-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VX66TntJF6JpsU4IFZHYUHBLwYhbMHWUgVhY03zg1hJmITzb6FcTUkUIB4n1/Tmw UX8HcIlSdBD+uSteBUJ7/Q== 0000849401-02-000003.txt : 20020715 0000849401-02-000003.hdr.sgml : 20020715 20020715132349 ACCESSION NUMBER: 0000849401-02-000003 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20020331 FILED AS OF DATE: 20020715 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ADM TRONICS UNLIMITED INC/DE CENTRAL INDEX KEY: 0000849401 STANDARD INDUSTRIAL CLASSIFICATION: ADHESIVES & SEALANTS [2891] IRS NUMBER: 221896032 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10KSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-17629 FILM NUMBER: 02702690 BUSINESS ADDRESS: STREET 1: 224 S PEGASUS AVE CITY: NORTHVALE STATE: NJ ZIP: 07647 BUSINESS PHONE: 2017676040 MAIL ADDRESS: STREET 1: 224 S PEGASUS AVE CITY: NORTHVALE STATE: NJ ZIP: 07647 10KSB 1 ksb2002.txt U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-KSB (Mark One) x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended March 31, 2002 OR _ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File No. 0-17629 ADM TRONICS UNLIMITED, INC. (Name of Small Business Issuer in its Charter) Delaware 22-1896032 (State or Other Juris- (I.R.S. Employer Identifi- diction of Incorpora- cation Number) tion or Organization) 224-S Pegasus Avenue, Northvale, New Jersey 07647 (Address of Principal Executive Offices) (Zip Code) Issuer's Telephone Number (201) 767-6040 Securities Registered under Section 12(b) of the Act: NONE Securities Registered under Section 12(g) of the Act: Common Stock, $.0005 par value 1 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 $1,525,611 State the aggregate market value of the voting stock held by non-affiliates computed by reference to the price at which the stock was sold, or the average bid and asked prices of such stock, as of a specified date within the past 60 days prior to the date of filing: Approximately $628,886 as of June 5, 2002 State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: 47,382,037 shares of Common Stock, $.0005 par value as of June 28, 2002 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. 2 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 March 2002, the Company entered into an agreement with New England Acquisitions, Inc. ("NEAI") with respect to the sale of certain rights to the Company's ethnic shave cream, burn lotion and the Aurex-3 medical device. NEAI is not obligated to consummate the transaction with the Company unless the purchasers of not less than 7,000 shares purchased in NEAI's initial public offering confirm their investments. The purchase price to be paid to the Company by NEAI for the sale and transfer of the assets and rights is 150,375 shares of NEAI's common stock and the payments described below. If NEAI acquires the products from the Company, NEAI will enter into a manufacturing agreement with the Company which will provide that all of the ethnic shave cream, burn lotion and Aurex-3 devices NEAI purchases will be manufactured by the Company. 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. Under the manufacturing agreement, the Company will be the exclusive manufacturer of the products that NEAI purchases from it as well as all other medical products, topical and cosmetic products which NEAI may acquire and distribute. The price that NEAI will pay to the Company for products that it manufactures will be 120% of the Company's cost of all raw materials and all supplies and direct labor and an overhead allocation. In addition, NEAI will reimburse the Company for any tooling or non-recurring engineering services that are required in support of the manufacturing of products purchased by NEAI. In addition NEAI will pay to the Company a royalty of 6% of gross sales of the products, less discounts, returns and allowances. NEAI will also pay consulting fees and related expenses for time expended by Company employees for services other than manufacturing. 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. 3 Coatings and resins for the printing industry are used to impart properties to the printed substrate. The Company's products can be used to coat printed material for glossy or aesthetic appeal to make such material virtually impervious to certain types of grease and to impart other characteristics required or desired for various products and specifications. In 1999, the Company introduced a new coating technology for the paper industry designed for use in the manufacture of recyclable paper packaging. The new resin technology, trademarked Aqualene, consists of a series of environmentally safe, water-based coatings which can replace polyethylene in numerous packaging structures. Polyethylene is used extensively in paper packaging as a water and grease resistant layer and for sealing purposes. Although necessary for paper to be used in most packaging applications, polyethylene is non-recyclable when combined with paper. Therefore, polyethylene-coated paper must either be incinerated or buried in landfills. The Company's Aqualene coating technology has certain properties of polyethylene but breaks down in standard repulping equipment. Accordingly, Aqualene coated paper packages can be recycled into new paper products. The potential uses for Aqualene-coated paper include fast food wraps, folding cartons, pouch packaging, disposable cups and plates, ream wraps, bakery trays and many other applications. The Company has received initial trial orders for Aqualene but there can be no assurance that Aqualene will be commercially accepted. Certain of the Company's chemical additives are used to impart properties to inks and other chemical products used in the food packaging and printing industries. These additives are used for their ability to improve the performance of such products. During the Company's fiscal years ended March 31, 2002, 2001 and 2000, sales of chemical based products accounted for approximately 50%, 40% and 35% 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, 2002, no customer accounted for more than 10% of the Company's net sales of chemical products. The termination of business relations with any of the Company's significant customers would have a material adverse effect on the Company's business and the financial condition of the Company. The Company purchases the raw materials used in the manufacture of its chemical products from numerous sources. The Company believes that all necessary raw materials for its chemical products are readily available and will continue to be so in the foreseeable future. The Company has never had, nor does it anticipate experiencing, any shortages of such materials. The raw materials consist primarily of water, resins, elastomers and catalysts. The Company generally maintains sufficient quantities of inventories of its chemical products to meet customer demands. When orders are received by the Company for its chemical products, the Company's customers require immediate shipment thereof. Accordingly, in order to satisfy its customers' needs, the Company has maintained an inventory ranging, in dollar amounts, from 15% to 30% of sales of chemical products in the form of either raw materials or finished goods. 4 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, 2002, 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, 2002 and 2001, 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 Dr. Alfonso Di Mino, while employed by the Company, conceived and developed a technique pursuant to which a subject being treated is exposed to a corona discharge beam generated by combining audio and radio frequency waves (the "Sonotron Technology"). The Sonotron Technology is the subject of a United States Patent (the "Di Mino U.S.Patent") granted in 1987 to Dr. Di Mino entitled, "Corona Discharge Thermotherapy Technique" 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. 5 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 covered by the same patent issued to the third party referred to above. On February 5, 2002 the Company filed a motion to dismiss Orthosonix's action. The Company's patent counsel has advised the Company that it believes the Company's motion to dismiss the Orthosonix action will be granted by the court. However, there can be no assurance that such motion will be granted. Further, the Company's patent counsel has advised the Company that it believes the Company's patents are valid and enforceable but there can be no assurance that such will be the determination of a court if such action is commenced. On January 3, 2002 Orthosonix also filed a civil action for injunctive relief against the Company, Sonotron Medical Systems, Inc., a majority owned subsidiary of 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, Medimerge Group LLC, 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 in such complaint and seeking damages. In late March, 2002 the Company and Orthosonix initiated settlement discussions with respect to all pending litigation. Although there can be no assurance that such 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. 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. 6 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 7 Company is permitted to maintain a clinic and treatment center utilizing Sonotron Devices, but may not advertise or otherwise promote Sonotron Devices as being safe and effective for their intended use. Since 1989, four clinics have operated at various times, none of which produced any significant revenues. In 1991, SMI appointed a Canadian company as its sole and exclusive distributor in Canada of the Sonotron Devices. Because the Canadian company was unable to obtain approval of the Quebec Association of Physicians and Surgeons in order for Sonotron Devices to be utilized in Quebec for the treatment of pain and decreased function associated with inflammatory diseases prior to a mutually agreed upon date, the Distribution Agreement between SMI and such company terminated. In 1992, SMI granted to Advent Medical Technology, Inc. ("AMT") the exclusive right to manage clinics in certain counties in Florida which, if opened, would utilize Sonotron Devices for human medical purposes. At such time, if any, that the FDA permits marketing of Sonotron Devices, AMT would have the right to purchase any such clinics from SMI and to be the exclusive distributor of Sonotron Devices within the eight counties. At the same time, VET granted to AMT the exclusive right to use, distribute or sublicense the use of Sonotron Devices designed for veterinary use solely for veterinary use in Florida. The response to Item 5 of the Company's Current Report on Form 8- K dated June 9, 1992 is hereby incorporated by reference. The Company does not believe that AMT has sufficient resources to manage any clinics. There can be no assurance that any such clinics which the Company may open will be successful or that the results of the treatment of human subjects with the Sonotron Devices will be favorable or will support the Company's application for clearance to market in the US from the FDA ("FDA Application"). The agreements with AMT expired according to their terms. 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 12 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 2002 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, 2001 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 8 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, 2003, 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, 2002, although sales of Sonotron Devices were not significant, one customer accounted for approximately 70% 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 the financial condition. As of March 31, 2002, 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 9 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 that the Company will be able to manufacture the Aurex-3 in sufficient quantities. Contract Manufacturing Precision Assembly Corporation, a wholly-owned subsidiary of the Company ("PAC"), is a contract manufacturer of medical and electromedical devices. PAC's operations consist primarily of manufacturing such devices for unaffiliated third parties pursuant to plans and specifications furnished to PAC by such parties. Accordingly, PAC has no proprietary interest in such devices. PAC was acquired by the Company in December of 1997. During the fiscal year ended March 31, 2002, one customer accounted for approximately 80% of PAC's sales, which also represented approximately 18% of the Company's sales. In July, 2001 the customer notified PAC that it was changing its business direction and by October of 2001 would end manufacturing of the products PAC produced. This resulted in a material reduction in PAC revenues subsequent thereto. 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 10 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. As of July 8, 1998, EPI had placed SofPulse Devices under rental agreements at nursing homes. In 1997, EPI sold 79 new and refurbished SofPulse Devices and had varying numbers of SofPulse Devices on rental at different times of the year. The Company's management believes that the SofPulse Device can be marketed to cosmetic surgeons, sports team trainers and physicians, pain clinics, physical rehabilitation centers and distributors or medical equipment rental companies who serve the home care market for the recovery of post-operative ambulatory patients. Expanding market penetration for the SofPulse Device is expected to require increased marketing efforts and cost-effective manufacturing in compliance with the current Good Manufacturing Practice ("CGMP") guidelines for the domestic market and additional regulations (such as ISO-9000 and CE-Mark) for international markets. EPI commenced production and marketing of the current SofPulse Model 912 in October 1993 replacing previous models designated 911 and MRT100. Since receiving the right to commercialize its device, EPI 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. The company believes that such injunction is still in effect. Upon reacquisition of the fleet of SofPulse Devices and all rights granted to NPCS under the agreement, EPI initiated an effort to sell SofPulse Devices, especially refurbished SofPulse Devices that were no longer generating rental revenues, to surgeons and to nursing homes in order to generate revenues without increasing internal sales and marketing expenses. EPI sold 55 such refurbished units at an average price of about $7,000 per unit most of which were sold during the third and the fourth quarters of 1997. The Company intends to market the SofPulse Device to nursing homes and 11 hospitals where substantial numbers of patients may benefit from the SofPulse treatment, to the home health care market where patients may continue the SofPulse treatment after being released from hospitals, and to surgeons in several subspecialties (maxillofacial, aesthetic, emergency and reconstructive) where the SofPulse Device may help in treating edema or pain and help patients to recover. The Company has entered into a distribution agreement with Mediq/PRN 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 12 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. 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 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, 13 financial resources, operating history and marketing capabilities than does the Company. The Company's chemical and contract manufacturing businesses are highly competitive and substantially all of the Company's competitors possess greater experience, financial resources, operating history and marketing capabilities than does the Company. The Company does not believe that there are one or more dominant competitors in such industry. There can be no assurance that the Company will be able to effectively compete with any or all of its competitors on the basis of price, service or otherwise. Although the company is not aware of any other products presently being marketed 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. These companies include Orthologic Corp., Electro-Biology, Inc., a subsidiary of Biomet, Inc., Orthofix, Ltd., and Biomagnetics, Inc. The Company is also aware of other companies that manufacture and market thermal devices in the same target markets as the Company. Certain of these companies have significant product sales and have greater financial, technical, personnel and other resources than the Company. Also, universities and research organizations may actively engage in research and development to develop technologies or products that will compete with the SofPulse. The medical products market is characterized by rapidly changing technology that may result in product obsolescence or short product life cycles. The Company's ability to compete will be dependent on the Company's ability to continually enhance and improve its products and to develop successfully or acquire and market new products. 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 14 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 15 Company does not believe that the registration will not be renewed annually by the FDA, there can be no assurance of such renewal. Any failure to obtain an annual renewal could be expected to have a material adverse effect on the Company. In January 1991, the FDA advised EPI of its determination to treat the MRT100, the first model of the SofPulse, as a class III device. The FDA retains the right to require the manufacturers of certain class III medical devices to submit a PMA in order to sell such devices or to promote such devices for specific indications. To the Company's knowledge, EPI has not been asked by the FDA to seek PMA for SofPulse; however, there can be no assurance that the Company will not be required to do so and that, if required, the Company will be able to comply with such requirement for SofPulse. In the event the Company proposes to market new medical devices, if developed or acquired, or adapt its current products for a new use, the FDA may require the Company to comply with 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 16 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 measurres. The effect of changes inthe 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. 17 Insurance The Company may be exposed to potential product liability claims by patients who use the Company's products. Therefore, the Company maintains a general liability insurance policy, which includes aggregate product liability coverage of $2,000,000. The Company believes that its present insurance coverage is adequate for the types of products currently marketed. There can be no assurance, however, that such insurance will be sufficient to cover potential claims or that the present level of coverage will be available in the future at a reasonable cost. Personnel On June 28, 2002, the Company employed 12 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 leases 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 is being offered for sublease through an independent exclusive commercial real estate broker. 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., Great Southern Medical and Gregory S. Mack ("GSM") 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. The distributor 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. A material default shall be deemed to occur if GSM has not made a payment within 30 days of its due date. If such default occurs the subsidiary shall be entitled to accelerate payments due and enter judgment in the amount of 125% of the amount due plus penalties and interest. To date the subsidiary has received payments totaling $50,000. 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 Corp. and Thomas Petrie alleging breach of an oral employment contract. Management intends to vigorously defend this action, which they believe is without merit. Further, management 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. 18 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, 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. Reference is made to Note 4 of Notes to Consolidated Financial Statements. 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. 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 has advised that it believes the Company's motion to dismiss the Orthosonix action will be granted by the court. However, there can be no assurance that such motion will be granted. 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. Although there can be no assurance that such 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. 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 19 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, 2000 .44 .23 September 30, 2000 .31 .20 December 31, 2000 .25 .09 March 31, 2001 .31 .13 June 30, 2001 .19 .08 September 30, 2001 .09 .02 December 30, 2001 .04 .01 March 31, 2002 .04 .01 (b) On June 28, 2002, the Company's Common Stock was held by approximately 1,363 holders of record. (c) Dividends The Company has never paid any cash dividends on its Common Stock and has no intention of paying cash dividends in the foreseeable future. The Company intends to retain any earnings it may realize to finance its future growth. II. Recent Sales of Unregistered Securities: Uses of Proceeds From Registered Securities Not Applicable 20 Item 6. Management's Discussion and Analysis or Plan of Operation 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 46% 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. Fiscal 2001 Compared to 2000 Revenues Sales were $1,780,201 in 2001 as compared to $2,698,597 in 2000 representing a decrease of $918,396 or 34%. The decrease was primarily the result of a decrease of over $752,000 in contract manufacturing revenues coupled with a decrease in chemical revenues. Other income of $164,652 in 2001 was $37,788 or 30% higher than other income of $126,864 in 2000. Gross Profit Gross profit of $896,269 in 2001 was $566,553 or 39% lower than the gross profit of $1,462,822 for 2000. Gross profit was 46% of revenues in 2001 as compared to 54% of revenues in 2000. The decrease in gross profit is the result of reduced revenues and the mix of product sales with increased sales of products having lower gross profit margins. Operating Loss Operating loss of $764,140 in 2001 was $192,322 greater than the operating loss of $571,818 in 2000. The increase in operating loss resulted from reduced revenues producing reduced gross profit. Selling, general and administrative expenses were reduced by $374,231 in 2001 as compared to 2000. Liquidity and Capital Resources At March 31, 2002 the Company had cash of $51,565 as compared to $113,458 at March 31, 2001. This decrease is principally the result of $48,172 cash used in operating activities. 21 Operating Activities Cash used in operating activities of $48,172 was $20,553 more in 2002 as compared to $27,619 used in 2001. Primarily cash used for inventories of $108,802, accrued expenses of $36,462 and other assets of $16,528 was offset by $111,090 in cash provided by equipment held for sale, $18,000 from equipment in use and under lease agreements and $66,360 from accounts payable. Depreciation and amortization was $217,525. Investing Activities Cash of $8,921 was used by investing activities in 2002 due to purchases of property and equipment offset by cash received from repayments of loans by officer of $5,200. Financing Activities In 2002 $10,000 of cash was used in financing activities to repay borrowings on a note payable. The Company does not have any material sources of liquidity or unused sources of liquid assets. 22 Item 7. Financial Statements INDEPENDENT AUDITOR'S REPORT Board of Directors and Stockholders ADM Tronics Unlimited, Inc. Northvale, New Jersey We have audited the accompanying consolidated balance sheet of ADM Tronics Unlimited, Inc. and subsidiaries as of March 31, 2002, and the related consolidated statements of operations, changes in stockholders' equity, and cash flows for the years ended March 31, 2002 and 2001. 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 audit. 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 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, 2002, and the results of their operations and their cash flows for the years ended March 31, 2002, and 2001, in conformity with accounting principles generally accepted in the United States of America. /s/Eichler, Bergsman & Co., LLP New York, New York June 27, 2002 F-1 ADM TRONICS UNLIMITED, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET MARCH 31, 2002 ASSETS Current assets: Cash and cash equivalents $ 51,565 Accounts receivable - trade, less allowance for doubtful accounts of $4,594 215,502 Inventories: Raw materials and supplies 303,202 Finished goods 35,628 Equipment held for sale or rental 681,154 Other current assets 30,504 Total current assets $1,317,555 Property and equipment - at cost, net accumulated depreciation of $406,668 60,671 Equipment in use and under lease Agreements - at cost net of accumulated depreciation of $523,007 432,047 Loan receivable from officer, bearing interest at 3% per annum, unsecured 53,791 Other assets 143,952 Total assets $2,008,016 Liabilities and stockholders' equity: Current liabilities: Accounts payable - trade $ 252,478 Accrued expenses and other current liabilities 79,473 Notes payable 110,000 Total current liabilities $ 441,951 Note payable, long-term portion 25,000 Commitments and contingencies Stockholders equity 1,541,065 Total liabilities and stockholders' equity $2,008,016 See accompanying notes to consolidated financial statements. F-2 ADM TRONICS UNLIMITED, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED MARCH 31, 2002 2001 Revenues: Sales $1,371,763 $1,780,201 Interest and other income 153,848 164,652 Total revenues $1,525,611 $1,944,853 Costs and expenses: Cost of sales $ 673,952 $ 883,932 Selling, general and administrative 1,154,634 1,660,409 Total costs and expenses $1,828,586 $2,544,341 Loss before income taxes $ (302,975) $ (599,488) Income taxes - - Net loss $ (302,975) $ (599,488) Weighted average number of common shares outstanding 47,382,037 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, 2002 AND 2001 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, 2000 - 47,382,037 $23,691 $6,762,018 $(4,343,781) $2,441,928 Common stock Options issued for consulting services - - - 1,600 - 1,600 Net loss - - - - (599,488) (599,488) Balances - March 31, 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 See accompanying notes to consolidated financial statements. F-3 ADM TRONICS UNLIMITED, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED MARCH 31, 2002 2001 Cash flows from operating activities: Net loss $(302,975) $(599,488) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization $ 217,525 $ 252,744 Common stock options issued as compensation - 1,600 Changes in operating assets and liabilities: Accounts receivable - trade (4,368) 48,804 Inventories (108,802) 112,517 Other current assets 7,988 (2,163) Equipment in use and under lease agreements 18,000 4,860 Equipment held for sale 111,090 56,382 Other assets (16,528) (17,502) Accounts payable 66,360 49,937 Accrued expenses and other (36,462) 64,690 Total adjustments $ 254,803 $ 571,869 Net cash used in operating activities $ (48,172) $ (27,619) Cash flows from investing activities: Purchase of property and equipment $ (8,921) $ (2,310) Repayments of loan by officer 5,200 4,200 Net cash provided by (used in) investing activities $ (3,721) $ 1,890 Cash flows from financing activities: Borrowings on notes payable $ - $ 150,000 Payments on notes payable (10,000) (333,021) Net cash (used in) provided by financing activities $ (10,000) $(183,021) Net decrease in cash and cash equivalents $ (61,893) $(208,750) Cash and cash equivalents - beginning of year 113,458 322,208 Cash and cash equivalents - end of year 51,565 113,458 Supplemental Disclosures: Interest paid $ 3,640 $ 29,932 Income taxes paid $ 10,082 $ 4,948 Funds raised from private placement offering and held in escrow in 2001 and returned to participants in 2002 $(210,500) $210,500 Supplemental disclosure of non-cash investing and financing activities: Common stock options issued as consideration for consulting services $ - $ 1,600 See accompanying notes to consolidated financial statements. F-4 ADM TRONICS UNLIMTED, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED MARCH 31, 2002 AND 2001 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, 2002 and 2001, the chemical product line accounted for approximately 50% and 43% of sales and the medical device product line accounted for 50% and 57% 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 method) 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 F-5 ADM TRONICS UNLIMTED, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED MARCH 31, 2002 AND 2001 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd) States for human applications, other than for research purposes, and may not be marketable in certain foreign countries. Included within equipment in use and under lease agreements are Devices used internally and Devices loaned out for marketing and testing. Devices in use 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 all rights to an FDA cleared device (Sofpulse Unit or "Unit") and 418 Sofpulse Units. These Units (467 units at March 31, 2002) are held for sale or lease domestically and are included in the consolidated balance sheet under "Equipment held for sale" and "Equipment in use and under lease agreements," on a specific identification basis. 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. h) Intangible Assets Goodwill, patents and patents assigned are stated at cost, are included in other assets and are amortized on a straight-line basis over the shorter of their legal or useful lives (10 years for goodwill, 15 to 17 years for patents and 2 years for patents assigned). The Company will adopt FASB Statement No. 142 for the year ending March 31, 2003 whereby it will test goodwill for impairment on an annual basis. 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. j) Revenue Recognition Sales revenues are recognized when products are shipped and lease revenues are recognized in accordance with individual lease agreements. k) Advertising Advertising (approximately $6,400 and $14,000 in 2002 and 2001, respectively) is expensed as incurred and is included with selling, general and administrative expenses in the consolidated statement of operations. F-6 ADM TRONICS UNLIMTED, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED MARCH 31, 2002 AND 2001 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd) l) Investment in Joint Venture The Company is using the equity method to account for its 50% investment in a joint venture. 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 2002 and 2001 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 reported 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, 2002 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 (406,668) $ 60,671 Depreciation and amortization on property and equipment for the years ended March 31, 2002 and 2001 aggregated $40,603 and $48,876, respectively. F-7 ADM TRONICS UNLIMTED, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED MARCH 31, 2002 AND 2001 NOTE 3 - EQUIPMENT IN USE AND UNDER LEASE AGREEMENTS Equipment in use and under lease agreements at March 31, 2002 consist of the following: Sonotron Units $ 71,205 Sofpulse Units 870,250 Other Units 13,599 $955,054 Less accumulated depreciation $523,007 $432,047 Depreciation of equipment in use and under lease agreements for the years ended March 31, 2002 and 2001 aggregated $133,736 and $136,468, respectively. NOTE 4 - OTHER ASSETS Other assets at March 31, 2002 consist of the following: Investment in Joint Venture (Note 4) $ 19,723 Goodwill, net of accumulated amortization of $30,728 40,184 Patents, net of accumulated amortization of $55,131 64,678 Deposits and other assets 19,367 $143,952 Sonotron refinement costs represent the cost incurred in connection with the improvement of the Sonotron devices. These costs have been fully amortized over a five year period. Amortization expense for the years ended March 31, 2002 and 2001, aggregated $43,186 and $43,786, respectively. Joint Venture The Company entered into a joint venture with two other unrelated parties to market the Company's medical units. The joint venture company, Pegasus Marketing, LLC is 50% owned by the Company, and the Company's President and CEO is the managing member of the joint venture. Operations of the joint venture for the year ended March 31, 2002 are summarized below: Revenues $229,187 Expenses (158,055) Net Income $ 71,132 The Company, in accordance with the equity method of accounting, has recorded in other income its 50% share of the net income in the joint venture. F-8 ADM TRONICS UNLIMTED, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED MARCH 31, 2002 AND 2001 NOTE 5 - NOTES PAYABLE Notes payable consist of the following at March 31, 2002: Current Long-Term Portion Portion Note payable to estate of former officer/stockholder - In February, 2001, the officer/stockholder loaned the Company $150,000 repayable in monthly installments of $5,000, through August 2002 of which $15,000 has been repaid. The interest rate at April 1, 2001 was reduced to 6% from 10%. The President of the Company is the Administrator of the Estate $110,000 $ 25,000 For the years ended March 31, 2002 and 2001 interest expense on total indebtedness amounted to $9,946 and $29,932, respectively. 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: 2002 2001 Tax benefit at U.S. statutory rates $(103,000) $(204,000) Temporary differences 2,000 11,000 Change in valuation allowance 101,000 193,000 Income taxes $ - $ - At March 31, 2002, the Company had deferred tax assets of approximately $1,398,000, comprised of $1,365,000 resulting from net operating loss carryforwards and $33,000 from other temporary differences. The deferred tax assets are offset by a valuation allowance in the amount of $1,398,000. 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, 2002, the Company had consolidated net operating loss carryforwards of approximately $3,800,000 that will expire during the years 2005 through 2022. 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, 2002 and 2001. NOTE 8 - COMMITMENTS AND CONTINGENCIES a) Leases The Company leases its office and manufacturing facilities under non- cancelable operating leases. F-9 ADM TRONICS UNLIMTED, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED MARCH 31, 2002 AND 2001 NOTE 8 - COMMITMENTS AND CONTINGENCIES (Cont'd) The approximate future minimum annual rental under these leases at March 31, 2002 are as follows: March 31, 2003 136,000 March 31, 2004 134,000 March 31, 2005 85,000 March 31, 2006 85,000 March 31, 2007 85,000 Thereafter thru March 31, 2009 107,000 $632,000 Rent expense for all facilities for the years ended March 31, 2002 and 2001 was approximately $179,000 and $157,000, respectively. 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, 2002, 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. The distributor has agreed to pay the Company for Sofpulse units plus accessories retained by the distributor up to a maximum of $112,805 through September 19, 2002. At March, 2002 the distributor has in his possession 31 of the Company's Sofpulse units plus accessories. As of June 25, 2002, the Company has received $50,000 from the distributor. 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. Management intends to vigorously defend this action, including the filing of a counterclaim for damages based on the employee's misrepresentations at the time of purchase of the assets of a company in which the employee was a shareholder and an employee. In November 2001, an entity 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. F-10 ADM TRONICS UNLIMTED, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED MARCH 31, 2002 AND 2001 NOTE 8 - COMMITMENTS AND CONTINGENCIES (Cont'd) In December 2001, an entity 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 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) Recent Event On March 21, 2002 the Company and New England Acquisitions, Inc. ("NEAI") entered into a contingent asset and rights purchase agreement ("Agreement") whereby the Company will acquire 150,373 shares of NEAI's common stock 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. If the closing date has not occurred on or before September 30, 2002 either party has the right to terminate the Agreement. NOTE 9 - STOCK OPTIONS From time to time, the Company grants stock options to directors, officers and outside consultants. Included in the consolidated statement of operations for the years ended March 31, 2001 is $1,600 of consulting services which represents the fair value of consideration paid in the form of non-employee stock options at the grant date. A summary of the Company's stock option activity and related information for the years ended March 31, 2002 and 2001, is as follows: Year Ended Year Ended March 31, 2002 March 31, 2001 Weighted Weighted Average Average Exercise Exercise Options Price Options Price Outstanding at beginning of year 8,992,819 $0.4087 9,392,819 $0.4152 Granted - - 100,000 0.1800 Exercised - - - - Expired (3,800,000) (0.5672) (500,000) (0.4860) Outstanding at end of year 5,192,819 0.2927 8,992,819 0.4087 Exercisable at end of year 5,192,819 $0.2927 8,992,819 0.4087 F-11 ADM TRONICS UNLIMTED, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED MARCH 31, 2002 AND 2001 NOTE 9 - STOCK OPTIONS (Cont'd) The expiration dates and exercise prices of stock options, which were fully vested at March 31, 2002, were as follows: Expiration Number of Exercise Date Options Price December 31, 2002 3,000,000 $0.3750 February 3, 2003 2,192,819 $0.1800 5,192,819 The weighted average fair value of options outstanding at March 31, 2002 were as follows: Weighted Average Fair Value at Number of Date of Options Grant Exercise price exceeded the market price at grant date 3,000,000 $0.0200 Exercise price was less than the market price at grant date 2,192,819 $0.0416 5,192,819 The determination of the fair value of all stock options granted was calculated using the Black-Scholes option - pricing model based on (i) a risk-free interest rate of 5.5%, (ii) an expected option life based on original life of each option, (iii) an expected volatility in the market price of the Company's common stock of 63%, and (iv)no expected dividends on the underlying stock. NOTE 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: F-12 ADM TRONICS UNLIMTED, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED MARCH 31, 2002 AND 2001 NOTE 10 - SEGMENT INFORMATION, GEOGRAPHICAL INFORMATION, MAJOR CUSTOMERS AND CREDIT CONCENTRATION (Cont'd) Chemical Medical Total 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 Year Ended March 31, 2001 Revenues $ 697,195 $1,083,006 $1,780,201 Interest revenue 18,632 5,375 24,007 Interest expense 4,392 25,540 29,932 Depreciation and amortization 34,362 218,382 252,744 Segment loss (78,493) (520,995) (599,488) Segment assets 1,108,573 1,393,020 2,501,593 Expenditures for segment assets - 2,310 2,310 b) Geographical Information Sales to unaffiliated customers, based on location of customer, is as follows: Year Ended March 31, 2002 2001 Chemical Segment: United States $ 696,422 $ 595,268 Europe 11,604 41,536 Asia 35,285 21,707 Other foreign countries 29,377 38,684 $ 772,688 $ 697,195 Medical Segment: United States $ 379,668 $ 893,849 Asia 217,687 168,877 Other foreign countries 1,720 20,280 $ 599,075 $1,083,006 c) Major Customers Sales to individual unaffiliated customers in excess of 19% of net sales to unaffiliated customers are shown below. Year Ended March 31, 2002 2001 Medical Segment: Customer A $280,776 $690,078 d) Product Information The approximate percentage of sales to unaffiliated customers, based on products, is as follows: F-13 ADM TRONICS UNLIMTED, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED MARCH 31, 2002 AND 2001 NOTE 10 - SEGMENT INFORMATION, GEOGRAPHICAL INFORMATION, MAJOR CUSTOMERS AND CREDIT CONCENTRATION (Cont'd) Year Ended March 31, 2002 2001 Chemical Segment: Adhesives and primers 64% 65% Resins and coatings 25% 34% Additives and others 11% 1% Medical Segment: Contract manufacturing 67% 66% Sofpulse units 25% 11% Sonotron devices 6% 14% Other medical devices 2% 9% NOTE 11 - EXPIRATION OF PRIVATE PLACEMENT OFFERING The private placement offering to fund research and development in connection with the blood irradiation device expired during the year ended March 31, 2002. The monies held in escrow were returned to prospective investors. NOTE 12 - 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. F-14 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 46 President, Chief Executive Officer and Director Vincent Di Mino 76 Vice President of Production and Director David Saloff 49 Director 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 and 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 3 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. (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; 21 (ii) Any conviction in a criminal proceeding or being subject of a pending criminal proceeding (excluding traffic violations and other minor offenses); (iii) Being subject to any order, judgment or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; and (iv) Being found by a court of competent jurisdiction (in a civil action), the Securities and Exchange Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended or vacated. (g) Promoters and Control Persons Not Applicable. II. Section 16(a) Beneficial Ownership Reporting Compliance Based solely upon a review of any Forms 3 and 4 and amendments thereto furnished to the Company under Rule 16a-3(a) under the Exchange Act during its most recent fiscal year and any Forms 5 and amendments thereto furnished to the Company with respect to its most recent fiscal year, and any written representations referred to in subparagraph (b)(2)(i) of Item 405 of Regulation S-B, other than as set forth below no person who at any time during the fiscal year ended March 31, 2001 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 for November 2001 and the Estate of Dr. Alfonso Di Mino did not file a Form 3. 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, 2002 and whose total annual salary and bonus exceeded $100,000 (the "Named Officers"): Name and Principal Fiscal Year Annual Compensation Securities Underlying Position Ended March 31 Salary Options Andre' Di Mino 2002 $86,600 -0- Dr. Alfonso Di Mino* 2002 $54,600 -0- President and 2001 $93,600 -0- Chief Executive Officer 2000 $93,600 -0- * Dr. Alfonso Di Mino, was founder and President of the Company from its inception in 1969 until his death in November 2001. On December 18, 2001 Andre' Di Mino was appointed to succeed him as President and Chief Executive Officer. No individual grants of stock options were made during the fiscal year ended March 31, 2002 to the Named Officers. 22 No options issued by the Company were exercised by the Named Officers during the fiscal year ended March 31, 2002. On that date, there were 1,292,819 shares of Common Stock underlying unexercised options held by the Named Officers all of which were exercisable and were out-of-the-money. The Company did not reprice any stock option or SAR previously awarded to the Named Officers. During the fiscal years ended March 31, 2002, 2001 and 2000, 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, 2001 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 3,049,980(2) shares 11%(2) Stock, Dr. Alfonso Di Mino $.0005 par value 224-S Pegasus Ave. Northvale, NJ 07647 Common Andre' Di Mino 8,249,774(3) shares 29%(3) Stock, 224-S Pegasus Ave. 1,700,000(4) shares 6%(4) $.0005 par value Northvale, NJ 07647 3,400,000(5) shares 12%(5) 3,049,980(6) shares 11%(6) Common Vincent Di Mino 2,587,928(7) shares 9%(7) Stock, 224-S Pegasus Ave. $.0005 par value Northvale, NJ 07647 5,100,000(8) shares 18%(8) 23 Common David Saloff - - Stock, 224-S Pegasus Ave. $.0005 par value Northvale, NJ 07647 Common Burton Friedlander 3,313,900(9) shares 11%(9) Stock, 104 Field point Road. $.0005 par value Greenwich CT 06830 Common Heiko H. Thieme 6,617,500(10) shares 23%(10) Stock, 1370 Ave of the Americas $.0005 par value New York, N.Y. 10019 Common Officers and Direc- 18,987,682(11) shares 66%(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) 715,741 shares of Common Stock that may be acquired by The Estate upon exercise of options, (c) 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 (d) 1,330,000 shares of Common Stock, which includes the 1,000,000 shares described in (c) above, subject to an agreement dated July 8, 1987 pursuant to which The Estate has the power to vote such shares. (3) Represents (a) 7,672,696 shares of Common Stock directly owned by Mr. Di Mino and (b) 577,078 shares of Common Stock that may be acquired by Mr. Di Mino upon exercise of options. (4) Represents 1,700,000 shares of Commmon 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) 700,000 shares of Common Stock that may be acquired by Mr. Di Mino upon exercise of options, (c) 300,000 shares of Common Stock beneficially owned by the spouse of Vincent Di Mino, and (d) 300,000 shares of Common Stock owned by the child of Mr. Di Mino who resides in his home, in all of which shares set forth in (c) and (d) of this Note Mr. Di Mino disclaims any beneficial ownership. (8) Represents 5,100,000 shares of Common Stock of which 1,700,000 such shares are held by each of the Andre' Di Mino Irrevocable Trust, the Maria Elena Di Mino Irrevocable Trust and the Maurice Di Mino Irrevocable Trust. 24 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) 3,000,000 shares of Common Stock that may be acquired upon exercise of a Warrant, (b) 2,000,000 shares of Common Stock owned by The American Heritage Fund, Inc., (c) 1,617,500 shares of Common Stock Owned by The Global Opportunity Fund Limited. (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. 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, 2002 was approximately $87,900 and the approximate amount of principal and interest outstanding as of March 31, 2002 was $85,600. 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), (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. 25 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 June 9, 1992 by and between Advent Medical Technology, Inc. and Arthritic Relief Centers, Inc. Exhibit 2 to the Company's Current Report on Form 8-K dated June 9, 1992 is hereby incorporated by reference. 10.4 Agreement of June 9, 1992 by and between Advent Medical Technology, Inc. and Vet Sonotron Systems, Inc. Exhibit 3 to the Company's Current Report on Form 8-K dated June 9, 1992 is hereby incorporated by reference. 10.5 Amendment to Agreement of March 16, 1993 by and between Arthritic Relief Centers, Inc. and Advent Medical Technology, Inc. Exhibit 10(k) to the Company's Annual Report on Form 10-KSB for the fiscal year ended March 31, 1993 is hereby incorporated by reference. 10.6 Voting Agreement of March 16, 1993 by and between Vet Sonotron Systems, Inc. and Advent Medical Technology, Inc. Exhibit 10(l) to the Company's Annual Report on Form 10-KSB for the fiscal year ended March 31, 1993 is hereby incorporated by reference. 10.7 Voting Agreement of March 16, 1993 by and between Arthritic Relief Centers, Inc. and Advent Medical Technology, Inc. Exhibit 10(m) to the Company's Annual Report on Form 10-KSB for the fiscal year ended March 31, 1993 is hereby incorporated by reference. 10.8 Agreement of March 21, 2002 by and between the Company and New England Acquisitions, Inc. * 21.1 Subsidiaries of the Company. * ________________________ * Filed herewith. (b) Reports on Form 8-K On December 18, 2001 a Current Report on Form 8-K was filed by the company disclosing Item 5. Other Events related to the passing of the company's founder and president Dr. Alfonso Di Mino and the appointment of Andre' Di Mino to serve as President and Chief Executive Officer. 26 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 12, 2002 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 ------------------- and Director July 12, 2002 Andre' Di Mino /s/ Vincent Di Mino Director July 12, 2002 ------------------- Vincent Di Mino /s/ David Saloff ------------------- Director July 12, 2002 David Saloff 27 EX-1 3 kexb2002.txt 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 Arthritic Relief Centers, Inc. Nevada Precision Assembly Corporation New Jersey Immuno-Therapy Corporation New Jersey (A subsidiary of Precision Assembly Corporation) Exhibit 10.8 =========================================================================== ASSET AND RIGHTS PURCHASE AGREEMENT between NEW ENGLAND ACQUISITIONS, INC. and ADM TRONICS UNLIMITED, INC. dated MARCH 21, 2002 =========================================================================== ASSET AND RIGHTS PURCHASE AGREEMENT This Asset and Rights Purchase Agreement (this Agreement) is entered into this 21st day of March 2002, by and between ADM Tronics Unlimited, Inc., a Delaware corporation, (ADM) and New England Acquisitions, Inc., a Florida corporation (NEAI). W I T N E S S E T H: WHEREAS, ADM has developed a pain relieving lotion for temporary relief of pain associated with minor burns (the Burn Lotion), a brushless shave cream for use by individuals with a condition known as pseudofolliculitus barbae (the Ethnic Shaving Cream) and an electronic device for the treatment and control of Tinnitus (the Aurex-3"); and WHEREAS, NEAI desires to acquire certain rights to the Burn Lotion, the Ethnic Shaving Cream and the Aurex-3, (collectively, the ADM Products); and WHEREAS, ADM desires to purchase and NEAI desires and to sell 150,375 shares of NEAI's Common Stock, $.00001 par value (the Shares) upon the terms and conditions contained herein. NOW THEREFORE, in consideration of the foregoing and of the mutual covenants and agreements contained herein, the parties hereto covenant and agree as follows: 2 ARTICLE 1 PLAN OF ACQUISITION 1.1 Assets, Properties and Rights to be Purchased. On the terms and subject to the conditions set forth herein, effective on the Closing Date (as defined below), except as set forth in Exhibit 1.1 hereto, ADM shall sell, assign, convey, transfer and deliver to NEAI, its successors and assigns, and NEAI shall purchase and acquire from ADM, the following assets, properties and certain rights of ADM used in the sale and rental of ADM Products (collectively with the rights described in Sections 1.2 and 1.5 hereof, the Assets and Rights), free and clear of any and all liens, claims and encumbrances. The Assets and Rights shall consist of: (a) with respect to Aurex-3, the rights to the use of the trade names, logos and other trade designations, including all applications therefor and registrations thereof and all other statutory or common law rights ADM has or may have therein; (b) two (2) demonstration units of the Aurex-3; (c) all rights relating to (i) the Ethnic Shave Cream for sale by NEAI under its own label, commonly referred to as private label and (ii) the Burn Lotion, neither of which may be sold by NEAI under any trademarks, trade names or designations used by ADM as of the date hereof. (d) with respect to the Aurex-3, use of all permits, approvals, licenses and authorizations held by ADM relating to the marketing of the Aurex-3, all as listed and described on Schedule 1.1(d) hereto; (e) with respect to the Aurex-3, all reasonably available marketing materials, including but not limited to, trade show displays, masters, proofs, photos, computer files and artwork in ADM's possession relating to the ADM Products; (f) subject to the provisions of Exhibit 1.1 hereto, all rights relating to any other shave creams developed by or to be developed by ADM or any subsidiary (Other Shave Creams) thereof subject only to the payment of minimum royalties as set forth in Schedule 1.5.; and (g) All of ADM's rights with respect to enforcement of any and all noncompetition, nonsolicitation, confidential and proprietary information obligations between ADM and the employees or former employees of ADM not employed by NEAI after the Closing (as defined below) with respect to the ADM Products, provided, however, that ADM makes no representation or warranty as to the enforceability of ADM's rights. 3 1.2 NEAI's Freedom to Practice Under ADM's Patents. Except as otherwise expressly set forth in Schedule 1.2, from and after the Closing Date, ADM hereby grants NEAI freedom, under ADM's Patents, as that term is hereinafter defined, to exclusively market the Aurex-3 subject to the conditions set forth herein. Nothing herein shall constitute an assignment of ADM's Patents to NEAI. If in the opinion of patent counsel acceptable both to ADM and to NEAI, any of ADM's Patents is infringed by a third party who manufactures and markets a product deemed substantially equivalent to any of the ADM Products, then, if requested to do so by NEAI, ADM shall file an infringement action in a Federal Court against the third party to enjoin such infringement and to collect damages therefor. All legal and other expenses incurred in this action shall be borne by NEAI and all damages recovered in this action shall be transferred to NEAI. 1.3 Certain Definitions. (a) ADM's Patents as used herein shall mean patents and patent applications listed on Exhibit 1.2 hereto, continuations, continuations-in- part, divisions and reissues thereof. (b) ADM's ATechnology and Know-how as used herein shall mean all reasonably available data, information, design specifications (electrical and mechanical designs and redesigns) and operating instructions and procedures owned by ADM related to the ADM Products. 1.4 Certain rights Reserved by ADM. Notwithstanding anything herein to the contrary, ADM expressly reserves the sole right to research, have researched, develop, have developed, manufacture, have manufactured, market and have marketed all products based on ADM's Patents and ADM's Technology and Know-how for use, throughout the world, other than for or in connection with the ADM Products and, subject to the provisions of Schedule 1.5, Other Shave Creams, or improvements or modifications thereof. Nothing contained in this paragraph shall detract from the rights granted to NEAI in Section 1.2 hereof, and any new innovations made by NEAI independently of the use of ADM's Patents or ADM's Technology and Know-how shall be the joint property of NEAI and ADM. 1.5 NEAI's Rights to Additional Information and Know-how of ADM. From and after the Closing Date, ADM further agrees to provide to NEAI the following for use by NEAI in the marketing of the ADM Products, to the extent in ADM's possession: (a) copies of all manuals and documents relating to operating procedures for the Aurex-3; (b) copies of all FDA related documentation concerning Aurex-3, customer complaint files, FDA audit results and closing letters, any FDA communications or follow-up letters, any unredacted FDA filings and correspondence. 1.6 Assets Not Purchased: Except for the Assets and Rights, ADM specifically does not agree to sell, assign or otherwise convey to NEAI any other assets or properties, all of which other assets and properties shall remain the sole property of ADM, including without limitation but not limited to, the following assets and properties: (a) furniture, fixtures and other assets used by ADM in the business of developing, manufacturing or marketing ADM Products; and (b) accounts receivable of ADM accruing prior to the Closing Date, including open orders for sales of ADM Products;. 4 1.7 Consideration. In full consideration of the sale and transfer of the Assets and Rights, NEAI shall deliver to ADM 150,375 shares of $.00001 par value common stock of NEAI (NEAI Stock) registered in the name of ADM and shall make the payments as described in Schedule 1.5 and in Exhibit 4.7 attached hereto (the Purchase Price). 1.8 Liabilities Not Assumed. NEAI does not assume or agree to pay or discharge any debts, liabilities or obligations of ADM. 1.9 Effective Date and Closing Date. The Effective Date of this Agreement shall be the date this Agreement is executed by all parties. The closing of the transactions contemplated by this Agreement (the Closing) shall take place as of the close of business, New York City time, at the offices of ADM at 224-S Pegasus Avenue, Northvale, New Jersey 07647 not more than ten days after all of the conditions to Closing hereinbelow set forth are satisfied or waived (the date on which the Closing takes place being the Closing Date) or at such other time and place as the parties hereto shall agree. If the Closing Date has not occurred on or before September 30, 2002, each party shall have the right to terminate this Agreement as hereinbelow provided. 1.10 Execution and Delivery of Closing Documents. At the Closing, (a) ADM will deliver to NEAI such assignments, consents to assignments and good and sufficient instruments of transfer and conveyance as shall be necessary to transfer, assign and convey to, and to vest in, NEAI good and merchantable title to the Assets and Rights, free and clear of all liens, claims and encumbrances and such lists and descriptions of the Assets and Rights and such other documents as NEAI may reasonably request and (ii) NEAI will deliver to ADM the NEAI Shares and any payments required pursuant to Schedule 1.5 due at closing. At the Closing, each party also will execute and deliver such other appropriate and customary documents as any other party reasonably may request for the purpose of consummating the transactions contemplated by this Agreement. All actions taken at the Closing will be deemed to have been taken simultaneously at the time the last of any such actions is taken or completed. 1.11 Covenant to Defend Title. Effective as of the Closing Date, ADM hereby binds itself, and its successors and assigns, at ADM's sole cost and expense, to warrant and defend title to the Assets unto NEAI, and its successors and assigns against every person whomsoever lawfully claiming the same or any part thereof. 1.12 Minimum Purchase of Aurex-3. In the event that NEAI does not purchase a minimum of 90 Aurex-3 devices from ADM within one year immediately subsequent to the closing, with such minimum to increase by 10% above the previous year's minimum for each year thereafter, ADM shall have the right to terminate this Agreement solely with respect to any provisions related to the NEAI's exclusivity with respect to the Aurex-3. 1.13 Further Assurances. After the Closing, the parties hereto shall execute and deliver such additional documents and take such additional actions as either party may reasonably deem to be practical and necessary or advisable in order to consummate the transactions contemplated by this Agreement and to vest more fully in NEAI the ownership of and rights to the Assets and Rights granted hereunder as they existed immediately prior to the Closing and to vest more fully in ADM the ownership of and rights to the NEAI Shares 5 ARTICLE 2 REPRESENTATIONS AND WARRANTIES OF ADM ADM represents and warrants to NEAI as follows: 2.1 Organization and Good Standing of ADM. ADM is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. 2.2 Power and Authority. ADM has the corporate power and authority to own, lease and operate its properties and assets and to carry on its business relating to the Assets as currently being conducted. 2.3 Authorization and Validity. ADM has the corporate power and authority to execute, deliver and perform its obligations under this Agreement and the other documents executed or required to be executed by it in connection with this Agreement. This Agreement and the other documents executed or required to be executed by ADM in connection with this Agreement have been or will be duly authorized by all necessary corporate action. 2.4 Binding Effect. This Agreement and the other documents executed or required to be executed by ADM in connection with this Agreement have been or will have been duly executed and delivered by ADM and are or will be, when executed and delivered, the legal, valid and binding obligations of ADM enforceable in accordance with their terms except to the extent that: (a) enforceability may be limited by bankruptcy, insolvency or other similar laws affecting creditors' rights; (b) the availability of equitable remedies may be limited by equitable principles of general applicability; and (c) rights to indemnification may be limited by considerations of public policy. 2.5 No Violation. Neither the execution and performance of this Agreement or the agreements described herein nor the consummation of the transactions described herein or therein will: (a) result in a violation or breach of (i) the certificate of incorporation or by-laws of ADM; or (ii) any material agreement or other material instrument under which ADM is bound or to which any of the Assets are subject, or result in the creation or imposition of any lien, charge or encumbrance upon any of the Assets, or (b) violate, in any material respect, any applicable law or regulation or any judgment or order of any court or governmental agency. To the best of its knowledge, ADM has complied in all material respects with all applicable laws, regulations and licensing requirements, and has filed with the proper authorities all necessary statements, applications, notices, reports and any other filings with respect to ADM's business, except where the failure to do so would not reasonably be expected to have a material adverse effect on the Assets or the intended use thereof by NEAI. 6 2.6 Permits and Licenses; Compliance. To the best of its knowledge, ADM possesses all necessary governmental licenses, franchises, permits, approvals, authorizations, and rights necessary for NEAI to engage in the marketing of the ADM Products and that, if not possessed, could not reasonably be expected to have a material adverse effect on the Assets and Rights or the intended use thereof by NEAI. To the best of its knowledge, ADM is in compliance with all such governmental licenses, franchises, permits, approvals, authorizations, or rights, and all federal, state or local laws or regulations applicable to the Assets except where the failure to be in compliance would not reasonably be expected to have a material adverse effect on the Assets or the intended use thereof by NEAI. 2.7 Title to Assets. ADM owns the Assets free and clear of all liens, claims and encumbrances. Upon consummation of the transactions contemplated hereby, NEAI shall receive good and valid title to the Assets, free and clear of all liens, claims and encumbrances. 2.8 Consents. No authorization, consent, approval, permit or license of, or filing with, any governmental or public body or authority, any lender or lessor or any other person or entity is required to authorize, or is required in connection with, the execution, delivery and performance of this Agreement or the agreements or transactions contemplated hereby on the part of ADM. 2.9 Description of the ADM Products. No document heretofore furnished by ADM or any person acting on its behalf to NEAI or any person acting on its behalf with respect to the ADM Products (collectively, the Disclosure Documents) contains any untrue statement of a material fact or omits to state a material fact necessary to make the statement therein, in light of the circumstances under which they were made, not misleading. To the extent any of the ADM Products are described in ADM's Annual Report on Form 10-KSB for the fiscal year ended March 31, 2001, such description does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statement therein, in light of the circumstances under which they were made, not misleading. Since the date of which information has been furnished in such Annual Report and the Disclosure Documents, respectively, there has not been any material adverse change in or event affecting any of the ADM Products , the Assets or the rights to be acquired by NEAI hereunder. 2.10 Litigation. No legal or administrative or other adversary proceeding or investigation is currently pending against ADM and, to the best knowledge of ADM, none is threatened or contemplated by any governmental agency or other third party with respect to the Assets or the ADM Products. ADM is not subject to any continuing court or administrative order, writ, injunction or decree applicable specifically to the Assets or which would affect the obligations of ADM or the rights of NEAI hereunder. In connection with any of the ADM Products, ADM has not received any notice from a customer for any claim that could be made by such customer based upon inadequate or negligent services, defective products, or improper performance of or other breach of any contract with such customer by ADM. 7 2.11 Patents, Trademarks and Copyrights. Other than as expressly set forth in Exhibit 2.11, ADM owns or is licensed to use all patents, trademarks, and copyrights, if any, necessary to manufacture and market the Aurex-3 without conflict with the rights of others and following the Closing, NEAI shall be entitled to use all such patents, trademarks and copyrights as are necessary to market the Aurex-3. Schedule 1.2 contains a true and correct description of the following: (a) all trademarks, trade names, service marks, and other trade designations, common law rights, registrations, and applications for registration, and all patents, copyrights, and applications currently owned, in whole or in part, by ADM and used in the manufacture and marketing of the Aurex-3; and (b) all material agreements relating to technology, know-how or processes that ADM is licensed or authorized to use by others and used in the manufacture and marketing of the Aurex-3. 2.12 Finder's Fee. ADM has not incurred any obligation for any finder's, broker's, or agent's fee in connection with this Agreement or the transactions contemplated hereby. 2.13 Environmental and Other Matters. ADM has manufactured and marketed the ADM Products with valid permits, licenses, authorizations, certificates, consents, exemptions and approvals (collectively, Permits) required under any applicable law, rule or regulation relating to or addressing the environment, health, safety or hazardous materials (collectively, Environmental Law), including Permits necessary for the ownership of the Assets or the operation of ADM's business. There are no unresolved past or pending or, to ADM's knowledge, threatened claims under any Environmental Law against ADM with respect to the Assets, nor to ADM's knowledge are there any circumstances that may form a basis of any such claim. 2.14 Full Disclosure. There are no facts pertaining to ADM or the business of ADM that are reasonably likely to have a material adverse effect on the Assets that have not been disclosed in this Agreement or the attached Schedules. No representation or warranty of ADM in this Agreement, any attached Schedule, any certificate furnished or to be furnished by ADM to NEAI pursuant to this Agreement, or in connection with the transactions contemplated by this Agreement, contains or will contain any untrue statement of a material fact, or omits or will omit to state a material fact necessary to make the statements contained herein or therein not misleading. 2.15 Liens on Assets. ADM represents that there are no liens held by any party on the Assets. 2.16 FDA Matters. Set forth on Schedule 2.16 is a list of all complaints received since January 1, 1997 by ADM or its distributors or agents from customers and others with respect to the ADM Products. ADM has notified the FDA of such complaints to the extent required by applicable law. 8 2.17 Disclaimer. Notwithstanding anything in this Agreement or elsewhere to the contrary, ADM does not warrant that NEAI will be successful, either in a business or a technical sense (for example, the design of products, materials or processes used in manufacture or in the sales and marketing methods used by ADM), as a result of purchasing the Assets or exercising the rights granted by ADM to NEAI hereunder. In addition, ADM makes no representation or warranty with respect to the efficacy of the ADM Products or that any design, drawing, computer software, documentation, materials used, equipment used or processes used or adapted for the development or manufacture of the Assets or the use thereof by NEAI is sufficient or is fit for a particular purpose and ADM makes no representation or warranty that NEAI should rely on such design, drawings, materials, documentation, equipment or process. ADM makes no representation or warranty that NEAI can or should continue to conduct the business of marketing of ADM Products in the same manner as it was conducted by ADM. ADM has advised NEAI that there are many competing and overlapping patents, proprietary rights and trade secret claims in this area of business, and that NEAI shall rely on its own independent evaluation of the patents, proprietary rights and trade secrets in the conduct of its business. 2.18 Investment Representations and Warranties. (a) The NEAI Shares will be acquired by ADM for its own account and not with a view to or for sale or other disposition in connection with any transaction that will not be exempt form the registration requirements of the Securities Act of 1933 (the Securities Act) and any applicable state securities laws. (b) ADM is capable of evaluating the merits and risks of an investment in such NEAI Shares and has such knowledge, experience and skill in financial and business matters that it is capable of evaluating the merits and risks of the investment in NEAI Shares and the suitability of the NEAI Shares as an investment and can bear the economic risk of an investment therein for an indefinite period of time. No guarantees have been made or can be made with respect to the future value, if any, of the NEAI Shares or the profitability or success of the business of NEAI. (c) ADM understands that the NEAI Shares will not have been registered under the Securities Act or any applicable state securities laws, that the NEAI Shares will be characterized as restricted securities under federal securities laws, and that under such laws and applicable regulations the NEAI Shares cannot be sold or otherwise disposed of without registration under the Securities Act or an exemption therefrom. In this connection, ADM represents that it is familiar with Rule 144 promulgated under the Act, as currently in effect, and understands the resale limitations imposed thereby and by the Securities Act. Stop transfer instructions may be issued to the transfer agent for securities of NEAI (or a notation may be made in the appropriate records of NEAI) in connection with the NEAI Shares, but only to the extent customary for securities which are restricted securities. (d) ADM understands that NEAI is the only person that can register the NEAI Shares under the Securities Act of 1933 and NEAI has no obligation or intension to do so. (e) ADM consents to the placement of a legend on the certificate evidencing the NEAI Shares stating that they have not been registered under the Securities Act or under any other applicable securities laws, setting forth or referring to the restrictions on transferability and sale thereof and including placement of any additional language as may be required by applicable state securities laws. (f) ADM is (i) aware that NEAI is a blank Check company as that term is used in Rule 419 (ARule 419") under the Securities Act of 1933 (the Act), (ii) is familiar with the provisions of Rule 419 and (iii) is aware that NEAI and this Agreement is subject to the provisions of Rule 419. (g) ADM has downloaded, printed and carefully reviewed NEAI's filings made with the Securities and Exchange Commission the (SEC). 9 ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF NEAI Subject to the provisions of Rule 419, NEAI represents and warrants to ADM as follows: 3.1 Organization and Good Standing. NEAI is a corporation duly organized, validly existing and in good standing under the laws of the State of Florida.. 3.2 Power and Authority. NEAI has the corporate power and authority to own, lease and operate its respective properties and assets and to carry on its respective business as currently being conducted and NEAI has the corporate power and authority to issue the NEAI Shares as herein provided. 3.3 Authority and Validity. NEAI has the corporate power and authority to execute, deliver and perform its respective obligations under this Agreement and the other documents executed or required to be executed by it in connection with this Agreement, and this Agreement and the other documents executed or required to be executed by NEAI in connection with this Agreement have been duly authorized by all necessary corporate action of NEAI. 3.4 Binding Effect. This Agreement and the other documents executed or required to be executed by NEAI in connection with this Agreement have been or will have been duly authorized, executed and delivered by NEAI and are or will be, when executed and delivered, the legal, valid and binding obligations of NEAI enforceable in accordance with their terms except to the extent that: (a) enforceability may be limited by bankruptcy, insolvency or other similar laws affecting creditors' rights; (b) the availability of equitable remedies may be limited by equitable principles of general applicability; and (c) rights to indemnification may be limited by considerations of public policy. 3.5 No Violation. Neither the execution and performance of this Agreement or the agreements described herein nor the consummation of the transactions described herein or therein will: (a) result in a violation or breach of (i) the Articles or by-laws of NEAI or (ii) any material agreement or other material instrument under which NEAI is bound or to which the assets of NEAI are subject, or result in the creation or imposition of any lien, charge or encumbrance upon any of the assets or properties of NEAI; or (b) violate, in any material respect, any applicable law or regulation or any judgment or order of any court or governmental agency. 10 NEAI has complied in all material respects with all applicable laws, regulations and licensing requirements, and has filed with the proper authorities all necessary statements, applications, notices, reports and any other filings with respect to NEAI's business, as applicable, except where the failure to do so would not reasonably be expected to have a material adverse effect on the condition (financial or otherwise), assets, properties or prospects of NEAI. 3.6 Consents. No authorization, consent, approval, permit or license of, or filing with, any governmental or public body or authority, any lender or lessor or any other person or entity is required to authorize, or is required in connection with, the execution, delivery and performance of this Agreement or the agreements or transactions contemplated hereby on the part of NEAI. 3.7 Finder's Fee. NEAI has not incurred any obligation for any finder's, broker's or agent's fee in connection with the transactions contemplated hereby. 3.8 Securities Compliance. NEAI has timely filed all required forms, statements and documents with the SEC, all of which have complied in all material respects with all applicable requirements of the Securities Act and the Securities Exchange Act of 1934, as amended (the SEC Documents). As of their respective dates, the SEC Documents did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. The financial statements contained in the SEC Documents are true, complete and correct in all material respects and were prepared in accordance with generally accepted accounting principles applied on a consistent basis, and fairly present the financial position of NEAI as of the dates and for the periods indicated. Since the date that the last SEC Document was filed with the SEC, no event or condition has occurred (other than this Asset Purchase Agreement) that (i) may reasonably be expected to result in a material adverse effect on the condition (financial or otherwise) of NEAI or on its assets, properties or prospects or (ii) requires the filing by NEAI of any form, statement or document with the SEC. Since the date of the last financial statements included in the SEC Documents, NEAI has not incurred any material liabilities other than liabilities incurred in the ordinary and usual course of business consistent with past practice. 3.9 Captialization. The authorized capitalization of NEAI is as set forth in its Quarterly Report on Form 10-QSB for the quarterly period ended December 31, 2001. NEAI has outstanding 3,007,500 shares of its $.00001 par value Common stock. There is not outstanding any security, right, subscription, warrant, option, stock appreciation right or other agreement or other security that is convertible into, exercisable for, or entitles the holder to purchase or acquire any capital stock from NEAI.. 3.10 Permits and Licenses; Compliance. NEAI possesses all necessary governmental licenses, franchises, permits, approvals, authorizations, and rights, whether federal, state, local or foreign, that are necessary for NEAI to engage in its business and that, if not possessed, could reasonably be expected to have a material adverse effect on the condition of NEAI financial or otherwise) or on its assets, properties or prospects. NEAI is in compliance with all such governmental licenses, franchises, permits, approvals, authorizations, or rights, and all federal, state or local laws or regulations applicable to its business except where the failure to be in compliance could not reasonably be expected to have a material adverse effect on the condition of NEAI (financial or otherwise) or on its assets, properties or prospects. 11 3.11 Absence of Certain Changes. Since December 31, 2001, NEAI has not: (a) suffered any material adverse change in its business; (b) suffered any damage or destruction or loss that could reasonably be expected to or does materially and adversely affect the condition of NEAI (financial or otherwise) or its respective assets, properties or prospects; (c) acquired or disposed of any assets or properties other than in the ordinary course of business; or (d) entered into any other commitment or transaction (other than the sale of 7,500 shares of its Common stock at $2.00 per share) or experienced any other event that is material to this Agreement or to any of the other agreements and documents executed or to be executed pursuant to this Agreement or to the transactions described herein or therein, or that could reasonably be expected to have, or has had, a material adverse effect on the condition of NEAI (financial or otherwise) or on its assets, properties or prospects. 3.12 Litigation. No material legal or administrative or other adversary proceeding or investigation is currently pending against NEAI and, to the best knowledge of NEAI, none is threatened or contemplated by any governmental agency or other third party. NEAI is not subject to any continuing court or administrative order, writ, injunction or decree. 12 ARTICLE 4 COVENANTS OF ADM 4.1 Exclusive Negotiations. Until the earlier of the Closing Date or the termination of this Agreement, and subject to the fiduciary duties of the directors of ADM, ADM agrees that none of ADM or any of the officers, directors or other agents of ADM will, directly or indirectly, solicit or accept from any person or entity any offer or expression of interest in, or with respect to an acquisition, combination, merger or similar transaction involving ADM with respect to the Assets. Upon receipt of any unsolicited bona fide offer or expression of interest in or with respect to any such transaction, ADM agrees to promptly inform NEAI of the existence and terms of such offer or expression of interest. 4.2 Non-Compete. Except as otherwise expressly set forth in Exhibit 4.2, for a period of five years from the Closing Date or until this Agreement is terminated, (i) ADM agrees neither to manufacture and sell nor to assist a third party (other than NEAI and its affiliates) to manufacture a product that is equivalent or substantially equivalent to the ADM Products. 4.3 Sales and Use Tax. Although, NEAI shall be responsible for any sales or use tax payable in connection with the sale of the Assets hereunder; ADM will reasonably assist NEAI to minimize any such sales or use tax. Such assistance shall include, but not be limited to, changing of the situs of the Closing to Delaware. 4.4 Exclusive Manufacturing Agreement. At the Closing, ADM shall execute the Manufacturing Agreement in substantially the form set forth in Exhibit 4.7 hereto. 4.5 Filing of Post-Effective Amendment by NEAI. ADM will assist NEAI in describing the Assets, Rights and the ADM Products in the Post- Effective Amendment to be filed by NEAI in compliance with Rule 419 (the Post-Effective Amendment). 4.6 Product Liability Insurance. ADM will continue to maintain product liability insurance in amounts not less than the amount presently in force and such insurance will inure to the benefit of NEAI, its customers and end users. 13 ARTICLE 5 COVENANTS OF NEAI 5.1 Post-Effective Amendment. NEAI will use its reasonable commercial efforts to prepare and file the Post-Effective Amendment with the SEC and have it declared effective as soon as reasonably practicable. 5.2 Exclusive Negotiations. Until the earlier of the Closing Date or the termination of this Agreement, and subject to the fiduciary duties of the directors of NEAI, NEAI agrees that none of NEAI or any of the officers, directors or other agents of NEAI will, directly or indirectly, solicit or accept from any person or entity any offer or expression of interest in, or with respect to a similar transaction involving NEAI with respect to a product or a business that competes, directly or indirectly, with the commercial use of the Assets ). 5.3 Exclusive Manufacturing Agreement. At the Closing, NEAI shall execute the Manufacturing Agreement in substantially the form set forth in Exhibit 4.7 hereto. 14 ARTICLE 6 CONDITIONS TO CLOSING 6.1 Conditions to Obligations of ADM. The obligations of ADM to consummate the transactions contemplated by this Agreement shall be subject to the fulfillment, at or prior to the Closing of each of the following conditions in all material respects: (a) Representations, Warranties and Covenants. The representations and warranties of NEAI contained in this Agreement shall have been true and correct as of the date they were made or deemed to have been made and shall be true and correct as of the Closing Date, with the same force and effect as if made as of the Closing Date, except for such changes as are permitted or contemplated by this Agreement, and other than such representations and warranties as are made as of another date. The covenants and agreements contained in this Agreement to be complied with by NEAI on or before the Closing Date shall have been complied with. ADM shall have received a certificate from NEAI to such effect, dated as of the Closing Date and signed by the Chief Executive Officer of NEAI. (b) No Proceeding or Litigation. No legal or regulatory action shall have been commenced or threatened by or before any court or any federal, state or local governmental authority (collectively, Governmental Authority) against ADM or NEAI seeking to restrain or adversely alter the transactions contemplated by this Agreement or which is likely to render it impossible or unlawful to consummate such transactions, or which could reasonably be expected to have a material adverse effect on the condition of NEAI (financial or otherwise) or on its assets, properties or prospects. 6.2 Conditions to Obligations of NEAI. The obligations of NEAI to consummate the transactions contemplated by this Agreement shall be subject to the fulfillment, at or prior to the Closing, of each of the following conditions in all material respects: (a) Representations, Warranties and Covenants. The representations and warranties of ADM contained in this Agreement shall have been true and correct as of the date as of which they were made or deemed to have been made and shall be true and correct as of the Closing Date, with the same force and effect as if made as of the Closing Date except for such changes as are permitted or contemplated by this Agreement, other than such representations and warranties as are made as of another date. The covenants and agreements contained in this Agreement to be complied with by ADM on or before the Closing Date shall have been complied with. NEAI shall have received a certificate from ADM to such effect dated as of the Closing Date and signed by the Chief Executive Officer of ADM; (b) No Proceeding or Litigation. No legal or regulatory action shall have been commenced or threatened by or before any Governmental Authority against ADM or NEAI seeking to restrain or adversely alter the transactions contemplated hereby or which is likely to render it impossible or unlawful to consummate the transactions contemplated by this Agreement or which could have a material adverse effect on the Assets. (c) Effectiveness of Post-Effective Amendment and Confirmation of Shareholders. The Post-Effective Amendment shall have been declared effective by the SEC and the holders of not less than the 7,000 shares purchased in NEAI's public offering duly confirm their investments in accordance with the provisions of Rule 419. 15 ARTICLE 7 INDEMNIFICATION 7.1 Indemnification. (a) Subject to the terms and conditions of this Article 7, NEAI hereby agrees to indemnify, defend and hold each of ADM and its officers, directors, agents, attorneys and affiliates harmless from and against all losses, obligations, assessments, penalties, liabilities, costs, damages, reasonable attorneys' fees and expenses (collectively, Damages) asserted against or incurred by ADM or such identified persons by reason of or resulting from (i) a representation or warranty made by NEAI herein being materially incorrect or untrue or (ii) a breach by NEAI of any covenant contained herein or in any of the agreements executed pursuant hereto. (b) Subject to the terms and conditions of this Article 7, ADM hereby agrees to indemnify, defend and hold each of NEAI, its assignee and its officers, directors, agents, attorneys and affiliates harmless from and against all Damages asserted against or incurred by NEAI or such identified persons by reason of or resulting from (i) a representation or warranty made by ADM herein being materially incorrect or untrue or (ii) a breach by ADM of any covenant made by ADM contained herein or in any of the agreements executed pursuant hereto. (c) The parties agree to cooperate with each other in the event of any settlement negotiated with regard to the indemnification provided herein. In no event shall the total amount payable pursuant to this Section 7.2(c) with respect to the incorrectness of a representation or warranty exceed the Purchase Price or with respect to a breach of a covenant or agreement exceed the sum of the Purchase Price plus the net profit earned by NEAI with respect to the operation of the Assets (including all rights granted to NEAI hereunder). 7.2 Assertion and Resolution of Indemnification Claim. (a) Any permitted indemnitee under Sections 7.1 (an Indemnified Party) shall give notice to the person responsible for indemnification (an Indemnifying Party) of any claim as to which indemnification may be sought as soon as possible after the Indemnified Party has actual knowledge thereof and the amount thereof, if known. The Indemnified Party shall supply to the Indemnifying Party any other information in the possession of the Indemnified Party regarding such claim, and will permit the Indemnifying Party (at its expense) to assume the defense of any third party claim and any litigation resulting therefrom, provided that counsel for the Indemnifying Party who shall conduct the defense of such claim or litigation shall be reasonably satisfactory to the Indemnified Party, and provided further that the failure by the Indemnified Party to give notice as provided herein will not relieve the Indemnifying Party of its indemnification obligations hereunder except to the extent that the Indemnifying Party is damaged as a result of the failure to give notice. If the Indemnifying Party has assumed the defense of a third party claim, the Indemnifying Party shall not be entitled to settle such third party claim without the prior written consent of the Indemnified Party, which consent shall not be unreasonably withheld, provided that such consent shall not be required if such settlement involves only the payment of money and the claimant provides to the Indemnified Party, in form and substance reasonably satisfactory to such Indemnified Party, a release from all liability in respect of such third party claim. (b) The Indemnified Party shall have the right at all times to participate in the defense, settlement, negotiations or litigation relating to any third party claim or demand at its own expense. If the Indemnifying Party does not assume the defense of any matter as above provided, then the Indemnified Party shall have the right to defend any such third party claim or demand, and will be entitled to settle any such claim or demand in its discretion for the account or benefit of the Indemnified Party. In any event, the Indemnified Party will cooperate in the defense of any such action at the expense of the Indemnifying Party and the records of each party shall be available to the other with respect to such defense. 7.3 Indemnification of Negligence of Indemnitee. The indemnification provided in this Article 7 shall be applicable whether or not negligence of the indemnified party is alleged or proven. 16 ARTICLE 8 TERMINATION 8.1 Termination by ADM. (a) ADM shall have the right to terminate this Agreement if the conditions in Section 6.1 have not been satisfied or waived by ADM on or before September 30, 2002. (b) ADM shall have the right to terminate this Agreement if any payments required to be made to it by NEAI hereunder remain unpaid after thirty days notice of such non-payment has been given to NEAI by ADM. 8.2 Termination by NEAI. NEAI shall have the right to terminate this Agreement if the conditions in Section 6.2 have not been satisfied or waived by NEAI on or before September 30, 2002. 8.3 Termination by Agreement of ADM and NEAI. ADM and NEAI may terminate this Agreement at any time by their mutual consent. 8.4 Damages. If this Agreement is terminated pursuant to this Article 8, the parties shall retain any rights they may have against each other for any breach of any of the terms and conditions of this Agreement. 8.5 Bankruptcy or Insolvency. This Agreement may be terminated by ADM if NEAI shall file a petition for bankruptcy or shall become insolvent. 17 ARTICLE 9 MISCELLANEOUS 9.1 Expenses. Each party hereto shall pay its own expenses incurred in connection with this Agreement and the transactions contemplated hereby. 9.2 Entire Agreement. This Agreement and the schedules and exhibits hereto contain the complete agreement among the parties with respect to the transactions contemplated hereby and supersede all prior agreements and understandings among the parties with respect to such transactions. 9.3 Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed an original, and such counterparts together shall constitute only one original. 9.4 Notices. All notices, demands, requests, or other communications that may be or are required to be given, served or sent by any party to any other party pursuant to this Agreement shall be in writing and shall be mailed by first-class, registered or certified mail, return receipt requested, postage prepaid, or transmitted by hand delivery, telegram, facsimile, or telex, addressed as follows: If to ADM: If to NEAI: ADM Tronics Unlimited, Inc. New England Acquisitions, Inc. 224-S Pegasus Avenue 5 Ridge Road Northvale, NJ 07647 Cos Cob, CT 06807 Attn: Andre Di Mino Attn: Gary Cella Facsimile: 201-784-0620 Facsimile: 203-422-2875 Each party may designate by notice in writing a new address to which any notice, demand, request or communication may thereafter be so given, served or sent. Each notice, demand, request or communication that is mailed, delivered or transmitted in the manner described above shall be deemed sufficiently given, served, sent and received for all purposes at such time as it is delivered to the addressee, with the return receipt, the delivery receipt, the affidavit of messenger, or (with respect to a telecopy or telex) the answerback or confirmation of receipt being deemed conclusive evidence of such delivery, or at such time as delivery is refused by the addressee upon presentation. 18 9.5 Severability. If any provision of this Agreement is held to be illegal, invalid or unenforceable under present or future laws effective during the term hereof, the provision shall be fully severable and this Agreement shall be construed and enforced as if such illegal, invalid or unenforceable provision were never a part hereof; and the remaining provisions hereof shall remain in full force and effect and shall not be affected by the illegal, invalid or unenforceable provision or by its severance herefrom. Furthermore, in lieu of such illegal, invalid or unenforceable provision, there shall be added automatically as part of this Agreement a provision as similar in its terms to such illegal, invalid or unenforceable provision as may be possible and be legal, valid and enforceable. 9.6 Successors and Assigns. This Agreement and the rights, interests and obligations hereunder shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and permitted assigns. 9.7 Governing Law. This Agreement and the rights and obligations of the parties hereto shall be governed, construed and enforced in accordance with the laws of the State of New Jersey and exclusive venue shall lie in the state and federal courts in the State of Jersey. 9.8 Amendment, Waiver and Other Action. This Agreement may be amended, modified or supplemented only by a written instrument executed by the parties against which enforcement of the amendment, modification or supplement is sought. 9.9 Legal Representation. All of the parties to this Agreement acknowledge that they have been advised that they should seek and have had the opportunity to seek counsel to review this Agreement and to obtain the advice of such counsel relating thereto. 9.10 Assignment. Neither this Agreement nor any right created hereby shall be assignable by either party hereto without the consent of the other party, which consent shall not be unreasonably withheld, provided that NEAI may assign this Agreement to a wholly owned subsidiary which has not yet been formed. 9.11 Confidentiality. Other than as required by law, each party shall maintain the confidentiality of, and not divulge or disclose to any other person, the existence of or any terms and conditions of this Agreement or any of the financial or other information provided to it by the other party to this Agreement. 19 9.12 Captions. The captions in this Agreement are for convenience of reference only and shall not limit or otherwise affect any of the terms or provisions hereof. 9.13 Number and Gender. Whenever the context requires, references in this Agreement to the singular number shall include the plural; the plural number shall include the singular; and words denoting gender shall include the masculine, feminine, and neuter. 9.14 Public Announcements. Except to the extent that ADM or NEAI believes on the advice of counsel that public disclosure is required by law, no party to this Agreement shall make, or cause to be made, any press release or public announcement in respect of this Agreement or the transactions contemplated hereby or otherwise communicate with any news media without prior notification to the other parties. The parties shall cooperate as to the time and contents of any such press release or public announcement, but if they are unable to reach an agreement as to the time and contents of such press release or public announcement, each shall be free to make such press release or public announcement as it deems necessary. 9.15 Survival of Representations and Warranties. The representations and warranties of the respective parties shall survive the Closing or termination of this Agreement, as the case may be. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year set forth above. NEW ENGLAND ACQUISITIONS, INC. ADM TRONICS UNLIMITED, INC. By: /s/ Gary Cella By: /s/ Andre' Di Mino Its: President Its: President Date: March 21, 2002 Date: March 21, 2002 20 Exhibit 1.1 - Exception to Assets and Rights Purchased See Schedule 1.2. ADM may market Other Shave Creams without limitations to Dr. Donald Feinsod, CSC Laboratories, Pegasus Marketing, Professional Makeup Customers. Unless NEAI pays ADM minimum royalties of (a) $10,000 within one year from the Closing, (b) an additional $14,000 within two years from the Closing and (c) additional amounts each year thereafter of not less than 110% of the minimum royalty for the immediately preceding year, ADM may market Other Shave Creams to others without limitation. Exhibit 1.2 - Patent List Patent Number 6,210,321 Electronic Stimulator System for Treating Tinnitus Disorders Patent Number 5,788,656 Electronic Stimulation System for Treating Tinnitus Disorders Exhibit 2.11 - Exceptions to Intellectual Property Rights - referred to elsewhere herein. Exhibit 4.2 - Non-Compete Exceptions - referred to elsewhere herein. Exhibit 4.7 - Manufacturing Agreement - to be attached separately. Schedule 1.1(d) - Permits, approvals, licenses and authorizations Pre-Market Notification 510K #981704 Aurex-3 Schedule 1.2 - Exclusion to market rights for Aurex-3 Aurex-3 - All countries other than the United States of America and the customers of Pegasus Marketing (the PM Customers) 21 Schedule 1.5 - Payments 1. A royalty of 6% on gross sales less discounts, returns and allowances of the ADM Products. Such royalties to be paid by NEAI to ADM on the 15th of each month for sales in the immediately preceding month, together with a report describing, in sufficient detail, how such monthly royalty was computed. 2. Consulting fees and related expenses for time expended by ADM Employees for any services related to the ADM Products other than manufacturing activities, to be agreed upon by the parties in writing in advance of any such service. Such payments are to be made by NEAI to ADM upon receipt of invoices from ADM. 3. A payment of $25,000 due in advance of the initiation of production of the Burn Lotion for expenses and establishment of regulatory support and processes for NEAI's distribution of the Burn Lotion. Notwithstanding anything herein to the contrary, if such amount is not paid within one year from the Closing, the exclusive rights of NEAI with respect to the Burn Lotion shall thereupon terminate. 4. During such times that NEAI has the exclusive rights to market and sell the Aurex-3 limited only by the provisions of Schedule 1.2 above, NEAI shall promptly reimburse ADM for ADM's cost for normal recurring patent and regulatory fees and related costs applicable solely to the marketing of the Aurex-3 in the United States. Such fees include, but are not limited to, patent maintenance fees, third party regulatory inspection fees and FDA filing fees. It is anticipated that such cost shall not exceed $6,000 per annum. Notwithstanding the foregoing, to the extent that the Aurex-3 is sold for use in the United States to the PM Customers, the amount to be reimbursed by NEAI shall be on a pro rata basis based on the number of Aurex-3 devices sold by ADM to NEAI and the PM Customers for use in the United States. Such amounts to be paid by NEAI to ADM upon receipt of invoices from ADM. Schedule 2.16 - Complaint List On August 30, 1999 an Aurex-3 user reported that the applicator cable would not remain attached to the unit. The unit was replaced and the defect was corrected in all subsequent units. This complaint did not require the filing of an MDR report with the FDA as it did not result in any injury to a user. 22 Exhibit 4.7 EXCLUSIVE MANUFACTURING AGREEMENT THIS MANUFACTURING AGREEMENT ("Agreement"), made and entered into this _____ day of March, 2002 by and between New England Acquisitions Incorporated, a Florida Corporation ("NEAI") and ADM Tronics Unlimited, Inc., a Delaware corporation ("ADM"). WITNESSETH: WHEREAS, ADM is engaged in the business of developing and manufacturing various chemical preparations, in particular, products used for certain cosmetic or over-the-counter topical formulations and medical electronic devices, in particular, a medical device used for the treatment and control of Tinnitus, and WHEREAS, pursuant to an Asset and Rights Purchase Agreement between NEAI and ADM (the "Purchase Agreement"), NEAI will be securing certain marketing rights with respect to the ADM Products as that term is defined in the Purchase Agreement. WHEREAS, ADM and NEAI desire to enter into an exclusive manufacturing agreement whereby ADM will (i) bulk manufacture for NEAI the Burn Lotion and Ethnic Shave Cream, as those terms are defined in the Purchase Agreement (the "Bulk Products") and the Aurex-3 as that term is defined in the Purchase Agreement, pursuant to the terms and conditions as set forth herein, and (ii) maintain raw material supplies and finished goods necessary for supply of the Bulk Products and Aurex-3 to NEAI or its designee, and (iii) provide to NEAI oversight and guidance with respect to regulatory requirements regarding the marketing of the Bulk Products and Aurex-3, and WHEREAS, ADM will exclusively manufacture all other medical products, topical and cosmetic products to be acquired and distributed by NEAI ("Other NEAI Products"). NOW, THEREFORE, in furtherance of the foregoing premises and in consideration of the mutual covenants and obligations hereinafter set forth, the Parties hereto, intending to be legally bound hereby, do agree as follows: 23 ARTICLE 1 DEFINITIONS As used in this Agreement, the following terms will have the following meanings, applicable both to the singular and the plural forms of the terms defined: Agreement - has the meaning ascribed thereto in the preamble. Confidential Information - means any information, whether or not protected by patents or copyright (including, without limitation, programs, files, specifications, drawings, procedures, bill of materials, artwork, customer lists, supplier lists, channel of distribution, pricing, models, samples, business information, records and technical information or other data) that is provided by one party to the other party in connection with this Agreement, and marked or designated as "Confidential." Facility - shall mean the manufacturing facility of ADM Tronics Unlimited, Inc. at 224 S Pegasus Avenue, Northvale, New Jersey 07647. Indemnified Person - means a NEAI Indemnified Person or an ADM Indemnified Person. Intellectual Property Rights - means any and all patent, copyright, tradename, trade or service mark, trade secret or similar intellectual property rights. Order - has the meaning ascribed thereto in Section 3.1. Person - means any individual, partnership, joint venture, corporation, trust, unincorporated organization, government (and any department or agency thereof) or other entity. Product - means any of the ADM Products and Other NEAI Products to be purchased by NEAI from ADM and proposed to be manufactured and sold by ADM to NEAI pursuant to this Agreement. Product Specifications - means, with respect to any Product proposed to be manufactured and sold pursuant to this Agreement, the Product Specifications for such Product identified in or established pursuant hereto. Purchase Price - means, with respect to any Product proposed to be manufactured and sold pursuant to this Agreement, the Purchase Price set forth herein. Subsidiary - means, with respect to any Person (Parent Company), a corporation or other Person (i) the majority of whose shares or other securities entitled to vote for election of directors (or other managing authority) is now or hereafter owned or controlled by such Parent Company either directly or indirectly or (ii) which does not have outstanding shares or securities but the majority of whose ownership interest representing the right to control such Person is now or hereafter owned or controlled by such Parent Company either directly or indirectly; but any such corporation or other Person shall be deemed to be a subsidiary of such Parent Company only as long as such control or ownership and controls exits. Warranty Expiration Date - means, with respect to each Product, the warranty expiration date for such Product set forth herein. 24 ARTICLE II Exclusive Manufacturing 2.1 Pursuant to the Purchase Agreement, ADM has granted certain rights to the use of ADM's Patents as more fully described in Schedule 1.2 to the Purchase Agreement. ADM will manufacture the Aurex-3 for NEAI pursuant to the terms of this Agreement and will manufacture the Aurex-3 at the Facility for other customers not in conflict with the rights so purchased by NEAI. 2.2 ADM shall manufacture a modified version of the Burn Lotion and Ethnic Shaving Cream on a private label basis for NEAI, such versions being exclusive to NEAI. 2.3 ADM shall be the exclusive manufacturer of all Other NEAI Products to be acquired and distributed by NEAI. ARTICLE III PLACEMENT OF ORDERS; PRODUCT PURCHASE COMMITMENT; PRICING 3.1 Placement of orders: NEAI shall place orders with ADM for the purchase of any Products by providing ADM with an Order ("Order") for such Products. Each Order shall be subject to acceptance by ADM and shall include the following items: (i) the date of the Order; (ii) the Order number; (iii) billing address and instructions; (iv) a list of the Products to be purchased, including the quantity of each Product; (v) the Purchase Price for each unit of Product to be purchased; (vi) the location where Product is to be delivered (including street, city and state), routing and shipping instructions and the name and telephone number of the person to contact upon delivery or arrival; (vii) requested delivery dates and shipment dates; and (viii) any special term, conditions and requirements as agreed to by NEAI and ADM. (ix) payment for the Products in the Order excluding shipping charges which shall be billed separately at the time of shipping. 25 3.2 Form of Communication. - Orders shall be communicated by the parties as mutually acceptable to them either in writing signed by a duly authorized representative of the applicable party and transmitted via facsimile. ADM agrees to acknowledge to NEAI each order within (1) business day of receipt thereof. 3.3 Individual Minimum Order Amount. - NEAI agrees to purchase from ADM, and ADM agrees to manufacture and sell to NEAI, Products in such quantities as may be ordered by NEAI during the term of this Agreement; provided, however, that orders for the Bulk Products shall be in lots of not less than one 55 gallon drum of each individual product and orders for Aurex-3 shall not be less than 10 units (Minimum Order Quantity). With respect to Other NEAI Products, prior to commencement of manufacture of such products, ADM will notify NEAI of the Individual Minimum Order Amount and NEAI agrees to order such products in such amounts. 3.4 Pricing - Subject to Section 6.3 herein, prices to be paid by NEAI for each Product shall be the applicable purchase price established pursuant to Schedule A attached hereto; provided if NEAI and ADM agree in writing upon an alternate purchase price for any Product sold hereunder, then such alternate purchase price shall be applicable during the term of this Agreement and any renewal thereof. A written purchase order from NEAI to ADM specifying such alternate pricing structure, accepted by ADM may serve as the agreement of an alternate purchase price. 3.5 Delayed Delivery of Products - In the event ADM ascertains that it will not be able to deliver the Product on the delivery date specified in an Order, ADM shall, as soon as possible, provide notice to NEAI of the delay in delivery and the proposed delivery date of such Product. 3.6 Variation of Terms - NEAI and ADM shall use their respective good faith and reasonable best efforts to accommodate any reasonable requests of the other party to vary the terms of Article III hereof to accommodate the requirements good for both parties with respect to Product ordering, delivery, pricing and related matters. 26 ARTICLE IV INVOICES, PAYMENTS AND TAXES 4.1 Invoices and Payments - NEAI shall pay to ADM the price of Products on each order at the time of placing the order with ADM. ADM shall provide an invoice for the Products and shipping charges to NEAI upon shipment of such Products, at no charge to NEAI, in written form via facsimile, in such detail and format as is mutually acceptable to the parties. The shipping charges stated on each invoice shall be paid by NEAI within ten (10) days of the shipment date of the Products. 4.2 Taxes - NEAI shall reimburse ADM for state and local sale and use taxes (and excise taxes in the nature of sales and use taxes), as applicable, for Products sold by ADM to NEAI. Taxes payable by NEAI will be billed as separate items on all invoices and shall not be included in the purchase price for Products. If applicable, NEAI will supply to ADM a tax resale certificate. ARTICLE V REGULATORY CORRESPONDENCE 5.1 Regulatory Correspondence. - ADM shall provide to NEAI a copy of all Food and Drug Administration (FDA) inspection and regulatory correspondence received with respect to the Products as soon as reasonably practical. ARTICLE VI CONDITIONS OF MANUFACTURE 6.1 Product Specifications - In the case of the ADM Products, ADM shall manufacture the Products in compliance with the applicable Product Specifications previously developed by ADM. With respect to the Other NEAI Products, ADM shall manufacture such Other NEAI Products in compliance with Product Specifications provided by NEAI to ADM. 6.2 Raw Materials, Subassemblies and Parts - Any raw materials, subassemblies and parts needed to fulfill an Order that are not used in the Products produced for such Order which remain in inventory at the Facility ("Unused Inventory") shall be deemed to be the property of NEAI and NEAI shall be obligated to pay a storage fee for such unused materials if such are not used within 60 days of receipt. 6.3 Tooling and Non-Reoccurring Engineering Services - NEAI shall reimburse ADM for any Tooling or Non-Reoccuring Engineering services ("NRE") that are required to be secured in support of the manufacturing of the Products for NEAI, such NRE to be apportioned amongst products other than those to be used exclusively for NEAI. 6.4 Technical Support - During the course of this Agreement, ADM shall provide technical support that is reasonably requested by NEAI at the Facility to NEAI as part of the Consulting Fee as described in Schedule 1.5 to the Purchase Agreement. However, should NEAI require technical support at locations other than the Facility, NEAI shall reimburse ADM for any expenses for travel or lodging related to such technical support. 27 ARTICLE VII DELIVERY AND RISK OF LOSS 7.1 Delivery - Unless otherwise indicated by NEAI or provided in the Order with respect to any Products, ADM shall: (i) ship such Products to the destination and in accordance with the shipping instructions set forth in such order; (ii) place the applicable Order number on all shipping and related documents and mark the Order number on all {packages}; and (iii) enclose a packing memorandum with each shipment and, when more than one package is included in a shipment, identify the package containing the memorandum. The Products will be packaged in accordance with customary packing practices in the industry. Shipping instructions shall be furnished by NEAI in writing. 7.2 Title and Risk of Loss - All sales of Products shall be F.O.B. Northvale, New Jersey. Title and risk of loss and damage to each Product purchased by NEAI from ADM shall vest in NEAI when such Product has been shipped at Northvale, New Jersey in accordance with such shipping instructions. 7.3 Freight Cost and Routing Instructions. - All freight costs shall be prepaid by ADM and billed to NEAI, unless the parties mutually agree (in a particular case) to ship the Product freight collect. ARTICLE VIII WARRANTIES 8.1 Warranties - Electronic products shall be warranted from defects in materials and workmanship for a period of 1 year from the date of shipment and excludes any damage from use or misuse of the electronic products. 8.2 Limitations on Warranties - ADM'S WARRANTIES SET FORTH HEREIN WITH RESPECT TO THE PRODUCTS ARE EXCLUSIVE AND ARE IN LIEU OF ALL OTHER EXPRESS AND IMPLIED WARRANTIES, INCLUDING, WITHOUT LIMITATION, WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. 28 ARTICLE IX IDEMNIFICATION, DAMAGES AND REMEDIES 9.1 Property Damage and Personal Injury; Title; Product Recall. - ADM shall save, protect, indemnify and hold harmless each NEAI Indemnified Person from and against all liabilities (including tax liabilities), costs (including attorney's fees and disbursements), claims and charges arising from or relating to (i) any tangible personal property damage or personal injury arising from or relating to any negligence by ADM (or ADM's employees, subcontractors or agents) in connection with the manufacture, delivery, supply, labeling, repair or replacement of Products, (ii) any breach of ADM's representations, warranties, covenants and agreements contained in this Agreement , (iii) any recall of any Product purchased hereunder and (iv) the infringement or violation (whether actual or alleged) of any Intellectual Property rights of any Person arising out of or related to ADM's manufacture and supply of the ADM Products under this Agreement. 9.2 Indemnity Obligations of NEAI. - NEAI shall save, protect, indemnify and hold harmless each ADM Indemnified Person from and against all liabilities, costs (including attorney's fees an d disbursements), claims and charges arising from or relating to the infringement or violation (whether actual or alleged) of any Intellectual Property rights of any Person arising out of or related to ADM's manufacture and supply of the Other NEAI Products under this Agreement, provided that this duty to indemnify shall not apply in the event that such infringement or violation arises out of ADM's failure to manufacture the Products in accordance with the Product Specifications. ARTICLE X TERM AND TERMINATION 10.1 Term - The term of this Agreement shall be 5 years and shall be automatically renewed for successive 5 year periods unless earlier terminated pursuant to the provisions herein or the Purchase Agreement. 10.2 Termination by NEAI (a) NEAI may terminate this Agreement upon written notice if ADM commences or has filed against it any bankruptcy, reorganization, liquidation or insolvency proceeding under any law in any country for the relief of debtors which is not dismissed within 60 days; or if any receiver, trustee, liquidator or custodian is appointed to take possession of any substantial portion of the assets of ADM not dismissed within 60 days. (b) NEAI may terminate this Agreement at any time if ADM breaches any material provision of this Agreement fails to cure the breach within 30 days after receiving written notice describing the breach. 29 10.3 Termination by ADM (a) ADM may terminate this Agreement upon written notice if NEAI commences or has filed against it any bankruptcy, reorganization, liquidation or insolvency proceeding under any law in any country for the relief of debtors which is not dismissed within 60 days; or if any receiver, trustee, liquidator or custodian is appointed to take possession of any substantial portion of the assets of NEAI not dismissed within 60 days. (b) ADM may terminate this Agreement at any time if NEAI breaches any material provision of this Agreement and fails to cure the breach within 30 days after receiving written notice describing the breach. 10.4 Survival - The provisions of Section 6.2, 12.2, 12.3 and Articles VIII and IX shall survive the termination of this Agreement. ARTICLE XI GOVERNING LAW 11.1 Governing Law - The construction, interpretation and performance of this Agreement and all transactions hereunder shall be governed by the laws of the State of New Jersey. 30 ARTICLE XII MISCELLANEOUS 12.1 Confidentiality - Each of the parties shall, and shall cause its Affiliates to, treat this Agreement and any Confidential Information obtained by it pursuant to this Agreement as privileged and confidential and shall not, without the prior consent of the other party, disclose, or cause to be disclosed, this Agreement or such Confidential Information to any Person, except that this Agreement and Confidential Information may be disclosed: (i) to such party's Affiliates, agents, directors, officers, employees, representatives, accountants, counsel or special counsel to whom such documents or information is needed to be disclosed in connection with the performance, enforcement or evaluation of this Agreement and who have been instructed to have a duty to keep such documents or information confidential in accordance with the terms hereof; (ii) to the extent required pursuant to applicable law or any governmental authority; provided that, if practicable, the party required to make such disclosure shall give prior notice thereof to the other party and, if so requested by the other party, shall cooperate with such party to obtain a protective order or other ruling so as to prevent disclosure of all or a portion of the documents or information required to be disclosed; (iii) in the case of Confidential Information only, to the extent such Confidential Information is independently developed by the recipient or any affiliated Person or lawfully received from an unrelated source having the right to so furnish such Information; and (iv) to the extent such documents or information become generally available to the public without breach of this Agreement by the recipient or any affiliated Person. 12.2 Exclusivity - ADM shall not, directly or indirectly, though any affiliate or other Person or under any arrangement or agreement, manufacture or sell to any Person at any time any of the Other NEAI Products manufactured or sold to NEAI hereunder nor will ADM undertake to manufacture or assist in the manufacture of any similar products. 31 12.3 Identification - Neither ADM nor NEAI shall make any use of any identification of the other or its Affiliates in its advertising or its promotional efforts in relation to the Products or any activities undertaken by it under this Agreement without the other party's prior written consent. The term "identification" includes any trade name, trademark, service mark, insignia, symbol or any simulation thereof, and any code, drawing, specification, or evidence of inspection. 12.4 Force Majeure - Neither party shall be held responsible for any delay or failure in performance of any part of this Agreement to the extent such delay or failure is caused by fire, flood, explosion, war, strike, embargo, government requirement, civil or military authority, act of God ("force majeure conditions"). If any force majeure conditions occurs the party delayed or unable to perform shall give immediate notice to the other party, stating he nature of the force majeure condition and any action being taken to avoid or minimize its effect, and the party affected by the other's delay or inability to perform may elect (i) to suspend this Agreement or any or all Orders for the duration of the force majeure condition and (x) at its option buy, sell or obtain elsewhere the Products to be bought, sold or obtained under this Agreement and deduct from any commitment set forth herein the quantity bought, sold or obtained or for which commitments have been made elsewhere and (y) once the force majeure condition ceases, resume performance under this Agreement with an option in the affected party to extend the period of this Agreement up to the length of time the force majeure condition endured; and/or (ii) when the delay or nonperformance continues for a period of at least 30 days, cancel at no charge any Orders relating to Products not already shipped or services not already performed. 12.5 Independent Contracts - Nothing contained in the Agreement shall be construed in any manner to constitute the creation of a partnership or a principal and agent relationship between the parties and the parties shall at all times be and remain independent contractors with respect to the subject matter of this Agreement. Any individuals furnished by either party shall be solely that party's employees or agents and shall remain under its sole and exclusive direction and control and shall not be considered employees of the other party for any purpose. 32 12.6 Severability - If any provision of this Agreement or the application of any such provision to any party or circumstances will be determined by any court of competent jurisdiction or duly authorized arbitration tribunal to be invalid, illegal or unenforceable to any extent, the remainder of this Agreement or such provision or the application of such provision to such party or circumstances, other than those to which it is so determined to be invalid, illegal or unenforceable, will remain in full force and effect to the fullest extent permitted by law and will not be affected thereby, unless such a construction would be unreasonable. 12.7 Successors and Assigns: No Third Party Beneficiaries - This Agreement will be binding upon and inure to the benefit of the parties hereto and their successor and permitted assigns. 12.8 Amendments - This Agreement cannot be amended or terminated orally, but only by a writing duly executed by or on behalf of the parties hereto. 12.9 Notices - All notices and other communications hereunder shall be in writing and shall be deemed to have been duly given (i) five business days after mailing if mailed by certified or registered mail, return receipt requested, (ii) one business day after delivery to Federal Express or other nationally recognized overnight express carrier, if sent for overnight delivery with fee prepaid, (iii) upon receipt if sent via facsimile with receipt confirmed, or (iv) upon receipt if delivered personally, addressed as follows or to such other address or addresses of which the respective party shall have notified the other: (a) if to NEAI , to: New England Acquisitons, Inc. 5 Ridge Road Cos Cob, CT 06807 Attn: Gary Cella Facsimile: 203-422-2875 (b) if to ADM. To: ADM Tronics Unlimited, Inc. 224-S Pegasus Avenue Northvale, NJ 07647 Attn: Andre' Di Mino Facsimile: 201-784-0620 12.10 Headings - The article headings and the section headings and subheadings contained in this Agreement are intended solely for convenience of reference and will not affect in any manner the meaning or interpretation of this Agreement. 12.11 Counterparts - This Agreement may be executed in one or more counterparts, each of which will be deemed an original instrument, but all of which together will constitute one and the same agreement, and will become binding when one or more counterparts have been executed and delivered by each of the parties hereto. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered as of the date first above written. NEAI By:_________________________________ Name: Title ADM TRONICS UNLIMITED, INC. By:_________________________________ Name: Title: 33 =========================================================================== Schedule A Pricing 1. Burn Lotion and Ethnic Shave Cream The pricing for the Burn Lotion and Ethnic Shave Cream that will be paid by NEAI to ADM shall be computed as follows: The cost of all raw materials plus the cost of all supplies and direct labor and an overhead allocation based on reasonable production utilization factors used in the manufacture, processing and quality assurance of the formulation, such total to be multiplied by 120% to arrive at a per pound or per 55 gallon drum price to be paid by NEAI to ADM. 2. Aurex-3 The pricing for the Aurex-3 that will be paid by NEAI to ADM shall be computed as follows: The cost of all parts plus the cost of all supplies and direct labor and an overhead allocation based on reasonable production utilization factors used in the manufacture, assembly and quality assurance of the device, such total to be multiplied by 120% to arrive at a per unit or per 10 unit price to be paid by NEAI to ADM. 3. Other NEAI Products The pricing for all Other NEAI Products that will be paid by NEAI to ADM shall be computed in a similar manner as to the foregoing based upon the cost of appropriate product components or raw materials, direct labor and an overhead allocation based on reasonable production utilization factors used in the manufacture and quality assurance of such products multiplied by 120% to arrive at a price to be paid by NEAI to ADM. -----END PRIVACY-ENHANCED MESSAGE-----