-----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, Rx7yXEPlFihtXgB783NJQKKbACboChol3+WobdS7OvYn38DJh29KopvSy0Cqk1FV yB7hDXKVRiP1dbYam7Cu/g== 0000849401-99-000024.txt : 20030213 0000849401-99-000024.hdr.sgml : 20030213 19990714175636 ACCESSION NUMBER: 0000849401-99-000024 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990714 DATE AS OF CHANGE: 19990720 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ADM TRONICS UNLIMITED INC/DE CENTRAL INDEX KEY: 0000849401 STANDARD INDUSTRIAL CLASSIFICATION: ADHESIVES & SEALANTS [2891] IRS NUMBER: 221896032 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10KSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-17629 FILM NUMBER: 99664573 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: MORTHVALE STATE: NJ ZIP: 07647 10KSB 1 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, 1999 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 $2,139,632 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 $13,927,567 as of July 6, 1999 State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: 47,382,037 shares of Common Stock, $.0005 par value as of July 6, 1999 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. In order to generate revenues from the Sonotron Devices and to gather information in support of PMA, should it become necessary, in April 1989 the Company opened a clinic for the treatment of pain. The clinic consisted of approximately 1,200 square feet of space in the Company's premises in Northvale, New Jersey. The Company's clinic did not realize any significant revenues and was closed in 1991. Three additional clinics have been opened beginning in 1992, none of which has produced any significant revenues. In 1991, SMI appointed a Canadian company as its sole and exclusive distributor in Canada of the Sonotron Devices. Because the Canadian company was unable to obtain approval of the Quebec Association of Physicians and Surgeons in order for Sonotron Devices to be utilized in Quebec for the treatment of pain and decreased function associated with inflammatory diseases prior to a mutually agreed upon date, the Distribution Agreement between SMI and such company terminated. In 1991 SMI entered into an agreement with Arthronix, Inc. ("Arthronix") which, as subsequently amended, provided that Arthronix shall become the sole and exclusive distributor of Sonotron Devices in substantially all of the United States and all other countries exclusive of Austria, Canada, Germany and Switzerland for a maximum period of 19 years (the "Arthronix Distribution Agreement"). The exclusive distributorship with respect to the United States was not to commence unless the FDA granted PMA with respect to the Sonotron Devices or the Sonotron Devices could be marketed pursuant to a Premarket Notification, and the obligation of Arthronix under the Arthronix Distribution Agreement with respect to Sonotron Devices to be used in the United States was subject to the occurrence of either of such events. As a result of the settlement of litigation between SMI and Arthronix, the Arthronix Distribution Agreement was canceled in November 1993. In August 1993 the Company entered into an agreement (the "1993 Distribution Agreement") with Arthronix and a Japanese corporation (the "Japanese Distributor") pursuant to which, on behalf of the Company, Arthronix granted the Japanese Distributor the exclusive right to sell and distribute the Sonotron Device within Japan for a one year period. The Japanese Distributor has represented to SMI that the Japanese Distributor has received all necessary government approvals to import, sell, distribute and use the Sonotron Device in Japan. Arthronix has received a commission in connection with the sales to the Japanese Distributor. The 1993 Distribution Agreement terminated in accordance with its terms in August 1994. In June 1995, the Company appointed the Japanese Distributor as the exclusive distributor of Sonotron Devices in Japan, Singapore and Malaysia. The Japanese Distributor has advised the Company that it will not distribute or purchase Sonotron Devices during the pendency pending the resolution of certain arbitration involving it and the Company. Reference is made to the responses to Item 3 and 6 hereof. Reference is made to Note 7 of Notes to Consolidated Financial Statements. Subsequent to the termination of the Arthronix Distribution Agreement, SMI has sold additional Sonotron Devices in Belgium, Brazil, Chile, France, Germany, Israel, Italy, Lebanon, Mexico and South Africa. Unlike the sales to the Japanese Distributor, the Sonotron Devices delivered to the purchasers in the foregoing countries included a limited number of dosages ("Treatment Units") which are refilled by means of a telephone connection. Any additional Treatment Units will be sold by SMI. 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 PMA. The Company intends to use data obtained from clinics utilizing the Sonotron Device as well as additional data it may obtain from others in the Company's application in support of 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, 1998 and 1999, 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. The NCCD Device is in the prototype stage. Limited initial preliminary tests on human subjects on a non-controlled basis appear to indicate that treatment with the NCCD Device has a beneficial effect on the symptoms 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, 1999, no customer accounted for more than 10% of the Company's sales of Sonotron Devices. The termination of business relations with any of the Company's significant customers would have a material adverse effect on the Company's business and the financial condition of the Company. As of March 31, 1999, the dollar amount of backlog orders for Sonotron Devices was not material. Chemical Products for Industrial Use The Company develops, manufactures and sells chemical products to industrial users. Such products consist primarily of the following: 1. Water based primers and adhesives; 2. Water based coatings and resins for the printing and packaging industry; 3. Water based chemical additives; and 4. Cosmetic, medical and related adhesives and formulations. Water based primers and adhesives are chemical compounds used to bind different plastic films. Examples are the binding of polyethylene to polyester, nylon, vinyl and cellophane. The Company's products are similar in function to solvent based primers that are widely used to bind plastic film, papers and foils. Solvent based systems have come under criticism since they have been found to be highly pollutant, dangerous to health and generally caustic in nature. Based upon the Company's experience since 1969, including information furnished to the Company by certain of its customers, the Company believes that water based systems have no known polluting effects and pose no known health hazards. There can, of course, be no assurance that any governmental restrictions will not be imposed on the Company's water based products or that such products will be accepted as replacements for solvent based products. Coatings and resins for the printing industry are used to impart properties to the printed substrate. The Company's products can be used to coat printed material for glossy or aesthetic appeal to make such material virtually impervious to certain types of grease and to impart other characteristics required or desired for various products and specifications. The Company has introduced a new coating technology for the paper industry designed for use in the manufacture of recyclable paper packaging. The 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 supplied 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, 1999, 1998 and 1997, sales of chemical based products accounted for approximately 45%, 64% and 46% 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, 1999, 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, 1999, 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, 1999 and 1998, 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 with expected delivery of units by August 1999. There can be no assurance that the Company will receive significant orders for the Aurex-3 or 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 twelve months ended March 31, 1999, one customer accounted for approximately 65% of PAC's sales. The termination of business relations with such customer would have a material adverse effect on the Company's results of operations. SofPulse Device On May 27, 1998, the Company entered into an Asset Purchase Agreement (the "Agreement") with Electropharmacology, Inc. ("EPI") pursuant to which the Company purchased 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 renatl 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.by The Company has agreed to pay Byron a commission of 7.5% of rental revenues received from leads generated by Byron. Needle Eater In May 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 expire in one year and the balance expiring in two years. The Company has 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 11 of Notes to Consolidated Financial Statements. 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 regietered by the FDA as a Registered Medical Device Establishment. Such registration is renewable annually and although the company does not believe that the registration will not be renewed annually by the FDA, there can be no assurance of such renewal. Any failure to obtain an annual renewal could be expected to have a material adverse effect on the Company. In January 1991, the FDA advised EPI of its determination to treat the 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. Neither the Company, nor to the Company's knowledge, EPI, has 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. 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 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 determined by the Company. While third party payors generally make their own decisions regarding which medical procedures and services to cover, Medicaid and other third party payors may apply standards similar to Medicare's in determining whether to provide coverage for a particular procedure or service. The Medicare statute prohibits payment for any medical procedures or services that are not reasonable and necessary for the diagnosis or treatment of illness or injury. The HCFA, an agency within the Department of Health and Human Services that is responsible for administering the Medicare program, has interpreted this provision to prohibit Medicare coverage of procedures that, among other things, are not deemed safe and effective treatments for the conditions for which they are being used, or which are still investigational. In July 1997, HCFA issued a memorandum implementing a national policy of non-reimbursement by Medicare for the use of any form of electrotherapy in wound healing. The SofPulse Device is included broadly in the category of products classified as electrotherapy products and although the SofPulse may not be promoted by the Company for 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. This reimbursement system generally 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 July 6, 1999, the Company employed 21 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, 1997 .38 .23 September 30, 1997 .31 .19 December 31, 1997 .28 .16 March 31, 1998 .34 .19 June 30, 1998 .56 .28 September 30, 1998 .75 .63 December 31, 1998 1.06 .88 March 31, 1999 .53 .49 (b) On July 6, 1999, the Company's Common Stock was held by approximately 1,458 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 connection with the Asset Purchase Agreement with EPI, the Company issued an aggregate of 3,307,130 shares of its Common Stock and warrants for the purchase of 1,575,000 shares of its Common Stock. Of the foregoing, 2,837,130 shares of Common Stock and warrants for the purchase of up to 1,575,000 represented a portion of the purchase price for certain assets utilized by EPI in connection with SofPulse. The remaining securities were issued in consideration for consulting services. All of the Common Stock has been registered under the Securities Act of 1933. Reference is made to Note 10 of Notes to Consolidated Financial Statements. In May 1998 the Company issued 350,000 of its Common Stock to Wharton Capital Corporation and Joel Brownstein for consulting services. In June 1998, the Company issued options for the purchase of an aggregate of 500,000 shares of its Common Stock to Dr. Harold Gelb at an average price of $.336 per share in consideration of consulting services. In June 1998, the Company issued an option for the purchase of 300,000 shares of its Common Stock to Dr. Steven Brenner at $.375 per share in consideration of consulting services. In June 1998, the Company issued an option for the purchase of 100,000 shares of its Common Stock to Jay Zelesnick at $.375 per share in consideration of consulting services. In October 1998, the Company issued an option for the purchase of 3,000,000 shares of its Common Stock to Burton Friedlander at $.625 per share in consideration of consulting services. No principal underwriters 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 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 67% 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. Fiscal 1998 Compared to 1997 Revenues Revenues were $1,483,218 in 1998 as compared to $1,574,855 in 1997 representing a decrease of $91,637 or 6%. The decrease was primarily the result of reduced sales of Sonotron Devices in Japan offset by the addition of sales from a newly acquired medical device manufacturing subsidiary in December of 1997 and moderately decreased sales to chemical customers. The reduction of sales of Sonotron Devices in Japan was the result of the arbitration proceeding commenced against the Company and its distributor of Sonotron Devices in Japan. The distributor has advised the Company that it will make no further purchases of Sonotron Devices during the pendency of the arbitration proceeding. Gross Profit Gross profit of $838,455 in 1998 was $138,948 or 14%, lower than the gross profit of $977,403 for 1997. Gross profit was 57% of revenues in 1998 as compared to 63% of revenues in 1997. The reduction in gross profit is related to the product mix of sales with varying gross profit margins. Operating Income (Loss) Operating loss of ($774,798) in 1998 was $737,868 greater than the operating loss of ($36,930) in 1997. The increase in operating loss resulted from a reduction in gross profit coupled with a significant increase in selling, general and administrative expenses primarily from legal costs and certain one-time chargeoffs associated with the arbitration proceeding coupled with certain one-time inventory eliminations. Other Income, Net Other income of $52,021 in 1998 was $11,661 or 18% lower than other income of $63,682 in 1997 due to a decrease in interest income from lower amounts invested and at lower rates of return on amounts invested. Liquidity and Capital Resources At March 31, 1999 the Company had cash of $496,405 as compared to $1,127,840 at March 31, 1998. This decrease is the result of cash used in investing activities and operating activites and cash used in payments on notes payable. Operating Activities An increase in sales and gross profit in the Company's medical device segment was realized from an acquisition of a medical device business in May 1998 which resulted in improved operating results. There was also a modest increase in sales of aqueous chemical products. Investing Activities Cash consideration of $266,544 was paid for the acquisition of a medical device business and $44,064 was paid for purchases of property and equipment. Financing Activities The Company paid $29,057 on notes payable offset by an increase in borrowings on a demand line of credit of $14,630. 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, 1999, 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, 1999. 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, 1999, and the results of their operations and their cash flows for each of the two years in the period ended March 31, 1999, in conformity with generally accepted accounting principles. Miami, Florida June 11, 1999 F-1 ADM TRONICS UNLIMITED, INC. CONSOLIDATED BALANCE SHEET MARCH 31, 1999 ASSETS CURRENT ASSETS Cash and cash equivalents $496,405 Accounts receivable - trade, net of allowance for doubtful accounts of $52,200 353,976 Inventories: Raw materials and supplies 392,066 Finished goods 56,226 Other current assets 102,600 Total current assets 1,401,273 PROPERTY AND EQUIPMENT 185,916 EQUIPMENT IN USE AND UNDER LEASE AGREEMENTS, net of accumulated depreciation of $139,813 736,566 EQUIPMENT HELD FOR SALE 736,507 LOAN RECEIVABLE FROM OFFICER, bearing interest at 3% per annum, unsecured 65,191 OTHER ASSETS 218,088 TOTAL ASSETS $3,343,541 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $273,483 Accrued expenses and other 59,385 Notes payable 145,091 Total current liabilities 477,959 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY 2,865,582 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $3,343,541 F-2 ADM TRONICS UNLIMITED, INC. CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED MARCH 31, 1999 AND 1998 1999 1998 REVENUES Sales $2,098,997 $1,483,218 Interest 40,635 52,021 Total revenues 2,139,632 1,535,239 COSTS AND EXPENSES Cost of sales 681,512 644,763 Selling, general and administrative 2,163,562 1,613,253 Total costs and expenses 2,258,016 2,845,074 LOSS BEFORE INCOME TAXES (705,442) (722,777) INCOME TAXES (265,000) - NET LOSS ($970,442) ($722,777) WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 46,779,615 42,477,832 NET LOSS PER SHARE ($.02) ($.02) F-3 ADM TRONICS UNLIMITED, INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY YEARS ENDED MARCH 31, 1999 AND 1998 Shares Par Capital in Accumulated Total (150,000,000 Value Excess of Deficit Authorized Par Value $.0005 par value) BALANCES MARCH 31, 1997 42,474,907 $21,237 $4,819,436 ($2,205,608) $2,635,065 Sale of 1,250,000 625 274,375 - 275,000 1,250,000 shares of common stock and 1,000,000 warrants Stock and - - (30,635) - (30,635) warrant issue costs Common stock - - 74,000 - 74,000 options issued Net loss - - - (722,777) (722,777) 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 (Note 10) 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 F-4 ADM TRONICS UNLIMITED, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED MARCH 31, 1999 AND 1998 1999 1998 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss ($970,442) ($722,777) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 160,142 64,737 Provision for losses on accounts receivable 16,438 106,006 Provision for loss on note receivable - 82,306 Common stock options issued as compensation 96,000 74,000 Common stock issued as compensation 246,875 - Changes in operating assets and liabilities: Accounts receivable trade (52,526) (50,724) Inventories (127,757) 92,299 Other current assets (78,499) 11,425 Equipment in use and under lease agreements 118,600 - Equipment held for sale 135,511 (45,025) Deposit receivable 150 50 Deferred tax asset 265,000 - Accounts payable (123,456) 38,882 Accrued expenses and other 13,246 23,583 Prepayments from customers - (69,293) Total adjustments 669,724 328,246 Net cash used in operating activities (300,718) (394,531) CASH FLOWS FROM INVESTING ACTIVITIES: Cash consideration paid for business acquired (266,544) (22,741) Cash balance of company acquired - 8,851 Patents - (1,280) Purchase of property and equipment (44,064) (14,069) Net changes in certificates of deposit - 107,000 Repayments (advances) of loans to officer (5,689) 7,150 Net cash provided by (used in) investing activities (316,297) 84,911 CASH FLOWS FROM FINANCING ACTIVITIES: Net borrowings on demand line of credit 14,630 43,392 Proceeds from notes payable - 15,312 Payments on notes payable (29,057) (10,308) Repayment of loan to a former shareholder of the newly acquired subsidiary - (30,259) Net proceeds from issuance of common stock and warrants - 244,365 Net cash provided by (used in) Financing activities (14,427) 262,502 NET DECREASE IN CASH AND EQUIVALENTS (631,442) (47,118) CASH - BEGINNING 1,127,847 1,174,965 CASH - ENDING $496,405 $1,127,847 Supplemental Disclosures: Interest paid $10,131 $3,709 Income taxes paid $ - $ - Supplemental Disclosure of Non-cash Investing and Financing Activities: Common stock issued in connection $1,262,496 $ - with acquisition of business Fair value of assets received in $1,529,040 $ - connection with acquisition of business Common stock options issued as $96,000 $74,000 consideration for consulting services Common stock issued as consideration $246,875 $ - for consulting services F-5 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 and Europe. The medical device product line is comprised of proprietary devices used in the treatment of joint pain and postoperative edema. These products are sold or leased to customers located in various parts of the United States and the Orient. For the years ended March 31, 1999 and 1998, the chemical product line accounted for approximately 45% and 63% of sales while the medical device product line accounted for 55% 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 $260,000 at March 31, 1999) 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. 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. These devices are depreciated over seven years commencing at the date placed in service. Revenues from leasing activities have not been significant. All devices and parts are carried at the lower of cost or market, with cost being determined on a specific identification basis. An allowance is provided when, in the judgement of management, the realizable value declines below cost. Sofpulse Units In connection with the business acquisition described in Note 10, the Company acquired all rights to a FDA approved device (Sofpulse Unit or Unit) and 418 of these 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 used internally and units loaned out for marketing and testing. These Units are depreciated over seven years commencing at the date placed in service. 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 and patents are stated at cost, are included in other assets and are amortized on a straight-line basis over the shorter of their legal or useful lives (10 years for goodwill, 15 to 17 years for patents). 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 $27,000 and $45,000 in 1999 and 1998, 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. 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. Net loss per share Diluted has not been presented for 1999 and 1998 as it results would be anti-dilutive. 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. F-9 Impact of the "Year 2000" Computer Issue Because computers frequently use only two digits to recognize years, on January 1, 2000, many computer systems, as well as equipment that uses embedded computer chips may be unable to distinguish between the years 1900 and 2000. If not remediated, this problem could create system errors and failures resulting in the disruption of normal business operations. In the event the Company fails to identify or correct a material Year 2000 problem, there could be disruptions in normal business operations, which could have a material adverse effect on the Company's results of operations, liquidity or financial condition. Further, there may be some third parties, such as governmental agencies, utilities, telecommunication companies, vendors, suppliers and customers who may not be able to continue business with the Company due to their own year 2000 problems. There can be no assurance that any efforts made will fully mitigate the effect of Year 2000 issues. NOTE 2. PROPERTY AND EQUIPMENT Property and equipment at March 31, 1999 was as follows: Production equipment $43,330 Other Machinery and equipment 347,221 Office furniture and fixtures 129,940 Leasehold improvements 131,800 Computer equipment 119,296 771,587 Less accumulated depreciation And amortization (585,671) $185,916 Depreciation and amortization on property and equipment for the years ended March 31, 1999 and 1998 was $40,336 and $20,410, respectively. NOTE 3. OTHER ASSETS Other assets at March 31, 1999 consisted of the following: Sonotron refinement costs, net of $87,108 accumulated amortization of $58,336 Goodwill, net of accumulated amortization 61,457 Of $9,455 Patents, net of accumulated amortization 47,734 of $37,233 Deposits Receivable 21,789 $218,088 F-10 NOTE 3. OTHER ASSETS (Continued) 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 $29,568 for the years ended March 31, 1999 and 1998, respectively. Amortization of goodwill was $7,091 and $2,364, respectively for the years ended March 31, 1999 and 1998 and amortization of patents was $3,413 and $4,721, respectively for the years ended March 31, 1999 and 1998. NOTE 4. NOTES PAYABLE Notes payable consisted of the following at March 31, 1999: Demand line of credit payable to bank; credit $96,644 limit $100,000; interest at prime rate (8.75% at March 31, 1999) plus 1%; collateralized by certificate of deposit. 8.0% note payable to the former shareholder of 45,078 a subsidiary; interest and principal payable Quarterly; matures January 1, 2000; unsecured. Other 3,369 Total $145,091 For the years ended March 31, 1999 and 1998 interest expense on total indebtedness amounted to $10,131 and $3,631, respectively. NOTE 5. INCOME TAXES The components of income taxes for the years ended March 31, 1999 and 1998, are as follows: 1999 1998 Deferred $285,000 $259,000 Change in valuation allowance (550,000) (259,000) Income Taxes ($265,000) $ - F-11 NOTE 5. INCOME TAXES (Continued) 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: 1999 1998 Tax benefit at U.S. statutory rates ($240,000) ($246,000) Change in valuation allowance 550,000 259,000 Other temporary differences ( 45,000) ( 13,000) Income taxes $265,000 $ - At March 31, 1999, the Company had deferred tax assets of approximately $1,144,000, comprised of $938,000 resulting from net operating loss carryforwards, $111,000 related to unrealized (for income tax purposes) declines in market value of securities and $95,000 from other temporary differences. The deferred tax assets are offset by a valuation allowance in the amount of $1,144,000. 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, 1999, the Company had consolidated net operating loss carryforwards of approximately $2,500,000 that will expire during the years 2005 through 2019 and consolidated capital loss carryforwards of approximately $299,000 that will expire during the years 2001 and 2002. NOTE 6. EMPLOYEE BENEFIT PLAN The Company has a 401(k) Plan covering substantially all employees. Contributions to the plan are at the discretion of management. Contributions to the plan for the year ended March 31, 1999 and 1998 totaled $3,085 and $3,631, respectively. NOTE 7. COMMITMENTS AND CONTINGENCIES Leases The Company leases its office and warehouse facilities and certain equipment under non-cancelable operating leases. F-12 NOTE 7. COMMITMENTS AND CONTINGENCIES(Continued) The approximate future minimum annual rentals under these leases at March 31, 1999 are as follows: March 31, 2000 $136,000 March 31, 2001 136,000 March 31, 2002 134,000 March 31, 2003 136,000 March 31, 2004 131,000 Thereafter $1,019,000 Rent expense for all facilities for the years ended March 31, 1999 and March 31, 1998 was $149,826 and $101,612, 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, 1999, no amount has been accrued for potential warranty costs and such costs are expected to be nominal. Arthronix Settlement Agreement At March 31, 1999, the Company had various judgements and notes receivable due from Arthronix (unrelated entity) that due to uncertainties, were fully offset by reserves and additionally, the Company had certain obligations due to Arthronix relating to various arbitration awards. In June 1999 the Company and Arthronix entered into a settlement agreement providing for the resolution of all suits, counter suits, claims, arbitration awards and satisfaction of all amounts otherwise due upon the payment by Arthronix of $77,000 to the Company. 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, 1999 and 1998, the Company granted zero and 2,192,819 options, respectively to certain employees and also granted 3,900,000 and 3,200,000 options to non-employees. The Company has elected to continue using Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25) and has adopted the disclosure-only provisions of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), in accounting for employee stock options. Under this application compensation expense is recorded only to the extent that the market value of the underlying stock exceeded the exercise price at the date of grant. No compensation expense has been recognized for the years ended March 31, 1999 and 1998. Had employee compensation cost been determined on the basis of fair value pursuant to SFAS 123, the consolidated net loss and net loss per share for the year ended March 31, 1998 would have been $810,777 and $.02, respectively. Included in the consolidated statement of operations for the years ended March 31, 1999 and 1998 is $96,000 and $74,000, 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, 1999 and 1998, is as follows: Year ended March 31, 1999 1998 Options Weighted Options Weighted Average Average Exercise Exercise Price Price Outstanding April 1, 5,392,819 $0.2885 - $ - Granted 3,900,000 0.5623 5,392,819 0.2885 Exercised - - - - Forfeited - - - - Outstanding March 31, 9,292,819 0.4375 5,392,819 0.2885 Exercisable at end of 6,275,285 0.2981 5,201,038 $0.2925 F-14 NOTE 8. STOCK OPTIONS (Continued) The expiration dates and exercise prices of stock options, which were fully vested at March 31, 1999, were as follows: Expiration Date Number of Options Exercise Price March 16, 2000 200,000 $0.18 June 2, 2000 182,466 $0.18 to 0.375 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 The weighted average fair value of options outstanding at March 31, 1999 were as follows: Number of Weighted Options Average Fair Value at Date of Grant Exercise price exceeded the 6,000,000 $0.0192 market price at grant date Exercise price equaled the 800,000 $0.0478 market price at grant date Exercise price was less than 2,492,819 $0.0424 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 one. The Company evaluates performance on profit or loss from operations before income taxes. NOTE 9. SEGMENT INFORMATION, GEOGRAPHICAL INFORMATION, MAJOR CUSTOMERS AND CREDIT CONCENTRATION (Continued) Information about segment operations follows: Chemical Medical Total 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 Year ended March 31, 1998 Revenues from external customers $936,116 $547,102 $1,483,218 Interest revenue $52,021 $- $52,021 Interest expense $- $3,709 $3,709 Depreciation and amortization $57,015 $7,722 $64,737 Segment loss ($385,718) ($337,059) ($722,777) Segment assets $2,344,700 $448,948 $2,793,648 Expenditures for segment assets (including acquisition of business) $3,435 $10,634 $14,069 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, 1999 1998 Chemical Segment: United States $866,874 $873,510 Australia 48,636 36,689 Other foreign countries 21,974 25,917 $937,484 $936,116 Medical Segment: United States $1,078,281 $537,548 Malaysia 50,084 - Other foreign countries 33,148 9,554 $1,161,513 $547,102 Major Customers Sales to individual unaffiliated customers in excess of 10% of net sales to unaffiliated customers are shown below. Year ended March 31, 1999 1998 Chemical Segment: Customer A $ - $314,859 Customer C $ - $161,607 Medical Segment: Customer B $389,263 $321,500 Individual accounts receivable balances at March 31, 1999 in excess of 10% of total accounts receivable are as follows: Chemical Segment: Customer C $ - $ 53,112 Medical Segment: Customer D $ - $ 82,152 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, 1999 1998 Chemical Segments: Adhesives and primers 46% 47% Resins and coatings 51% 49% Additives and others 3% 4% Medical Segment: Contract manufactured medical 52% 70% Sofpulse units 40% - Sonotron devices 8% 30% 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 Acquisition On May 27, 1998 the Company, pursuant to an asset purchase agreement acquired certain tangible and intangible assets and certain operating rights relating to a medical device used principally in the treatment of postoperative edema and pain in superficial soft tissues. Pursuant to the agreement, the company paid $210,000 in cash, issued 2,837,130 shares of the Company's common stock and agreed to contingent consideration consisting of an option to acquire up to 1,575,000 additional shares of the company's common stock at $.425 per share. In connection with this transaction, the Company recorded $326,044 of related acquisition costs of which $56,544 was paid in cash and 470,000 shares of common stock valued at $269,500 were issued. This acquisition was accounted for as a purchase. F-18 NOTE 10. SIGNIFICANT TRANSACTION AND EVENT (Continued) Proforma Combined Condensed Financial Information (Unaudited) The following unaudited proforma combined condensed statements of operations for the years ended March 31, 1999 and 1998 are as if the business combination had occurred at the beginning of each period presented. For the year ended March 31, 1999 1998 Operating Revenues $2,288,442 $3,381,218 Net loss (1,304,177) (2,338,440) Net loss per share (.03) (.06) 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. NASDAQ Effective December 16, 1998, the Company's securities were delisted from the Nasdaq Stock Market and immediately thereafter began trading on the OTC Bulletin Board. NOTE 11. SUBSEQUENT EVENTS Subsequent Acquisition In April 1999, the Company, pursuant to an asset purchase agreement, agreed to purchase certain tangible and intangible assets and certain operating rights relating to a medical device used for the grinding and disposal of syringes and medical sharps. Pursuant to the agreement, the Company agreed to pay $14,206 in cash, granted options to purchase 200,000 and 300,000 shares of the Company's common stock at an exercise price of $.625 with the options expiring one year and two years from the grant date, respectively, and executed a consulting agreement providing for monthly payments of $750 for twenty four months. Additionally, the agreement contains a provision for contingent consideration whereby on March 2001 and each year thereafter until March 2012, the Company pays 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. F-19 NOTE 12. SIGNIFICANT FOURTH QUARTER ADJUSTMENTS At March 31, 1999, the Company considered all available evidence, both positive and negative, and determined an additional valuation allowance relating to the net deferred tax asset amount was needed. Accordingly, the Company fully offset its net deferred tax asset resulting in income taxes of $265,000 for the year ended March 31, 1999. The Company recorded $96,000 of compensation relating to stock options issued during the year. The effect of the above adjustments increased the net loss by $361,000. F-20 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 79 President, Chief Executive Officer and Director Vincent Di Mino 73 Vice President of Production and Director Andre' Di Mino 43 Executive Vice President, Secretary, Treasurer, Chief Operating Officer and Director John Berenyi 52 Director Dr. Harold Gelb 74 Director Thomas Petrie 54 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. John Berenyi has been a Director since March 1998. Mr. Berenyi is senior managing director with Brill Securities, Inc. having been with that firm since August 1997. For two years prior thereto, Mr. Berenyi was with the firm Fechtor, Detwiler serving in a similar capacity. From September 1994 to August 1995 he was with the firm of Rodman and Renshaw and from March 1993 to August 1994 he was with Meridian Capital Markets. Dr. 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 four 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, 1999 was a director, officer, to the knowledge of the Company a beneficial owner of more than 10% of any class of equity securities of the Company registered pursuant to Section 12, failed to file on a timely basis, as disclosed in the above Forms, reports required by Section 16(a) of the Exchange Act during the most recent fiscal year or prior fiscal years. NAME NUMBER OF NUMBER OF TRANSACTIONS LATE REPORTS NOT REPORTED ON A TIMELY BASIS John Berenyi 1 1 Dr. Stephen Brenner 1 1 Dr. Alfonso Di Mino 1 1 Andre' Di Mino 1 1 Vincent Di Mino 1 1 Burton Friedlander 1 1 Dr. Harold Gelb 1 0 The late Reports have not been filed. 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, 1999 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 1999 $93,600 -0- President and Chief Executive Officer 1998 $93,600 715,741 shares of Common Stock 1997 $93,600 -0- No individual grants of stock options were made during the fiscal year ended March 31, 1999 to the Named Officer. No options issued by the Company were exercised by the Named Officer during the fiscal year ended March 31, 1999. 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 $236,195. The Company did not reprice any stock option or SAR previously awarded to the Named Officer. During the fiscal years ended March 31, 1999, 1998 and 1997, 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 July 6, 1999 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 6%(2) $.0005 par 224-S Pegasus Ave. Northvale, NJ 07647 Common Stock Andre' Di Mino 8,249,774(3) shares 17%(3) $.0005 par value 224-S Pegasus Ave. Northvale, NJ 07647 1,700,000(4) shares 4%(4) 3,400,000(5) shares 7%(5) 2,441,330(6) shares 5%(6) Common Stock, Vincent Di Mino 2,587,928(7) shares 5%(7) $.0005 par value 224-S Pegasus Ave. Northvale, NJ 07647 5,100,000(8) shares 11%(8) Common Stock, Burton Friedlander 6,313,900(9) shares 12%(9) $.0005 par value 104 Field point Road. Greenwich CT 06830 Common Stock, John Berenyi 104,000(10) shares (13) $.0005 par value 152 W. 57th St. New York, NY 10019 Common Stock, Dr. Harold Gelb 500,000(11) shares 1%(11) $.0005 par value 425 E 58th Street New York, NY 10022 Common Stock, Thomas Petrie 200,000(12) shares (13) $.0005 par value 32 Dearhaven Lane Newfoundland, NJ 07927 Common Stock, Heiko H. Theime 7,617,500(14) shares 15%(14) $.0005 par value 1370 Ave of the Americas New York, NY 10019 Common Stock, Officers and Directors 22,233,012(15) shares 44%(15) $.0005 par value as a Group (6 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 spose 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. (9) Represents (a) 417,300 shares of common stock directly owned by Mr. Friedlander, (b) 3,000,000 of common stock that 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 (a) 4,000 shares of Common Stock directly owned by Mr. Berenyi and, (b) 100,000 shares of Common Stock that may be acquired by Mr. Berenyi upon exercise of options. (11) Represents shares of Common Stock that may be acquired by Dr. Gelb upon exercise of options. (12) Represents shares of Common Stock that may be acquired by Mr. Petrie upon exercise of options. (13) Less than 1% (14) Represents (a) 3,000,000 shares of Common Stock that may be acquired by Heiko H. Thieme 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. (15) 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, 1999 was approximately $86,642. 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, 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: (16) Any director or executive officer of the Company; (17) Any nominee for election as a director; (18) Any security holder named in response to Item 11 hereof; and (19) 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.* 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, acquired by Mr. Friedlander upon exercise of an option, and (c) 2,896,600 shares of Common Stock owned by Friedlander International Limited. 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 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 Statement on Form S-8, File. No. 333-57823, is hereby incorporated by reference. 21.1 Subsidiaries of the Company, Exhibit 21.1 to the Company's Annual Report on Form 10-KSB for the fiscal year ended March 31, 1998 is hereby incorporated by reference. 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 13, 1999 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 7/13/99 and Director /s/Andre' Di Mino Principal Financial and 7/13/99 Accounting Officer and Director /s/Vincent Di Mino Director 7/13/99 John Berenyi Director Dr. Harold Gelb Director /s/Thomas Petrie Director 7/13/99 EXHIBIT 4.2 Warrant Issued to Heiko H. Thieme THIS WARRANT AS WELL AS THE COMMON STOCK ISSUABLE UPON THE EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED(THE "ACT"), AND MAY NOT BE OFFERED OR SOLD UNLESS REGISTERED UNDER THE ACT OR AN EXEMPTION FROM REGISTRATION UNDER THE ACT IS AVAILABLE. Void after 5:00 P.M., New York City Time, on December 31, 2002 (the "Termination Date") WARRANT TO PURCHASE 3,000,000 SHARES OF THE COMMON STOCK OF ADM TRONICS UNLIMITED, INC. This is to Certify That, FOR VALUE RECEIVED, HEIKO H. THIEME (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 $.375 per share at any time or from time to time from the date hereof until 5:00 P.M., New York City Time on December 31, 2000 and thereafter at a price of $.50 per share at any time or from time to time until 5:00 P.M., New York City Time on the Termination Date. The number of shares to be received upon the exercise of this Warrant and the price to be paid for each such share may be adjusted from time to time as hereinafter set forth. The shares deliverable upon such exercise, and as adjusted from time to time, are hereinafter sometimes referred to as "Warrant Shares" and the exercise price of this Warrant as in effect at any time as adjusted from time to time is hereinafter sometimes referred to as the "Exercise Price." SECTION 1. EXERCISE OF WARRANT. This Warrant may be exercised in whole or in part 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, but not later than two business days from the date of such exercise, 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: March 16, 1999 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 11, 1999 which appears in its annual report on Form 10-KSB for the fiscal year ended March 31, 1999. /s/ Kaufman, Rossin & Co. KAUFMAN, ROSSIN & CO. Miami, Florida July 14, 1999 EXHIBIT 27 Financial Data Schedule EX-27 2
5 12-MOS MAR-31-1998 MAR-31-1999 496,405 0 353,976 52,200 448,292 1,401,273 185,916 32,652 3,343,541 477,959 0 23,691 0 0 2,865,582 3,343,582 2,098,997 2,139,632 681,512 2,845,074 0 0 0 (705,442) (265,000) (970,442) 0 0 0 (970,442) (.02) (.02)
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