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, 2003
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)
(201) 767-6040
(Issuer's Telephone Number, Including Area Code)
Securities Registered under Section 12(b) of the Act:
NONE
Securities Registered under Section 12(g) of the Act:
Common Stock, $.0005 par value
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports),
and (2) has been subject to the filing requirements for at least the past 90
days:
YES X NO ____
Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10- KSB or any amendment to this Form 10-KSB.
State issuer's revenues for its most recent fiscal year
$1,074,305
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was sold, or the average bid and asked price of such common equity, as of a specified date within the past 60 days:
Approximately $1,913,230 as of July 3, 2003
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
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 1. Description of Business
ADM Tronics Unlimited, Inc. (the "Company"), was organized under the laws of the State of Delaware on November 24, 1969.
Recent Developments
In April 2003, a majority owned subsidiary of the Company entered into a distribution agreement with THM Group, LLC with respect to the distribution and sale by THM of the subsidiary's therapeutic electronic device for animal health. Pursuant to the agreement THM was granted an exclusive territory comprising North America and Europe for a term of 3 years conditioned upon THM arranging for the purchase of certain minimum quantities of product from the subsidiary on an annual basis. Should THM not arrange for such annual minimum quantities to be purchased from the subsidiary, the agreement may be terminated by the subsidiary, at its option.
In November 2002, the Company sold certain rights to an ethnic shave cream, a burn lotion and a medical device known as the Aurex-3 which has been designed to treat a condition known as tinnitus to a wholly owned subsidiary of New England Acquisitions, Inc. The purchase price was 150,375 shares of New England's common stock and its subsidiary's agreement to make the payments described below. If the subsidiary does not make required minimum royalty payments or purchase certain quantities of products from the company within one year of its purchase of the rights, it will lose certain rights of exclusivity. The Company, however, intends to grant the subsidiary an extension of time.
New England's subsidiary also entered into an exclusive manufacturing agreement with the Company under which the Company will manufacture the ethnic shave cream, burn lotion and Aurex-3 for 120% of the Company's cost of all raw materials and all supplies and direct labor and an overhead allocation. The Company will also maintain raw material supplies and finished goods as necessary and provide oversight and guidance with respect to regulatory requirements regarding the marketing of the products. In addition, New England's subsidiary will reimburse the Company for any tooling or non-recurring engineering services that are required to be secured in support of the manufacturing of the products. New England's subsidiary has agreed to pay the Company a royalty of 6% of gross sales of the products, less discounts, returns and allowances as well as consulting fees and related expenses for any time expended by the Company's employees for any services related to the products other than manufacturing activities.
New England's subsidiary has advised the Company that it has no present intention of marketing the burn lotion and is reevaluating its plans with respect to the Aurex-3 after receiving initial disappointing results. New England has further advised the Company that New England's subsidiary has no available capital to market any products and there is no assurance that it will ever obtain sufficient capital.
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, metal foils and papers. Examples are the binding of polyethylene to polyester, nylon, vinyl, aluminum, paper 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.
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, 2003, 2002 and 2001, sales of chemical based products accounted for approximately 80%, 50% and 40% of operating revenues, respectively. No contract exists with any of the Company's customers which would obligate any customer to continue to purchase products from the Company.
During the fiscal year ended March 31, 2003, one 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 are 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, 2003, 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, 2003 and 2002, 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.
Sonotron Technology
The late Dr. Alfonso Di Mino, founder of the Company, 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" expiring in 2004. Dr. Di Mino assigned to the Company the Di Mino U.S. Patent without any consideration therefrom. 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). Canada, 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 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 is for human application to evaluate its effect on the knee joint in subjects with osteoarthritis and inflammatory joint conditions. The purpose of the study was to gather data to submit to the United States Food and Drug Administration (the "FDA"). The study was conducted at five regional centers on 98 human subjects during 1987 and 1988. Data were analyzed by an analysis on non-parametric measures to compare the relative responses of the randomly assigned control and treated subjects. ISC, in a report dated July 18, 1988, found that two of the ten data sets showed a high probability that the subjects' assessment of pain one week after administration was reduced in the treated, relative to the untreated, subjects. ISC further found, with respect to two additional data sets, that certain other data suggested a trend of improvement one week after administration in the treated, relative to the untreated, subjects, but with lower probability. None of the 98 subjects in the study reported adverse reactions to the administration of the Sonotron Technology which were deemed significant or long lasting. Similar results have been obtained in subsequent studies.
The Company believes that the Sonotron Technology can be utilized to reduce lameness in both thoroughbred and standardbred horses. In this connection, the Company commissioned the School of Veterinary Medicine of the University of Wisconsin-Madison (the "SVM") to gather data which would confirm the effectiveness of the Sonotron Device on horses. In a report dated December 10, 1987, the SVM concluded that the evidence from its experiments indicated that treatment with a Sonotron Device designed for veterinary use had a significant effect in reducing the level of lameness in ponies which had arthritis experimentally induced and as the degree of arthritic changes increased, the reduction in lameness was more dramatic and became statistically more significant. The SVM further found that there is statistical evidence that the therapy had a beneficial effect on the level of joint motion in the arthritic ponies and resulted in reduced joint swelling in ponies with severe arthritis. A significant reduction occurred in the degree of joint changes seen radiographically in the ponies with severe arthritis and in the milder cases of arthritis treated with low doses of the therapy. The SVM further reported that there were significant reductions in the severity of the growth of pathological lesions seen in ponies with mild arthritis which received low doses of therapy and that a trend appears to exist toward seeing reduced severity of lesions in ponies which had a severe degree of arthritis and were treated with a Sonotron Device designed for veterinary use. No differences in the degree of histopathological changes were noted between the treated ponies and the untreated ponies with mild or severe arthritis. The SVM did not arrive at any conclusions with respect to whether treatment with a Sonotron Device designed for veterinary use has a beneficial effect upon chronic degenerative joint disease in a horse and whether such treatment will be effective upon naturally occurring cases of equine degenerative joint disease. The Company has conducted tests utilizing Sonotron Devices designed for veterinary use on several race horses and has obtained results substantially as those of SVM. Significant further testing will be required to determine whether or not the administration of the Sonotron Technology to race horses will support the establishment of a viable market.
The Company has granted to each of Sonotron Medical Systems, Inc. ("SMI") and VET Sonotron Systems, Inc. ("VET") a royalty-free, worldwide, exclusive,
irrevocable license to the Di Mino U.S. Patent, the foreign patent applications and the Sonotron Technology.
The license granted to SMI permits SMI to manufacture, to have manufactured and to sell apparatus utilizing the Sonotron Technology exclusively in connection with human medical applications thereof (the "SMI License"). The SMI License provides that future improvements or discoveries relating to the Sonotron Technology, if any, which are made by Dr. Di Mino or any other officer or employee of the Company or any affiliates thereof, whether or not patentable, and applicable to human medical applications, are to be included in the SMI License. The license granted to VET is substantially identical in its terms to that of the SMI License, except that the use of the Sonotron Technology by VET is limited exclusively to veterinary applications. SMI and VET are majority owned subsidiaries of the Company.
The Company acts as a sublicensee of SMI for the purpose of manufacturing Sonotron Devices. The Company has agreed to manufacture Sonotron Devices to be used for human medical applications at the Company's cost plus ten percent.
The FDA permits companies to begin to recoup certain expenses by charging others for use of medical machines, provided that the use of such machines does not constitute a commercial distribution thereof. Accordingly, the Company is permitted to maintain a clinic and treatment center utilizing Sonotron Devices, but may not advertise or otherwise promote Sonotron Devices as being safe and effective for their intended use. Since 1989, four clinics have operated at various times, none of which produced any significant revenues.
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 FDA Application, if filed. There are currently 6 Sonotrons in use by clinical investigators collecting data for submission to the FDA. The Company believes that sufficient data may be collected from these investigations by December 2003 to support the submission to the FDA, however, there can be no assurance that such data will be sufficient or if sufficient will result in a filing with the FDA. There can be no assurance that the Company will obtain sufficient data in the foreseeable future, if at all, to file an FDA Application or that any data theretofore or thereafter obtained by the Company will be satisfactory or will be sufficient to support the Company's FDA application. 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 FDA clearance and the data obtained by the Company are not favorable or, for any other reason, the Company's FDA Application 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, 2003 and 2002, other than the regular compensation paid by the Company to its executive officers, the Company did not spend any appreciable amounts on testing, application, clinical studies and company-sponsored research and development activities in connection with the Sonotron Technology and other activities determined in accordance with generally accepted accounting principles. During each of such years no material amounts were spent on customer-sponsored research and
development activities relating to the development of new products, services or techniques or the improvement of any of the foregoing.
In 1997, Dr. Di Mino developed a device which utilizes the Sonotron Technology to non-invasively treat neural-cerebral conditions (the "NCCD Device"). The NCCD Device is a non-invasive electronic therapy device which is designed to emit certain radio and audio waves at prescribed power outputs to a patient's brain and spinal cord. Since 1997, the NCCD Device has been in the prototype stage. Limited initial preliminary tests on 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 neuro-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. Management believes that pending patent litigation is unrelated to the NCCD device, although there can be no assurance that the NCCD device will not be the subject of any future litigation.
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, 2004, 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, 2003, although sales of Sonotron Devices were not significant, one customer accounted for approximately 80% of those sales. Because the Company is seeking to increase future sales to that customer, the termination of business relations with that customer could have a material adverse effect on the Company's future business and financial condition.
As of March 31, 2003, the dollar amount of backlog orders for Sonotron Devices was not material.
Aurex-3
Dr. Di Mino 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 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 were built and testing and marketing strategies have been developed. In May 1998, a Premarket Notification ("PMN") was filed by the Company with the FDA. In August 1998, the United States Patent and Trademark Office issued a patent with respect to the Aurex-3 and the FDA notified the Company that the PMN was accepted. Accordingly, the Company may market the product in the United States for its intended indication, "The treatment and control of tinnitus." From August 1998 to November 1999 the Company finalized manufacturing plans for the Aurex-3. In July 1999 the Company began taking advance orders for Aurex-3 units from distributors and patients and began to deliver the units in November 1999. Sales of the Aurex-3 have not been material. There can be no assurance that the Company will receive significant orders for the Aurex-3 or, if such orders are received, that the Company will be able to manufacture the Aurex-3 in sufficient quantities.
At the end of December 1999, 6 Aurex-3 devices were made available to the
Dutch Commission on Tinnitus & Hyperacusis by a third party. On December 24,
1999, six participants were examined by the Dutch Commission for their
tinnitus and trained in the use of the Aurex-3 by an audiologist and adviser
of the group. After a six-week trial period with six participants, during
which one participant reported a worsening of tinnitus, the Dutch Commission
concluded that no positive results could be reported. Although the Dutch
Commission tentatively concluded that the Aurex-3 seldom or never has a
positive effect on tinnitus, especially on high frequency tinnitus, it did
not exclude the possibility that application of the Aurex-3 on patients with
a low tone tinnitus might show better results.
The Company believes that the Dutch Commission's conclusions are flawed
primarily because of the small number of participants and the probable
selection of participants whose condition could not be improved through the
use of the Aurex-3. In addition, in the Company's limited experience, when
potential users of the Aurex-3 were pre-screened to eliminate those with non-
noise induced or variable intensity tinnitus, more than 60% of the users of
the Aurex-3 have experienced significant improvement.
New England's subsidiary provided a sample Aurex-3 to a Chinese distributor
for its evaluation. The distributor advised the subsidiary, on the basis of
limited use, that the sample has not been found to be effective.
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. Contract manufacturing activities have been steadily declining over the past two years with PAC customers advising management that poor economic conditions have reduced the need for outside manufacturing services. Consequently, during the fiscal year ended March 31, 2003, one customer accounted for approximately 90% of PAC's sales, which also represented approximately 2% of the Company's sales.
SofPulse Device
On May 27, 1998, the Company entered into an Asset Purchase Agreement (the "Agreement") with Electropharmacology, Inc. ("EPI") pursuant to which the Company agreed to purchase and EPI agreed to sell certain assets utilized by EPI in connection with EPI's SofPulse electromagnetic stimulation device marketed under the name MRT-SofPulse or SofPulse for use in treating pain and edema in post-operative soft tissue injuries (the "SofPulse Device"). The SofPulse Device was cleared for commercial marketing in January 1991 by the FDA pursuant to a PMN. 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 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 SofPulse Device have been generated which has achieved only limited market acceptance. The Company's management believes that the SofPulse Device can be marketed to cosmetic surgeons, sports team trainers and physicians, pain clinics, physical rehabilitation centers and distributors or medical equipment rental companies who serve the home care market for the recovery of post-operative ambulatory patients. Expanding market penetration for the SofPulse Device is expected to require increased marketing efforts and cost- effective manufacturing in compliance with the current Good Manufacturing Practice ("CGMP") guidelines for the domestic market and additional regulations (such as ISO-9000 and CE-Mark) for international markets.
EPI commenced production and marketing of the current SofPulse Model 912 in October 1993 replacing previous models designated 911 and MRT100. Since receiving the right to commercialize its device, EPI 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 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.
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. 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.
The Company intends to market the SofPulse Device to nursing homes and hospitals where substantial numbers of patients may benefit from the SofPulse treatment and the home health care market where patients may continue the SofPulse treatment after being released from hospitals. However, such usage will be significantly limited unless reimbursement at a sufficient rate is approved by Medicare and other sources. There can be no assurance that such reimbursement will be approved, and if approved, will be of a sufficient amount to financially justify the use of the SofPulse. The Company is also seeking to market the use of SofPulse to surgeons in several subspecialties such as plastic, cosmetic and aesthetic, where the SofPulse may help in treating edema or pain and help patients to recover and not be dependent on third-party reimbursement as such procedures are generally considered to be elective.
To that end, the Company entered into a distribution agreement with Mediq/PRN for 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 certain of its over 100 offices across the country. Mediq is responsible for delivering and picking up the units from patients and invoicing and collecting rental fees. The Company is responsible for providing the units to Mediq and providing technical support and clinical information. The agreement provides that the Company will receive 55% of rental revenues and Mediq will retain 45%. To assist in marketing the home rental program to plastic surgeons, the Company entered into a marketing agreement with Byron Medical of Arizona. Byron was responsible for promoting the use of the SofPulse to plastic and cosmetic surgeons throughout the United States by direct mail, trade shows and telemarketing. The Company agreed to pay Byron a commission of 7.5% of rental revenues received from leads generated by Byron. In September, 2001 the agreement with Byron expired in accordance with its terms. In 2000 the Company entered into an agreement with surgery.com, Inc. pursuant to which surgery.com would promote the use of the SofPulse to its member physicians who are primarily plastic and cosmetic surgeons. In July 2001 surgery.com advised the Company that its business direction had changed due to potential business combinations in the internet field and that it could not continue with the agreement.
Needle Eater
In May 1999 the Company acquired certain assets related to the Needle-Eater, a patented device used to dispose of used 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, all of which have expired. The Company also agreed to pay a consulting fee of $750 per month for 24 months and a royalty of 5% on gross sales of Needle- Eater products for the life of the patent as well as certain other compensation. To date, sales of Needle Eater products have not been material.
Ultra-Violet Blood Irradiation
The Company, through a wholly owned subsidiary, has engaged in biotechnology research concentrating its efforts in the development of a medical therapeutic technology to treat viral and bacterial infections in humans and animals. The technology utilizes a process, commonly referred to as UBI or Ultra-Violet Blood Irradiation, wherein a measured sample of blood is intravenously removed from a patient, exposed to a specific ultra-violet ("UV") light source, collected in a container and then returned to the patient, all in a closed system. The procedure is believed to assist in reducing infection by stimulating the patient's own immune system.
The precursor to the technology is a process known as the Knott Technique for Blood Irradiation which was developed by Dr. Emmet K. Knott in 1938 ("The Knott Technique"). The Knott Technique was used extensively throughout the United States and in several foreign countries as a treatment for viral and bacterial infections in humans and animals. With the development and widespread use of antibiotic drugs during the late 1950s and early 1960s the Knott Technique fell out of favor. The Company believes that disfavor of the Knott Technique was primarily due to the complexity and time required for intravenous removal of blood from a patient necessary to perform blood irradiation in comparison to the simplicity of oral and injectable administration of antibiotics. Even though practically supplanted by the universal use of antibiotics, the Knott Technique and derivations related thereto continued to be used by some physicians.
In recent years, due to the advent of antibiotic resistant drugs and newly identified viral and bacterial infectious agents where no antibiotics exist, there has been a renewed interest in alternative methods of treatment. Accordingly, a revival of interest from physicians and patients in blood irradiation therapy has occurred. The device used in performing the Knott Technique, however, has not been manufactured since 1963 and can not now be manufactured in its original form due to certain restrictions on its electrical design and components.
The Company is pursuing the development of a blood irradiation device with state-of-the-art design and components that it believes can perform the necessary functions of the Knott Technique on a safer, more economical and efficient basis.
To further fund development of the blood irradiation technology, in 2000, the Company's subsidiary began a private offering of its common stock which was subsequently withdrawn and replaced with a private offering of both the subsidiary's common stock and the Company's preferred stock. On August 8, 2001 the offering was terminated and all funds held in the escrow account were returned to investors. There can be no assurance that the subsidiary
can successfully manufacture the product or receive government approval to market the product anywhere in the world.
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 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 manufacture, distribution and sale of medical devices and equipment designed to relieve the suffering of pain 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 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 in the US 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 compete with 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. 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. 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 any of the industries in which it is engaged.
Government Regulation
In March 1989, in response to a PMN filed by the Company with the FDA, the
FDA notified the Company that the then current model of the Sonotron Device,
under the FDA's standards, was not substantially equivalent to certain
medical devices marketed in interstate commerce prior to May 28, 1976. In
March 1991, a further PMN was filed with the FDA on behalf of the Company
with respect to the then current model of the Sonotron Device which was
subsequently voluntarily withdrawn by the Company. The FDA advised the
Company that its determination with respect to the initial PMN 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 the event that Sonotron Devices cannot be
marketed pursuant to a PMN, before Sonotron Devices can be marketed in the
United States, the Company would be required to obtain a Pre-Market Approval
("PMA") 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 PMN, and requires extensive research and clinical studies. Randomized, placebo- controlled, double-blind clinical studies may have to be performed under a clinical protocol with assurance of adherence to the protocol, informed consent from subjects enrolled in the study, approval of the Institutional Review Board at each of the centers where the study is being conducted, maintenance of required documentation, proper monitoring and recording of all data, and sufficient statistical evaluation to determine if the results of the treatment with the device are statistically significant in improving patient outcome compared to the patients who did not receive the treatment. Upon completion of these tasks, an applicant is required to assemble and
submit to the FDA all relevant clinical, animal testing, manufacturing, laboratory specifications, and other information. The submission is reviewed at the FDA, which determines whether or not to accept the application for filing. If accepted for filing, the application is further reviewed by the FDA and subsequently may be reviewed by an FDA scientific advisory panel comprised of physicians, statisticians and other qualified personnel. A public meeting may be held before the advisory panel in which the PMA application is reviewed and discussed. Upon completion of such process, the advisory panel issues a favorable or unfavorable recommendation to the FDA or recommends approval with conditions. The FDA is not bound by the opinion of the advisory panel. The FDA may conduct an inspection to determine whether the Company conforms with CGMP guidelines. If the FDA's evaluation is favorable, the FDA will subsequently publish a letter approving the PMA application for the device for a mutually agreed upon indication of use. Interested parties can file comments on the order and seek further FDA review. The PMA process may take several years and no assurance can be given concerning the ultimate outcome of PMA applications submitted by an applicant.
The Company has been registered by the FDA as a Registered Medical Device Establishment. Such registration is renewable annually and although the Company does not believe that the registration will not be renewed annually by the FDA, there can be no assurance of such renewal. Any failure to obtain an annual renewal could be expected to have a material adverse effect on the Company.
In January 1991, the FDA advised EPI of its determination to treat the MRT100, the first model of the SofPulse, as a class III device. The FDA retains the right to require the manufacturers of certain class III medical devices to submit a PMA in order to sell such devices or to promote such devices for specific indications.
To the Company's knowledge, EPI and the Company have not been asked by the FDA to seek PMA for SofPulse; however, there can be no assurance that the Company will not be required to do so and that, if required, the Company will be able to comply with such requirement for SofPulse.
In the event the Company proposes to market new medical devices, if developed or acquired, or adapt its current products for a new use, the FDA may require the Company to comply with PMN 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 such as CGMP regulations and periodic compliance inspections by the FDA and state agencies. The Company may become subject to pre-approval inspections by the FDA prior to commercial manufacture of future products. The Company is required to register as a medical device manufacturer with the FDA and state agencies. Under CGMP regulations, the Company is subject to certain procedural and documentation requirements with respect to manufacturing and control activities. The Company's suppliers may be subject to periodic inspections by the FDA, as well as by state and foreign regulatory authorities. The Company believes its suppliers and manufacturer are in compliance in all material respects with all applicable local, state and federal regulations.
Failure to comply with CGMP regulations, or to satisfy FDA regulations or inspections, could subject the Company to civil remedies, including fines, injunctions, recalls or seizures, as well as potential sanctions, which could
have a material adverse effect on the Company.
The Company is also subject to various FDA regulations which govern or influence the research, testing, manufacture, safety, labeling, storage, record keeping, advertising and promotion of medical products.
Sales of medical products outside the United States are subject to foreign regulatory requirements that vary widely from country to country. There can be no assurance that the Company will be successful in maintaining necessary approvals to market the Sonotron Devices, or obtaining such approval for additional products that may be developed or acquired by the Company, in foreign markets.
Third Party Reimbursement
In the United States, health care providers, such as hospitals and physicians, that purchase or lease medical devices, generally rely on third- party payors, principally Medicare, Medicaid and private health insurance plans, including health maintenance organizations, to reimburse all or part of the cost of the treatment for which the medical device is being used. Successful commercialization of the Company's products will depend, in part, upon the availability of reimbursement for the cost of the treatment from third party health care payors such as Medicare, Medicaid and private health insurance plans, including health maintenance organizations. Such third party payors have increasingly challenged the price of medical products and services, which has and could continue to have a significant effect on the purchasing patterns of many health care providers. Several proposals have been made by federal and state government officials that may lead to health care reforms, including a government directed national health care system and health care cost-containment measures. The effect of changes in the health care system or method of reimbursement for the SofPulse Device or any other medical device which may be 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 reimburses products that reduce the cost of patient care in specific medical conditions. Such a reimbursement system
requires the demonstration that any such product actually reduces cost of patient care for reimbursement by Medicare. 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 those 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 for certain of the Company's products. The Company does not have product liability coverage for its medical device products. The Company believes that its present insurance coverage is adequate for the types of products currently marketed. There can be no assurance, however, that such insurance will be sufficient to cover potential claims or that the present level of coverage will be available in the future at a reasonable cost.
Personnel
On June 28, 2003, the Company employed 10 persons, two of which are executive officers of the Company. Two employees were employed by the Company on a part-time basis.
Item 2. Properties
The Company leases approximately 16,000 square feet of combined office and warehouse space from an unaffiliated third party. PAC leased approximately 8,500 square feet from an unaffiliated third party. The leases expire in June, 2008 and February 2004, respectively. In April, 2001 substantially all of PAC's operations were incorporated into the Company's facility. The facility previously occupied by PAC has been subleased to an unaffiliated third party at a rent below the rent in the PAC lease. Consequently, PAC is obligated to pay the difference thereto to the landlord amounting to approximately $700 per month through February, 2004.
Item 3. Legal Proceedings
On August 17, 2000, AA Northvale Medical Associates, Inc., a wholly-owned subsidiary of the Company filed a lawsuit in the Superior Court of New Jersey against GSM, Inc., Quantum Medical, Inc., ("GSM") Great Southern Medical and Gregory S. Mack claiming breach of a distribution agreement, seeking return of the subsidiary's medical devices under lease, demanding an accounting and
payment of all amounts due to the subsidiary and damages and other matters. GSM counterclaimed, alleging breach of the distribution agreement seeking an unspecified amount of damages and other matters. On March 29, 2002 a settlement was reached wherein GSM dropped its counterclaim against the subsidiary and agreed to pay the subsidiary the sum of $112,805 payable in monthly payments less credits for SofPulse units returned by GSM prior to September 4, 2002. GSM returned a number of units for credit and pursuant thereto, the subsidiary has received payments totaling $73,500 as full and final settlement. Reference is made to Note 8 of Notes to Consolidated Financial Statements.
On May 1, 2001, Charles Solomons, a former employee of Enviro-Pack Development Corporation, a wholly-owned subsidiary of the Company filed a lawsuit in Superior Court of New Jersey against the Company, Enviro-Pack Development Corporation and Thomas Petrie alleging breach of an oral employment contract. Enviro-Pack filed a counterclaim for damages based on the employee's misrepresentations at the time of purchase of assets of a company in which the employee was a controlling employee and shareholder and other matters. On May 16, 2003 the matter was settled with dismissal of all claims by Solomons and the subsidiary. Pursuant to the settlement the subsidiary will pay Solomons three monthly payments of $1,000. One of such payments was paid in June, 2003. The settlement was based upon economic factors including the cost to defend the case through dismissal and possible trial and also the uncertainty of collecting the sums claimed in the counterclaim.
On November 19, 2001 Millenium Medical Research, LLC ("MMR") filed an order to show cause in the Supreme Court of the State of New York, County of Rockland against Immuno-Therapy Corporation ("ITC"), a wholly owned subsidiary of the Company, and Thomas Petrie ("Petrie"), its president, seeking a preliminary injunction to prohibit the sale, rental, lease or transfer of possession of the Company's blood irradiator device to any party other than MMR and seeking monetary damages of $750,000 related to MMR's allegations that the defendants violated a contract. On November 26, 2001 the court issued a temporary restraining order against ITC and Petrie. On December 7, 2001 an answer, counterclaim and third-party complaint was filed by ITC, PAC and Pegasus Marketing, LLC ("PM") denying the allegations and seeking to dismiss the complaint, dissolve the temporary restraining order, and secure compensatory and punitive damages against MMR. PM is a New Jersey limited liability corporation of which the Company is a 50% member and two unrelated third party corporations are each 25% members. PM assists the company in the placement of certain of its medical devices for clinical studies and marketing. On February 5, 2002 the court denied MMR's motion for a preliminary injunction and vacated its order to show cause. Management believes that all of the allegations of the MMR action are without merit and can be successfully defended and the subsidiary is vigorously prosecuting the counterclaims for damages it believes it has incurred by the actions of MMR. Settlement negotiations have ensued over the last year with multiple letters of intent and also a draft settlement agreement with an option for MMR to purchase certain assets of the subsidiary. There can be no assurance that a settlement can be reached and if reached that it not be unfavorable to the Company.
In December, 2001 Orthosonix, Inc., filed a civil action for a declaratory judgment against the Company in the United States District Court, District of New Jersey seeking patent invalidity, unenforceability and non-infringement with respect to three of the Company's patents related to the Sonotron Technology. In such action Orthosonix alleges that it is producing a medical apparatus under license from a third party with respect to a patent that was
issued in 1994. On February 5, 2002 the Company filed a motion to dismiss Orthosonix's action. The Company's patent counsel advised that it believed the Company's motion to dismiss the Orthosonix action would be granted by the court. However, there could be no assurance that such motion would be granted. Settlement negotiations have ensued over the past year however there can be no assurance that a settlement can be reached and if reached that such settlement would not be unfavorable to the Company. On December 13, 2002 the court entered a 60-day order terminating the action. On February 10, 2003 such 60-day period expired and the action was terminated.
On January 3, 2002 Orthosonix also filed a civil action for injunctive relief against the Company, SMI and an unrelated third party (the "Defendants") in the United States District Court for the Middle District of Pennsylvania alleging that the Defendants made false, misleading and unsubstantiated claims about the Sonotron in a letter alleged to have been distributed by the third party defendant to medical professionals in Pennsylvania. Orthosonix is seeking preliminary or permanent injunction against the Defendants to stop the use of such promotional material and to secure damages and related costs. On March 6, 2002 the Company and SMI filed an answer, cross-claim and counterclaim to the Orthosonix complaint denying the allegations and seeking damages and other relief. In March, 2002 the Company and Orthosonix initiated settlement discussions with respect to all outstanding litigation. Pursuant thereto, on August 7, 2002 the Company received a notification from the court ordering that the action was dismissed without prejudice. Although there can be no assurance that discussions will result in a settlement, or if a settlement is reached that it will not be unfavorable to the Company, the Company believes that the foregoing litigation matters may be settled in the near future.
On May 7, 2003 a suit was instituted by Thomas Petrie against ITC, PAC and the Company in the Superior Court of New Jersey, Bergen County seeking a declaratory judgment that the Company does not have any rights or interest to a patent that was issued with respect to the blood irradiator technology being developed by the Company's subsidiaries and unspecified compensatory damages for Petrie's alleged wrongful termination. In June 2003, the Company filed an answer to the complaint with defenses, a counterclaim as well as a third party complaint against MMR and Joseph Lorber. In the counterclaim, among other things, the Company alleges a claim for theft and conversion by Petrie of certain of the Company's assets; tortious interference by Petrie; and, breach of good faith and fair dealing by Petrie and seeking compensatory and punitive damages, preliminary and permanent injunctions, attorney's fees and costs and declaratory judgment, among other things. In the third party complaint the Company alleges, among other things, that MMR and Lorber committed various wrongful acts and acted in collusion with Petrie. The Company believes that Petrie's complaint is without merit and frivolous and intends to vigorously defend against this action and to pursue its counterclaim and third party complaint with respect thereto. The answer, counterclaim and third party complaint having just been filed, discovery has yet to be initiated.
The Company believes that the ultimate resolution of the foregoing matters will not have a material adverse impact on the Company's financial condition.
Other than the foregoing, there are no material pending or threatened legal proceedings to which the Company or any of its subsidiaries is a party or of which any of their property is the subject or to the knowledge of the Company, any proceedings contemplated by governmental authorities. Reference is made to Note 8 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
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 rounded to the nearest cent. The Common Stock is 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, 2001 .19 .08 September 30, 2001 .09 .02 December 30, 2001 .04 .01 March 31, 2002 .04 .01 June 30, 2002 .04 .01 September 30, 2002 .02 .01 December 31, 2002 .03 .01 March 31, 2003 .10 .01 |
(b) On June 28, 2003, the Company's Common Stock was held by approximately 1,450 holders of record.
(c) Dividends
(d) As of March 31, 2003, the Company had no compensation plan (including individual compensation arrangements) under which its equity securities were authorized for issuance.
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. Recent Sales of Unregistered Securities: Uses of Proceeds From Registered
Securities
(a) In December 2002, the Company sold 1,500,000 shares of its common
stock to Andre' Di Mino. In January 2003, the Company sold 1,500,000 shares
of its common stock to Fifth Avenue Venture Capital Partners pursuant to a
consulting agreement dated January 17, 2003.
(b) There were no principal underwriters.
(c) The aggregate consideration for the securities sold to Mr. Di Mino
was $15,000. The consideration for the shares sold to Fifth Avenue Venture
Capital Partners was consulting services.
(d) The Company claimed exemption from the registration provisions of
the Securities Act of 1933 with respect to the securities pursuant to Section
4(2) thereof inasmuch as no public offering was involved.
Item 6. Management's Discussion and Analysis or Plan of Operation
Fiscal 2003 Compared to 2002
Revenues
Sales were $1,009,225 in 2003 as compared to $1,371,763 in 2002 representing a decrease of $362,538 or 26%. The decrease was primarily the result of decreases in contract manufacturing revenues offset by an increase in chemical revenues. Other income of $65,080 in 2003 was $88,768 or 58% lower than other income of $153,848 in 2002.
Gross Profit
Gross profit of $233,195 in 2003 was $458,616 or 67% lower than the gross profit of $697,811 for 2002. Gross profit was 23% of revenues in 2003 and 51% of revenues in 2002. The decrease in gross profit is primarily the result of a material reduction in certain inventory and equipment taken at March 31, 2003 and included in cost of goods sold.
Operating Loss
Operating loss before other income of $718,985 in 2003 was $262,162 more than the operating loss of $456,823 in 2002. The increase in operating loss resulted primarily from the reduction in certain inventory and equipment taken at March 31, 2003 offset by reduced selling, general and administrative expenses. Selling, general and administrative expenses were reduced by $202,454 in 2003 as compared to 2002 although legal fees increased during the year due to litigation costs.
Fiscal 2002 Compared to 2001
Revenues
Sales were $1,371,763 in 2002 as compared to $1,780,201 in 2001 representing a decrease of $408,438 or 23%. The decrease was primarily the result of decreases in contract manufacturing revenues offset by an increase in chemical revenues. Other income of $153,848 in 2002 was $10,804 or 7% lower than other income of $164,652 in 2001.
Gross Profit
Gross profit of $697,811 in 2002 was $198,458 or 22% lower than the gross profit of $896,269 for 2001. Gross profit was 51% of revenues in 2002 and 2001. The decrease in gross profit is the result of reduced revenues.
Operating Loss
Operating loss before other income of $456,823 in 2002 was $307,317 less than the operating loss of $764,140 in 2001. The decrease in operating loss resulted from reduced selling, general and administrative expenses and reduced cost of goods sold. Selling, general and administrative expenses were reduced by $505,775 in 2002 as compared to 2001.
Liquidity and Capital Resources
At March 31, 2003 the Company had cash of $49,765 as compared to $51,565 at March 31, 2002. This decrease is principally the result of $5,700 cash used in operating activities offset by $3,900 in repayments of loans by officer.
Operating Activities
Cash used in operating activities of $5,700 was $42,472 less in 2003 as compared to $48,172 used in 2002. Primarily cash used for accounts payable of $51,847, accrued expenses of $20,594 and other assets of $26,845 was offset by $139,881 in cash provided by accounts payable, $90,493 in inventories and $48,329 in other assets. Depreciation, amortization and writedown of goodwill was $185,576 and equipment held for sale or rental was written down by $276,383.
Investing Activities
Common shares of a non-affiliated company were received as payment with respect to the agreement with NEAI (see Recent Developments) valued at $30,000 which was offset by repayments of loans by officer of $3,900.
Financing Activities
In 2003, $30,000 was provided by financing activities. The Company received $15,000 for sale of common stock and used $15,000 of common stock as payment for consulting services.
The Company is seeking sources of additional financing from several sources. 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. and Subsidiaries
Northvale, New Jersey
We have audited the accompanying consolidated balance sheet of ADM Tronics Unlimited, Inc. and subsidiaries as of March 31, 2003, and the related consolidated statements of operations, changes in stockholders' equity, and cash flows for the years ended March 31, 2003 and 2002. 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 auditing standards generally accepted in the United States of America. 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 audit provides 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, 2003, and the results of their operations and their cash flows for the years ended March 31, 2003, and 2002, in conformity with accounting principles generally accepted in the United States of America.
/s/Eichler, Bergsman & Co., LLP New York, New York June 30, 2003 |
ADM TRONICS UNLIMITED, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
MARCH 31, 2003
ASSETS
Current assets:
Cash and cash equivalents $ 49,765
Accounts receivable - trade,
less allowance for doubtful
accounts of $39,000 75,622
Inventories:
Raw materials and supplies 201,409
Finished goods 46,928
Equipment held for sale or rental 404,771
Other current assets 57,348
Total current assets $ 835,843
Property and equipment - at cost, net
of accumulated depreciation of $443,184 24,155
Equipment in use and under lease
agreements - at cost net of accumulated
depreciation of $631,365 306,860
Loan receivable from officer, bearing
interest at 3% per annum, unsecured 49,891
Other assets 95,621
Total assets $1,312,370
Liabilities and stockholders' equity:
Current liabilities:
Accounts payable - trade $ 200,631
Accrued expenses and other
current liabilities 59,579
Total current liabilities $ 260,210
Note payable, long-term 135,000
Commitments and contingencies
Stockholders equity 917,160
Total liabilities and
stockholders' equity $1,312,370
|
See accompanying notes to consolidated financial statements.
ADM TRONICS UNLIMITED, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED MARCH 31,
2003 2002
Revenues:
Sales $1,009,225 $1,371,763
Other income 65,080 153,848
Total revenues $1,074,305 $1,525,611
Costs and expenses:
Cost of sales $ 776,030 $ 673,952
Selling, general and
administrative 952,180 1,154,634
Total costs and expenses $1,728,210 $1,828,586
Net loss $ (653,905) $ (302,975)
Weighted average number of
common shares outstanding 48,132,037 47,382,037
Net loss per share ($.01) ($.01)
|
ADM TRONICS UNLIMITED, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED MARCH, 31, 2003 AND 2002
Preferred Common
Shares Shares Capital
5,000,000 150,000,000 in
Authorized Authorized excess
$.01 Par $.0005 Par Par of Par Accumulated
Value Value Value Value Deficit
Total
Balances
April 1, 2001 - 47,382,037 $23,691 $6,763,618 $(4,943,269) $1,844,040
Net loss - - - - (302,975)
(302,975)
Balances
March 31, 2002 - 47,382,037 $23,691 $6,763,618 $(5,246,244) $1,541,065
Issuance of
common stock - 3,000,000 $ 1,500 $ 28,500 - $ 30,000
Net loss - - - - (653,905)
(653,905)
Balances
March 31,2003 - 50,382,037 $25,191 $6,792,118 $(5,900,149) $ 917,160
|
See accompanying notes to consolidated financial statements.
ADM TRONICS UNLIMITED, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED MARCH 31,
2003 2002
Cash flows from operating activities:
Net loss $(653,905) $(302,975)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation, amortization and
writedown of goodwill $ 185,576 $ 217,525
Changes in operating assets and
liabilities:
Accounts receivable - trade 139,881 (4,368)
Inventories 90,493 (108,802)
Other current assets (26,845) 7,988
Equipment in use and under
lease agreements 6,829 18,000
Equipment held for sale or rental 276,383 111,090
Other assets 48,329 (16,528)
Accounts payable (51,847) 66,360
Accrued expenses and other (20,594) (36,462)
Total adjustments $ 628,205 $ 254,803
Net cash used in
operating activities $ (5,700) $ (48,172)
Cash flows from investing activities:
Purchase of property and equipment $ - $ (8,921)
Repayments of loans by officer 3,900 5,200
Investment in a company (30,000) -
Net cash used in
investing activities $ (26,100) $ (3,721)
Cash flows from financing activities:
Payments on notes payable - (10,000)
Issuance of common stock 30,000 -
Net cash (used in) provided by
financing activities $ 30,000 $ (10,000)
Net decrease in cash and cash equivalents $ (1,800) $ (61,893)
Cash and cash equivalents - beginning of year 51,565 113,458
Cash and cash equivalents - end of year 49,765 51,565
Supplemental Disclosures:
Interest paid $ 8,127 $ 3,640
Income taxes paid $ 1,549 $ 10,082
Funds raised from private placement
offering and held in escrow in 2001
and returned to participants in 2002 $ - $(210,500)
Supplemental disclosure of non-cash
investing and financing activities:
Common stock options issued as
consideration for consulting services $ 14,250 $ -
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See accompanying notes to consolidated financial statements.
ADM TRONICS UNLIMTED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED MARCH 31, 2003 AND 2002
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a) Consolidation
The consolidated financial statements include the accounts of ADM Tronics Unlimited, Inc. and its subsidiaries (the "Company"). All significant intercompany balances and transactions have been eliminated in consolidation.
b) Business Activity
The Company is a manufacturer and engineering concern whose principal lines of business are the production and sale of chemical products and manufacturing, selling and leasing of medical equipment and 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 the United States, Australia and Europe. Medical equipment is manufactured in accordance with customer specification on a contract basis. The medical device product line consists principally of proprietary devices used in the treatment of joint pain, postoperative edema and tinnitus. These products are sold or leased to customers located in the United States and Asia.
For the years ended March 31, 2003 and 2002, the chemical product line accounted for approximately 80% and 56% of sales and the medical device product line accounted for 20% and 44% respectively.
c) Cash and Cash 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.
d) Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market.
e) 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) 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. Unless and until clearance to market is obtained from the United States Food and Drug Administration (FDA), the Devices cannot be marketed in the United State for human applications, other than for research purposes, and may not Be marketable in certain foreign countries.
ADM TRONICS UNLIMTED, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED MARCH 31, 2003 AND 2002
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd)
Included within equipment in use and under lease agreements are Devices used internally and Devices loaned out for marketing and testing. Devices in use and under lease agreements are depreciated over seven years commencing at the date placed in service. Revenues from leasing activities have not been significant.
g) Sofpulse Units
In connection with a business acquisition in May 1998, the Company acquired 418 Sofpulse Units ("Unit"), an FDA cleared device. These Units held for sale or lease domestically, 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.
Included in equipment in use and under lease agreements are SofPulse Units leased to third parties, Units used internally and Units loaned out for marketing and testing. These Units are depreciated over seven years commencing on the date placed in service.
Certain medical equipment, principally Sofpulse Units held for sale or rental, was written down to reflect their market value at March 31, 2003.
h) Intangible Assets
Patents and patents assigned are stated at cost and are included in other assets and are amortized on a straight-line basis over the shorter of their legal or useful lives (15 to 17 years for patents and 2 years for patents assigned).
The Company has adopted FASB Statement No. 142 for the year ending March 31, 2003 whereby it tests goodwill for impairment on an annual basis. At March 31, 2003 the remaining Goodwill of $40,000 was written-off.
i) Long-lived Assets
Long-lived assets, including intangibles, to be held and used are reviewed for impairment whenever events or changes in circumstances indicate that the related carrying amount may not be recoverable. If required, impairment losses on assets to be held and used are recognized based on the excess of the asset's carrying value over its fair value. Long-lived assets to be sold are reported at the lower of carrying amount or fair value reduced by estimated disposal costs.
The Company has adopted SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." The Company's adoption of SFAS No. 144 did not have an effect on the Company's results of operations, cash flows, or financial position.
j) Revenue Recognition
Sales revenues are recognized when products are shipped and lease revenues are recognized in accordance with individual lease agreements.
ADM TRONICS UNLIMTED, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED MARCH 31, 2003 AND 2002
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd)
k) Advertising
Advertising (approximately $4,900 and $6,400 in 2003 and 2002, respectively) is expensed as incurred and is included with selling, general and administrative expenses in the consolidated statement of operations.
l) Investment in Joint Venture
The Company uses the equity method to account for its 50% investment in a joint venture whose operations were substantially reduced in the year ended March 31, 2003.
m) 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 loss by the weighted average number of common shares outstanding during the reported periods. Diluted Net loss per share has not been presented for 2003 and 2002 as its results would be anti-dilutive.
n) Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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.
o) 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 receivable is determined by calculating the present value of the note by a current market rate of interest as compared to the stated rate of interest. The difference between fair value and carrying value is not deemed to be significant.
NOTE 2 - PROPERTY AND EQUIPMENT
Property and equipment at March 31, 2003 consist of the following:
Machinery and equipment $184,863
Office furniture and fixtures 96,991
Leasehold improvements 131,800
Computer equipment 53,685
$467,339
Less accumulated depreciation and amortization 443,184
$ 24,155
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ADM TRONICS UNLIMTED, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED MARCH 31, 2003 AND 2002
NOTE 2 - PROPERTY AND EQUIPMENT (Cont'd)
Depreciation and amortization on property and equipment for the years ended March 31, 2003 and 2002 aggregated $36,516 and $40,603, respectively.
NOTE 3 - EQUIPMENT IN USE AND UNDER LEASE AGREEMENTS
Equipment in use and under lease agreements at March 31, 2003 consist of the following:
Sonotron Units $ 63,645
Sofpulse Units 870,250
Other Units 4,330
$938,225
Less accumulated depreciation $631,365
$306,860
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Depreciation of equipment in use and under lease agreements for the years ended March 31, 2003 and 2002 aggregated $108,358 and $133,736, respectively.
NOTE 4 - OTHER ASSETS
Other assets at March 31, 2003 consist of the following:
Investment (a) $ 30,000
Patents, net of accumulated amortization of $58,402 (b) 51,513
Deposits 14,108
$ 95,621
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a) On March 21, 2002, the Company and New England Acquisitions, Inc. ("NEAI") entered into a contingent asset and rights purchase agreement ("Agreement"). In accordance with the agreement, the Company acquired 150,375 shares of NEAI's common stock, at an estimated fair market value of $30,000, in exchange for NEAI acquiring certain rights as described in the Agreement to certain products manufactured and owned by the Company. NEAI has agreed to make certain royalty payments and other payments as noted in the Agreement.
b) Amortization expense for the years ended March 31, 2003 and 2002, aggregated $3,014 and $43,186, respectively.
NOTE 5 - NOTE PAYABLE
The $135,000 note is payable to the estate of a former officer/stockholder and is due April 1, 2005. The interest rate at April 1, 2001 was reduced from 10% to 6%. The President of the Company is the administrator of the estate. For the years ended March 31, 2003 and 2002, interest expense on total indebtedness amounted to $8,127 and $9,946, respectively.
ADM TRONICS UNLIMTED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2003 AND 2002
NOTE 6 - INCOME TAXES
The differences between the income taxes and the amount computed by applying
the federal statutory income tax rate of 34% to income before taxes are as
follows:
2003 2002
Tax benefit at U.S. statutory rates $(216,000) $(103,000)
Temporary differences 2,000 2,000
Change in valuation allowance 214,000 101,000
Income taxes $ - $ -
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At March 31, 2003, the Company had deferred tax assets of approximately $1,500,000, comprised of $1,465,000 resulting from net operating loss carryforwards and $35,000 from other temporary differences. The deferred tax assets are offset by a valuation allowance in the amount of $1,500,000.
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 applications of management's valuation procedures and circumstances surrounding its future realization.
The Company and its subsidiaries file consolidated Federal income tax returns. As of March 31, 2003, the Company had consolidated net operating loss carryforwards of approximately $4,400,000 that will expire during the years 2005 through 2023.
NOTE 7 - EMPLOYEE BENEFIT PLAN
The Company has a 401(k) Plan covering substantially all employees. Employer matching contributions to the plan are at the discretion of management. There were no employer contributions to the plan for the year ended March 31, 2003 and 2002.
NOTE 8 - COMMITMENTS AND CONTINGENCIES
a) Leases
The Company leases its office and manufacturing facilities under non- cancelable operating leases.
The approximate future minimum annual rental under these leases at March 31,
2003 are as follows:
March 31, 2004 93,000
March 31, 2005 85,000
March 31, 2006 85,000
March 31, 2007 85,000
March 31, 2008 85,000
Thereafter thru June 30, 2009 22,000
$455,000
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Rent expense for all facilities for the years ended March 31, 2003 and 2002 was approximately $100,000 and $179,000, respectively.
ADM TRONICS UNLIMTED, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED MARCH 31, 2003 AND 2002
NOTE 8 - COMMITMENTS AND CONTINGENCIES (Cont'd)
b) Warranties
The Company's medical 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, 2003, no amount has been accrued for potential warranty costs and such costs are expected to be nominal.
c) Settlement of Legal Action
In April 2002, the Company and a distributor of the Company's Sofpulse units agreed to a settlement of a lawsuit. In accordance with the settlement, the distributor purchased Sofpulse units for $73,500 and returned other units to the Company.
d) Legal Actions
In May 2001, a former employee of a subsidiary filed a lawsuit against the Company, a subsidiary, and a former officer of the subsidiary alleging breach of an oral employment contract. The lawsuit was settled in May 2003 for $3,000.
In November 2001, a company filed an order to show cause against a subsidiary of the Company and the subsidiary's former officer seeking to prohibit sale, or transfer of the subsidiary's blood irradiator device, and claiming monetary damages of $750,000 for violation of a contract. The Company's subsidiary has counterclaimed and the court denied the plaintiff's motion for a preliminary injunction and vacated its order to show cause. Management believes that all of the allegations of this action are without merit and can be successfully defended and the subsidiary is vigorously prosecuting the counterclaims for damages it believes it has incurred by the actions of the plaintiff.
In April 2003, a former employee filed a suit against the Company seeking a declaratory judgment claiming that the Company has no rights or interest in a particular invention and related patent. In addition, the former employee alleges wrongful termination of employment and seeks unspecified compensatory damages. The Company is defending the action and has counterclaimed, and has asserted that it has all rights to the invention and patent and that the employee breached the terms of his employment.
In December 2001, a company filed civil actions against the Company seeking patent invalidity, unenforceability, and non-infringement with respect to three of the Company's patents related to Sonotron technology. The Company has filed a motion to dismiss the claim. In January 2002, the entity filed another civil action alleging that the Company made false and misleading statements about the Sonotron device. The Company filed a cross-claim and counterclaim denying the allegations. In March 2002, settlement discussions were begun with respect to the outstanding litigation. Although there can be no assurance that such discussions will result in a settlement, or if a
ADM TRONICS UNLIMTED, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED MARCH 31, 2003 AND 2002
NOTE 8 - COMMITMENTS AND CONTINGENCIES (Cont'd)
settlement is reached that it will not be unfavorable to the Company, the Company believes that litigation matters may be settled in the near future.
The Company believes that the ultimate resolution of the foregoing matters will not have a material adverse impact on the Company's financial condition.
e) Additional Financing
The Company has continued to seek sources of outside financing in order to fund its current and long-term operations.
NOTE 9 STOCKHOLDER'S EQUITY
a) Stock Options
From time to time, the Company grants stock options to directors, officers and outside consultants.
A summary of the Company's stock option activity and related information for the years ended March 31, 2003 and 2002, is as follows:
Year Ended Year Ended
March 31, 2003 March 31, 2002
Weighted Weighted
Average Average
Exercise Exercise
Options Price Options Price
Outstanding at beginning of year 5,192,819 $0.2927 8,992,819 $0.4087
Granted - - - -
Exercised - - - -
Expired (5,192,819) (0.2927) (3,800,000) (0.5672)
Outstanding at end of year - - 5,192,819 0.2927
Exercisable at end of year - $ - 5,192,819 0.2927
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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.
b) Common Stock
In December 2002, the Chief Executive Officer of the Company purchased 1,500,000 non-registered common shares of the Company for $15,000.
In February 2003, a consulting company provided services valued at $15,000 and acquired 1,500,000 non-registered shares of the Company.
ADM TRONICS UNLIMTED, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED MARCH 31, 2003 AND 2002
NOTE 9 STOCKHOLDER'S EQUITY (Cont'd)
c) Preferred Stock
The Company is authorized to issue 5,000,000 shares of Preferred Stock, $.01 par value. The Board of Directors shall determine the terms and conditions of such Preferred Stock to be issued.
NOTE 10 - SEGMENT INFORMATION, GEOGRAPHICAL INFORMATION, MAJOR CUSTOMERS AND CREDIT CONCENTRATION
a) Segment Information
The Company adopted the provisions of SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information" effective April 1, 1999. The Company operates in two reportable segments, the production and sale of chemicals and the manufacture and sale or lease of medical products. The reportable segments are strategic business units that offer different products and services. They are managed separately based on differences in customer base, marketing strategies or regulatory environment.
The accounting policies of the segments are the same as those described in Note 1. The Company evaluates performance on profit or loss from operations before income taxes.
Information about segment operations follows:
Chemical Medical Total
Year Ended March 31, 2003:
Revenues $ 809,112 $ 200,113 $1,009,255
Interest revenue 4,098 - 4,098
Interest expense 8,127 - 8,127
Depreciation and amortization 36,516 149,060 185,576
Segment loss (246,023) (407,882) (653,905)
Segment assets 778,628 533,742 1,312,370
Year Ended March 31, 2002
Revenues $ 772,688 $ 599,075 $1,371,763
Interest revenue 4,115 10 4,125
Interest expense 9,646 - 9,646
Depreciation and amortization 58,869 158,656 217,525
Segment loss (228,855) (74,120) (302,975)
Segment assets 873,303 1,134,713 2,008,016
Expenditures for segment assets - 13,754 13,754
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b) Geographical Information
Sales to unaffiliated customers, based on location of customer, is as follows:
ADM TRONICS UNLIMTED, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED MARCH 31, 2003 AND 2002
NOTE 10 - SEGMENT INFORMATION, GEOGRAPHICAL INFORMATION, MAJOR CUSTOMERS AND
CREDIT CONCENTRATION (Cont'd)
Year Ended March 31,
2003 2002
Chemical Segment:
United States $ 786,919 $ 696,422
Asia - 35,285
Other foreign countries 22,192 40,981
$ 809,111 $ 772,688
Medical Segment:
United States $ 129,870 $ 379,668
Asia 2,995 217,687
Other foreign countries 67,248 1,720
$ 200,113 $ 599,075
c) Major Customers
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Sales to individual unaffiliated customers in excess of 10% of net sales to unaffiliated customers are shown below.
Year Ended March 31,
2003 2002
Medical Segment:
Customer A $137,007 $280,776
Chemical Segment:
Customer B: $119,390 $ -
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d) Product Information
The approximate percentage of sales to unaffiliated customers, based on products, is as follows:
Year Ended March 31,
2003 2002
Chemical Segment:
Adhesives and primers 55% 64%
Resins and coatings 34% 25%
Additives and others 11% 11%
Medical Segment:
Contract manufactured
medical devices 21% 67%
Sofpulse units 41% 25%
Sonotron devices 31% 6%
Other medical devices 7% 2%
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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
Andre' Di Mino 47 President, Chief Executive
Officer and Director
Vincent Di Mino 77 Vice President of
Production and Director
David Saloff 50 Director
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Andre' Di Mino has been President since December 18, 2001. Prior thereto he was Executive Vice President and Chief Operating Officer since 1987 and Secretary - Treasurer of the Company since 1978. Mr. Di Mino has been a Director of the Company since 1987.
Vincent Di Mino has been Vice President of Production since 1969 and a Director of the Company since 1987.
David Saloff has been President of Lifewaves, Inc., a health technology company for the past 4 years. Prior thereto Mr. Saloff was Vice President of Electropharmacology, Inc., from which the Company acquired the SofPulse technology referred to elsewhere herein. He has been a Director of the Company since March 18, 2002.
The terms of office of each of the Directors and officers expire upon the election of their respective successors.
(b) Identify Significant Employees
Not Applicable.
(c) Family Relationships
Vincent Di Mino is Andre' Di Mino's uncle. 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.
(e) The Board of Directors does not have an audit committee.
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 as set forth below no person who at any time
during the fiscal year ended March 31, 2003 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. Andre' Di Mino has not filed a Form 4 and the Estate of Dr.
Alfonso Di Mino did not file a Form 3.
III. Code of Ethics
The Company has not adopted a code of ethics that applies to its principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. The Company has not done so because it believes that it not necessary because of its size and lack of tangible assets.
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, 2003 and whose total annual salary and bonus exceeded $100,000 (the "Named Officer"):
Name and Principal Fiscal Year Annual Compensation Position Ended March 31 Salary Andre' Di Mino 2003 $83,300 President and 2002 $86,600 |
Chief Executive Officer 2001 $86,600
No options issued by the Company were exercised by the Named Officers during
the fiscal year ended March 31, 2003. On that date, there were no shares of Common Stock underlying unexercised options held by the Named Officers. The Company did not reprice any stock option or SAR previously awarded to the Named Officers.
During the fiscal years ended March 31, 2003, 2002 and 2001, no other compensation not otherwise referred to herein was paid or awarded by the Company to the Named Officer, the aggregate amount of which compensation, with respect to any such person, exceeded the lesser of $50,000 or 10% of the annual salary and bonus reported in the Summary Table for such person.
There are no standard or other arrangements pursuant to which any director of the Company is or was compensated during the Company's last fiscal year for services as a director, for committee participation or special assignments.
The Company has no employment contract with any person.
The Company does not have any compensatory plan or arrangement, including payments to be received from the Company with respect to any person named in the Summary Table, which plan or arrangement results or will result from the resignation, retirement or any other termination of such person's employment with the Company and its subsidiaries or from a change in control of the Company or a change in such person's responsibilities following a change in control and the amount involved, including all periodic payments or installments, exceeds $100,000.
Item 11. Security Ownership of Certain Beneficial Owners and Management
(a), (b)
The following table sets forth certain information as of June 26, 2003 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 of Name and Address Amount of Beneficial Approximate
Class of Beneficial Owner Ownership(1) Percent of
Class(1)
Common Estate of 2,334,239(2) shares 9%(2)
Stock, Dr. Alfonso Di Mino
$.0005 par value 224-S Pegasus Ave.
Northvale, NJ 07647
Common Andre' Di Mino 9,172,696(3) shares 36%(3)
Stock, 224-S Pegasus Ave. 1,700,000(4) shares 7%(4)
$.0005 par value Northvale, NJ 07647 3,400,000(5) shares 13%(5)
2,334,239(6) shares 9%(6)
Common Vincent Di Mino 1,887,928(7) shares 7%(7)
Stock, 224-S Pegasus Ave.
$.0005 par value Northvale, NJ 07647 5,100,000(8) shares 20%(8)
Common David Saloff - -
Stock, 224-S Pegasus Ave.
$.0005 par value Northvale, NJ 07647
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Common Burton Friedlander 3,313,900(9) shares 13%(9) Stock, 104 Field point Road. $.0005 par value Greenwich CT 06830 Common Heiko H. Thieme 3,617,500(10) shares 14%(10) Stock, 1370 Ave of the Americas $.0005 par value New York, N.Y. 10019 Common Officers and Direc- 18,494,863(11) shares 73%(11) Stock, tors as a group $.0005 par value (3 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 beneficially owned by them. For purposes hereof, a
person is deemed to be the beneficial owner of securities that can be
acquired by such person within 60 days from the date hereof upon the exercise
of warrants or options or the conversion of convertible securities. Each
beneficial owner's percentage ownership is determined by assuming that any
such warrants, options or convertible securities that are held by such person
(but not those held by any other person) and which are exercisable within 60
days from the date hereof, have been exercised.
(2) Represents (a) 1,004,239 shares of Common Stock directly owned by The
Estate, (b) 1,000,000 shares of Common Stock beneficially
owned by the spouse of Dr. Di Mino, in which shares The Estate disclaims any
beneficial ownership, and (c) 1,330,000 shares of Common Stock, which
includes the 1,000,000 shares described in (b) above, subject to an agreement
dated July 8, 1987 pursuant to which The Estate has the power to vote such
shares.
(3) Represents 9,172,696 shares of Common Stock directly owned by Mr. DiMino.
(4) Represents 1,700,000 shares of Common Stock held by the Andre' Di Mino
Irrevocable Trust, a Trustee and the beneficiary of which is Andre' Di Mino
who may be deemed to be a beneficial owner of the shares held by such Trust.
(5) Represents 1,700,000 shares of Common Stock held each by the Maria
Elena Di Mino and Maurice Di Mino Irrevocable Trusts, a Trustee of which is
Andre' Di Mino who may be deemed to be a beneficial owner of the shares held
by such Trusts by reason of his power to vote such shares.
(6) Represents the shares in The Estate of Dr. Alfonso Di Mino the
administrator of which is Andre' Di Mino who may be deemed to be a beneficial
owner of the shares held by The Estate by reason of his power to vote such
shares. As a beneficiary of The Estate, Mr. Di Mino will directly receive
167,374 of such shares.
(7) Represents (a) 1,287,928 shares of Common Stock directly owned by Mr.
Di Mino, (b) 300,000 shares of Common Stock beneficially owned by the spouse
of Vincent Di Mino, and (c) 300,000 shares of Common Stock owned by the child
of Mr. Di Mino who resides in his home, in all of which shares set forth in
(b) and (c) of this Note Mr. Di Mino disclaims any beneficial ownership.
(8) Represents 5,100,000 shares of Common Stock of which 1,700,000 such
shares are held by each of the Andre' Di Mino Irrevocable Trust, the Maria
Elena Di Mino Irrevocable Trust and the Maurice Di Mino Irrevocable Trust.
Vincent Di Mino, a Trustee of each of such Trusts, may be deemed to be a
beneficial owner of the shares held by such Trusts by reason of his power to
vote such shares.
(9) Represents (a) 417,300 shares of Common Stock directly owned by Mr.
Friedlander, and (b) 2,896,600 shares of Common Stock owned by Friedlander
International Limited.
(10) Represents (a) 2,000,000 shares of Common Stock owned by The
American Heritage Fund, Inc., and (b) 1,617,500 shares of Common Stock
Owned by The Global Opportunity Fund Limited.
(11) 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) In February 2001, Dr. Alfonso Di Mino loaned the Company $150,000 at 10% interest repayable in monthly installments of $5,000, which began in March 2001. The proceeds of the note were used to pay the outstanding indebtedness due to a bank of $195,000, which was repaid in full in March 2001. Then interest was reduced to 6% in 2001. The outstanding principal amount of such loan at March 31, 2003 was $135,000.
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, 2003 was approximately $89,900 and the approximate amount of principal and interest outstanding as of March 31, 2003 was $88,600.
Other than as otherwise set forth in this Annual Report on From 10-KSB, during the last two years there was no transaction or proposed transaction to which the Company was or is to be a party, in which any of the following persons had or is to have a direct or indirect material interest and the amount involved in the transaction or a series of similar transactions exceeded $60,000:
(1) Any director or executive officer of the Company;
(2) Any nominee for election as a director;
(3) Any security holder named in response to Item 11 hereof; and
(4) Any member of the immediate family (including
spouse, parents, children, siblings and in-laws) of any
person named in paragraphs (1), (2) or (3) of this Item 12(a).
(b) Reference is made to the response to Item 11 of this Annual Report.
(c), (d) Not applicable.
Item 13. Exhibits and Reports on Form 8-K
(a) Exhibits
3.1 Certificate of Incorporation and amendments thereto filed on August 9,
1976 and May 15, 1978. Exhibit 3(a) to the Company's Registration Statement on
Form 10, File No. 0-17629 (the "Form 10"), is hereby incorporated by reference.
3.2 Certificate of Amendment to Certificate of Incorporation filed December 9,
1996. Exhibit 3(a) to the Company's Annual Report on Form 10-KSB for the fiscal
year ended March 31, 1997 is hereby incorporated by reference.
3.3 By-Laws. Exhibit 3(b) to the Form 10 is hereby incorporated by reference.
4.1 Warrant issued to the Global Opportunity Fund Inc. Exhibit 4.1 to Amendment
No. 1 to the Company's Annual Report on Form 10-KSB for the fiscal
year ended March 31, 1998 is hereby incorporated by reference.
4.2 Warrant issued to Heiko H. Thieme. Exhibit 4.2 to the Company's Annual
Report on Form 10-KSB for the fiscal year ended March 31, 1999 is hereby
incorporated by reference.
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 March 31, 1994 is hereby
incorporated by reference.
10.2 Agreement of July 8, 1987 by and between Donna Di Mino, Dr. Alfonso
Di Mino, et al. Exhibit 10(q) to the Company's Annual Report on Form 10-KSB
for the fiscal year ended March 31, 1993 is hereby incorporated by reference.
10.3 Agreement of March 21, 2002 by and between the Company and New England
Acquisitions, Inc. Exhibit 10.8 to the Company's Annual Report on Form 10-KSB
for the fiscal year ended March 31, 2002 is hereby incorporated by reference.
10.4 Agreement of April 29, 2003 by and between Vet-Sonotron Systems, Inc.
and THM Group, LLC.*
10.5 Agreement of January 17, 2003 by and between the Company and Fifth
Avenue Venture Capital Partners.*
21.1 Subsidiaries of the Company.*
99.1 Certification of Periodic Report.*
* Filed herewith.
(b) Reports on Form 8-K Not Applicable
Item 14. Controls and Procedures.
I. (a) Our principal executive officer and principal financial officerhas concluded that the Company's disclosure controls and procedures are effective based on his evaluation of these controls and procedures as of a date within 90 days of the filing date of this Annual Report.
(b) There were no significant changes in the Company's internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation. There were no corrective actions with regard to significant deficiencies and material weaknesses.
II.(1) Audit Fees - The aggregate fees billed for each of the last two fiscal years for professional services rendered by the principal accountant for the audit of the Company's annual financial statements and review of financial statements included in our Form 10-QSB or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for those fiscal years were $24,750 and $25,988, respectively.
(2) Audit-Related Fees - Fees billed in each of the last two fiscal years for assurance and related services by the principal accountant that are reasonably related to the performance of the audit or review of the Company's financial statements and are not reported under Item 9(e)(1) of Schedule 14A were $0 and $0, respectively.
(3) Tax Fees - Fees billed in each of the last two fiscal years for professional services rendered by the principal accountant for tax compliance, tax advice, and tax planning were $2,500 and $2,500, respectively.
(4) All Other Fees - Fees were billed in either of the last two fiscal years for products and services provided by the principal accountant, other than the services reported in Items 9(e)(1) through 9(e)(3) of Schedule 14A were $2,500 and $0, respectively.
(5) The Company not have an audit committee.
(6) Less than 50 percent of hours expended on the principal accountant's engagement to audit the Company's financial statements for the most recent fiscal year were attributed to work performed by persons other than the principal accountant's full-time, permanent employees.
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/ Andre' Di Mino, President
-------------------
Andre' Di Mino
Dated: July 11, 2003
|
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/ Andre' Di Mino Chief Executive Officer,
------------------- principal accounting and
Andre' Di Mino financial officer
and Director July 11, 2003
/s/ Vincent Di Mino Director July 11, 2003
-------------------
Vincent Di Mino
/s/ David Saloff
------------------- Director July 11, 2003
David Saloff
|
I, Andre' Di Mino, certify that:
1. I have reviewed this annual report on Form 10-KSB of ADM Tronics Unlimited, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
4. I am the registrant's only certifying officer and am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a. designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and
c. presented in this annual report my conclusions about the effectiveness of the disclosure controls and procedures based on my evaluation as of the Evaluation Date;
5. I have disclosed, based on our most recent evaluation, to the registrant's auditors (the registrant does not have an audit committee of its board of directors) (or persons performing the equivalent function):
a. all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and
6. I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of my most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Date: July 11, 2003 By: /s/ Andre' Di Mino
Andre' Di Mino, Chief Executive
Officer and Chief Financial Officer
|
EXHIBIT 10.4
DISTRIBUTION AGREEMENT
THIS DISTRIBUTION AGREEMENT entered into this 29th day of April, 2003 by and between VET-SONOTRON SYSTEMS, INC., a New Jersey corporation, with an address at 224-S Pegasus Avenue, Northvale, New Jersey, 07647 (hereinafter referred to as "VSSI") and THM Group, LLC, a limited liability company organized under the laws of the State of New Jersey, with offices at 161 North Franklin Turnpike, Suite 204, Ramsey, New Jersey, 07446 (hereinafter referred to as the "Distributor").
WITNESSETH
WHEREAS, VSSI is in the business of manufacturing and distributing various medical devices for use in animal health; and
WHEREAS, Distributor is in the business of selling and distributing various medical products, accessories and supplies for human and animal health, such as the Products (as defined herein); and
WHEREAS, Distributor and VSSI have agreed to enter into an arrangement whereby VSSI will appoint Distributor as its distributor in the Territory (as defined herein), upon the terms and conditions set forth herein.
NOW THEREFORE, in consideration of the mutual covenants and promises set forth herein, Distributor and VSSI hereby agree as follows:
1. Definitions. As used herein:
a) "Affiliates" of a person or entity shall mean any other person or entity directly or indirectly controlling or controlled by or under direct or indirect common control with such specified person or entity. For the purposes of this definition, "control" means the power to direct the management and policies of such person or entity, directly or indirectly, whether through the ownership of voting securities, by contract, or otherwise.
b) "Territory" shall mean the geographic area described in the attached Schedule A.
c) "Products" (or "Product") shall mean the products listed in Schedule B attached hereto.
d) "Product placements" are direct purchases by Distributor or brokered sales of the Products.
e) "FOB" shall mean Free on Board, a term that is commonly used in the freight transportation industry to denote, in conjunction with a specified location, the point in time, whether at delivery or during transshipment using common carriers, when title to the goods in question transfers from seller to buyer.
2. Grant of Distributorship.
VSSI hereby grants Distributor an exclusive Distributorship to serve all markets in the Territory with respect to the promotion and sale of the Products, except as otherwise provided herein. Distributor accepts such Distributorship and undertakes to expend its best efforts to promote the sale of the Products as provided herein. Distributor understands that VSSI has expended and will continue to expend substantial efforts and funds to secure and retain public goodwill toward the Products and its trademarks, and recognizes the vital interest to VSSI in the proper functioning of the Products. It shall be a material condition of this Agreement that Distributor will sell the Products only within the Territory, and that Distributor shall not, under any circumstances directly or indirectly provide any maintenance services with respect to the Products. Distributor shall not directly or indirectly represent manufacturers of other products that compete with the VSSI Products during the term of this Agreement.
3. Distributor's Responsibilities.
a) Distributor agrees to actively promote the sale of said Products in the Territory, to the best of Distributor's ability in order to satisfy the minimum product placement requirements set forth in Schedule B, and to otherwise safeguard VSSI's interest wherever possible. To this end, Distributor shall identify prospective final and intermediate customers, including dealers, resellers, brokers, and other channel intermediaries (collectively, "Intermediate Customers"), develop local promotions and conduct all necessary sales calls and related communications with customers related to the sale of the Products. Distributor will hire, train, and provide monetary and other incentives to its qualified salespersons and sales specialists to promote and sell the Products to current and prospective customers in the Territory. All materials used by Distributor and its Affiliates to promote and sell the Products, or which otherwise contain any information about the Products, must be reviewed and approved by VSSI prior to Distributor's use.
b) During the Initial Term, as defined herein, of this Agreement, Distributor agrees to use its best efforts to arrange for the purchase of Products from VSSI in the quantities or amounts set forth in Schedule B attached hereto and made a part hereof. In the event the parties renew this Agreement for subsequent terms, the parties shall establish new minimum product placement requirements.
c) Distributor shall provide VSSI with the customer name, address, contact person, product identity (e.g., model number), quantity shipped, date shipped, and serial number for each Product purchased from Distributor promptly after submission to Distributor of customer's purchase order. If Distributor's customer is an Intermediate Customer, Distributor shall require that Intermediate Customer provide VSSI with the final customer name, address, contact person, product identity (e.g., model number), quantity shipped, date shipped, and serial number for each Product purchased from Intermediate Customer promptly after submission to Intermediate Customer of the final customer's purchase order.
d) Distributor agrees to keep VSSI informed about competitive market conditions, experiences with customers, customer problems, major negotiations, and prospective sales possibilities.
e) Distributor will stock and maintain adequate inventories of Product marketing literature and information provided by VSSI, to meet the demand of customers in the Territory.
f) Distributor agrees to provide documentation of its handling of Products to assure VSSI that Products in Distributor's possession comply with all orders, rules, and regulations issued under VSSI's Quality Assurance Requirements. See Schedule E for an outline of requirements.
g) Distributor shall provide all services excluding Product field service activities on behalf of VSSI as have been negotiated, including, without limitation, training of Distributor's own sales force, literature distribution, applications training (including a specified number of hours as customarily provided by VSSI, using a qualified applications specialist approved by VSSI), and regulatory filings, all in the interest of successfully promoting and selling the Products. Customer applications training will be documented and maintained on file by Distributor.
h) Distributor agrees not to alter the Products in any way and not to remove the VSSI name or brand from the Products.
i) Distributor shall, in the performance of its duties hereunder, maintain adequate familiarity with VSSI's Products, their operation, specifications, maintenance, and applications, by consistently reviewing Product information and seeking out the regular assistance and counsel of VSSI.
j) Distributor shall provide monthly Product sales reports to VSSI reflecting customer installed base (i.e., customer name, address, contact person, product identity (e.g., model number), quantity shipped, date shipped, and serial number), current market trends, customer reaction to product features, competitive product descriptions and lost orders, and recommendations for Product improvements or for additional marketing opportunities. Representatives of Distributor shall meet not less than once in every consecutive six-month period during the term of this Agreement with representatives of VSSI to discuss market conditions and identify new business opportunities.
k) Distributor shall provide a place of business with adequate communications service to efficiently effect the business of Product sales.
l) Distributor will not make any representations, warranties or guarantees with respect to the Products, which are different from those representations, warranties, or guarantees provided by VSSI.
m) Distributor shall pay to VSSI the prices for the Products quoted in Schedule C attached hereto and made a part hereof, and VSSI shall charge no other fees connected with the purchase and subsequent resale of the Products by Distributor or its Affiliates.
4. VSSI's Responsibilities.
a) VSSI will maintain an adequate amount of Products, spare parts, and Product literature as may be required, in VSSI's reasonable business judgment and in accordance with Distributor's periodic forecasts, for VSSI to fill qualified and accepted orders from Distributor, pursuant to the terms and conditions of sale attached hereto as Schedule D.
b) VSSI reserves the right to change any or all of the Products covered by this Agreement. VSSI agrees to use its best efforts to give Distributor a minimum of ninety (90) days notice of any change to a Product, and to maintain an adequate supply of the Product to support the Distributor from the date of such notice on sales made by the Distributor up to the notice period.
c) VSSI will actively support Distributor's marketing and sales activities by:
i. Providing ongoing advice.
ii. Designing, sponsoring/funding, and implementing targeted sales
interventions within the Territory, including media advertising and Product
promotions.
iii. Providing technical and sales Product literature and related materials.
VSSI will provide two (2) Products to Distributor (the "Demonstration Units")
to be used by Distributor, its affiliates, or Intermediate Customers, under
Distributor's supervision, for demonstration and promotional purposes.
Distributor shall only pay for costs to ship and take delivery of and deploy
Demonstration Units. Prior to the placement of twelve (12) Products by
Distributor, VSSI will provide two (2) Demonstration Units consisting of one
(1) Product and one (1) Sonotron (intended for human-use). After the
placement of twelve (12) Products by Distributor, VSSI will provide one (1)
additional Product and Distributor will return the human-use Sonotron?
Demonstration Unit.
iv. Paying for a proportion of the Distributor's total projected expenditures
for marketing and sales activities during the measurement periods after
Distributor's cumulative sales volume has exceeded 75 units, where "units" is
defined in Schedule B. At the time when Distributor's cumulative sales
volume has exceeded 75 units, VSSI and Distributor will jointly determine,
through good faith negotiations, the proportion and timing of VSSI's payments
on a line-item basis.
d) VSSI shall train Distributor's sales force to market and sell the Products. VSSI shall convene periodic meetings and provide literature and other information required to support proficiency among the Distributor's sales force.
e) VSSI shall meet periodically with designated representatives of Distributor to exchange information on Product planning and Product updates or upgrades and to review methods for enhancing Distributor's sales opportunities.
f) VSSI shall provide field service support, including Product repair and maintenance services, to Distributor's customers pursuant to the terms of VSSI's standard service agreement. A copy of VSSI's current service agreement, provided for informational purposes only, is attached hereto as Schedule F.
5. Terms and Conditions of Sales to Distributor.
a) Any future sales of the Products covered by this Agreement (excluding installation) shall be made to Distributor upon the terms set forth in Schedule C attached hereto and made a part hereof.
b) Distributor shall notify VSSI at the effective date of this Agreement of the persons authorized to place orders with VSSI.
All purchase orders or Product requests shall contain as a minimum:
i. Purchase order number and date purchase order is submitted/sent to VSSI.
ii. Bill-to and ship-to name and address.
iii. Terms of payment.
iv. Equipment description and feature(s).
v. Unit and total prices.
vi. Requested ship date (which must be at least 90 days from VSSI's receipt
of the purchase order).
vii. Shipping method (air freight, for pick-up, etc.) and whether prepaid or
collect.
viii. Special instructions.
ix. Reference that this Agreement's terms and conditions solely govern the
purchase order.
Purchase orders or requests shall be addressed to:
Vet-Sonotron Systems, Inc.
224-S Pegasus Avenue
Northvale, New Jersey 07647
Attention: Tim Gilmartin, Plant Manager
VSSI will acknowledge acceptance or rejection of purchase orders within five
(5) days after receipt of the order. VSSI may only reject a purchase order
that does not comply with the order information requirements set forth above
and/or which does not otherwise comply with the terms of this Agreement. If
VSSI proposes a delivery schedule different from the schedule requested by
Distributor, Distributor must notify VSSI of its rejection of such alternate
delivery schedule within five (5) days after mailing of such notification by
VSSI, or the VSSI acknowledged ship date shall be deemed to be accepted by
Distributor. Unless agreed to in writing by Distributor, in no event may
VSSI ship the Products to the address specified in the purchase order on a
date later than thirty (30) days after the requested ship date specified in
the purchase order.
c) In the event Distributor cancels a confirmed order more than fifteen (15) days after an order is placed, Distributor agrees to pay VSSI a cancellation charge in accordance with VSSI's standard published terms thereof. Orders shipped by VSSI prior to cancellation by Distributor shall also be subject to a standard cancellation charge.
d) Within five (5) business days after the commencement of the Initial Term of this Agreement, and prior to the beginning of each calendar quarter thereafter, Distributor shall provide VSSI with its good faith rolling forecast of Distributor's requirements for the Products during each subsequent one (1) year period, broken down by quarter.
e) Sales shall be FOB shipping point.
f) The terms of payment shall be net (gross amount due in cash) fifteen (15) days of the actual ship date, with Distributor paying all shipping costs. A written invoice issued by VSSI and sent to Distributor by same-day facsimile and regular mail shall establish the ship date. Distributor shall pay all taxes, in any way associated with the Products sold hereunder or otherwise related to this transaction, other than taxes on or measured by the income of VSSI. Should Distributor fail to do so, there shall be added to the charges provided for in this Agreement amounts equal to any such charges, penalties, interest, and taxes, paid or payable to VSSI.
All past due accounts are subject to a late charge of 1.250% per month. VSSI shall have the right to transfer accounts receivable to third parties.
g) VSSI will warrant VSSI Products as detailed in VSSI's published Warranty Terms for twelve (12) months from the date of delivery.
h) Distributor agrees to pay VSSI for additional services rendered by VSSI according to VSSI's published terms and conditions for such services, including charges for labor, should such services be required by either the Distributor or one or more of its customers.
i) Except as otherwise noted herein, in all other respects, VSSI's published General Terms and Conditions of Sale, attached hereto as Schedule D, shall apply including, without limitation, other standard published terms with respect to warranty disclaimers and the like. In the event of any inconsistencies between the terms of this Agreement and the Terms and Conditions of Sale, the terms of this Agreement shall prevail.
j) All guarantees required by Distributor's customers (bonds, security deposits) shall be the sole responsibility of the Distributor.
6. Alterations.
Distributor agrees not to alter the Products sold hereunder in any way and not to remove the VSSI name or brand or repaint such Products without the prior express written permission of VSSI.
7. Insurance and Indemnification.
Distributor shall procure and maintain, in full force and effect during the term of this Agreement, an insurance policy or policies, protecting Distributor, its officers, directors, employees, and agents against any loss, liability, or expense whatsoever, arising out of or in connection with Distributor's obligations under this Agreement. In addition, Distributor shall maintain insurance on all Products, spare parts, and manuals in its possession with an insurer reasonably acceptable to VSSI and in an amount agreed by the parties to be adequate to compensate VSSI for any loss or damage to the inventory in Distributor's control.
Distributor agrees to indemnify, defend, and hold VSSI harmless for any damages that might arise from Distributor's sales and product placement transactions with its own customers.
VSSI will defend at its own expense any action brought against Distributor or Distributor's customers, asserting that any Product infringes a patent, trademark, copyright, trade secret, or other proprietary right of a third party, and VSSI will pay all costs and monetary damages (including reasonable attorney's fees) awarded against the Distributor or Distributor's customers in any such court decision. Such defense and liability is conditioned on and limited by VSSI: (a) being notified promptly in writing of any such action; and (b) having sole control of the defense and all negotiations for settlement of such action. Should such Products in VSSI's opinion be likely to become the subject of a claim of infringement or the use thereof become restricted by a final non-appealable Court-awarded injunction, the Distributor shall permit VSSI, at VSSI's option and expense, either: (a) to procure for the Distributor and/or its customers the right to continue using such Product; (b) to replace or modify same so it is free from infringement or injunction, such replacement or modified version to have substantially similar functional specifications as the Products; or (c) to recover same from the Distributor in which latter case, the only rights and liabilities between VSSI and the Distributor are that: (i) the sale shall be void as to the Product on the date of recovery; and (ii) VSSI shall reimburse a pro- rated portion of the purchase price paid for the Product recovered based upon a reasonable depreciation schedule. The indemnification obligations set forth herein shall not apply to claims that arise as a result of the modification, alteration, or repair of Products by persons other than those authorized and/or approved by VSSI.
VSSI shall indemnify, defend, and hold harmless the Distributor and its customers, agents, employees, officers, and directors from claims relating to the use of the Products, product liability, warranty claims and all matters relating to the Products that are not related to the improper use, handling, or storage of the Products by any of the foregoing.
VSSI and Distributor shall each indemnify, defend, and hold harmless the other party for any finder's fees for which that party is responsible.
8. Term.
This term of this Agreement shall commence as of the day and year first written above and shall continue for a period of thirty-six (36) months thereafter (the "Initial Term"), except as otherwise provided herein. Thereafter, the Agreement may be renewed for additional three (3) year periods if the parties agree in writing to a new minimum product placement requirement. Acceptance of orders by VSSI after expiration of the Agreement shall not constitute or effect a renewal of this Agreement, which may only be effective if expressed in writing and signed by both parties.
9. Termination.
a) It shall constitute a default under the Agreement, with the corresponding right of termination as stated below, if any of the following shall occur:
i. In the event Distributor fails to pay any amount owed hereunder and such failure continues for a period of thirty (30) days or more, then the Agreement may be immediately terminated by VSSI.
ii. In the event of a material violation by a party of any provision of this Agreement, other than the non-payment of monies, which violation continues uncured for a period of thirty (30) days after written notice to the other party specifying such violation, then the Agreement may be immediately terminated by the non-breaching party.
iii. In the event a party makes an assignment for the benefit of creditors, files a voluntary petition in bankruptcy, is adjudicated insolvent or bankrupt, a proceeding is filed against said party to declare said party bankrupt and said proceeding is not dismissed within thirty (30) days, or said party commences any proceeding under any reorganization, arrangement, readjustment of debt, or similar law or statute of any jurisdiction, then this Agreement may be terminated by the other party on five (5) days written notice.
iv. If Distributor distributes the Products outside of the Territory, except upon the prior written consent of VSSI, then VSSI may immediately terminate this Agreement.
v. If Distributor fails to meet the minimum product placement requirements for the Products for any single measurement period as set forth in Schedule C, then VSSI may terminate this Agreement on sixty (60) days written notice.
b) Any termination of this Agreement shall not affect any obligations, which accrued prior to the effective date of termination.
10. Undertakings Related to Termination.
Upon termination of this Agreement for whatever cause:
a) Distributor agrees to return to VSSI immediately after such termination all documentation, such as price information, sales letters, technical data sheets and instructions, and the like, Demonstration Units, and any other materials forwarded by VSSI to Distributor hereunder. This also refers to quotation records, customer installed base information as defined in Section 3(l) of this Agreement, and such other documentation as may be necessary for VSSI to resume pending negotiations.
b) VSSI shall have the option to purchase from Distributor, exercisable in its sole discretion, and Distributor agrees to sell to VSSI, at the then current Distributor net price, any or all VSSI Products held as inventory for resale by Distributor, to which Distributor has title upon said termination.
c) Distributor agrees that no obligation shall exist for VSSI to indemnify Distributor for damages of any kind pertaining to Distributor's investment in the promotion of VSSI Products, it being understood that the Distributor price permits a sufficient return on investment.
11. Independent Contractor.
Each of the parties is an independent contractor. Neither party has any authority, expressed or implied, to act for the other in dealings with third parties, and neither shall purport to act as the agent or employee of the other. Nothing in this Agreement should be construed to create a partnership, joint venture, or employer-employee relationship. Each party assumes sole and full responsibility for the acts of their employees, personnel, and agents. Neither party nor its employees, personnel, and agents have authority to make commitments, enter into contracts, bind or otherwise obligate the other party in any manner.
Each party shall be solely responsible for compliance with all laws and regulations governing its business, and will indemnify, defend, and hold the other party harmless from all claims arising out of its failure to comply with said laws and regulations. Each party shall be solely responsible for all tax returns and payments required to be filed with or made to any federal, state, or local tax authority with respect to its performance and receipt of fees or compensation or other forms of consideration under this Agreement.
No employee of either party shall be deemed in any manner whatsoever to be an employee of the other, and as such shall not be entitled to, and is not qualified under, any employee benefit plans provided by the other party for its employees. The employees of either party shall not be entitled to participate in any plans, arrangements, or distributions by the other party pertaining to, or in connection with, any bonus, pension, health, insurance, welfare, or similar benefit plan offered by it to its employees. Because both parties are independent contractors, either party will not withhold or make payments for social security; make unemployment insurance or disability insurance contributions; or obtain worker's compensation insurance on behalf of the employees, personnel, or agents of the other party. Each party shall indemnify, defend, and hold the other party harmless from all claims arising out of its failure to make payment of any such taxes or contributions, including penalties and interest.
12. Waiver.
The waiver by either party of a default or breach of any provision of this Agreement by the other party shall not operate or be construed as a waiver of any subsequent default or breach. No amendment or modification of this Agreement, nor failure or delay in enforcing any term, exercising any option, or requiring performance shall be binding or construed as a waiver unless agreed to in writing by the parties.
13. Time Limitation for Claims.
Any claims for breach or threatened breach arising under or relating to this Agreement, including, without limitation, claims for tort, antitrust or other statutory claims, or any cause of action whatsoever arising under, or in any way related to this Agreement, shall be waived and forfeited, unless asserted by the claiming party by commencement of a legal proceedings with respect to such breach or threatened breach within one (1) year after the claiming party has become aware of the claim.
14. Choice of Law and Interpretation.
This Agreement shall be governed by, interpreted, and enforced under the substantive laws of the State of New Jersey, without regard to its conflicts of laws rules and principles. Both parties agree that the courts of the State of New Jersey or the federal courts situated in the State of New Jersey shall have sole and exclusive jurisdiction over all disputes arising out of this Agreement. If any part of this Agreement is held invalid, illegal, or unenforceable, the remaining provisions will be unimpaired. In addition, if any one or more of the provisions contained in this Agreement shall for any reason in any jurisdiction be held excessively broad as to time, duration, geographical scope, activity, or subject, it shall be construed, by limiting and reducing it, so as to be enforceable to the extent compatible with the applicable law of such jurisdiction as it shall then appear.
15. Notices.
All notices required to be given by one party to the other shall be in writing and shall be deemed given if sent by certified (registered) mail, return receipt requested, or by overnight delivery service, addressed as follows:
If to Distributor:
THM Group, LLC
161 North Franklin Turnpike, Suite 204
Ramsey, New Jersey 07446
Attn: Michael W. Engelhart
Fax: 201-825-3178
If to VSSI:
Vet-Sonotron Systems, Inc.
224-S Pegasus Avenue
Northvale, New Jersey 07647
Attention: Andre' DiMino, President
Notices shall be deemed given on the date delivered to the recipient.
16. Non-Assignability.
This Agreement, nor any rights or obligations stipulated hereunder, may not be assigned, conveyed, or transferred by either party, whether voluntarily, involuntarily, or by operation of law, without the prior written consent of the other party, which consent shall not be unreasonably withheld, conditioned, or delayed.
17. Leal Fees.
In the event of a default by either party hereto, and the other party initiates litigation or undertakes other legal proceedings to interpret or enforce this Agreement, the prevailing party shall be entitled to recover all expenses, costs, disbursements, and reasonable attorneys' fees incurred in connection with said legal proceedings.
18. Force Majeure.
If a party's obligation to perform any duty hereunder is rendered impossible of performance or observance due to any cause beyond such party's reasonable control, including, but not limited to, an act of God, war, civil disturbance, fire, or other casualty, strike or other labor dispute, governmental rule, lack of availability of parts or other supplies, then said party, for so long as such condition exists, shall be excused from such performance or observance. Time of performance of the non-performing party's obligations hereunder shall be extended by the time period reasonably necessary to overcome the effect of such force majeure occurrences.
19. Trademarks and Trade Dress.
Distributor recognizes in the Territory the exclusive ownership of all trademarks and trade dress affecting Products by VSSI or any subsidiary, parent or affiliated company of VSSI. Distributor shall not, either while this Agreement is in effect or at any time thereafter, register, use or attempt to obtain any right in or to any such trademark or trade dress or in and to any trademark or trade dress confusingly similar thereto. Except to the extent required or permitted by this Agreement, Distributor shall not by reason of this Agreement use, without the prior written consent of VSSI, the words "Vet-Sonotron Systems" or any other trademark of VSSI in its advertising, labels, signs, literature or commercial stationary, provided, however, that while this Agreement remains in force, Distributor shall be entitled to describe itself as VSSI's distributor of Products in the Territory.
20. Limitation of Liability.
NEITHER VSSI NOR DISTRIBUTOR SHALL BE LIABLE TO THE OTHER PARTY OR ANY OF ITS AFFILIATES AND ASSIGNS FOR ANY INDIRECT, INCIDENTAL, UNFORESEEN, SPECIAL, EXEMPLARY, PUNITIVE, OR CONSEQUENTIAL DAMAGES, INCLUDING BUT NOT LIMITED TO LOSS OF PROFITS OR REVENUE, WHICH ARISE OUT OF THE PERFORMANCE OR FAILURE TO PERFORM ANY OBLIGATIONS SET FORTH IN THIS AGREEMENT OR OTHERWISE, REGARDLESS OF THE FORM OF ACTION OR THE BASIS OF THE CLAIM OR WHETHER OR NOT SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
IN NO EVENT SHALL EITHER PARTY'S AGGREGATE LIABILITY TO THE OTHER ARISING
FROM OR IN CONNECTION WITH THIS AGREEMENT EXCEED THE AMOUNTS ACTUALLY PAID BY
DISTRIBUTOR TO VSSI HEREUNDER IN RESPECT OF THE GOODS OR SERVICES GIVING RISE
TO THE CLAIM OR ACTION, REGARDLESS OF THE BASIS OF THE CLAIM OR FORM OF ANY
ACTION, AND NOTWITHSTANDING THE FAILURE OF ESSENTIAL PURPOSE OF ANY REMEDY
AVAILABLE TO EITHER PARTY; PROVIDED, HOWEVER, THAT THE FOREGOING LIMITATION
OF LIABILITY SHALL NOT APPLY TO DAMAGES ARISING OUT OF, IN CONNECTION WITH OR
OTHERWISE RESULTING FROM (I) THE WILLFUL MISCONDUCT OR GROSS NEGLIGENCE OF
SUCH PARTY; (II) INDEMNIFICATION OBLIGATIONS SPECIFIED HEREUNDER; AND/OR
(III) PERSONAL INJURY OR TANGIBLE PROPERTY DAMAGE CAUSED BY SUCH PARTY.
21. Headings.
The headings or titles of the various paragraphs or sections of this Agreement are inserted merely for the purpose of convenience and do not expressly or by implication or intention, limit, define, extend or affect the meaning or interpretation of this Agreement or the specific terms or text of the paragraph so designated.
22. Publicity.
Any news release, public announcement, advertisement, or publicity proposed to be released by either party with respect to this Agreement shall be subject to the reasonable opportunity to review same by the other party prior to release.
23. Confidentiality.
Any proprietary information concerning VSSI and its Products, services, or manufacturing processes which are in any way designated as proprietary information by VSSI and disclosed to Distributor incident to the performance of this Agreement shall remain the property of VSSI and are disclosed in confidence, and Distributor will not publish or otherwise disclose it to others without the express written consent of VSSI. The obligations set forth in this Article 23 will survive the termination or expiration of this Agreement for a period of two (2) years.
24. Counterparts.
This Agreement may be executed in two or more counterparts, each of which shall be deemed an original and all of which, taken as a whole, shall constitute one and the same document.
25. Non-Competition.
During the term of this Agreement, Distributor shall not directly or indirectly represent manufacturers of products which compete with the VSSI Products, including but not limited to promoting, distributing, selling, leasing, renting, installing, maintaining, or servicing any such competing products.
26. Government Obligations.
a) The rights, duties and performance of each party hereunder shall be subject to all applicable federal, state and local laws, rules and regulations. Both parties agree to comply with all applicable laws in the performance of their respective obligations hereunder, including, but not limited to, the U.S. Export Control Laws.
b) In the event of any governmental law, regulation, or action forbidding performance of any obligations of VSSI or Distributor hereunder, or in the event of inability of either to obtain any governmental action required for the performance of its obligations hereunder, VSSI or Distributor shall be excused from the performance of such obligations except for the obligation to make payments and those obligations provided under Article 23, Confidentiality.
27. Entire Agreement.
This Agreement, together with the Schedules and any attachments thereto, constitutes the entire agreement between the parties hereto pertaining to the subject matter hereof and supersedes all prior and contemporaneous agreements, inconsistent agreements, understandings, negotiations and discussions, oral or written, representations, and promises, oral or written, with respect to the subject matter contained herein. There are no other agreements between the parties in connection with the subject matter hereof except as specifically set forth herein. No supplement to or modification, waiver, or termination of this Agreement shall be binding unless executed in writing by the party to be bound thereby.
IN WITNESS WHEREOF, the parties hereto have executed this Distribution Agreement as of the day and year first written above.
VET-SONOTRON SYSTEMS, INC. THM GROUP, LLC By:/s/ Andre' Di Mino By:/s/Michael Englehart Title: President Title: Managing Member Date: 4/29/03 Date: 4/29/03 |
EXHIBIT 10.5
FIFTH AVENUE VENTURE CAPITAL PARTNERS, INC.
Dr. EUGENE STRICKER
445 Central Avenue, Suite 112
Cedarhurst, N.Y. 10022
Tel. (516) 295-7600
Fax (516) 295-7604
LETTER AGREEMENT
Andre DiMino, President
ADM Tronics, Inc.
224-S Pegasus Avenue
Northvale, N.J. 07647
Dear Mr. DiMino:
This letter is intended to summarize our discussions as of the date hereof. It is intended to bind each of us. We have agreed as follows:
1. Fifth Avenue Venture Capital Partners, Inc. a New York corporation in formation which may be formed under a different name but which shall have Dr. Eugene Stricker as its principal general partner ("FAVCP"), and associates will provide general business consulting, shareholder relations services, and seek new products and customers for ADM Tronics, Inc. ("ADMT") for a period of 2years from the date hereof at times and places which shall be mutually agreed between the parties hereto, and ADMT will accept such services on the terms and conditions set forth herein.
2. Participation to FAVCP shall consist of up to 5,000,000 shares (the "Shares") of ADMT Common Stock, par value $.0005 per share (the "Common Stock"), which FAVCP (or its designees, which will be twelve or fewer, each of which having a pre-existing relationship with FAVCP) shall purchase at par value for an aggregate purchase price of $2,500. The Shares shall be "restricted securities" within the meaning of Rule 144 and each of FAVCP and its designees shall sign an investment representation letter with respect thereto.
3. The Shares shall be held in Escrow by Dr. Harold Gelb pursuant to a separate escrow agreement and shall be disbursed as follows:
At such time as the closing bid price of the Common Stock equals or exceeds $.10 per share, 1,500,000 of the Shares shall be released from escrow by Dr. Gelb and delivered as directed by FAVCP;
At such tine as the closing bid price of the Common Stock equals or exceeds $.20 per share; a second 1,500,000 of the Shares shall be released from escrow by Dr. Gelb and delivered as directed by FAVCP;
FAVCP will advise ADMT with respect to the structuring of a "best efforts" private placement of three year convertible preferred stock to be initiated after the market price of the Common Stock exceeds $.20 per share with dividends to be determined at the time of the private placement. The preferred stock, which may be converted by the holder at any time, shall have a conversion price which shall be no less than $.20 per share. The preferred stock shall be callable at the option of ADMT after one year on thirty days written notice to the holders of record if the average of the closing bid and ask prices for the Common Stock exceeds $.30 for five consecutive trading days ending within ten days of the giving of the notice. The convertible preferred stock shall also provide that all accrued dividends thereon may, at ADMT's option, be paid in Common Stock at the then market price. FAVCP shall not be paid any commissions or expenses in connection with the private placement. However, if the services of an NASD member are utilized as placement agent, selected dealer or underwriter, then such member(s) shall be paid their customary commissions and other compensation for such services. The private placement shall be for no less than such amount as will yield net proceeds of $500,000 to ADMT. As an additional incentive, investors in the private placement will receive shares of Common Stock at $.03. However, in no event will the private placement plus such additional shares exceed a total of 3,000,000 shares with the following exception. To the extent that the aggregate number of shares of Common Stock issued to investors in the private placement on sales of $500,000 assuming conversion of all preferred stock and the shares of Common Stock at $.03 (the "PPM Number") exceeds 3,000,000 shares of Common Stock, such excess number of shares shall be returned to ADMT from the final 2,000,000 Shares held in escrow and only the balance shall be released from escrow and delivered to FAVCP. To the extent that the PPM Number is less than 3,000,000 shares of Common Stock, then ADMT shall allow FAVCP to purchase additional shares of Common Stock from ADMT at $.0005 per share equal to 5% of the amount that the PPM Number is less than 3,000,000, such shares to be subject to the terms of this agreement;
Upon the proceeds in the private placement reaching $500,000 net to ADMT (after payment of expenses which shall include: legal fees to counsel designated by FAVCP, printing and duplication costs, postage, and filing fees, all of which shall not be payable by ADMT if such proceeds are less than $500,000); all remaining shares of Common Stock held in escrow shall be released from escrow by Dr. Gelb and delivered as directed by FAVCP;
Prior to each release from escrow, FAVCP may allocate the released Shares among itself and its designees; and
On each delivery of shares from escrow to FAVCP, Dr. Gelb shall be entitled to retain 8% of the shares being delivered to FAVCP as his participation.
4. Dr. Stricker, Dr. Gelb and any of their assignees as contemplated hereunder, shall all enter into a three year voting trust agreement whereunder Andre' DiMino shall be the voting trustee. The Voting Trust agreement shall not prohibit market sales of the Shares by the holders under Rule 144 or otherwise and shall permit subsequent private transfers. The transferee in any private transfer shall be bound by the terms and conditions of the Voting Trust Agreement
5. Neither ADMT or FAVCP has taken or will take any action which would obligate ADMT or FAVCP to pay any "finders fee" in connection with this Agreement other than as set forth herein.
6. ADMT represents that, except for the transactions contemplated hereby, it will not, unless it has first received FAVCP's written consent, negotiate with any other persons, firm or corporation relating to a possible public or private sale of securities of ADMT until six months from January 1, 2003. If ADMT has not received the net proceeds of $500,000 from a private placement as provided herein by June 30, 2003, despite its good faith cooperation therein, then the shares remaining in escrow with Dr. Gelb on such date shall all be returned to ADMT.
7. Except as specifically set forth herein, each party will bear its own expenses in connection with the transactions contemplated hereby. Furthermore, ADMT shall be solely responsible for the costs of preparing all financial data used in the private placement, but, except for its own separate counsel other than that provided by FAVCP, shall not be responsible for any costs of the preparation of the private placement.
Please return one copy of this letter, signed by you, to the undersigned.
This letter agreement may be executed in counterparts, each of which shall constitute an original and all of which taken together shall constitute one and the same letter agreement. The parties hereby consent to the jurisdiction and venue of the Superior Court of New Jersey, Bergen County. This letter agreement shall be interpreted in accordance with the laws of the State of New Jersey as they are applied to contracts executed, delivered and to be performed entirely within such state.
Very truly yours, Fifth Avenue Venture Capital Partners, Inc.
By: /s/ Eugene Stricker - 1/17/03
Eugene Stricker, President & CEO
ACCEPTED AND AGREED TO:
This 26 day of December, 2002
ADM Tronics, Inc.
By: /s/ Andre Di Mino
Andre DiMino, President and CEO
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EXHIBIT 21.1 SUBSIDIARIES
Subsidiary Name State of Incorporation
Sonotron Medical Systems, Inc. Delaware
Vet-Sonotron Systems, Inc. Delaware
Pegasus Laboratories, Inc. New Jersey
AA Northvale Medical Associates, Inc. New Jersey
Enviro-Pack Development Corporation New Jersey
Precision Assembly Corporation New Jersey
Immuno-Therapy Corporation New Jersey (A subsidiary
of Precision
Assembly
Corporation)
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EXHIBIT 99.1 CERTIFICATION OF PERIODIC REPORT
I, Andre' Di Mino, President and Chief Executive Officer of ADM Tronics
Unlimited, Inc., a Delaware corporation (the "Company"), certify,
pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350,
that:
(1) the Annual Report on Form 10-KSB of the Company for the year ended
March 31, 2003 (the "Report") fully complies with the requirements of
Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15
U.S.C. 78m or 78o(d)); and
(2) the information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of
the Company.
Date: July 11, 2003
/s/ Andre' Di Mino
-------------------------
Andre' Di Mino
Principal Executive Officer and
Principal Financial Officer of the Company
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