The right of first refusal provided for in this section shall continue during the entire term of this Lease so long as Tenant, its scuccessors or assigns, shall be in possession of the premises under the terms of the Lease and, regardless of whether or not Tenant, its successors or assigns, have refused to exercise its right to purchase the premises under prior offer made in accordance with its right of first refusal contained herein. The Landlord covenants to protect and defend Tenant and the property against foreclosure or loss by reason of encumbrances by or through the Landlord. 13. All reference to the parties to the within Lease and all covenants, terms, conditions and agreements to the Lease shall be deemded and construed to apply to and be binding upon them and their respective successors, heirs and assigns as if they were in each case fully named and stated. All covenants, conditions, terms and agreements of the within Lease are intended as and shall be deemed and construed to be covenants running with the land. 14. The parties hereto acknowledge and agree that in the event the Tenant expresses a desire to purchase the subject premises in accordance with the terms hereof, Landlord shall, upon request be Tenant, forward copies of all leases in effect, operating statements and all other reasonable documentation requested by Tenant so Tenant may make a determination as to whether or not to exercise the option to purchase or right of first refusal. 15. The parties agree that a memorandum of lease may be recorded and both parties agree to execute the same if presnted with a memorandum in recordable form from the other party hereto. 16. Paragraph 44 is amended to provide as follows: Landlord shall use its best efforts to obtain from its existing mortgagees and any future mortgagees a nondisturbance agreement which includes a recognition of Tenant's option and right of first refusal. 17. Landlord and Tenant hereby acknowledge and reaffirm that the terms and conditions of the Lease shall remain in full force and effect during the option period except as set forth herein. IN WITNESS WHEREOF, the parties hereto affix their hands and seals the date heretofore writtn. /s/ M. Vincent Costa /s/ Victoria M. Costa /s/ Andre' Di Mino Executive Vice President ADM Tronics, Tenant EXHIBIT 21.1 Subsidiaries of the Company Subsidiary Name State of Incorporation Sonotron Medical Systems, Inc. DE Vet-Sonotron Systems, Inc. DE AA Northvale Medical Associates, Inc. NJ Pegasus Laboratories, Inc. DE Precision Assembly Corporation NJ EnviroPack Development Corporation NJ ADM Medical Ventures, Inc. NV Arthritic Relief Centers, Inc. NV Immuno-Therapy Corporation NJ (A wholly owned subsidiary of Precision Assembly Corporation) EXHIBIT 23.1 Consent of Kaufman, Rossin & Co. CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 filed on June 26, 1998 (No. 333-57823, July 9, 1998 (No. 333-58821, August 24, 1998 (No. 333-62165) and October 23, 1998 (No. 333-66023) and on Form S-3, as amended on February 12, 1999 (No. 333-65709), by ADM Tronics Unlimited, Inc. of our report dated June 9, 2000 which appears in its annual report on Form 10-KSB for the fiscal year ended March 31, 2000. /s/ Kaufman, Rossin & Co. KAUFMAN, ROSSIN & CO. Miami, Florida July 12, 2000 EXHIBIT 27 Financial Data Schedule EX-27 2 0002.txt
5 12-MOS MAR-31-2000 MAR-31-2000 322,208 0 259,938 95,000 342,545 961,020 147,709 48,975 2,957,375 575,447 0 23,691 0 0 2,418,237 2,957,375 2,698,597 2,825,461 1,235,775 3,270,415 0 0 0 (444,954) 0 (444,954) 0 0 0 (444,954) (.01) (.01)
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