t67138_10q.htm
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON, D.C.
20549
FORM
10-Q
(Mark
One)
x QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES
EXCHANGE ACT OF 1934
For the
quarterly period ended December 31, 2009
OR
o TRANSACTION
REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______ to
_______
COMMISSION
FILE NO. 0-17629
ADM
TRONICS UNLIMITED, INC.
(Exact
name of registrant as specified in its charter)
Delaware
(State or Other
Jurisdiction
of Incorporation or
organization)
|
22-1896032
(I.R.S. Employer
Identification
Number)
|
224-S
Pegasus Ave., Northvale, New Jersey 07647
(Address
of Principal Executive Offices)
Registrant’s
Telephone Number, including area code: (201) 767-6040
Indicate
by check mark whether the Registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days: YES x NO o
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such
files). YES o NO o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.
Large accelerated filer o Accelerated
filer o
Non-accelerated filer o (Do not check if a
smaller reporting
company)
Smaller reporting company x
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
YES o NO x
State the
number of shares outstanding of each of the Issuer’s classes of common equity,
as of the latest practicable date:
53,939,537 shares of Common Stock, $.0005 par value, as
of February 12, 2010.
ADM
TRONICS UNLIMITED, INC.
INDEX
|
|
Page
Number
|
|
|
|
|
PART
I. FINANCIAL INFORMATION
|
|
|
|
|
Item
1.
|
Consolidated
Financial Statements:
|
|
|
|
|
Condensed
Consolidated Balance Sheets – December 31, 2009
|
|
(unaudited)
and March 31, 2009
|
3
|
|
|
|
Condensed
Consolidated Statements of Operations – For the
|
|
three
and nine months ended December 31, 2009 and 2008
(unaudited)
|
4
|
|
|
|
Condensed
Consolidated Statements of Cash Flows – For the
|
|
nine
months ended December 31, 2009 and 2008 (unaudited)
|
5
|
|
|
|
Notes
to Condensed Consolidated Financial Statements
|
|
(unaudited)
|
6
|
|
|
|
ITEM
2.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
|
13 |
|
|
|
ITEM
3.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
17
|
|
|
|
ITEM
4.
|
CONTROLS
AND PROCEDURES
|
17
|
|
|
|
|
PART
II. OTHER INFORMATION
|
|
|
|
|
ITEM
1.
|
LEGAL
PROCEEDINGS
|
18
|
|
|
|
ITEM
1A. |
RISK
FACTORS |
18 |
|
|
|
ITEM
2.
|
UNREGISTERED
SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
|
18
|
|
|
|
ITEM
3.
|
DEFAULTS
UPON SENIOR SECURITIES
|
18
|
|
|
|
ITEM
4.
|
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
|
18
|
|
|
|
ITEM
5.
|
OTHER
INFORMATION
|
18
|
|
|
|
ITEM
6.
|
EXHIBITS
|
18
|
PART
I. FINANCIAL INFORMATION
|
|
ITEM
1. CONSOLIDATED FINANCIAL STATEMENTS
|
|
ADM
TRONICS UNLIMITED, INC. AND SUBSIDIARIES
|
CONDENSED
CONSOLIDATED BALANCE SHEETS
|
|
|
|
December
31, 2009
|
|
|
March
31, 2009
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
827,184 |
|
|
$ |
1,155,786 |
|
Accounts
receivable, net of allowance for doubtful
|
|
|
|
|
|
|
|
|
accounts
of $3,726 and $2,500, respectively
|
|
|
52,451 |
|
|
|
105,134 |
|
Due
from affiliates
|
|
|
350 |
|
|
|
6,977 |
|
Inventories
|
|
|
278,092 |
|
|
|
302,810 |
|
Prepaid
expenses and other current assets
|
|
|
18,273 |
|
|
|
23,412 |
|
Restricted
cash
|
|
|
228,282 |
|
|
|
226,580 |
|
|
|
|
|
|
|
|
|
|
Total
current assets
|
|
|
1,404,632 |
|
|
|
1,820,699 |
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net of accumulated depreciation
|
|
|
|
|
|
|
|
|
of
$38,374 and $28,082, respectively
|
|
|
59,675 |
|
|
|
59,968 |
|
Inventory
- long term portion
|
|
|
42,634 |
|
|
|
43,798 |
|
Investment
in Ivivi - at Fair Market Value
|
|
|
- |
|
|
|
715,000 |
|
Secured
convertible note
|
|
|
51,073 |
|
|
|
- |
|
Advances
to related parties
|
|
|
48,214 |
|
|
|
47,999 |
|
Intangible
assets, net of accumulated amortization
|
|
|
|
|
|
|
|
|
of
$116,172 and $80,055, respectively
|
|
|
203,533 |
|
|
|
194,204 |
|
Other
assets
|
|
|
18,763 |
|
|
|
18,763 |
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$ |
1,828,524 |
|
|
$ |
2,900,431 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’
EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$ |
135,769 |
|
|
$ |
116,137 |
|
Note
payable – bank
|
|
|
187,000 |
|
|
|
197,000 |
|
Note
payable - other
|
|
|
17,400 |
|
|
|
- |
|
Accrued
expenses and other current liabilities
|
|
|
32,490 |
|
|
|
38,970 |
|
Customer
deposits – Ivivi
|
|
|
14,743 |
|
|
|
101,025 |
|
|
|
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
387,402 |
|
|
|
453,132 |
|
|
|
|
|
|
|
|
|
|
Note
payable - other, net of current maturities
|
|
|
15,350 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
402,752 |
|
|
|
453,132 |
|
|
|
|
|
|
|
|
|
|
Stockholders’
equity:
|
|
|
|
|
|
|
|
|
Preferred
stock, $.01 par value; 5,000,000 shares authorized,
|
|
|
|
|
|
|
|
|
no
shares issued and outstanding
|
|
|
|
|
|
|
|
|
Common
stock, $.0005 par value; 150,000,000 shares
|
|
|
|
|
|
|
|
|
authorized,
53,939,537 shares issued and outstanding at
|
|
|
|
|
|
|
|
|
December
31, 2009 and March 31, 2009
|
|
|
26,970 |
|
|
|
26,970 |
|
Additional
paid-in capital
|
|
|
32,153,597 |
|
|
|
32,153,597 |
|
Accumulated
deficit
|
|
|
(30,754,795 |
) |
|
|
(29,733,268 |
) |
|
|
|
|
|
|
|
|
|
Total
stockholders’
equity
|
|
|
1,425,772 |
|
|
|
2,447,299 |
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders’
equity
|
|
$ |
1,828,524 |
|
|
$ |
2,900,431 |
|
The
accompanying notes are an integral part of these
unaudited
|
condensed
consolidated financial
statements.
|
ADM
TRONICS UNLIMITED, INC. AND SUBSIDIARIES
|
CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS
|
FOR
THE THREE AND NINE MONTHS ENDED DECEMBER 31, 2009 and
2008
|
(Unaudited) |
|
|
Three
Months Ended
December 31,
|
|
|
Nine
Months Ended
December 31,
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$ |
251,801 |
|
|
$ |
257,610 |
|
|
$ |
850,988 |
|
|
$ |
1,248,140 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs
and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of sales
|
|
|
139,102 |
|
|
|
183,355 |
|
|
|
470,277 |
|
|
|
840,835 |
|
Research
and development
|
|
|
9,752 |
|
|
|
- |
|
|
|
26,108 |
|
|
|
- |
|
Selling,
general and administrative
|
|
|
214,093 |
|
|
|
291,791 |
|
|
|
666,398 |
|
|
|
892,372 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
operating expenses
|
|
|
362,947 |
|
|
|
475,146 |
|
|
|
1,162,783 |
|
|
|
1,733,207 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
loss
|
|
|
(111,146 |
) |
|
|
(217,536 |
) |
|
|
(311,795 |
) |
|
|
(485,067 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income, net
|
|
|
1,393 |
|
|
|
6,537 |
|
|
|
5,268 |
|
|
|
35,178 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in fair value of investment in
Ivivi
|
|
|
- |
|
|
|
(650,000 |
) |
|
|
(715,000 |
) |
|
|
(10,465,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax benefit
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
2,425,188 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$ |
(109,753 |
) |
|
$ |
(860,999 |
) |
|
$ |
(1,021,527 |
) |
|
$ |
(8,489,701 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss per share, basic and diluted
|
|
$ |
(0.00 |
) |
|
$ |
(0.02 |
) |
|
$ |
(0.02 |
) |
|
$ |
(0.16 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding,
|
|
|
53,939,537 |
|
|
|
53,939,537 |
|
|
|
53,939,537 |
|
|
|
53,939,537 |
|
basic
and diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these unaudited
|
|
condensed
consolidated financial statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ADM
TRONICS UNLIMITED, INC. AND SUBSIDIARIES
|
CONDENSED
CONSOLIDATED STATEMENT OF CASH FLOWS
|
FOR
THE NINE MONTHS ENDED DECEMBER 31,
|
(Unaudited) |
|
|
2009
|
|
|
2008
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
Net
Loss
|
|
$ |
(1,021,527 |
) |
|
$ |
(8,489,701 |
) |
Adjustments
to reconcile net loss to net cash
used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
46,410 |
|
|
|
22,479 |
|
Bad
debt expense
|
|
|
1,226 |
|
|
|
|
|
Interest
income
|
|
|
(1,110 |
) |
|
|
- |
|
Net
change in fair market value on investment in Ivivi
|
|
|
715,000 |
|
|
|
10,465,000 |
|
Deferred
tax benefit
|
|
|
- |
|
|
|
(2,425,188 |
) |
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
(Increase)
decrease in:
|
|
|
|
|
|
|
|
|
Inventory
|
|
|
(56,374 |
) |
|
|
125,470 |
|
Accounts
receivable
|
|
|
51,457 |
|
|
|
(2,720 |
) |
Prepaid
expenses
|
|
|
(4,533 |
) |
|
|
76,420 |
|
Due
from affiliate
|
|
|
6,627 |
|
|
|
- |
|
Increase
(decrease) in:
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
|
22,824 |
|
|
|
(155,270 |
) |
Customer
deposit - Ivivi
|
|
|
7,448 |
|
|
|
(133,731 |
) |
Net
cash used in operating activities
|
|
|
(232,552 |
) |
|
|
(517,241 |
) |
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
Advances
to related party
|
|
|
(215 |
) |
|
|
- |
|
Collections
of advances to related parties
|
|
|
- |
|
|
|
23,456 |
|
Payment
and services rendered for secured convertible
note
|
|
|
(49,963 |
) |
|
|
- |
|
Payment
for asset acquisition
|
|
|
(34,170 |
) |
|
|
(212,491 |
) |
Deposit
- restricted cash
|
|
|
(1,702 |
) |
|
|
(225,650 |
) |
Purchases
of property and equipment
|
|
|
- |
|
|
|
(14,888 |
) |
Net
cash used by investing activities
|
|
|
(86,050 |
) |
|
|
(429,573 |
) |
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds
from note payable - Bank
|
|
|
- |
|
|
|
200,000 |
|
Repayments
on note payable - Bank
|
|
|
(10,000 |
) |
|
|
- |
|
Net
cash (used in) provided by financing activities
|
|
|
(10,000 |
) |
|
|
200,000 |
|
|
|
|
|
|
|
|
|
|
Net
decrease in cash
|
|
|
(328,602 |
) |
|
|
(746,814 |
) |
|
|
|
|
|
|
|
|
|
Cash
at beginning of period
|
|
|
1,155,786 |
|
|
|
2,072,325 |
|
|
|
|
|
|
|
|
|
|
Cash
at end of period
|
|
$ |
827,184 |
|
|
$ |
1,325,511 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
paid for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$ |
4,816 |
|
|
$ |
2,677 |
|
Income
taxes
|
|
$ |
11,270 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
Non-cash
disclosure:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Company financed insurance premiums during the period.
|
|
|
|
|
|
|
|
|
Increase
in prepaid insurance and accounts payable
|
|
$ |
9,672 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
Transfer
of inventory to Ivivi, decrease in inventory
|
|
|
|
|
|
|
|
|
and
customer deposits - Ivivi
|
|
$ |
93,730 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
See
Note 2 for a summary of non-cash investing activities.
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these
unaudited
|
condensed
consolidated financial
statements.
|
ADM TRONICS UNLIMITED, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2009
(Unaudited)
NOTE
1 - ORGANIZATIONAL MATTERS
ADM
Tronics Unlimited, Inc. (“we”, “us”, the “Company” or “ADM”), was incorporated
under the laws of the state of Delaware on November 24, 1969. We are
authorized under our Certificate of Incorporation to issue 150,000,000 common
shares, with $.0005 par value, and 5,000,000 preferred shares with $.01 par
value.
The
accompanying condensed consolidated financial statements as of December 31, 2009
(unaudited) and March 31, 2009 and for the three and nine month periods ended
December 31, 2009 and 2008 (unaudited) have been prepared by ADM pursuant to the
rules and regulations of the Securities and Exchange Commission, including Form
10-Q and Regulation S-X. The information furnished herein reflects
all adjustments (consisting of normal recurring accruals and adjustments), which
are, in the opinion of management, necessary to fairly present the operating
results for the respective periods. Certain information and footnote
disclosures normally present in annual financial statements prepared in
accordance with accounting principles generally accepted in the United States of
America have been omitted pursuant to such rules and regulations. These
financial statements and the information included under the heading
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations” should be read in conjunction with the audited financial statements
and explanatory notes for the year ended March 31, 2009 as disclosed in our
annual report on Form 10-K for that year as filed with the SEC, as it may be
amended. The results of the three and nine months ended December 31,
2009, (unaudited) are not necessarily indicative of the results to be expected
for the pending full year ending March 31, 2010.
NATURE
OF BUSINESS
We are a manufacturing and
engineering concern whose principal lines of business are the production and
sale of chemical products and the manufacture and sale of
electronics. On August 27, 2008, we acquired all of the assets of
Action Spas, a manufacturer of electronic controllers for spas and hot tubs,
under our wholly owned subsidiary Action Industries Unlimited, LLC
(“Action”). With this acquisition, our previous Medical segment was
redefined as our Electronics segment, and the ongoing operations of Action are
now reported under this segment. On July
17, 2009, we purchased the assets of Antistatic Industries of Delaware, Inc., a
company involved in the research, development and manufacture of water-based and
proprietary electrically conductive paints, coatings and other products and
accessories which can be used by electronics, computer, pharmaceutical and
chemical companies to prevent, reduce or eliminate static
electricity.
Our
chemical product line is principally comprised of water-based chemical products
used in the food packaging and converting industries and
our Antistatic paint and coatings products as described above. These
products are sold to customers located in the United States, Australia, Asia and
Europe. Electronics equipment is manufactured in accordance with customer
specifications on a contract basis. Our electronic device product line consists
principally of proprietary devices used in the treatment of joint pain and
tinnitus, and sales by Action, as described above. These devices are FDA cleared
medical devices. These products are sold to customers located
principally in the United States.
NOTE
2 - SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION
The
unaudited condensed consolidated financial statements include the accounts of
ADM Tronics Unlimited, Inc. and its subsidiaries. All significant
intercompany balances and transactions have been eliminated in
consolidation.
USE
OF ESTIMATES
These
unaudited condensed consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States
and, accordingly, require management to make estimates and assumptions that
affect the reported amounts of assets, liabilities, revenues and expenses, and
related disclosures of contingent assets and liabilities. Significant
estimates made by management include expected economic life and value of our
medical devices, reserves, deferred tax assets, valuation allowance, impairment
of long lived asset, fair value of equity instruments issued to consultants for
services and fair value of equity instruments issued to others, option and
warrant expenses related to compensation to employees and directors, consultants
and investment banks, allowance for doubtful accounts, and warranty reserves.
Actual results could differ from those estimates.
FAIR
VALUE OF FINANCIAL INSTRUMENTS
On April
1, 2008, the Company adopted the accounting pronouncements with respect to fair
value measurements. Please refer to Note 4 for additional
details. For certain of our financial instruments, including accounts
receivable, inventories, secured convertible note, accounts payable, accrued
expenses, and notes payable – other, the carrying amounts approximate
fair value due to their relatively short maturities.
CASH
AND EQUIVALENTS
Cash
equivalents are comprised of certain highly liquid investments with maturities
of three months or less when purchased. We maintain our cash in bank deposit
accounts, which at times, may exceed federally insured limits. We have not
experienced any losses to date as a result of this policy.
REVENUE
RECOGNITION
CHEMICAL
PRODUCTS:
Revenues
are recognized when products are shipped to end users. Shipments to distributors
are recognized as sales where no right of return exists.
ELECTRONICS:
We
recognize revenue from the sale of our electronic products when they are shipped
to the purchaser. Revenue from the sale of the electronics we
manufacture for Montvale
Technologies, Inc. (formerly known as Ivivi Technologies, Inc.) (“Ivivi”)
is recognized upon completion of the manufacturing process and shipment of
product. Shipping and handling charges and costs have been immaterial. We offer
a limited 90 day warranty on our electronics products and a limited 5 year
warranty on our electronic controllers for spas and hot tubs. We have
no other post shipment obligations and sales returns have been immaterial. Based
on prior experience, no amounts have been accrued for potential warranty costs
and such costs were nominal for the nine months ended December 31,
2009.
ADVERTISING
COSTS
Advertising
costs are expensed as incurred and amounted to approximately $3,094 and $4,739
for the three months ended December 31, 2009 and 2008, respectively, and $7,729
and $19,049 for the nine months ended December 31, 2009 and 2008,
respectively.
RESEARCH
AND DEVELOPMENT COSTS
Research
and development costs consist of expenditures for the research and development
of patents and technology, which are not capitalizable. Our research and
development costs consist mainly of labor costs in developing new
products.
WARRANTY
LIABILITIES
We offer
a limited 90 day warranty on our electronics products and a 5 year limited
warranty on all of our electronic controllers for spas and hot tubs sold through
Action. This product lines’ past experience has resulted in
immaterial costs associated with warranty issues. Therefore, no
warranty liabilities have yet been recorded. We consider the amount
of warranty revenue, included in the sales of our electronic products, to be
immaterial based upon our historical experience.
RESTRICTED
CASH
Restricted
cash represents funds on deposit with a financial institution that secure the
bank note payable, discussed in “Note 9 – Note Payable, Bank”.
NET
LOSS PER SHARE
We
compute basic loss per share by dividing net loss by the weighted average number
of common shares outstanding. Diluted loss per share is computed
similar to basic loss per share, except that the denominator is increased to
include the number of additional common shares that would have been outstanding
if the potential shares had been issued and if the additional shares were
dilutive. Common equivalent shares are excluded from the computation
of net loss per share if their effect is anti-dilutive.
Per share basic and diluted net loss amounted to $0.00
and $0.02 for the three months ended December 31, 2009 and 2008, respectively,
and $0.02 and $0.16 for the nine months ended December 31, 2009 and 2008,
respectively. The assumed exercise of common stock equivalents was
not utilized for the three and nine month periods ended December 31, 2009 and
2008, since the effect would be anti-dilutive. There were 5,055,286
and 11,626,854 common stock equivalents at December 31, 2009 and 2008,
respectively.
NON-CASH
INVESTING ACTIVITY
|
Non-cash
investing activity is excluded from the consolidated statement of cash
flows. For the nine months ended December 31, 2009, non-cash activites
included the following:
|
Asset
Acquisition of Antistatic Industries of Delaware, Inc.:
|
|
|
|
Fair
Value of assets acquired
|
|
$ |
66,920 |
|
|
|
|
|
|
Cash
paid to Seller
|
|
$ |
(26,920 |
) |
Cash
paid to Seller under Note Payable
|
|
|
(7,250 |
) |
Note
payable outstanding at December 31, 2009
|
|
|
(32,750 |
) |
|
|
$ |
(66,920 |
) |
Nine-months
ended December 31, 2009 Asset Acquisitions
|
|
|
|
|
Details
of Acquisition
|
|
|
|
|
Fair
Value of assets acquired
|
|
$ |
66,920 |
|
Note
Payable balance at December 31, 2009
|
|
|
(32,750 |
) |
Total
cash paid for acquisition
|
|
$ |
34,170 |
|
RECENTLY
ADOPTED ACCOUNTING PRONOUNCEMENTS
In June
2009, the Financial Accounting Standards Board (“FASB”) issued the FASB
Accounting Standards Codification (“Codification”) as the single source of
authoritative non-governmental U.S. GAAP which was launched on July 1,
2009. The Codification is a new structure which takes accounting pronouncements
and organizes them by approximately ninety accounting topics. The Codification
is now the single source of authoritative U.S. GAAP. All guidance included in
the Codification is now considered authoritative, even guidance that comes from
what is currently deemed to be a non-authoritative section of a standard. Upon
the Codification’s effective date, all non-grandfathered, non-SEC accounting
literature not included in the Codification has become non-authoritative. The
Codification’s effective date for interim and annual periods was
September 15, 2009. The Codification is for disclosure only and has not
impacted the Company’s financial condition or results of operations. The Company
has adopted the Codification, and reflects such adoption throughout this
filing.
Management
does not believe that any other recently issued, but not yet effective
accounting pronouncement, if adopted, would have a material effect on the
accompanying unaudited condensed consolidated financial statements.
NOTE
3 - INVENTORY
|
|
Inventory
at December 31, 2009 (unaudited) consisted of the
following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
Long
Term
|
|
|
Total
|
|
Raw
materials
|
|
$ |
201,567 |
|
|
$ |
31,945 |
|
|
$ |
233,512 |
|
Finished
goods
|
|
|
76,525 |
|
|
|
10,689 |
|
|
|
87,214 |
|
|
|
$ |
278,092 |
|
|
$ |
42,634 |
|
|
$ |
320,726 |
|
Inventory
at March 31, 2009 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
Long
Term
|
|
|
Total
|
|
Raw
materials
|
|
$ |
232,851 |
|
|
$ |
33,109 |
|
|
$ |
265,960 |
|
Finished
goods
|
|
|
69,959 |
|
|
|
10,689 |
|
|
|
80,648 |
|
|
|
$ |
302,810 |
|
|
$ |
43,798 |
|
|
$ |
346,608 |
|
The
Company values its inventories at the first in, first out (“FIFO”) method at the
lower of cost or market.
NOTE
4 – FAIR VALUE MEASUREMENTS
Effective
April 1, 2008, the Company adopted the accounting pronouncement with
respect to fair value of financial assets and liabilities, as well as for any
other assets and liabilities that are carried at fair value on a recurring
basis. The adoption of the provisions related to financial assets and
liabilities and other assets and liabilities that are carried at fair value on a
recurring basis did not materially impact the Company’s consolidated financial
position and results of operations.
The
pronouncement defines fair value as the exchange price that would be received
for an asset or paid to transfer a liability (an exit price) in the principal or
most advantageous market for the asset or liability in an orderly transaction
between market participants on the measurement date. The pronouncement also
establishes a fair value hierarchy, which requires an entity to maximize the use
of observable inputs and minimize the use of unobservable inputs when measuring
fair value. The pronouncement describes three levels of inputs that may be used
to measure fair value:
Level
1
|
Unadjusted
quoted prices in active markets that are accessible at the measurement
date for identical, unrestricted assets or liabilities.
|
|
|
Level
2
|
Quoted
prices in markets that are not active; or other inputs that are
observable, either directly or indirectly, for substantially the full term
of the asset or liability.
|
|
|
Level
3
|
Prices
or valuation techniques that require inputs that are both significant to
the fair value measurement and
unobservable.
|
The
following table presents assets measured at fair value on a recurring basis at
March 31, 2009:
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Total |
|
Investment
in Ivivi
|
|
$ |
715,000 |
|
|
$ |
-- |
|
|
$ |
-- |
|
|
$ |
715,000 |
|
During
the quarter ended June 30, 2009, management had determined the investment in
Ivivi should be valued using both Level 1 and Level 2 inputs:
The
following table presents assets measured at fair value on a recurring basis at
December 31, 2009:
|
|
Level
1 |
|
|
Level
2 |
|
|
Level
3 |
|
|
Total |
|
Investment
in Ivivi
|
|
$ |
715,000 |
|
|
$ |
(715,000 |
) |
|
$ |
-- |
|
|
$ |
-- |
|
During
the nine months ended December 31, 2009, the Company recorded a decrease in fair
value of $715,000 with respect to its investment in Ivivi.
NOTE
5 -
|
INTANGIBLE
ASSETS
|
|
Intangible
assets are being amortized using the straight line method over periods
ranging from 3-15 years with a weighted average remaining life of
approximately 5.5 years. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
March 31, 2009
|
|
|
|
|
Cost
|
|
|
Accumulated
Amortization
|
|
|
Net Carrying
Amount
|
|
|
Cost
|
|
|
Accumulated
Amortization
|
|
|
Net Carrying
Amount
|
|
|
Patents
& Trademarks
|
|
$ |
71,768 |
|
|
$ |
(57,521 |
) |
|
$ |
14,247 |
|
|
$ |
61,768 |
|
|
$ |
(56,142 |
) |
|
$ |
5,626 |
|
|
Formulas
|
|
|
25,446 |
|
|
|
(777 |
) |
|
|
24,669 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Non-Compete
Agreement
|
|
|
50,000 |
|
|
|
(9,524 |
) |
|
|
40,476 |
|
|
|
50,000 |
|
|
|
(4,167 |
) |
|
|
45,833 |
|
|
Controller
Design
|
|
|
100,000 |
|
|
|
(19,048 |
) |
|
|
80,952 |
|
|
|
100,000 |
|
|
|
(8,332 |
) |
|
|
91,668 |
|
|
Customer
List
|
|
|
72,491 |
|
|
|
(29,302 |
) |
|
|
43,189 |
|
|
|
62,491 |
|
|
|
(11,414 |
) |
|
|
51,077 |
|
|
|
|
$ |
319,705 |
|
|
$ |
(116,172 |
) |
|
$ |
203,533 |
|
|
$ |
274,259 |
|
|
$ |
(80,055 |
) |
|
$ |
194,204 |
|
|
|
|
Amortization
expense was $36,117 and $15,525 for the nine months ended December 31,
2009 and 2008, respectively. Estimated aggregate future amortization
expense related to intangible assets is as
follows: |
2010
|
|
$ |
12,326 |
|
2011
|
|
|
49,261 |
|
2012
|
|
|
36,834 |
|
2013
|
|
|
25,451 |
|
2014
|
|
|
24,385 |
|
Thereafter
|
|
|
55,276 |
|
|
|
$ |
203,533 |
|
NOTE
6 - CONCENTRATIONS
During
the three month period ended December 31, 2009, three customers accounted for
43% of our revenue. During such period, Ivivi accounted for 3% of our
revenue. As of December 31, 2009, one customer represented
approximately 61% of our accounts receivable.
During the three month period ended December 31, 2008,
four customers accounted for approximately 60% of our revenue, during such
period Ivivi accounted for 2% of our revenue. As of December 31,
2008, two customers represented approximately 68% of our accounts
receivable.
During
the nine month period ended December 31, 2009, three customers accounted for 55%
of our revenue. During such period, Ivivi accounted for 7% of our
revenue. As of December 31, 2009, one customer represented
approximately 61% of our accounts receivable.
During
the nine month period ended December 31, 2008, Ivivi accounted for approximately
43% of our revenue and one other customer accounted for approximately 14% of our
revenue. As of December 31, 2008, two customers represented
approximately 68% of our accounts receivable.
NOTE
7 - SEGMENT INFORMATION
Information
about segments is as follows:
|
|
Chemical
|
|
|
Electronics
|
|
|
Total
|
|
Three
months ended December 31, 2009
|
|
|
|
|
|
|
|
|
|
Revenues
from external customers
|
|
$ |
202,986 |
|
|
$ |
48,815 |
|
|
$ |
251,801 |
|
Segment
operating loss
|
|
$ |
(10,876 |
) |
|
$ |
(100,270 |
) |
|
$ |
(111,146 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
months ended December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
from external customers
|
|
$ |
182,670 |
|
|
$ |
74,940 |
|
|
$ |
257,610 |
|
Segment
operating loss
|
|
$ |
(85,260 |
) |
|
$ |
(132,276 |
) |
|
$ |
(217,536 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine
months ended December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
from external customers
|
|
$ |
647,704 |
|
|
$ |
203,284 |
|
|
$ |
850,988 |
|
Segment
operating loss
|
|
$ |
(28,546 |
) |
|
$ |
(283,249 |
) |
|
$ |
(311,795 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine
months ended December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
from external customers
|
|
$ |
604,019 |
|
|
$ |
644,121 |
|
|
$ |
1,248,140 |
|
Segment
operating loss
|
|
$ |
(201,860 |
) |
|
$ |
(283,207 |
) |
|
$ |
(485,067 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets at December 31, 2009
|
|
$ |
1,151,146 |
|
|
$ |
677,378 |
|
|
$ |
1,828,524 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets at March 31, 2009
|
|
$ |
1,459,121 |
|
|
$ |
1,441,310 |
|
|
$ |
2,900,431 |
|
NOTE
8 - RELATED PARTY TRANSACTIONS
ADVANCES
TO RELATED PARTIES
As of
December 31, 2009 and March 31, 2009, ADM was owed $9,552 and $9,552,
respectively, from advances made to an officer. No advances have been made since
2000. The advances bear interest at the rate of 3% per year. Interest accrued
for the nine months ended December 31, 2009 and 2008 was $215 and $631,
respectively. Total accrued interest at December 31, 2009 and March 31, 2009 was
$38,662 and $38,447, respectively.
MANAGEMENT
SERVICES AGREEMENT
In August
2001, ADM entered into a management services agreement, as amended, with Ivivi
and currently ADM allocates portions of its real property facilities for use by
Ivivi for the conduct of its business. ADM and Ivivi use office, manufacturing
and storage space in a building located in Northvale, New Jersey, currently
leased by ADM. Pursuant to the terms of the management services agreement, ADM
determines the portion of space allocated to Ivivi on a monthly basis, and Ivivi
is required to reimburse ADM monthly for its portion of the lease costs, real
property taxes and related costs plus any invoices it receives from third
parties specific to Ivivi.
During
the three months ended December 31, 2009 and December 31, 2008, Ivivi had
approximately $1,126 and $10,809, respectively, in management services provided
to it by ADM pursuant to the management services agreement. During
the nine months ended December 31, 2009 and December 31, 2008, Ivivi had
approximately $16,611 and $36,695,
respectively, in management services provided to it by ADM pursuant to the
management services agreement.
INFORMATION
TECHNOLOGY SERVICE AGREEMENT
ADM
entered into an information technology (“IT”) service agreement with Ivivi on
February 1, 2008, pursuant to which Ivivi, in conjunction with its outside IT
professionals, will service ADM’s IT needs on an as needed
basis. Ivivi will invoice ADM monthly for any time it spends in
providing such services to ADM. The rate that Ivivi will charge ADM will be
determined at date of invoice. Such invoices that Ivivi issues ADM, with respect
to such services, will be due within 30 days. IT services include, but are not
limited to: Computer hardware and software related issues, network
administration, e-mail hosting and administration, telephone and cabling
installations and maintenance. There were no charges under this
agreement for the nine month period ended December 31, 2009.
Effective
August 1, 2009, we entered into an agreement with Ivivi to provide services
described below and canceled our management services and IT services agreements
described above. Under the agreement:
●
|
we
will provide Ivivi with engineering services, including quality control
and quality assurance services along with regulatory compliance services
warehouse fulfillment services and network administration services
including hardware and software
services;
|
|
we
will be paid at the rate of $26,000 per month by Ivivi for these services;
and Ivivi agreed to terminate the four full time engineers and three part
time engineers then employed by
Ivivi.
|
|
the
services agreement may be cancelled by either party upon sixty days
notice.
|
MANUFACTURING
AGREEMENT
ADM and
Ivivi are parties to a manufacturing agreement, dated as of August 15, 2001, and
as amended in February, 2005. Under the terms of the agreement, ADM has agreed
to serve as the exclusive manufacturer of all current and future medical and
nonmedical electronic and other electronic devices or products to be sold or
rented by Ivivi. For each product that ADM manufactures, Ivivi pays ADM an
amount equal to 120% of the sum of (i) the actual, invoiced cost for raw
materials, parts, components or other physical items that are used in the
manufacture of the product and actually purchased for such entity by ADM, if
any, plus (ii) a labor charge based on ADM’s standard hourly manufacturing labor
rate, which ADM believes is more favorable than could be attained from
unaffiliated third parties. Under the terms of the agreement, if ADM is unable
to perform its obligations to Ivivi under the manufacturing agreement or is
otherwise in breach of any provision of the manufacturing agreement, Ivivi has
the right, without penalty, to engage third parties to manufacture some or all
of its products. In addition, if Ivivi elects to utilize a third-party
manufacturer to supplement the manufacturing being completed by ADM, Ivivi has
the right to require ADM to accept delivery of its products from these
third-party manufacturers, finalize the manufacture of the products to the
extent necessary and ensure that the design, testing, control, documentation and
other quality assurance procedures during all aspects of the manufacturing
process have been met.
Pursuant
to the manufacturing agreement, sales and manufacturing charges to Ivivi during
the three and nine months ended December 31, 2009 and December 31, 2008 were
approximately $9,058 and $2,896, and $53,932 and $517,823,
respectively.
As
reported in its filings with the SEC, on
February 12, 2010, Ivivi sold substantially all of its assets pursuant to the
terms of an asset purchase agreement
and if the Economic Development Authority denies Ivivi's request to sell its tax
benefits, which Ivivi believes is likely, Ivivi expects to be dissolved as soon
as practicable thereafter. As a result, our future fiscal periods likely
will not include material purchase orders from Ivivi, and
may not include material purchase
orders from the purchaser of its assets. As a result of Ivivi’s asset
sale and expected dissolution,
we will be required to seek new customers in order to replace such revenue.
Correspondingly, Ivivi’s asset sale and
expected dissolution will negatively impact ADM’s management
services, information technology service and manufacturing agreements with
Ivivi, as described above.
Activity
with Ivivi can be summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
Balance,
beginning of period
|
|
$ |
(104,320 |
) |
|
$ |
(241,828 |
) |
|
|
|
|
|
|
|
|
|
Advances
from Ivivi
|
|
|
(9,937 |
) |
|
|
(160,055 |
) |
Transfer
of inventory to Ivivi
|
|
|
93,730 |
|
|
|
- |
|
Ivivi
purchases from ADM
|
|
|
53,930 |
|
|
|
517,823 |
|
Charges
from Ivivi
|
|
|
(7,214 |
) |
|
|
- |
|
Charges
to Ivivi
|
|
|
146,611 |
|
|
|
54,020 |
|
Payments
from Ivivi
|
|
|
(197,704 |
) |
|
|
(278,057 |
) |
Payments
to Ivivi
|
|
|
10,510 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
Due
(to) Ivivi, end of period
|
|
$ |
(14,394 |
) |
|
$ |
(108,097 |
) |
NOTE
9 – NOTE PAYABLE, BANK
On August
21, 2008, the Company entered into a note payable with a commercial bank in the
amount of $200,000. This note bears interest at a rate of 2.98% and
is secured by cash on deposit with the institution, which is classified as
restricted cash. Amounts outstanding under the note are payable on
demand, and interest is payable monthly.
NOTE
10 – NOTE PAYABLE – OTHER
On
July 17, 2009 we purchased the assets of Antistatic Industries of Delaware, Inc.
a company involved in the research, development and manufacture of water-based
and proprietary electrically conductive paints, coatings and other products and
accessories. The purchase price for the assets was $66,920 of
which $34,170 was paid during the second and third quarter of our fiscal year
ending March 31, 2010 and the balance of $32,750 is a note payable, bearing
imputed interest rate of 3.5% per annum, which will be repaid over the
next 20 months.
The
fair value assigned to the acquired assets was as follows:
Inventory
|
|
$ |
11,474 |
|
Equipment
|
|
|
10,000 |
|
Patents
and trademarks
|
|
|
10,000 |
|
Formulas
|
|
|
25,446 |
|
Customer
list
|
|
|
10,000 |
|
Total
|
|
$ |
66,920 |
|
NOTE
10 – SUBSEQUENT EVENTS
As
reported in its filings with the SEC,
on February 12, 2010, Ivivi sold substantially all of its assets pursuant to the
terms of an asset purchase agreement and if
the Economic Development Authority (the “EDA”) denies its request to sell its
tax benefits, which Ivivi believes is likely, Ivivi
expects to be dissolved as soon as practicable thereafter. As a
result, our future fiscal periods likely will not include material purchase
orders from Ivivi, and may not include material purchase orders from the
purchaser of its assets. As a result of Ivivi’s asset sale and
expected dissolution,
we will be required to seek new customers in order to replace such revenue.
Correspondingly, Ivivi’s asset sale and expected
dissolution will negatively impact ADM’s management services, information
technology service and manufacturing agreements with Ivivi, as described
above.
Subsequent
Events have been evaluated through February 16, 2010, the date the
financial statements were filed with the Securities and Exchange Commission
(“SEC”).
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The
following discussion of our operations and financial condition should be read in
conjunction with the consolidated financial statements and notes thereto
included elsewhere in this Quarterly Report on Form 10-Q.
FORWARD-LOOKING
STATEMENTS
This
Quarterly Report on Form 10-Q contains forward-looking statements within the
meaning of the “safe harbor” provisions under section 21E of the Securities and
Exchange Act of 1934 and the Private Securities Litigation Act of 1995. We use
forward-looking statements in our description of our plans and objectives for
future operations and assumptions underlying these plans and objectives.
Forward-looking terminology includes the words “may”, “expects”, “believes”,
“anticipates”, “intends”, “forecasts”, “projects”, or similar terms, variations
of such terms or the negative of such terms. These forward-looking statements
are based on management’s current expectations and are subject to factors and
uncertainties which could cause actual results to differ materially from those
described in such forward-looking statements. We expressly disclaim any
obligation or undertaking to release publicly any updates or revisions to any
forward-looking statements contained in this Form 10-Q to reflect any change in
our expectations or any changes in events, conditions or circumstances on which
any forward-looking statement is based. Factors which could cause such results
to differ materially from those described in the forward-looking statements
include those set forth under “Item. 1 Description of Business – Risk Factors”
and elsewhere in or incorporated by reference into our Annual Report on Form
10-K for the year ended March 31, 2009.
CRITICAL
ACCOUNTING POLICIES
REVENUE
RECOGNITION:
CHEMICALS:
Revenues
are recognized when products are shipped to end users. Shipments to
distributors are recognized as sales where no right of return
exists.
ELECTRONICS:
We
recognize revenue from the sale of our electronic products when they are shipped
to the purchaser. Revenue from the sale of the electronics we
manufacture for Montvale Technologies,
Inc. (formerly known as Ivivi Technologies, Inc) (“Ivivi”) is recognized
upon completion of the manufacturing process and shipment of
product. Shipping and handling charges and costs are immaterial. We
offer a limited 5 year warranty on our spa/hot tub controller
units. We have no other post shipment obligations and sales returns
have been immaterial. Based on prior experience, no amounts have been accrued
for potential warranty costs and such costs were nominal for the nine months
ended December 31, 2009.
WARRANTY
LIABILITIES
We offer
a limited 90 day warranty on our electronics products and a 5 year limited
warranty on all of our electronic controllers for spas and hot tubs sold through
Action. This product lines’ past experience has resulted in
immaterial costs associated with warranty issues. Therefore, no
warranty liabilities have yet been recorded. We consider the amount
of warranty revenue, included in the sales of our electronic products, to be
immaterial based upon our historical experience.
USE
OF ESTIMATES:
Our
discussion and analysis of our financial condition and results of operations is
based upon our financial statements, which have been prepared in accordance with
accounting principles generally accepted in the United States of America. The
preparation of these consolidated financial statements requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses, and related disclosures of contingent assets and
liabilities. On an ongoing basis, we evaluate our estimates, including the
expected economic life and value of our medical devices, options and warrant
expenses related to compensation to employees and directors, consultants and
investment banks, allowance for doubtful accounts, those related to reserves,
deferred tax assets and valuation allowance, impairment of long-lived assets,
fair value of equity instruments issued to consultants for services and fair
value of equity instruments issued to others. We base our estimates on
historical experience and on various other assumptions that we believe to be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying value of assets and liabilities that are not
readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions; however, we believe that
our estimates, including those for the above described items, are
reasonable.
BUSINESS
OVERVIEW
ADM
is a corporation that was organized under the laws of the State of Delaware on
November 24, 1969. During the nine months ended December 31, 2009 and
December 31, 2008, our operations were conducted through ADM itself and its
subsidiaries, Action Industries Unlimited, LLC (“Action”), Pegasus Laboratories,
Inc. (“PLI”) and Sonotron Medical Systems, Inc (“SMS”). Our
investment in Ivivi from October 18, 2006 to March 31, 2008 was reported
under the equity method of accounting, whereby we recognized our share of
Ivivi's earnings or losses as they were incurred. Effective April 1,
2008, we adopted the accounting pronouncement with respect to fair value
measurement for our investment in Ivivi, whereby we report our investment in
Ivivi at fair value.
We
are a technology-based developer and manufacturer of diversified lines of
products in the following four areas: (1) environmentally safe chemical products
for industrial use, (2) electronic products for numerous industries, including
therapeutic non-invasive electronic medical devices and electronic controllers
for spas and hot tubs,
(3) cosmetic and topical dermatological products and
(4) Antistatic paint and coatings products. We
have historically derived most of our revenues from the development, manufacture
and sale of chemical products, and, to a lesser extent, from our electronics and
topical dermatological products. Recently our contract manufacturing
schedule for Ivivi’s electronics production has been completed and we have not
received any material additional purchase orders from Ivivi to date. Our
Electronics segment includes our Action and SMS subsidiaries, and our Chemical
segment includes our PLI subsidiary.
RESULTS
OF OPERATIONS FOR THE THREE MONTHS ENDED DECEMBER 31, 2009 AS COMPARED TO
DECEMBER 31, 2008
REVENUES
Revenues
were $251,801 for the three months ended December 31, 2009 as compared to
$257,610 for the three months ended December 31, 2008, a decrease of $5,809, or
2%. The decrease resulted from a decrease in sales to new and
existing electronic customers from our electronic subsidiaries in the amount of
$29,281, and a slight decrease in total sales to existing chemical customers,
offset by an increase in chemical sales to customers in our Antistatic division
in the amount of $34,933, and a slight increase in sales to Ivivi in the amount
of $3,945. Gross profit was $112,699, or 45%, for the three months ended
December 31, 2009 and $74,255, or 29% for the three months ended December 31,
2008. Gross profit percentages decreased 47% from sales of our
electronic devices, offset by an increase of 29% on gross profit percentages
from our chemical sales.
We are
highly dependent upon certain customers to generate our revenues. For the three
months ended December 31, 2009, three customers accounted for 43% of our
revenue, not including Ivivi which accounted for 3%, and for the three months
ended December 31, 2008, four customers accounted for approximately 60% of our
revenue, not including Ivivi which accounted for approximately 2% of our revenue
during such period. The complete loss of or significant reduction in business
from, or a material adverse change in the financial condition of any of our
customers could cause a material and adverse change in our revenues and
operating results. As reported by Ivivi in its filings with the SEC,
on February 12, 2010, Ivivi sold substantially all of its assets pursuant to the
terms of an asset purchase agreement and if
the EDA denies Ivivi’srequest
to sell its tax benefits, which Ivivi believes is likely, Ivivi
expects to be dissolved as soon as practicable thereafter. As a
result, we have not, and likely will not in the future, receive material
purchase orders from Ivivi and may not receive material purchase orders from the
purchaser of its assets and we will need to seek new customers in order to
increase our revenues.
OPERATING
LOSS
Loss from
operations for the three months ended December 31, 2009 was $111,146, decreased
$106,390, or 49%, compared to a loss from operations for the three months ended
December 31, 2008 of $217,536. Selling, general and administrative expenses
decreased by $77,698, or 27%, from $291,791 to $214,093, mainly due to decreased
compensation costs, decreased computer costs and decreased legal fees, offset by
an increase in consulting fees, accounting fees and tax related costs. Research
and development expenses increased by $9,752, or 100%, from $0 to $9,752, as a
result of new research and development activities during the third quarter of
2009. Cost of sales decreased by $44,253, or 24% from $183,355 to $139,102,
primarily as a result of a decrease in sales from the Action Industries division
and a decrease in cost of sales due to the mix of products sold in the chemical
division, offset by an increase in sales in the chemical Antistatic division,
and a slight increase in sales to Ivivi.
NET
LOSS AND NET LOSS PER SHARE
Net loss
for the three months ended December 31, 2009 was $109,753, or $0.00 per share,
compared to a net loss for the three months ended December 31, 2008 of $860,999,
or $0.02 per share. With the adoption of accounting pronouncements with respect
to fair value measurement we recorded a decrease in fair value of $0 with
respect to our investment in Ivivi for the three months ended December 31, 2009.
The fair value was written down to $0 at June 30, 2009. During the
three months ended December 31, 2008, we recorded a decrease in fair value of
$650,000 from our investment in Ivivi. Interest income decreased
$5,144 to $1,393 in the three months ended December 31, 2009, from $6,537 in the
three months ended December 31, 2008, due to decreased funds invested in a money
market account.
RESULTS
OF OPERATIONS FOR THE NINE MONTHS ENDED DECEMBER 31, 2009 AS COMPARED TO
DECEMBER 31, 2008
REVENUES
Revenues
were $850,988 for the nine months ended December 31, 2009 as compared to
$1,248,140 for the nine months ended December 31, 2008, a decrease of $397,152,
or 32%. The decrease mainly resulted from a decrease in sales of
finished medical devices to Ivivi of approximately $475,150, a decrease we
expect to continue, and a decrease in sales to new and existing electronic
customers from our electronic subsidiaries in the amount of $10,452, and a
slight decrease in sales to existing chemical customers in the amount of $7,643.
This decrease is offset by an increase in sales to chemical customers in our new
Antistatic division in the amount of $51,184, and an increase in sales to an
existing electronic customer in the amount of $47,796. Gross profit was
$380,711, or 45%, for the nine months ended December 31, 2009 and $407,305, or
33%, for the nine months ended December 31, 2008. Gross profit
percentages decreased 19% from sales of our electronic devices, offset by a 10%
increase on gross profit percentages from our chemical sales.
We
are highly dependent upon certain customers to generate our revenues, including
Ivivi. For the nine months ended December 31,
2009, three customers accounted for 55% of our revenue,
not including Ivivi which accounted for 7%, and for the nine months ended
December 31, 2008, Ivivi accounted for approximately 43% of our revenue and one
other customer accounted for approximately 14% of our revenue. The loss of
business from Ivivi has resulted in a material reduction in our revenue. In
addition, the
complete loss of, or significant reduction in business from, or a material
adverse change in the financial condition of, any other customers, could cause a
material and adverse change in our revenues and operating results. As
reported by Ivivi in its filings with the SEC on February 12, 2010, Ivivi sold
substantially all of its assets pursuant to the terms of an asset purchase
agreement and if the EDA denies Ivivi's request to sell its tax benefits, which
Ivivi believes is likely. Ivivi expects to be dissolved as soon as practical. As
a result, we have not, and likely
will
not in the future, receive material purchase orders from Ivivi and
may not receive material purchase orders from the
purchaser of its assets and we will need to seek new customers in order to
increase our revenues.
OPERATING
LOSS
Loss from
operations for the nine months ended December 31, 2009 was $311,795, compared to
a loss from operations for the nine months ended December 31, 2008 of $485,067.
Selling, general and administrative expenses decreased by $225,974, or 25%, from
$892,372 to $666,398, mainly due to decreased compensation and health insurance
costs, decreased computer costs, decreased consulting fees, decreased
commissions and decreased advertising costs offset by an increase in
depreciation, accounting fees and insurance. Research and development expenses
increased by $26,108, or 100%, from $0 to $26,108, as a result of new research
and development activities during the nine months ended December 31, 2009. Cost
of sales decreased by $370,558, or 44%, from $840,835 to $470,277, primarily as
a result of the decrease in sales to Ivivi, offset by an increase in cost of
sales due to the mix of products sold in the chemical division including an
increase in sales in the new Antistatic chemical division, and an increase in
sales to an existing electronics customer.
NET
LOSS AND NET LOSS PER SHARE
Net loss
for the nine months ended December 31, 2009 was $1,021,527, or $0.02 per share,
compared to a net loss for the nine months ended December 31, 2008 of
$8,489,701, or $0.16 per share. With the adoption accounting pronouncements with
respect to fair value measurement, we recorded a decrease in fair value of
$715,000 with respect to our investment in Ivivi for the nine months ended
December 31, 2009. During the nine months ended December 31, 2008, we
recorded a decrease in fair value of $10,465,000 from our investment in
Ivivi. Interest income decreased $29,910 to $5,268 in the nine months
ended December 31, 2009, from $35,178 in the nine months ended December 31,
2008, due to decreased funds invested in a money market account. We
recognized an income tax benefit in the amount of $2,425,188 during the nine
months ended December 31, 2008.
LIQUIDITY
AND CAPITAL RESOURCES
At
December 31, 2009, we had cash and equivalents of $827,184 as compared to
$1,155,786 at March 31, 2009. The $328,602 decrease was primarily the result of
our loss from operations during the nine month period. Our cash will
continue to be used for increased marketing costs, and the related
administrative expenses, in order to attempt to increase our
revenue. We expect to have enough cash to fund operations for the
next twelve months. The market value of our investment in Ivivi at
December 31, 2009 was $0. Our note payable of $187,000 at December
31, 2009, is secured and collateralized by restricted cash of $228,282. This
note bears an interest rate of 2.98%.
On
July 17, 2009 we purchased the assets of Antistatic Industries of Delaware, Inc.
a company involved in the research, development and manufacture of water-based
and proprietary electrically conductive paints, coatings and other products and
accessories. The purchase price for the assets was $66,920 of
which $34,170 was paid during the second and third quarter and the balance of
$32,750 is a note payable,
bearing imputed interest
rate of 3.5% per annum, which will be repaid over the next 20
months.
OPERATING
ACTIVITIES
Net cash
used by operating activities was $232,552 for the nine months ended December 31,
2009, as compared to net cash used by operating activities of $517,241 for the
nine months ended December 31, 2008. The use of cash during the nine
months ended December 31, 2009 was primarily due to a net loss of $1,021,527 and
an increase in operating liabilities of $30,272, which was primarily offset by a
change in the fair market value of our investment in Ivivi of $715,000 and an
increase in net operating assets of $2,823.
Net cash
used by operating activities was $517,241 for the nine months ended December 31,
2008. The use of cash during the nine months ended December 31, 2008 was
primarily due to a net loss of $8,489,701, recognition of a deferred tax benefit
of $2,425,188 and decreases in operating liabilities of $289,001 which was
primarily offset by a change in the fair market value of our investment in Ivivi
of $10,465,000 and a decrease in net operating assets of $199,170.
INVESTING
ACTIVITIES
For the
nine months ended December 31, 2009, net cash used by investing activities was
$86,050. The primary use of cash was for an investment in cash and
services rendered of $49,963 in Wellington Scientific LLC for the issuance of a
secured convertible note with an interest rate of 10%. In addition we made
payments in the amount of $34,170, towards a total purchase price of $66,920
related to the asset purchase agreement with Antistatic Industries, whereby we
acquired intangible assets of $45,446, machinery and equipment of $10,000 and
inventory in the amount of $11,474.
For the
nine months ended December 31, 2008, net cash used by investing activities was
$429,573. The primary use of cash was for our acquisition of Action Spas,
whereby we acquired intangible assets of $200,000, property and equipment of
$14,888, and restricted $225,000 in operating cash for collateral on borrowings
under our bank loan. Uses of cash were partially offset by collections from
related parties of $23,456, which was received from an officer for repayment of
advances made prior to 2000.
FINANCING
ACTIVITIES
For the
nine months ended December 31, 2009, net cash used for financing activities was
$10,000, which was used for repayment on a note from a commercial bank to
facilitate our acquisition of Action Spas.
During
the nine months ended December 31, 2008, we borrowed $200,000 from a commercial
bank to facilitate our acquisition of Action Spas.
OFF
BALANCE SHEET ARRANGEMENTS
We have
no off-balance sheet arrangements that have had or are reasonably likely to have
a current or future effect on our financial condition, changes in financial
condition, revenues or expenses, results of operations, liquidity, capital
expenditures or capital resources.
ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Concentration
of Credit Risk
Financial
instruments that potentially subject us to significant concentrations of credit
risk consist primarily of cash and cash equivalents, accounts receivable and our
investment in Ivivi. We have no control over the market value of our investment
in Ivivi.
We
maintain cash and cash equivalents with FDIC insured financial
institutions.
Our sales
are materially dependent on a small group of customers, as noted in Note 6 of
our financial statements. We monitor our credit risk associated with our
receivables on a routine basis. We also maintain credit controls for evaluating
and granting customer credit.
ITEM
4. CONTROLS AND PROCEDURES
EVALUATION
OF DISCLOSURE CONTROLS AND PROCEDURES
We
maintain disclosure controls and procedures (as such term is defined in Rules
13a-15(e) and 15d - 15(e) under the Securities Exchange Act of 1934, as amended
(the “Exchange Act”)) that are designed to ensure that information required to
be disclosed in our Exchange Act reports is recorded, processed, summarized and
reported within the time periods specified in the Securities and Exchange
Commission’s rules and forms, and that such information is accumulated and
communicated to management, including the Chief Executive Officer and Chief
Financial Officer, as appropriate, to allow timely decisions regarding required
disclosure.
Management necessarily applies its judgment in assessing the costs and benefits
of such controls and procedures, which, by their nature, can provide only
reasonable assurance regarding management’s control objectives.
As of the end of the period covered by this Quarterly
Report on Form 10-Q, we carried out an evaluation, with the participation of our
management, including our Chief Executive Officer and Chief Financial Officer,
of the effectiveness of our disclosure controls and procedures pursuant to
Securities Exchange Act Rule 13a-15. Based on that evaluation as of
December 31, 2009, our principal executive officer and principal financial
officer concluded that our disclosure controls and procedures (as defined in
Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) were
effective, as of the date of their evaluation, to ensure that the information
required to be disclosed by us in the reports that we file or submit, under the
Securities Exchange Act of 1934 is recorded, processed, summarized and reported
within the time periods specified in SEC rules and forms.
CHANGES
IN INTERNAL CONTROLS OVER FINANCIAL REPORTING
There were no changes in our internal control over
financial reporting that occurred during our last fiscal quarter to which this
report relates that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM
1. LEGAL PROCEEDINGS.
ITEM
1A. RISK FACTORS
There
have been no material changes to the risk factors contained in our Annual Report
on Form 10-K for the year ended March 31, 2009.
ITEM
2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None
ITEM
3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM
5. OTHER INFORMATION
None
ITEM
6. EXHIBITS.
(a)
Exhibit No.
31.1
Certification of Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
31.2
Certification of Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
32.1 Certification pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
ADM
TRONICS UNLIMITED, INC.
(Registrant)
|
By:
|
/s/
Andre’ DiMino |
|
|
|
Andre’
DiMino, Chief Executive
Officer
and Chief Financial Officer
|
|
|
|
|
|
Dated: Northvale, New
Jersey
February 16,
2010
|
|
|
|