-----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, PxYPVFQuTadJBi4s133hDNf8DJ7YsYa0Ij+vmQ8CwOddoDSr0J3CohmjB3xHQVhk myMnwU3izXUzpY2SDscEaw== 0000356446-01-000004.txt : 20010330 0000356446-01-000004.hdr.sgml : 20010330 ACCESSION NUMBER: 0000356446-01-000004 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010329 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PURE WORLD INC CENTRAL INDEX KEY: 0000356446 STANDARD INDUSTRIAL CLASSIFICATION: INVESTORS, NEC [6799] IRS NUMBER: 953419191 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10KSB SEC ACT: SEC FILE NUMBER: 000-10566 FILM NUMBER: 1583264 BUSINESS ADDRESS: STREET 1: P O BOX 74 STREET 2: 376 MAIN ST CITY: BEDMINSTER STATE: NJ ZIP: 07921 BUSINESS PHONE: 9082349220 MAIL ADDRESS: STREET 1: P O BOX 74 STREET 2: 376 MAIN STREET CITY: BEDMINSTER STATE: NJ ZIP: 07921 FORMER COMPANY: FORMER CONFORMED NAME: AMERICAN HOLDINGS INC /DE/ DATE OF NAME CHANGE: 19940411 FORMER COMPANY: FORMER CONFORMED NAME: COMPUTER MEMORIES INC /DE/ DATE OF NAME CHANGE: 19940411 EX-27 1 0001.txt FDS --
5 This Schedule contains summary financial information extracted from the Form 10-KSB of Pure World, Inc., for the year ended December 31, 2000 and is qualified in its entirety by reference to such financial statements. 0000356446 PURE WORLD, INC. 1000 12-MOS DEC-31-2000 JAN-01-2000 DEC-31-2000 3,116 43 2,948 173 10,883 17,463 14,362 4,273 31,348 6,045 0 0 0 83 21,079 31,348 23,987 24,207 20,176 0 4,875 0 695 (1,539) 52 (1,591) 0 0 0 (1,591) (0.19) (0.19)
10KSB 2 0002.txt FOR THE YEAR ENDED 12/31/00 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-KSB MARK ONE: [X] Annual Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 [Fee Required] For the fiscal year ended December 31, 2000 [ ] Transition Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from ______to _______. Commission file number 0-10566 ------- PURE WORLD, INC. --------------------- (Name of small business issuer in its charter) Delaware 95-3419191 - ------------------------------ -------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 376 Main Street, P.O. Box 74, Bedminster, New Jersey 07921 ----------------------------------------------------------- (Address of principal executive offices with Zip Code) Issuer's telephone number, including area code (908) 234-9220 --------------- Securities registered under Section 12(b) of the Exchange Act: -------------------------------------------------------------- NONE Securities registered under Section 12(g) of the Exchange Act: -------------------------------------------------------------- Common Stock, par value $.01 per share 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 issuer was required to file such reports), and (2) has been subject to such filing requirements for 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. [ X ] Issuer's revenues for the fiscal year ended December 31, 2000 were approximately $24.2 million. At February 28, 2001, there were 8,281,955 shares of common stock outstanding. The aggregate market value of the common stock held by non- affiliates of the registrant, based on the closing price of such stock on such date as reported by NASDAQ, was approximately $6 million. Transitional Small Business Disclosure Format Yes No X --- --- PART I ------ Item 1. - DESCRIPTION OF BUSINESS - ------ ----------------------- General - ------- Through its wholly-owned subsidiary, Pure World Botanicals, Inc. (formerly Madis Botanicals, Inc. until December 31, 1998 now "Pure World Botanicals") Pure World, Inc. ("Pure World" or the "Company"), develops, manufactures and sells natural ingredients which principally are derived from plant materials (referred to herein also as botanicals or herbs) using the Company's proprietary extraction technology. Extraction is the process by which the commercial ingredients of plants are drawn out by applying a solution ("menstruum") consisting of water or a combination of water and alcohol to the raw materials. The resultant extract can be converted into fluid extract, solid extract (paste) or powdered extract which can be tableted or encapsulated. The Company has produced more than one thousand botanical extracts which are used by the cosmetic, food and flavor, nutraceutical and pharmaceutical industries to manufacture finished products for the consumer market. The term nutraceuticals incorporates a wide range of natural products, such as vitamins, minerals, anti-oxidants and herbs which enhance health by supplementing diets. (See "Dietary Supplement Health and Education Act of 1994" and "New Nutraceutical Products"). Manufacturing Facility (the "Facility") - --------------------------------------- The Company believes it has the largest botanical extraction facility in North America. Situated on 4.5 acres, the 138,000 square foot Facility contains custom designed stainless steel equipment including milling equipment; percolators; vacuum stills; filters; automatic extractors; ribbon blenders; homogenizers; and high capacity spray, fluid bed and vacuum dryers. The Company's spray dryers have an annual capacity of over 8,000,000 pounds and produce free-flowing powders for tableting, encapsulation or dissolution in liquids. During 1998, the Company built a new 13,000 square foot warehouse facility and substantially expanded and upgraded its plant facilities. Powdered Herb Facility - ---------------------- In the year 2000, the Company converted its Teterboro, New Jersey facility from a warehouse for raw materials to a combination warehouse and botanical powdering facility. Botanical powders are milled or crushed from crude botanicals and then used in tablets or capsules. The Company believes that botanical powders are an essential complement to its line of botanical extracts. Although botanical extracts are considered to be the expanding segment of nutraceuticals, many products still consist wholly or partially of botanical powders. The total investment in the new facility was approximately $1.25 million. I-1 Quality Control in Manufacturing - -------------------------------- As a registered Food and Drug Administration ("FDA") facility, Pure World Botanicals is authorized to manufacture The United States Pharmacopeia ("U.S.P.") and pharmaceutical grade products such as, among others, casanthranol (a further processed product of the bark of the Cascara tree used in natural laxatives) and benzoin (used as an aromatic and local antiseptic and skin protectant). The Facility is kosher certified and operates under current Good Manufacturing Practices ("cGMP's") to assure consistent high quality in the manufacture of its products. The Facility is routinely inspected by the FDA. The Facility and manufacturing process also routinely undergo audits by customers, which include pharmaceutical and large consumer product firms. To the best of its information, the Facility has never failed an audit. In 1999, Pure World Botanicals was certified to manufacture organic extracts and powders. Laboratory - ---------- The Facility contains six laboratories: quality control ("QC"); research and development ("R&D") analytical instrumentation; flavor; cosmetic; and microbiology. The microbiology laboratory evaluates finished products for microbiological purity. The quality control laboratory is devoted to the physical and chemical analysis of products measured against Pure World Botanicals' customer and compendial specifications. The analytical instrumentation and purification laboratories are equipped with state-of-the-art equipment including a Multi-state Mass Spectrometer (LC/Ms/Ms) on line with numerous High Performance Liquid Chromatographs (HPLC), Gas Chromatographs (GC) and a 400 megahertz Nuclear Magnetic Resonance (NMR). Thin Layer Chromatography (TLC), Infrared Spectroscopy (IR) and Ultra-violet Spectrophotometry (UV) are also routinely used in QC and R&D. The Laboratory and the Manufacturing Process - -------------------------------------------- The manufacturing process begins and ends in the laboratory. Incoming plant materials are evaluated to verify species, variety and quality. The scientists determine the right menstruum for each plant extract and the optimal method of extraction and drying to maintain product integrity and ensure manufacturing efficiency. When an approved material arrives it is evaluated against the preshipment sample and if it matches, it is forwarded to production along with the appropriate menstruum. Throughout Pure World Botanicals' proprietary manufacturing system, called the Unitized(TM) system, the processed plant material is subjected to a series of QC tests which examine physical and chemical properties such as active constituents, color, flavor and purity. The material is then either stored in a finished state called a native extract which is available for further processing when an order is received or further processed into a liquid, solid or powdered extract ready for delivery to the customer who will then use it in a finished product. Prior to delivery, each item undergoes final QC testing. I-2 Raw Materials - ------------- The Company buys its raw materials from a variety of growers, collectors and brokers. Generally, the Company has not experienced any shortage of raw materials that has affected its business other than an occasional increase in price. Although many botanicals are currently in over supply, if demand for botanical products experiences growth in the future the demand pressure for some products could outstrip the capacity of the suppliers. The Company's standardized products have guaranteed potency, meaning that the products contain a stipulated amount of active ingredients. The Company believes that for the most part, it can acquire sufficient materials for its standardized line and that its inventory can be replaced without significant cost increase, however botanicals are subject to substantial variations due to weather, unexpected increase in demand, ground conditions and political problems in the source country and therefore supply will always be somewhat unpredictable and an occasional short fall can be expected. The Company has in place, in most instances, multiple geographic sources of raw material to minimize this potential problem. Also, the quality of botanicals varies from season to season and year to year, which can impose a limitation on the ability to produce standardized products and which can result in substantial price changes. During the past year, the Company had only one long-term supply contract for St. Johns Wort. Government Regulation and Intellectual Property - ----------------------------------------------- Pure World Botanicals is regulated by the FDA and the New Jersey Department of Health in matters of cleanliness, labeling and manufacturing practices. Pure World Botanicals is also regulated by the Occupational Safety and Health Administration in matters of general safety in the operation of its manufacturing facility, and the Bureau of Alcohol, Tobacco and Firearms in its use of alcohol in its production process as well as state and federal environmental agencies on a variety of environmental issues affecting air and ground water. The United States Department of Agriculture may also inspect the raw materials and plant facilities used in production. The Company knows of no material problems with any of these regulators. The Company has considerable proprietary technology used in its manufacturing processes, QC and R&D, and the loss or misappropriation of its technology would injure the Company. The Company has seven registered trademarks and numerous pending trademarks which it uses to differentiate its technology and products and it protects its proprietary technology by confidentiality agreements with employees and prospective customers and other contractees. Pure World Botanicals is a member in good standing of the Institute of Food Technologies, the Cosmetic Toiletries and Fragrance Association, the American Herbal Products Association, the National Nutritional Foods Association, the American Botanical Council, the American Society of Pharmacognosy, and the American Society for Microbiology. The Facility is certified by the FDA for food, pharmaceutical and cosmetic ingredient production and has kosher-product and organic certification. I-3 Dietary Supplement Health and Education Act of 1994 ("DSHEA") - ------------------------------------------------------------- In 1994, DSHEA was enacted to establish the framework for the regulation of nutraceuticals which were being manufactured and marketed not as drugs but as dietary supplements. Except for certain pharmaceuticals manufactured to the standards of the U.S.P. published by the FDA, the Company's nutraceutical products are categorized as dietary supplements under DSHEA and not drugs which require FDA approval. The legislation recognized the importance of nutrition and benefits of dietary supplements in promoting health and preventive health measures. DSHEA defines dietary supplements as vitamins, minerals, herbs or other botanicals, amino acids, or other dietary substances which enhance or increase the total dietary intake. It provides that where an ingredient is first marketed as a dietary supplement and is subsequently approved as a new drug, it can continue to be sold as a supplement unless the Secretary of Health and Human Services rules that it would not be safe to do so. The FDA has publicly stated its concern that any claims about the efficacy of supplements receive prior approval by that agency. The FDA has published regulations about making claims and will adopt good manufacturing procedures ("cGMP's") for the manufacture of nutraceuticals. The Company believes that its cGMP's are at least as stringent as any that the FDA is considering. New Nutraceutical Products - -------------------------- Historically, most of the nutraceutical products sold by the Company were based on the amount of raw material used in the manufacturing process, i.e., the amount of kilograms of crude material required to produce each kilogram of the plant extract. These extracts, generally called "drug ratios", were the principal nutraceutical products sold by the Company until 1996. Increasingly, the dietary supplement market is turning to nutraceuticals that contain a specified amount of a plant ingredient, called the "active ingredient" or "marker". Many of these products were first developed in Europe and are supported by clinical studies which document the efficacy of the active ingredients. Analytical methods using the UV, the HPLC and the LC/Ms/Ms measure the specific level of the active ingredients. Generally these products are called "standardized" or "guaranteed potency" extracts. Many of the Company's competitors, particularly those in Europe, refine products to increase the level of the active ingredient above the level found naturally in the plant ("Purified Products"). The Company believes that the active ingredient in some botanicals is only a "marker", meaning that it denotes at least one of a plant's active ingredients but it may be only one, among many important ingredients, to be found in the plant. Therefore, with certain exceptions, the Company's extracts contain the whole profile of the plant with the active ingredients and/or markers guaranteed to a certain level being only one part of the profile. The Company believes the synergistic effect from different chemical components of a plant mixture generally are an important part of the efficacy of the extract. The Company utilizes HPLC and Mass Spectrometry to match the profile of the raw plant material with the resultant botanical extract. I-4 In 1997, the Company opened a new laboratory devoted to the development of Purified Products. Although the Company maintains its commitment to the extraction of the whole plant, there are active ingredients which can be produced at efficacious levels only through a process of purification. Examples are gingko-biloba and milk thistle. Often, cosmetic companies prefer that botanicals be purified prior to use primarily to eliminate odor and color. The Company has a broad line of more than fifty (50)standardized products. The Company believes its growth is materially dependent on the development of new products and therefore expends considerable resources on R&D. Competition - ----------- The Company has numerous competitors both domestically and abroad, principally European. Some of the competitors are larger than the Company and have been producing nutraceuticals for a longer period. Employees - --------- At February 28, 2001, the Company had 90 full-time employees, 86 of whom were employed by Pure World Botanicals. Products Liability Insurance - ---------------------------- The Company has experienced no product liability claims to date, however the development and marketing of botanical extracts entails an inherent risk that product liability claims may be asserted against it in the future. The Company currently has obtained product liability coverage, which it deems adequate, but there can be no assurance that the Company can maintain adequate insurance on acceptable terms in the future. Any claim against the Company would negatively affect the reputation of the Company and a judgment above the policy limits would have an adverse financial effect on the Company. Item 2. - DESCRIPTION OF PROPERTY - ------ ----------------------- On February 1, 1999, the Company entered into a five-year lease agreement with an affiliate for 1,700 square feet of office space at a monthly rate of approximately $3,600. Pure World Botanicals leases a 138,000 square-foot facility in South Hackensack, New Jersey, from an affiliated corporation owned by the former owners of Pure World Botanicals for $20,000 per month, net, plus one percent of the gross revenues of Pure World Botanicals up to an additional $200,000 per annum. At December 31, 2000, the lease had a term of four years and expires in December 2004 with three ten-year renewal options at base rates up to $22,898 per month. This facility includes a 20,000 square-foot office area; 10,000 square-feet for laboratories; manufacturing space of 70,000 square feet; and warehousing space of 38,000 square feet. I-5 Pure World Botanicals also leases a facility in Teterboro, New Jersey from an unrelated party for approximately $11,000 per month which until March of 2000 was used exclusively for storage of raw materials. In March 2000, this facility, was converted into a combination warehouse and botanical powdering facility. Botanical powders result from milling or crushing crude botanicals. The powders are then used in tablets or capsules. The Company believes that botanical powders are an essential complement to its line of botanical extracts. Although botanical extracts are considered to be the expanding segment of nutraceuticals, many products still consist wholly or partly of botanical powders. The total investment in the new facility was approximately $1.25 million. Item 3. - LEGAL PROCEEDINGS - ------ ----------------- The Company is involved from time to time in various lawsuits that arise in the course of its business. In late 1997, Pure World Botanicals hired Turnkey Solutions, Inc. ("Turnkey") to perform work and services in connection with the expansion of the Facility. In September 1998, Turnkey filed construction liens against Pure World Botanicals, totaling approximately $140,000, and it demanded that Pure World Botanicals pay certain outstanding invoices, totaling in excess of $1.3 million. In October 1998, Pure World Botanicals filed an action in the Superior Court of New Jersey, Law Division, Bergen County, alleging that Turnkey had breached its contract, among other things, in connection with work and services incident to the expansion of the Facility. In the action, Pure World Botanicals sought damages in excess of $1 million. This matter was settled in September 2000. In connection with the settlement, Pure World received net proceeds of $345,000 and was relieved of any potential liability to Turnkey. Item 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - ------- --------------------------------------------------- The Company held its Annual Meeting of Stockholders on October 31, 2000. All nominees to the Company's Board of Directors were elected. The following is a vote tabulation for all nominees: For Withheld --------- -------- Paul O. Koether 7,473,871 227,356 Mark W. Jaindl 7,471,388 229,839 William Mahomes, Jr. 7,473,871 227,356 Alfredo Mena 7,473,886 227,341 I-6 PART II ------- Item 5. - MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS - ------- -------------------------------------------------------- At February 28, 2001, the Company had approximately 2,400 stockholders of record. The Company's common stock currently trades on the NASDAQ/National Market System under the symbol "PURW". On February 28, 2001 the closing price per share of the common stock was $1.1562. The following table sets forth the high and low closing prices for the common stock for the periods indicated, as reported by NASDAQ on the National Market System. Calendar Quarter Ended: High Low ------ ----- 2000 ---- March 31 $ 6.4375 $ 3.50 June 30 5.50 2.625 September 30 3.125 2.125 December 31 2.375 1.00 1999 ---- March 31 $ 9.4375 $ 4.1875 June 30 5.0625 4.0625 September 30 5.71875 2.6875 December 31 3.5 2.4062 The Company has not declared or paid any cash dividends on its common stock in 2000 or 1999 and does not foresee doing so in the immediate future. However, on November 17, 1998, the Company declared a 10% stock dividend to stockholders of record on January 7, 1999, distributed on January 15, 1999. All per share information included above and elsewhere in this document has been adjusted for this dividend. Item 6. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND - ------ ---------------------------------------------------------------------- RESULTS OF OPERATIONS --------------------- This Form 10-KSB contains forward-looking statements which may involve known and unknown risks, uncertainties and other factors that may cause the Company's actual results and performance in future periods to be materially different from any future periods or performance suggested by these statements. II-1 Liquidity and Capital Resources - ------------------------------- At December 31, 2000, the Company had cash and cash equivalents of $3.1 million. Cash equivalents consisted of U.S. Treasury Bills with original maturities of less than three months and yields ranging from 5.874% to 6.318%. The Company also had marketable securities with a market value of approximately $43,000 at December 31, 2000. Marketable securities consisted of trading securities as defined under generally accepted accounting principles. See Notes 1 and 2 of Notes to Consolidated Financial Statements for additional information. Net working capital was approximately $11.4 million at December 31, 2000. The management of the Company believes that its financial resources and anticipated cash flows will be sufficient for future operations and possible acquisitions of other operating businesses. Net cash of $658,000 was used by operations in 2000. The use of cash flow was caused primarily by the net loss of $1,591,000, combined with the increase in inventory of $103,000, the increase in receivables of $323,000, the decrease in accounts payable and other accruals of $292,000 and unrealized gains of $376,000 partially offset by depreciation and amortization of $1,702,000 and net marketable securities transactions of $486,000. Net cash of $1,450,000 was used by operations in 1999. The use of cash flow caused by the net loss of $2,141,000, combined with the increase in inventory of $3,908,000, partially offset by depreciation and amortization of $1,407,000, unrealized losses on marketable securities of $812,000 and the decrease in receivables of $1,404,000 were the primary reasons for the net use of cash. Net cash of $1.3 million and $2.3 million was used in investing activities for the years ended December 31, 2000 and 1999, respectively. In 2000, approximately $1.25 million was used in connection with the construction of a new powdering facility and approximately $400,000 was used for various purchases of machinery and computer equipment. Additionally, the cost of previously capitalized items was reduced by $345,000, the net proceeds received in connection with the settlement of the Turnkey litigation. (See Note 11 of Notes to Consolidated Financial Statements.) In 1999, $2.3 million was used in connection with plant and equipment purchases which include: $376,000 used for the replacement of underground storage tanks with greater capacity tanks; $350,000 for production expansion; and $1,619,000 for various purchases of machinery, furniture and fixtures, computer equipment and other capital items. Cash used in financing activities was approximately $539,000 in 2000, due primarily to the decrease in borrowings. Cash provided by financing activities in 1999 was approximately $3.3 million due to a net increase in borrowings. For additional information on the terms of the Company's borrowings, see Note 6 of Notes to Consolidated Financial Statements. II-2 Results of Operations - --------------------- The Company's consolidated operations resulted in a net loss of $1,591,000, or basic loss per share of $.19, in 2000 compared to a net loss of $2,141,000, or basic loss per share of $.26 in 1999. Diluted loss per share was $.19 and $.26 in 2000 and 1999, respectively. Earnings per share figures have been adjusted to reflect a 10% stock dividend declared on November 17, 1998 to stockholders of record on January 7, 1999 and distributed on January 15, 1999. The Company had sales in 2000 of approximately $23,987,000, an increase of approximately $8,208,000 or 52% from 1999 sales of $15,779,000. Cost of goods sold was $20,176,000 and gross margin was $3,811,000 in 2000, compared to cost of goods sold of $11,654,000 and gross margin of $4,125,000 in 1999. Gross margin as a percentage of sales was 15.89% and 26.14% in 2000 and 1999, respectively. The increase in sales and decrease in gross margin was principally due to the delivery of a large contract to one customer to process a natural, but not botanical product. Gross margin also decreased as the Company experienced price pressure on its standardized products in 2000. Additionally, results for the year 2000 were negatively affected by a charge of $1,175,000 taken in the fourth quarter to bring the inventory valuation in line with current market conditions. One customer accounted for more than 49% and 27% of sales in 2000 and 1999, respectively. In 2000, the Company recorded net losses on marketable securities of $17,000, compared to net losses of $1.2 million in 1999. In 2000, $393,000 of realized losses were partially offset by $376,000 of unrealized gains. In 1999, $392,000 and $812,000 were realized and unrealized losses, respectively. The primary reason for the net losses in 1999 was the reclassification of securities available-for-sale to trading securities and marking them to current value. In accordance with Statement of Financial Accounting Standards No. 115 "Accounting for Certain Investments in Debt and Equity Securities", $1.1 million of unrealized holding losses, which had previously been recorded as a separate component of stockholders' equity, were recognized in earnings. See Note 2 of Notes to Consolidated Financial Statements for additional information. Interest, dividends and other income was $237,000 in 2000 compared to $260,000 in 1999. Interest income was $236,000 and $255,000 in 2000 and 1999 respectively, a decrease of $19,000 or 7.5%. This decrease was due principally to lower invested balances in 2000. General and administrative expenses (consisting of personnel, professional and all other expenses) were $5,570,000 in 2000, compared to $5,305,000 in 1999, an increase of $265,000 or approximately 5%. Personnel expenses were $2,103,000 in 2000, a decrease of $184,000, or 8%, from $2,287,000 in 1999. The principal reasons for the decrease were lower commission and bonus payments. Professional fees consisting of legal, accounting and consulting fees, were $593,000 in 2000, an increase of $184,000, or 45%, from the 1999 professional fees of $409,000. The increase was principally due to highter legal fees incurred in connection with the Turnkey Litigation. (See Note 11 of Notes to Consolidated Financial Statements.) Other general and administrative expenses were $2,874,000 in 2000, an increase of $265,000 or 10% from $2,609,000 in 1999. Increased interest expense was the primary reason for the increase. II-3 New Accounting Standards - ------------------------ In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standard ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities," which establishes accounting and reporting standards for derivative instruments and for hedging activities. SFAS No. 133 requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. SFAS No. 133 is effective for all fiscal quarters of fiscal years beginning after June 15, 1999. In July 1999, the FASB issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date for FASB Statement No. 133, an Amendment of FASB Statement No. 133", which defers the effective date of SFAS No. 133 to be effective for all fiscal quarters of fiscal years beginning after June 15, 2000. The adoption of SFAS No. 133 will not have a material effect on the Company's financial condition, results of operations or liquidity. II-4 Item 7. - FINANCIAL STATEMENTS - ------ -------------------- The financial statements filed with this item are listed below: Independent Auditors' Report Consolidated Financial Statements: Consolidated Balance Sheet as of December 31, 2000 Consolidated Statements of Operations and Comprehensive Loss for the Years ended December 31, 2000 and 1999 Consolidated Statements of Stockholders' Equity for the Years ended December 31, 2000 and 1999 Consolidated Statements of Cash Flows for the Years ended December 31, 2000 and 1999 Notes to Consolidated Financial Statements II-5 Deloitte & Touche LLP Two Hilton Court P.O. Box 319 Parsippany, NJ 07054-0319 Deloitte & Touche INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholders of Pure World, Inc.: We have audited the accompanying consolidated balance sheet of Pure World, Inc. and subsidiaries as of December 31, 2000, and the related consolidated statements of operations and comprehensive loss, stockholders' equity and cash flows for the years ended December 31, 2000 and 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Pure World, Inc. and subsidiaries as of December 31, 2000, and the results of their operations and their cash flows for the years ended December 31, 2000 and 1999 in conformity with accounting principles generally accepted in the United States of America. /s/ DELOITTE & TOUCHE LLP March 9, 2001 F-1 Deloitte Touche Tohmatsu PURE WORLD, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET December 31, 2000 (in $000's) ASSETS Current Assets: Cash and cash equivalents $ 3,116 Marketable securities 43 Accounts receivable, net of allowance for uncollectible accounts and returns and allowances of $173 2,775 Inventories 10,883 Other 646 ------- Total current assets 17,463 Investment in unaffiliated natural products company 1,510 Plant and equipment, net 10,089 Notes receivable from affiliates 313 Goodwill, net of accumulated amortization of $703 1,287 Other assets 686 ------- Total assets $31,348 ======= LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable $ 1,062 Short-term borrowings 3,882 Accrued expenses and other 1,101 ------- Total current liabilities 6,045 Long-term debt 4,141 ------- Total liabilities 10,186 ------- Commitments and Contingencies (Notes 10 and 11) Stockholders' equity: Common stock, par value $.01; 30,000,000 shares authorized; 8,281,955 shares issued and outstanding 83 Additional paid-in capital 43,337 Accumulated deficit ( 22,258) ------- Total stockholders' equity 21,162 ------- Total liabilities and stockholders' equity $31,348 ======= See accompanying notes to consolidated financial statements. F-2 PURE WORLD, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (in $000's, except per share data) Year Ended December 31, ------------------------- 2000 1999 ------ ------ Revenues: Sales $23,987 $15,779 Net losses on marketable securities ( 17) ( 1,204) Interest, dividend and other income 237 260 ------- ------- Total revenues 24,207 14,835 ------- ------- Expenses: Cost of goods sold: Cost of goods sold 19,001 11,654 Inventory write-down 1,175 - ------- ------- Total cost of goods sold 20,176 11,654 Selling, general and administrative 5,570 5,305 ------- ------- Total expenses 25,746 16,959 ------- ------- Loss before income taxes ( 1,539) ( 2,124) Provision for income taxes 52 17 ------- ------- Net loss ( 1,591) ( 2,141) Other comprehensive income (loss): Unrealized holding gains on securities available-for-sale - 244 ------- ------- Comprehensive loss ($ 1,591) ($ 1,897) ======= ======= Basic net loss per share ($ .19) ($ .26) ======= ======= Diluted net loss per share ($ .19) ($ .26) ======= ======= See accompanying notes to consolidated financial statements. F-3 PURE WORLD, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (in 000's) Total Additional Accumulated Other Stock- Total Shares Common Paid-In Accumulated Comprehensive holders' Outstanding Stock Capital Deficit Income (Loss) Equity ----------- ----- ------- ----------- ----------------- ------- Balance, January 1, 1999 as restated for stock dividend 8,269 $ 83 $43,321 ($18,526) ($244) $24,634 Change in net unrealized holding gains/losses on securities available-for-sale - - - - 244 244 Net loss - - - ( 2,141) - ( 2,141) ----- ---- ------- ------- ---- ------- Balance, December 31, 1999 8,269 83 43,321 ( 20,667) - 22,737 Net loss - - - ( 1,591) - ( 1,591) Issuance of common stock 13 - 16 - - 16 ----- ---- ------- ------- ---- ------- Balance, December 31, 2000 8,282 $ 83 $43,337 ($22,258) $ - $21,162 ===== ==== ======= ======= ==== ======= See accompanying notes to consolidated financial statements. F-4
PURE WORLD, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in $000's) Year Ended December 31, ----------------------- 2000 1999 ------- ------ Cash flows from operating activities: Net loss ($ 1,591) ($ 2,141) Adjustments: Depreciation and amortization 1,702 1,407 Unrealized (gains) losses on marketable securities ( 376) 812 Net marketable securities transactions 486 510 Gain on sale of securities available-for-sale - ( 13) Change in inventories ( 103) ( 3,908) Change in receivables ( 323) 1,404 Change in accounts payable and other accruals ( 292) 606 Other, net ( 161) ( 127) ------- ------- Net cash used in operating activities ( 658) ( 1,450) ------- ------- Cash flows from investing activities: Purchase of plant and equipment, net ( 1,304) ( 2,345) Proceeds from sale of securities available-for-sale - 59 Loans to affiliates and others ( 20) ( 70) Repayments of loans to affiliates 39 12 ------- ------- Net cash used in investing activities ( 1,285) ( 2,344) ------- ------- Cash flows from financing activities: Issuance of common stock 16 - Term loan borrowings 1,170 2,631 Term loan repayments ( 1,324) ( 871) Net revolving line of credit borrowings (repayments) ( 401) 1,510 ------- ------- Net cash provided by (used in) financing activities ( 539) 3,270 ------- ------- Net decrease in cash and cash equivalents ( 2,482) ( 524) Cash and cash equivalents at beginning of year 5,598 6,122 ------- ------- Cash and cash equivalents at end of year $ 3,116 $ 5,598 ======= ======= Supplemental disclosure of cash flow information: Cash paid for: Interest $ 695 $ 548 ======= ======= Taxes $ 13 $ 51 ======= ======= See accompanying notes to consolidated financial statements. F-5 PURE WORLD, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2000 and 1999 1. Summary of Significant Accounting Policies ------------------------------------------ Basis of Consolidation ---------------------- The consolidated financial statements include the accounts of Pure World, Inc. (the "Company" or "Pure World") and its wholly-owned subsidiary, Pure World Botanicals, Inc., ("Pure World Botanicals") after elimination of all material intercompany accounts and transactions. The Company, through Pure World Botanicals, manufactures natural products for the nutraceutical, flavor and cosmetic industries. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash and Cash Equivalents ------------------------- Cash and cash equivalents consist primarily of cash on hand, cash in banks and U.S. Treasury Bills purchased with an original maturity of three months or less. Marketable Securities --------------------- Marketable securities are classified into three categories: debt securities that the Company has the positive intent and ability to hold to maturity are classified as held-to-maturity securities and reported at amortized cost; debt and equity securities that are bought and held principally for the purpose of selling them in the near term are classified as marketable securities and reported as a current asset and at fair value, with unrealized gains and losses included in the results of operations; and debt and equity securities not classified as either held-to-maturity securities or marketable securities are classified as available-for-sale securities and reported at fair value with unrealized gains and losses excluded from the results of operations and reported as a separate component of stockholders' equity. Unrealized gains and losses on securities available-for-sale are included in the determination of comprehensive income. F-6 PURE WORLD, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2000 and 1999 The Company accounts for securities transactions on a trade-date basis. For computing realized gains or losses on sale of marketable securities, cost is determined on a first-in, first-out basis. The effect of all unsettled transactions is accrued in the consolidated financial statements. Inventories ----------- Merchandise inventories are valued at the lower of cost or market. Cost is determined by the first-in, first-out (FIFO) method of accounting. Investment in Unaffiliated Natural Products Company --------------------------------------------------- In May 1996, the Company made an investment in non-voting common stock representing 25% ownership of Gaia Herbs, Inc. ("Gaia") for approximately $1 million. In June 1997, the Company made an additional investment of $500,000, increasing its equity ownership to 35% of Gaia's outstanding shares of common stock. In July 1997, the Company loaned Gaia $200,000, payable interest only, on a quarterly basis for the first four years and 36 monthly payments of principal and interest thereafter. The loan bears interest at 6.49% which was the imputed rate required under the Internal Revenue Code and is classified as an other asset in the consolidated balance sheet. Gaia manufactures and distributes fluid botanical extracts for the high-end consumer market. Gaia is a privately held company and does not publish financial results. The Company is accounting for this investment by the cost method. Plant and Equipment ------------------- The Company records all fixed assets at cost. Depreciation is computed using the straight-line method over the related estimated useful life of the asset. Gains or losses on dispositions of fixed assets are included in operating results as other income. The Company evaluates the carrying value of its long-lived assets whenever there is a significant change in the use of an asset and adjusts the carrying value, if necessary, to reflect the amount recoverable through future operations. F-7 PURE WORLD, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2000 and 1999 Goodwill -------- Goodwill is being amortized using the straight-line method over a fifteen-year period. Fair Value of Financial Instruments ----------------------------------- The carrying amounts reported in the balance sheet for cash and cash equivalents, investments, accounts receivable, long-term debt and payables approximate their fair value. The Company does not hold or issue financial instruments for trading purposes. Amounts to be paid or received under interest rate swap agreements are recognized as increases or reductions in interest expense in the period in which they occur. The fair value of the Company's debt approximates their carrying values due to the variable interest-rate feature of the instruments. The fair value of the Company's interest rate swap at December 31, 2000 was insignificant. Income Taxes ------------ The Company follows the requirements of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS No. 109"). SFAS No. 109 requires an asset and liability approach for the accounting for income taxes. Net Income Per Share -------------------- Basic earnings per common share are computed by dividing net income by the weighted-average number of common shares outstanding. Diluted earnings per share are computed by dividing net income by the sum of the weighted-average number of common shares outstanding plus the dilutive effect of shares issuable through the exercise of stock options. F-8 PURE WORLD, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2000 and 1999 The shares used for basic earnings per common share and diluted earnings per common share are reconciled below. All share and per share information has been restated to reflect a 10% stock dividend declared on November 17, 1998, to stockholders of record on January 7, 1999, distributed on January 15, 1999. (Shares in Thousands) 2000 1999 ---- ---- Basic earnings per common share: Average shares outstanding for basic earnings per share 8,278 8,269 ===== ===== Diluted earnings per common share: Average shares outstanding for basic earnings per share 8,278 8,269 Dilutive effect of stock options - - ----- ----- Average shares outstanding for diluted earnings per share 8,278 8,269 ===== =====
Excluded from the calculation of the net earnings per share are 248,678 and 49,839 common stock options, in 2000 and 1999, respectively, which, if included, would have an antidilutive effect. Major Customers --------------- One customer accounted for more than 49% and 27% of sales in 2000 and 1999, respectively. New Accounting Standards ------------------------ In June 1998, the Financial Accounting Standards Board Statement No. 133 ("FASB No. 133"), Accounting for Derivative Instruments and Hedging Activities was issued. FASB No. 133 established requirements which provide for recognition and measurement of derivative instruments and hedging activities. This standard was effective for the Company in 2000. The adoption of FASB No. 133 did not have a material effect on the Company's financial condition or results of operations. F-9 PURE WORLD, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2000 and 1999 2. Marketable Securities --------------------- At December 31, 2000, securities consisted of the following (in $000's): Gross Cost Holding Market Basis Losses Value ------- --------- ------- Marketable securities $ 557 $ 514 $ 43 ======= ========= =======
All investment securities are investments in common stock. Realized losses of $393,000, as well as unrealized gains of $376,000 were included in the results of operations for the year ended December 31, 2000. In 1999, realized losses of $392,000 and unrealized losses of $812,000 were included in the results of operations. 3. Inventories ----------- Inventories are comprised of the following (in $000's): Raw materials $ 2,048 Work-in-process 132 Finished goods 8,703 ------- Total $10,883 ======= A charge of $1,175,000 was taken in the fourth quarter of 2000 to bring the inventory valuation in line with current market conditions. 4. Plant and Equipment ------------------- At December 31, 2000, plant and equipment consisted of the following (in $000's): Machinery and equipment $ 9,775 Leasehold improvements 2,742 Office equipment, furniture and fixtures 1,845 Accumulated depreciation ( 4,273) ------- Total $10,089 ======= F-10 PURE WORLD, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2000 and 1999 5. Investment in Unaffiliated Natural Products Company --------------------------------------------------- In May 1996, the Company purchased 500 shares of common stock representing a 25% interest in Gaia Herbs, Inc. ("Gaia") for approximately $1 million. In June 1997, the Company purchased an additional 200 shares of common stock for $500,000, increasing its equity ownership to 35% of Gaia's outstanding shares of common stock ("Pure World's Gaia Stock"). Pure World's Gaia Stock is non-voting. The Company loaned Gaia $200,000 in July 1997 payable interest only on a quarterly basis for the first three years and 36 monthly payments of principal and interest thereafter (the "Pure World Loan"). The Pure World Loan bears interest at 6.49% which was the imputed rate required under the Internal Revenue Code and is classified as an other asset in the consolidated balance sheet. The parties also agreed that if any other party acquired voting shares, Pure World's Gaia Stock would become voting stock. Additionally, the parties agreed that Gaia and the principal stockholder of Gaia (the "Principal Stockholder") would have a right of first refusal to acquire any Gaia stock sold by Pure World and that Pure World would have a right of first refusal to acquire any Gaia stock sold by Gaia or the Principal Stockholder. In June 1998, Gaia requested that Pure World guarantee an unsecured bank line of $500,000 (the "Gaia Bank Loan"). Because of expansion plans for Pure World Botanicals, Pure World declined to issue the guarantee. An individual unaffiliated with Gaia or Pure World agreed to guarantee the Gaia Bank Loan in consideration of a cash fee and the issuance to the individual of 100 shares of Gaia's common stock, representing 5 percent of Gaia's common stock outstanding (the "Guarantee"). The Guarantee is also secured by Gaia stock held by Gaia's Principal Stockholder. Pure World notified Gaia that it wished to exercise its right of first refusal in connection with the Guarantee. Pure World and Gaia reached an understanding that Pure World would decline the right of first refusal if by November 30, 1998 thirty percent of Pure World's interest was purchased for $1,500,000 (leaving five percent of the current Gaia common stock outstanding) and the Pure World Loan was repaid, including any accrued interest (the "Repurchase"). If the Repurchase was not closed by November 30, 1998 ("the Closing Date"), Pure World then would have the right to assume the Guarantee pursuant to the same terms granted the original guarantor, except for the cash fee. If the Repurchase did not close prior to the Closing date, and either before or after the Closing Date, the Guarantee is called by the bank, Pure World would then own, or have the right to own a majority of Gaia's voting stock. The repurchase did not close as of November 30, 1998. The Company is monitoring its Gaia Investment and discusses its position with Gaia from time to time. F-11 PURE WORLD, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2000 and 1999 Gaia manufactures and distributes fluid botanical extracts for the high-end consumer market. Gaia is a privately held company and does not publish financial results. The Company is accounting for this investment by the cost method. 6. Borrowings ---------- Borrowings consisted of the following at December 31, 2000 (in $000's): Loans payable to a bank, pursuant to a $3 million unsecured line of credit bearing annual interest at LIBOR plus 2.5% (9.5% at December 31, 2000) maturing in June 2001 $2,513 Loans payable to a bank, collateralized by certain property and equipment, bearing annual interest at 6.878% maturing in December 2003 2,143 Loan payable to a bank, collateralized by certain equipment bearing annual interest LIBOR plus 2.5% (9.09% at December 31, 2000) maturing in October 2004 1,533 Loans payable to a bank, bearing annual interest at LIBOR plus 2.5% (9.15% at December 31, 2000) maturing in May 2005 353 F-12 PURE WORLD, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2000 and 1999 Loan payable to a bank, collateralized by certain equipment, bearing annual interest at 8.25% maturing in June 2004 159 Loan payable to a bank, collateralized by certain equipment bearing annual interest at 8.75% maturing in April 2003 156 Loan payable to a bank, collateralized by certain equipment, bearing annual interest at 8.75% maturing in August 2003 39 Lease payable for equipment for gross assets of $800,000 with imputed interest at approximately 8% maturing in June 2007 742 Lease payable to IBM Credit Corporation for gross assets of $150,000 with imputed interest at 6.5% maturing in January 2002 74 Leases payable for equipment 297 All other 14 ------ Total 8,023 Less: Current portion of borrowings 3,882 ------ Long-term debt $4,141 ====== Interest expense was $695,000 and $548,000 for the years ended December 31, 2000 and 1999, respectively. The loan agreements contain certain restrictive covenants with which the Company has complied with as of December 31, 2000. Aggregate maturities of borrowings (in $000's) for each of the years in the five year period ending December 31, 2005 are $1,369; $1,217; $1,145; $1,017 and $590. These maturities exclude $2,513,000 of debt pursuant to a $3 million line of credit. F-13 Interest Rate Swap Agreement ---------------------------- In connection with the origination of a bank loan, the Company entered into an interest rate swap agreement (notional amount $1,833,000) as required by the bank to effectively convert floating-rate debt to fixed rate debt in order to reduce the Company's risk to movements in interest rates. This agreement involves the exchange of fixed and floating interest rate payments over the life of the agreement without the exchange of the underlying principal amount and involved no cost to the Company. Accordingly, the impact of the fluctuations in interest rates on this interest rate swap agreement is fully offset by the opposite impact on the related debt. 7. Common Stock ------------ Stock Repurchase ---------------- The Company had previously announced plans to repurchase shares of the Company's common stock subject to market conditions and other considerations as determined by the Board of Directors ("Repurchase Plans"). Under these Repurchase Plans, the Company can repurchase an additional 1.6 million shares. In 2000, the Company issued 13,200 shares of Common Stock upon the exercise of 13,200 Common Stock Options. Stock Dividends --------------- On November 17, 1998, the Company declared a 10% stock dividend to stockholders of record on January 7, 1999. On January 15, 1999, the Company distributed 751,719 shares. The stock dividend was accounted for similar to a stock split. Accordingly, all share and per share information have been adjusted for the stock split. Stock Options ------------- In August 1991, the Board of Directors of the Company adopted a Non-Qualified Stock Option Plan (the "1991 Plan"). Under the 1991 Plan, non-qualified options to purchase up to an aggregate of 550,000 shares of common stock of the Company may be granted by the Board of Directors to officers, directors and employees of the Company at their fair market value at the date of grant. Options will expire ten years from date of grant and will be exercisable as to one-half of the shares on the date of grant of the option and as to the other half, on the first anniversary of the date of grant of the option, or under such other terms as determined by the Board of Directors. F-14 PURE WORLD, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2000 and 1999 In November 1997, the Board of Directors and Shareholders of the Company adopted the 1997 Non-Qualified Stock Option Plan (the "1997 Plan"). Under the 1997 Plan, non-qualified options to purchase up to 550,000 shares of common stock of the Company can be granted. Many of the other features of the 1997 Plan are the same as the 1991 Plan, other than the options are exercisable one-fifth on the third anniversary of their grant and one-fifth in each of the succeeding years, or under such other terms as determined by the Board of Directors. The following table summarizes option transactions under the Option Plans for the years ended December 31, 2000 and 1999: Weighted Average Shares Exercise Price ------ ---------------- Options outstanding at January 1, 1999 865,205 $ 2.90 Options granted 7,000 2.41 Options canceled ( 16,830) 6.23 --------- Options outstanding at December 31, 1999 855,375 2.83 Options granted 255,900 3.03 Options canceled ( 54,995) 4.69 Options exercised ( 13,200) 1.25 --------- Options outstanding at December 31, 2000 1,043,080 2.86 ========= For options outstanding and exercisable at December 31, 2000, the exercise price ranges are: Options Outstanding Options Exercisable --------------------------------------------------- -------------------------------------------------- Number Weighted-Average Weighted- Number Weighted-Average Weighted- Range of Outstanding at Remaining Life Average Outstanding at Remaining Life Average Exercise Prices December 31, 2000 (In Years) Exercise Price December 31, 2000 (In Years) Exercise Price - --------------------------------------------------------------------- -------------------------------------------------- $1 - $3 559,200 4 $ 1.76 480,040 4 $ 1.60 $3.01 - $6 483,880 8 $ 4.12 261,350 8 $ 4.26 --------- ------ ------- ------ 1,043,080 $ 2.86 741,390 $ 2.53 ========= ====== ======= ======
F-15 PURE WORLD, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2000 and 1999 In addition, in 1995 in connection with the Pure World Botanicals acquisition, the Company issued to the former Pure World Botanicals shareholders options outside of the 1991 Plan to acquire 275,000 shares of the Company's common stock at its then approximate fair value of $1.91 per share. Three employees of Pure World Botanicals were also given a total of 66,000 options outside of the 1991 Plan with prices ranging from $1.82 - $1.91, the approximate fair market value at the time of grant, in connection with their employment. In 1996, 62,700 options were granted outside of the 1991 Plan to various employees of the Company and Pure World Botanicals in connection with their employment with prices ranging between $1.65 and $2.05, the approximate fair market value at the time of the grant. In 1997, 44,000 options were granted outside of the 1997 Plan for new employees with prices ranging from $3.07 to $4.89 per share. Of these options, 368,500 have since been canceled. The Company applies Accounting Principles Board (APB) Opinion 25 and related interpretations in accounting for its options. Accordingly, no compensation cost has been recognized for stock options issued. Had compensation cost for the issued stock options been determined based upon the fair values at the dates of awards under those plans consistent with the method of FASB Statement 123, the Company's net income and net income per share would have been reduced to the pro forma amounts indicated below: 2000 1999 ---- ---- Net loss: As reported (in $000's) ($1,591) ($2,141) Pro forma (in $000's) ($2,228) ($2,436) Basic net loss per share: As reported ($ .19) ($ .26) Pro forma ($ .27) ($ .29) Diluted net loss per share: As reported ($ .19) ($ .26) Pro forma ($ .27) ($ .29) F-16 PURE WORLD, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2000 and 1999 All options granted to date have an exercise price equal to the market price of the Company's stock on the grant date. For purposes of calculating the compensation cost consistent with FASB Statement 123, the fair value of each option grant was estimated on the grant date using the Black-Scholes option-pricing model with the following assumptions used: no dividend yield; expected volatility of 65.87 percent in 2000 and 55.59 percent in 1999; risk free interest rates between 5.0 percent and 7.63 percent; and weighted average expected lives of 5 to 10 years. 8. Compensation Arrangements ------------------------- In April 1990, the Company entered into an employment and deferred compensation agreement (the "Agreement") with the Company's Chairman for an initial three-year term commencing on April 1, 1990 (the "Effective Date") at an annual salary of $185,000, which may be increased but not decreased at the discretion of the Board of Directors. In December 1992, the Board of Directors voted unanimously to increase the Chairman's salary to $215,000 per annum effective December 1, 1992. The term is to be automatically extended one day for each day elapsed after the Effective Date. The Chairman may terminate his employment under the Agreement under certain conditions specified in the Agreement, and the Company may terminate the Chairman's employment under the Agreement for cause. In the event of the Chairman's death during the term of the Agreement, his beneficiary shall be paid a monthly death benefit equal to $215,000 per year for three years payable in equal monthly installments. Should the Chairman become "disabled" (as such term is defined in the Agreement) during the term of the Agreement, he shall be paid an annual disability payment equal to 80 percent of his base salary plus cash bonuses in effect at the time of the disability. Such disability payments shall continue until the Chairman attains the age of 70. The Company accrued approximately $35,000 in each of 2000 and 1999 for the contingent payments provided under the terms of the Agreement. In connection with the Pure World Botanicals acquisition, the Vice Chairman of Madis was given an employment agreement commencing January 3, 1995 for a term of four years at an annual salary of $150,000. The employment contract was subsequently extended for an additional three years. F-17 PURE WORLD, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2000 and 1999 In February 1996, the Company entered into an employment agreement with Dr. Qun Yi Zheng, Executive Vice President of Pure World Botanicals for an initial one-year term. In July 1997, this agreement was amended (the "Amended Zheng Agreement"). The Amended Zheng Agreement is for a three-year term commencing on August 1, 1997 (the "Commencement Date"). The term is to be automatically extended one day for each day elapsed after the Commencement Date. 9. Income Taxes ------------ At December 31, 2000, the Company had net operating loss carryforwards ("NOLs") of approximately $14 million for Federal income tax reporting purposes, which expire in the years 2002 through 2015. The ultimate realization of the tax benefits from the net operating loss is dependent upon future taxable earnings of the Company. The components of income tax expense were as follows (in $000's): 2000 1999 ------ ------ Federal-current $ - $ - State-current 52 34 Deferred - ( 17) ----- ----- Total $ 52 $ 17 ===== ===== F-18 PURE WORLD, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2000 and 1999 Deferred income taxes reflect the tax effects of (a) temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, and (b) operating loss and tax credit carryforwards. The tax effects of significant items comprising the Company's net deferred tax asset as of December 31, 2000 are as follows (in $000's): Deferred tax assets: Net operating loss carryforwards $ 5,024 Alternative minimum tax credit carryforwards 286 Other, net 765 ------ 6,075 Valuation allowance ( 5,826) ------ Net deferred tax asset $ 249 ====== Due to the relatively short expiration periods of the NOLs and the unpredictability of future earnings, the Company believes that a substantial valuation allowance for the deferred tax asset is required. A reconciliation of the provision for income tax expense to the expected income tax expense (benefit) (income before income taxes times the statutory tax rate of 34%) is as follows (in $000's): 2000 1999 -------- ------ Loss before income taxes ($1,539) ($2,124) Statutory federal income tax rate 34% 34% ------ ------ Expected income tax (benefit) ( 523) ( 722) State tax 35 23 Change in valuation allowance ( 156) 711 Expiration of tax credit and state net operating loss carryforwards 683 - Other, net 13 5 ------ ------ Provision for income taxes $ 52 $ 17 ====== ====== F-19 PURE WORLD, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2000 and 1999 The Tax Reform Act of 1986, as amended, provides for a parallel tax system which requires the calculation of AMT and the payment of the higher of the regular income tax or AMT. The Company also has an AMT credit carryforward of approximately $286,000 which will be allowed as a credit carryover against regular tax in the future in the event the regular tax exceeds the AMT tax. 10. Commitments, Contingencies and Related Party Transactions --------------------------------------------------------- The Chairman of the Company is the Chairman of a brokerage firm which provided investment services to the Company during the years ended December 31, 2000 and 1999. Brokerage commissions paid by the Company totaled approximately $2,000 in 2000 and $3,000 in 1999. The Chairman of the Company is also the President of Sun Equities Corporation ("Sun"), the Company's principal stockholder. The Company reimburses Sun for the Company's proportionate share of the cost of group medical insurance and certain general and administrative expenses. Such reimbursements for the years ended December 31, 2000 and 1999 amounted to approximately $781,000 and $412,000, respectively. Sun received no remuneration or administrative fees for performing this service. Rosenman & Colin, LLP ("R&C") performed legal work for the Company and its subsidiaries in 2000 and 1999. Natalie I. Koether, President of the Company and of Pure World Botanicals and the wife of the Chairman of the Company, is of counsel to R&C. Aggregate fees and expenses billed to the Company and its subsidiaries were approximately $269,000 in 2000 and $135,000 in 1999. Pure World Botanicals leases a 138,000 square-foot facility in South Hackensack, New Jersey, from an affiliated corporation owned by the former owners of Pure World Botanicals for $20,000 per month, net, plus one percent of the gross revenues of Pure World Botanicals up to an additional $200,000 per annum. At December 31, 2000, the lease had a term of four years and expires in December 2004 with three ten-year renewal options at base rates up to $22,898 per month. This facility includes a 20,000 square-foot office area; 10,000 square-feet for laboratories; manufacturing space of 70,000 square feet; and warehousing space of 38,000 square feet. F-20 PURE WORLD, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2000 and 1999 Pure World Botanicals also leases a warehouse facility in Teterboro, New Jersey for approximately $11,000 per month from an unrelated party. The Company also rents office space from an affiliate. Such rent expense was approximately $43,000 in 2000 and in 1999. During 1995, the Company loaned money to an officer of the Company and to an officer of Pure World Botanicals to acquire common stock ("Stock") of the Company in the open market. These loans, amounting to $86,000, are non-recourse loans collateralized by the Stock, bearing interest at the minimum rate required under the Internal Revenue Code to avoid imputation of interest. As of December 31, 2000 one of these loans has been paid in full and the balance due on the second loan is approximately $30,000. American Bank, located in Allentown, Pennsylvania, has issued certain loans to Pure World Botanicals, totaling approximately $358,000 at December 31, 2000. Mark W. Jaindl, Director of the Company, is President of American Bank. F-21 PURE WORLD, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2000 and 1999 11. Legal Proceedings ----------------- The Company is involved from time to time in various lawsuits that arise in the course of its business. In late 1997, Pure World Botanicals hired Turnkey Solutions, Inc. ("Turnkey") to perform work and services in connection with the expansion of the Company's manufacturing facility. In September 1998, Turnkey filed construction liens against Pure World Botanicals, totaling approximately $140,000, and it demanded that Pure World Botanicals pay certain outstanding invoices, totaling in excess of $1.3 million. In October 1998, Pure World Botanicals filed an action in the Superior Court of New Jersey, Law Division, Bergen County, alleging that Turnkey had breached its contract, among other things, in connection with work and services incident to the expansion of the Company's manufacturing facility. In the action, Pure World Botanicals sought damages in excess of $1 million. This matter was settled in September 2000. In connection with the settlement, Pure World received net proceeds of $345,000 and was relieved of any potential liability to Turnkey. F-22 Item 8. - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND - ------ ---------------------------------------------------------------------- FINANCIAL DISCLOSURE -------------------- Not applicable. II-6 PART III -------- Item 9. - DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS - ------- ------------------------------------------------------------ The four members of the Board of Directors were elected at the 2000 Annual Meeting of Stockholders and will serve until the next Annual Meeting of Stockholders or until their successors are duly elected and qualified. The Company's officers are elected by and serve at the leave of the Board. There is no arrangement or understanding between any executive officer and any other person pursuant to which such officer was elected. Paul O. Koether, the Chairman of the Company, and Natalie I. Koether, the President of the Company, are spouses. The directors and executive officers of the Company at February 28, 2001 were as follows: Position and Office Presently Held with Director Name of Person Age the Company Since -------------- --- ------------------- -------- Paul O. Koether 64 Chairman and 1988 Director of the Company; Chairman of Pure World Botanicals Mark W. Jaindl 41 Director of the Company 1994 and of Pure World Botanicals Alfredo Mena 48 Director 1992 William Mahomes, Jr. 54 Director 1993 Natalie I. Koether 61 President of the - Company and of Pure World Botanicals Voldemar Madis 60 Vice Chairman of the - Company and of Pure World Botanicals Dr. Qun Yi Zheng 43 Executive Vice President - of Pure World Botanicals John W. Galuchie, Jr. 48 Executive Vice President, - Treasurer and Secretary of the Company III-1 Paul O. Koether is principally engaged in the following: (i) the Company, as Chairman since April 1988, President from April 1989 to February 1997, a director since March 1988, and for more than five years as the Chairman and President of Sun Equities Corporation ("Sun"), a private, closely-held corporation which is the Company's principal stockholder; (ii) as Chairman of Pure World Botanicals, Inc. ("PWBI"), since January 1995 and as a director since December 1994; (iii) as Chairman and director since July 1987 and President since October 1990 of Kent Financial Services, Inc. ("Kent") which engages in various financial services, including the operation of a retail brokerage business through its wholly-owned subsidiary, T. R. Winston & Company, Inc. ("Winston") and the general partner since 1990 of Shamrock Associates, an investment partnership which is the principal stockholder of Kent; (iv) various positions with affiliates of Kent, including Chairman since 1990 and a registered representative since 1989 of Winston; (v) from July 1992 to January 2000, Chairman of Golf Rounds.com, Inc. ("Golf Rounds"), which operates internet golf and skiing sites; and (vi) since September 1998 as a director and Chairman of Cortech, Inc., ("Cortech"), a biopharmaceutical company. Mark W. Jaindl. Since October 1997, Mr. Jaindl has been President and Chief Executive Officer of American Bank, a commercial bank located in Allentown, Pennsylvania. He has served as a director and Vice-chairman of American Bank since June 1997. From May 1982 to October 1991, and again since May 1995, Mr. Jaindl has served as Chief Financial Officer of Jaindl Farms, which is engaged in diversified businesses, including the operation of a 12,000-acre turkey farm, a John Deere dealership and a grain operation. He also serves as the Chief Financial Officer of Jaindl Land Company, a developer of residential, commercial and industrial properties in eastern Pennsylvania. Mr. Jaindl has been a director of Massachusetts Fincorp, Inc. and it's wholly owned subsidiary, Massachusetts Co-operative Bank since May 2000 and August 2000, respectively. From June 1992 until May 1995 he was Senior Vice President of the Company. He was Senior Vice President of PWBI from December 1994 until May 1995 and has been a director of PWBI since December 1994 and he served as a director of Golf Rounds from July 1992 to November 1999. From September 1998 to November 1999 Mr. Jaindl was a director and Vice-chairman of Cortech. Since February 2000, Mr. Jaindl has been a director of Continental Information Systems Corporation, an internet based service provider. Alfredo Mena. Since 1976, Mr.Mena has been president of Alimentos de El Salvador S.A. de C.V., having previously served as Director and General Manager. The Company is engaged in coffee growing, processing and exporting. From October 1995 until June 1997, he served as Presidential Commissioner for the Modernization of the Public Sector,in charge of its decentralization, debureaucratization, deregulation, and privatization. Mr. Mena is a citizen of El Salvador. William Mahomes, Jr. In March 1997, Mr. Mahomes formed Mahomes & Associates,a Professional Corporation, involved in the practice of law, III-2 emphasizing in mediating real estate and commercial transactions. From 1994 to March 1997, Mr. Mahomes was a Senior Shareholder of the law firm of Locke Purnell Rain Harrell. From 1990 to 1994 he was an international partner in the Dallas office of Baker & McKenzie. Mr. Mahomes currently serves on the Board of Directors of a variety of organizations, including The Salvation Army Adisory Board of Dallas, the Texas Pension Review Board, the Pegasus Charter School and the Texas Affiliate Board of Healthcare Service Corporation, formerly known as Blue Cross and Blue Shield of Texas. Natalie I. Koether is engaged principally in the following activities: (i) President of the Company since February 1, 1997 and President and Director of Pure World Botanicals since November 1995; (ii)of Counsel with the law firm of Rosenman & Colin, LLP, from September 1993. Voldemar Madis is principally engaged in the following businesses: (i) Vice Chairman of the Company and of Pure World Botanicals since November 1, 1995 and (ii) President of IVM Corporation ("IVM"). IVM is a real estate holding company. IVM is the owner of the premises occupied by Pure World Botanicals. The terms of the lease are described in "Item 2 - Description of Property". Qun Yi Zheng Ph.D., Executive Vice President and Director of Science and Technology at Pure World Botanicals, has been with the Company since 1996. From August 2000, Dr. Zheng has been a director of Cortech and from November 2000 a director of Kent. Dr. Zheng was Technical Manager at Hauser Nutraceuticals, Colorado from 1995 to 1996 and from 1993 to 1994 he was Senior Chemist at Hauser Chemical Research, Inc., Colorado. John W. Galuchie, Jr., a certified public accountant, is engaged in the following businesses: (i) the Company, as Executive Vice President since April 1988 and director from January 1990 until October 1994 and Vice President and director of Sun for more than five years; (ii) Kent, as Vice President and Treasurer since September 1986 and a director from June 1989 to August 1993; (iii) Winston, as President and Treasurer since January 1990 and a director since September 1989; (iv) Cortech as President and director since September 1998; and (v) General Devices, Inc., as Chairman, President and director since September 2000, a company seeking an operating business. Since September 1999, Mr. Galuchie has been a director and since March 2000, chairman of Gish Biomedical, Inc., a medical device manufacturer. Mr. Galuchie also served as a director of HealthRite, Inc., a nutritional products company, from December 1998 to June 1999, served as a director of NorthCorp Realty Advisors, Inc., a real estate asset manager from June 1992 until August 1996, and served as Vice President, Treasurer and a director from July 1992 to January 2000 of Golf Rounds. III-3 Item 10. - EXECUTIVE COMPENSATION - ------- ---------------------- The table below sets forth for the years ended December 31, 2000, 1999 and 1998, the compensation of any person who, as of December 31, 2000, was the Chief Executive Officer of the Company or who was among the four most highly compensated executive officers of the Company other than the Chief Executive Officer with annual compensation in excess of $100,000 ("Executive Officers"). Long-Term Name and Annual Compensation(1)(2) Compensation --------------------------- ------------ Principal Position Year Salary Bonus Options(#)(3) ------------------ ---- ------ ----- -------------- Paul O. Koether 2000 $161,652 $ - - Chairman 1999 197,283 - - 1998 215,000 75,000 - Natalie I. Koether 2000 $270,374 $ - - President 1999 247,981 - - 1998 270,000 75,000 - Voldemar Madis 2000 $160,937 $ - - Vice Chairman 1999 161,291 - - 1998 163,461 6,000 - Qun Yi Zheng 2000 $188,753 $ 6,923 100,000 Executive Vice 1999 182,080 20,000 - President 1998 166,051 75,000 55,000
- ---------------------------------------------------------- (1) The Company currently has no bonus plan. (2) Certain Executive Officers received incidental personal benefits during the fiscal years covered by the table. The value of these incidental benefits did not exceed the lesser of either $50,000 or 10% of the total annual salary and bonus reported for any of the Executive Officers. Such amounts are excluded from the table. (3) Stock options restated to reflect a 10% stock dividend declared on November 17, 1998 to stockholders of record on January 7, 1999, distributed on January 15, 1999. III-4 Options Granted - --------------- Under the Company's 1991 Non-Qualified Stock Option Plan (the "1991 Plan"), non-qualified options to purchase up to an aggregate of 550,000 shares of the Company's Common Stock may be granted by the Board of Directors to officers, directors and employees of the Company, its subsidiaries or parent. The exercise price for the shares may not be less than the fair market value of the Common Stock on the date of grant. Options will expire five years from the date of grant and will be exercisable as to one-half of the shares on the date of grant and as to the other half, after the first anniversary of the date of grant, or at such other time, or in such other installments as may be determined by the Board of Directors or a committee thereof at the time of grant. The options are non- transferable (other than by will or by operation of the laws of descent) and are exercisable generally only while the holder is employed by the Company or by a subsidiary or parent of the Company or, in the event of the holder's death or permanent disability while employed by the Company, within one year after such death or disability. In November 1997, the Board of Directors and shareholders of the Company adopted the 1997 Non-Qualified Stock Option Plan (the "1997 Plan"). Under the 1997 Plan, non-qualified options to purchase up to 550,000 shares of common stock of the Company can be granted. Many of the other features of the 1997 Plan are the same as the 1991 Plan, other than the options are exercisable one-fifth on the third anniversary of their grant and one-fifth in each of the succeeding years, or at such other time, or in such other installments as may be determined by the Board of Directors. The table below contains information concerning the fiscal year-end value of unexercised options held by the Executive Officers. Fiscal Year-End Options Values ----------------------------------------------------------------------- Value of Unexercised Number of Unexercised In-the-Money Options at 12/31/00 Options at 12/31/00 Name Exercisable/Unexercisable Exercisable/Unexercisable ------ ------------------------- ------------------------- Paul O. Koether 165,000 / - $ - / $ - Natalie I. Koether 275,000 / - - / - Voldemar Madis 120,000 / - - / - Qun Yi Zheng 71,500 / 193,500 - / -
401(k) Plan - ----------- The Company has established a Retirement Savings Plan pursuant to Section 401(k) of the Internal Revenue Code (the "401(k) Plan"). The 401(k) Plan permits employees of the sponsor to defer a portion of their compensation on a pre-tax basis. Employees who meet the 401(k) Plan's eligibility requirements may defer up to 15% of their compensation not to exceed the Internal Revenue Service limit ($10,500 in 2000 and $10,000 in 1999). III-5 The Company did not match employee contributions in 2000 or 1999. Federally mandated discrimination testing limits the amounts which highly paid employees may defer based on the amounts contributed by all other employees. Participant elective deferral accounts are fully vested and participant matching contribution accounts in the 401(k) Plan are vested in accordance with a graduated vesting schedule over a period of six years of service. All participant accounts in the 401(k) Plan are invested at the direction of the participants among several different types of funds offered by a large mutual fund management company selected by the Company. Distributions of account balances are normally made upon death, disability or termination of employment after normal retirement date (age 60) or early retirement date (age 55). However, distribution may be made at any time after an employee terminates employment. Participants may make withdrawals from their deferred accounts in the event of financial hardship but may not borrow from their accounts. Amounts payable to an employee are dependent on the employee's account balance, which is credited and debited with appropriate earnings, gains, expenses and losses of the underlying investment. Benefits are determined by contributions and investment performance over the entire period an employee participates in the 401(k) Plan. Payment is made in a single cash sum no later than sixty days following the close of the year in which the event giving rise to the distribution occurs. The Company does not have any other bonus, profit sharing, or compensation plans in effect. Employment Agreements - --------------------- In April 1990 the Company entered into an employment agreement (the "Agreement") with Mr. Koether, the Company's Chairman, for an initial three-year term commencing on April 1, 1990 (the "Effective Date") at an annual salary of $185,000 ("Base Salary"), which may be increased but not decreased at the discretion of the Board of Directors. The term is to be automatically extended one day for each day elapsed after the Effective Date. In December 1992, the Board of Directors voted to increase the Chairman's Base Salary to $215,000 effective December 1, 1992. The Chairman may terminate his employment under the Agreement at any time for "good reason" (defined below) within 36 months after the date of a Change in Control (defined below) of the Company. Upon his termination, he shall be paid the greater of (i) the Base Salary and any bonuses payable under the Agreement through the expiration date of the Agreement or (ii) an amount equal to three times the average annual Base Salary and bonuses paid to him during the preceding five years. Change in Control is deemed to have occurred if (i) any individual or entity, other than individuals beneficially owning, directly or indirectly, common stock of the Company representing 30% or more of the Company's stock outstanding as of April 1, 1990, is or becomes the beneficial owner, directly or indirectly, of 30% or more of the Company's outstanding stock or (ii) individuals constituting III-6 the Board of Directors on April 1, 1990 ("Incumbent Board"), including any person subsequently elected to the Board whose election or nomination for election was approved by a vote of at least a majority of the Directors comprising the Incumbent Board, cease to constitute at least a majority of the Board. "Good reason" means a determination made solely by Mr. Koether, in good faith, that as a result of a Change in Control he may be adversely affected (i) in carrying out his duties and powers in the fashion he previously enjoyed or (ii) in his future prospects with the Company. Mr. Koether may also terminate his employment if the Company fails to perform its obligations under the Agreement (including any material change in Mr. Koether's duties, responsibilities and powers or the removal of his office to a location more than five miles from its current location) which failure is not cured within specified time periods. In connection with the Pure World Botanicals acquisition, the Vice Chairman of Madis was given an employment agreement commencing January 3, 1995 for a term of four years at an annual salary of $150,000. The employment contract was subsequently extended for an additional three years. In February 1996, the Company entered into an employment agreement with Dr. Qun Yi Zheng, Executive Vice President of the Company for an initial one-year term. In July 1997, this agreement was amended (the "Amended Zheng Agreement"). The Amended Zheng Agreement is for a three-year term commencing on August 1, 1997 (the "Commencement Date"). The term is to be automatically extended one day for each day elapsed after the Commencement Date. Remuneration of Directors - ------------------------- Directors who are not employees of the Company receive a fee of $1,800 for attending each meeting of the Board or a committee meeting. During 2000, the Company paid directors' fees in the aggregate of approximately $47,000. III-7 Item 11. - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT - -------- -------------------------------------------------------------- The following table sets forth the beneficial ownership of Common Stock of the Company as of February 28, 2001, by each person who was known by the Company to beneficially own more than 5% of the Common Stock, by each director and officer and directors and officers as a group: Number of Shares Approximate Name and Address of Common Stock Percent of Beneficial Owner Beneficially Owned(1) of Class ------------------- --------------------- ----------- Paul O. Koether 211 Pennbrook Road Far Hills, N.J. 07931 3,342,865(2) 36.86% Natalie I. Koether 211 Pennbrook Road Far Hills, N.J. 07931 3,342,865(3) 36.86% Sun Equities Corporation 376 Main Street Bedminster, NJ 07921 2,457,725 29.68% Mark W. Jaindl 3150 Coffeetown Road Orefield, PA 18069 239,382(4) 2.64% William Mahomes, Jr. 900 Jackson Suite 600 Dallas, TX 75202 11,000 * Alfredo Mena P. O. Box 520656 Miami, Florida 33152 18,700 * Voldemar Madis 375 Huyler Street South Hackensack, NJ 07606 124,070 1.37% Dr. Qun Yi Zheng 375 Huyler Street South Hackensack, NJ 07606 71,500 * Donald Drapkin 35 East 62nd Street New York, NY 10021 749,000(5) 9.04% Dimensional Fund Advisors, Inc. 1299 Ocean Avenue, 11th Floor Santa Monica, CA 90401 547,190(6) 6.61% All directors and officers as a group (9 persons) 3,874,207 42.72% ------------------------------ *Represents less than one percent. III-8 (1) The beneficial owner has both sole voting and sole investment powers with respect to these shares except as set forth in this footnote or in other footnotes below. Included in such number of shares beneficially owned are shares subject to options currently exercisable or becoming exercisable within sixty days: Paul O. Koether (165,000 shares); Natalie I. Koether (275,000 shares); Mark W. Jaindl (77,000 shares); Alfredo Mena (16,500 shares); Voldemar Madis (120,000 shares); Qun Yi Zheng (71,500 shares); and all directors and officers as a group (787,150 shares). (2) Includes 517,550 shares beneficially owned by his wife, including 110,000 shares owned by Emerald Partners of which she is the sole general partner, 275,000 shares which she has the right to acquire upon exercise of stock options and 132,550 shares held in custodial accounts. Mr. Koether may also be deemed to be the beneficial owner of the 2,457,725 shares owned by Sun, of which Mr. Koether is a principal stockholder and Chairman, 92,590 shares held in discretionary accounts of certain of his brokerage customers and 14,190 shares held in Mr. Koether's IRA account. Mr. Koether disclaims beneficial ownership of all of the foregoing shares. (3) Includes (1) 110,000 shares owned by Emerald Partners of which Mrs. Koether is the sole general partner; (2) 275,000 shares which she has the right to acquire upon exercise of stock options; (3) 132,550 shares held in custodial accounts; and (4) the shares beneficially owned by her husband, described above in footnote (2). Mrs. Koether may also be deemed to be the beneficial owner of the 2,457,725 shares owned by Sun, of which she is a principal stockholder and her husband is a principal stockholder and Chairman. Mrs. Koether disclaims beneficial ownership of all of the foregoing shares. (4) Includes 15,092 shares held in Mr. Jaindl's IRA account and 4,400 shares held by a trust for the benefit of his son, for which Mr. Jaindl serves as a trustee. (5) According to Schedule 13 G/A filed on February 14, 2001 by Donald R. Drapkin. (6) Dimensional Fund Advisors, Inc. ("Dimensional"), an investment advisor registered under Section 203 of the Investment Advisors Act of 1940, furnishes investment advice to four investment companies registered under the Investment Company Act of 1940, and serves as investment manager to certain other commingled group trusts and separate accounts. These investment companies, trusts and accounts are the "Funds". In its role as investment adviser or manager, Dimensional possesses voting and/or investment power over the securities of the Issuer described in this schedule that are owned by the Funds. All securities reported in this schedule are owned by the Funds. Dimensional disclaims beneficial ownership of such securities. III-9 Item 12. - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - -------- ---------------------------------------------- The Chairman of the Company is also the President of Sun Equities Corporation ("Sun"), the Company's principal stockholder. The Company reimburses Sun for the Company's proportionate share of the cost of group medical insurance and certain general and administrative expenses. Such reimbursements for the years ended December 31, 2000 and 1999 amounted to approximately $781,000 and $412,000, respectively. Sun received no remuneration or administrative fees for performing this service. Rosenman & Colin LLP ("R&C") performed legal work for the Company for which it billed the Company an aggregate of approximately $269,000 in 2000 and $135,000 in 1999. Natalie I. Koether, Esq., President of the Company and of Pure World Botanicals and wife of the Chairman of the Company, is of Counsel to R&C. American Bank, located in Allentown, Pennsylvania, has issued certain loans to Pure World Botanicals, totaling approximately $358,000 at December 31, 2000. Mark W. Jaindl, Director of the Company, is President of American Bank. III-10 PART IV ------- Item 13. - EXHIBITS AND REPORTS ON FORM 8-K - ------- -------------------------------- (a) The following exhibits are filed as part of this report: Exhibit Number Exhibit Method of Filing ------- ------- ---------------- 3.1 (a) Restated Certificate of Incorporated by reference to Incorporation of the Company Computer Memories Incorporated Form 10-K for the year ended March 31, 1987. (b) Certificate of Amendment Incorporated by reference to of Restated Certificate of Exhibit A to Computer Memories Incorporation of the Company Incorporated Proxy Statement dated February 16, 1990. (c) Certificate of Amendment of Incorporated by reference to Restated Certificate of Incor- American Holdings, Inc. poration of the Company Form 10-KSB for the year ended December 31, 1992. (d) Certificate of Amendment of Incorporated by reference to Restated Certificate of Incor- Pure World, Inc. Form 10-KSB poration of the Company for the year ended December 31, 1996. 3.2 By-laws, as amended Incorporated by reference to American Holdings, Inc. Form 10-KSB for the year ended December 31, 1992. 10.1 Employment Agreement, dated as Incorporated by reference to of April 6, 1990, by and between Computer Memories Incorporated Computer Memories Incorporated Form 10-Q for the quarter and Paul O. Koether ended June 30, 1990. 10.2 1991 Computer Memories Incor- Incorporated by reference to porated Non-Qualified Stock Exhibit A to Computer Memories Option Plan Incorporated Proxy Statement dated July 7, 1992. 10.3 Agreement and Plan of Merger Incorporated by reference to dated as of December, 1994 American Holdings, Inc. Form 8-K dated January 18, 1995.
IV-1 Exhibit Number Exhibit Method of Filing ------- ------- ---------------- 10.5 1997 Non-Qualified Stock Option Incorporated by reference to Plan Exhibit A dated November 20, 1997 Proxy Statement 10.6(a) Employment Agreement with Incorporated by reference to V. Madis American Holdings, Inc. Form 8-K dated January 18, 1995. (b) Amendment to Employment Incorporated by reference Agreement with V. Madis to Pure World, Inc. Form 10-KSB for the year ended December 31, 1997. 10.7 Lease Agreement for premises of Incorporated by reference to Dr. Madis Laboratories, Inc., American Holdings, Inc. Form 375 Huyler Street, South 8-K dated January 18, 1995. Hackensack, New Jersey 10.8 Plan of Reorganization of Incorporated by reference to Dr. Madis Laboratories, Inc. American Holdings, Inc. Form 8-K/A (Amendment No. 1) dated March 17, 1995. 10.9 Disclosure Statement Related Incorporated by reference to to Plan of Reorganization of American Holdings, Inc. Form Dr. Madis Laboratories, Inc. 8-K/A (Amendment No. 1) for the year ended March 17, 1995. 10.10(a) Employment Agreement with Incorporated by reference to Dr. Q.Y. Zheng Pure World, Inc. Form 10-KSB dated December 31, 1998 (b) Amendment to Employment Incorporated by reference to Agreement with Dr. Q.Y. Zheng Pure World, Inc. Form 10-KSB dated December 31, 1998. 21 Subsidiaries of the Registrant Filed herewith. 27 Financial Data Schedule Filed herewith.
(b) Reports on Form 8-K ------------------- None IV-2 SIGNATURES In accordance with Section 13 or 15(d) of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. PURE WORLD, INC. March 29, 2001 By: /s/ Paul O. Koether ------------------------- Paul O. Koether Chairman of the Board March 29, 2001 By: /s/ Sue Ann Itzel ------------------------- Sue Ann Itzel Vice President (Principal Financial and Accounting Officer) 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. Signature Capacity Date - ------------------------- --------------------- -------------- /s/ Paul O. Koether Chairman of the Board March 29, 2001 - ------------------------- and Director Paul O. Koether (Principal Executive Officer) /s/ William Mahomes, Jr. Director March 29, 2001 - ------------------------- William Mahomes, Jr. /s/ Alfredo Mena Director March 29, 2001 - ------------------------- Alfredo Mena /s/ Mark W. Jaindl Director March 29, 2001 - ------------------------- Mark W. Jaindl IV-3 EXHIBIT 21 PURE WORLD, INC. LIST OF SUBSIDIARIES NAME OF SUBSIDIARY STATE OF INCORPORATION ------------------ ---------------------- American Holdings, Inc. Delaware Eco-Pure, Inc. Delaware Pure World Botanicals, Inc. Delaware Pure World Botanicals Powders, Inc. Delaware -----END PRIVACY-ENHANCED MESSAGE-----