UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-KSB/A
(Amendment No. 1)
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 2005
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number 0-17629
ADM TRONICS UNLIMITED, INC.
(Name of Small Business Issuer in its Charter)
Delaware 22-1896032
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
224-S Pegasus Avenue, Northvale, New Jersey 07647
(Address of Principal Executive Offices) (Zip Code)
(201) 767-6040
(Issuer's Telephone Number)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on which Registered
None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.0005 par value
(Title of Class)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15 (d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the
past 90 days. YES[X] NO[_]
Check if there is no disclosure of delinquent filers pursuant to Item 405
of Regulation S-B contained in the form, and no disclosure will be
contained, to the best of the issuer's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of the Form
10-KSB. [X]
The issuer's revenues for its most recent fiscal year were approximately
$1,382,000.
The aggregate market value of the issuer's common stock, par value $.0005
per share (the "Common Stock"), held by non-affiliates of the issuer as
of June 29, 2005, based on the average of the closing bid and asked
prices of $0.285, for such shares on such date, was approximately
$7,200,000. For purposes of such calculation, shares of Common Stock held
by each executive officer and director and by each person who owns more
than 5% of the outstanding shares of Common Stock have been excluded in
that such persons may be deemed to be affiliates. This determination of
affiliate status is not necessarily a conclusive determination for other
purposes.
The number of shares of the Common Stock outstanding as of June 29, 2005
was 53,882,037.
DOCUMENTS INCORPORATED BY REFERENCE
Not applicable.
Transitional Small Business Disclosure Format (check one): Yes [_] No [X]
EXPLANATORY NOTE
This Amendment No. 1 on Form 10-KSB/A to the Annual Report on Form 10-KSB
(the "Annual Report") of ADM Tronics Unlimited, Inc. (the "Company" or
"ADM") filed on July 14, 2005 with the Securities and Exchange Commission
(the "SEC") is filed (i) as a result of a restatement of the
March 31, 2005 financial statements primarily to record a beneficial
conversion feature related to the Company's convertible notes payable and
to record an additional discount related to the fair value of warrants
issued with the debt and (ii) to respond to comments received from the
SEC on the Annual Report. See Note 1(r) of the Notes to the Company's
Consolidated Financial Statements contained in Item 7 of this Amendment
No. 1 for a discussion of the restatement. Therefore, the Company is
amending and restating in their entirety Items 6, 7 and 8A of Part II and
Item 13 of Part III of the Annual Report. In addition, the Company is
including with this Amendment No. 1 certain currently dated
certifications and an exhibit amending and restating the risk factors
contained in the Annual Report to update the risk factors as a result of
the restatement. Except as described above, no other amendments are
being made to the Annual Report. This Form 10-KSB/A does not reflect
events occurring after the July 14, 2005 filing of our Annual Report or
modify or update the disclosure contained in the Annual Report in any way
other than as required to reflect the amendments discussed above and
reflected below.
Unless otherwise indicated in this prospectus, references to "we," "us,"
"our" or the "Company" refer to ADM Tronics Unlimited, Inc. and its
subsidiaries.
Part II
Item 6. Management's Discussion and Analysis or Plan of Operation
Forward-Looking Statements
This Annual Report on Form 10-KSB 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. The Company uses forward-looking statements in
its description of its 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. The Company expressly disclaims any obligation or
undertaking to release publicly any updates or revisions to
any forward-looking statements contained in this Form 10-KSB 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 Risk Factors set forth in Exhibit 99.1 and elsewhere in,
or incorporated by reference into this Annual Report on Form 10-KSB.
Critical Accounting Policies
Revenue Recognition:
Sales revenues are recognized when products are shipped to end users
and rental and lease revenues are recognized principally on either a
monthly or a pay-per use basis in accordance with individual rental or
lease agreements and are recognized on a monthly basis as earned.
Shipments to distributors are recognized as sales where no right of
return exits. This is generally the case with sales of chemicals. This
is generally not the case with sales of the SofPulse units. The Company
recognizes revenue from the sale of the SofPulse products when the
products are shipped to end users. An increasing amount of rental
revenue is recognized on a fixed monthly recurring basis as product is
utilized by the end-user. Sales returns have been immaterial. Lease
revenues through third party distributors have also been immaterial and
there have been no sales through third party distributors. The Company's
products are principally shipped on a "freight collect" basis.
Shipping and handling charges and costs are immaterial.
Use of Estimates:
The Company's discussion and analysis of our financial condition and
results of operations are 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 the Company 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, the Company evaluates its estimates, including 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. The Company bases its estimates on historical experience and
on various other assumptions that the Company believes 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, the
Company believes that its estimates, including those for the above-
described items, are reasonable.
Business Overview
The Company is a technology-based developer and manufacturer of
diversified lines of products in the following three areas: (1)
environmentally safe chemical products for industrial use, (2)
therapeutic non-invasive electronic medical devices and (3) cosmetic
and topical dermatological products. The Company derives most of its
revenues from the development, manufacture and sale of chemical
products, and, to a lesser extent, from its therapeutic non-invasive
electronic medical devices and topical dermatological products.
The Company is a corporation that was organized under the laws of the
State of Delaware on November 24, 1969. The Company's operations are
conducted through ADM Tronics Unlimited, Inc. itself and its three
subsidiaries, Ivivi Technologies, Inc.("Ivivi"), Pegasus Laboratories,
Inc. and Sonotron Medical Systems, Inc.
The March 31, 2005 financial statements have been restated to record a
beneficial conversion feature related to the Company's convertible notes
payable and to record an additional discount related to the fair value of
warrants issued with the debt. See Note 1(r) of the Notes to the
Company's Consolidated Financial Statements contained in Item 7 of this
Amendment No. 1 for a discussion of the restatement.
Results of Operations for the Fiscal Years Ended March 31, 2005 and
March 31, 2004
Revenues
Sales and Rental income were $1,286,074 in 2005 as compared to
$1,105,367 in 2004 representing an increase of $180,707 or 16%. The
increase was the result of an increase in medical segment revenues of
$191,339 as a result of increased sales and/or rentals of our SofPulse
products offset by a decrease in chemical segment revenues of $10,632.
Other income of $96,039 in 2005 was $38,150 or 66% higher
than other income of $57,889 in 2004.
Gross Profit
Gross profit of $755,202 in 2005 was $178,404 or 31% higher than the
gross profit of $576,798 for 2004. Gross profit was 59% of revenues in
2005 and 52% of revenues in 2004. The increase in gross profit in 2005
was the result of increased sales of products with a higher gross margin
and increased rentals of the Company's SofPulse devices during such
period.
Total Cost and Expenses
Total cost and expenses in 2005 increased $3,210,842 to $4,515,836 from
$1,304,994 for 2004. The increase during the period was primarily
related to expanded sales and marketing activities of the Company's Ivivi
subsidiary and expenses associated with the private placement completed
by the Company and Ivivi during the fiscal year ended March 31, 2005.
The increase was comprised of (i) an increase in selling, general and
administrative expenses of $1,669,155 due to increased consulting,
advertising, promotion and travel expenses related to the expansion of
Ivivi's sales and marketing activities, (ii) an increase in the change in
fair value of warrant liability of $581,749 resulting from the issuance
of warrants in connection with the private placements completed by the
Company and Ivivi in the fiscal year ended March 31, 2005, (iii) an
increase in salaries and officer's compensation of $419,796 due to an
increase in staffing at Ivivi, (iv) an increase in research and
development expense of $270,894 resulting from the funding of clinical
studies in fiscal 2005, (v) amortization of debt discount of $180,052 and
(vi) an increase in interest expense of $146,656 related to the debt
issued in connection with the private placements.
Operating Loss
Operating loss before other income of $3,229,762 in 2005 was $3,030,135
higher than the operating loss of $199,627 in 2004. The increase in
operating loss for the year ended March 31, 2005 resulted from
increased selling, general and administrative expenses of $1,669,155
related to the expanded activities of Ivivi subsequent to the receipt
of proceeds from the private placements completed by the Company and
Ivivi and for expenses of $761,801 related to the private placements and
increased interest expense of $146,656.
Liquidity and Capital Resources
At March 31, 2005, the Company had cash of $3,011,631 as compared to
$90,081 at March 31, 2004, an increase of $2,921,550. This increase
is the result of proceeds from the private placements completed by the
Company and Ivivi.
Operating Activities
Cash used in operating activities for the year ended March 31, 2005
was $2,060,121 as compared to cash provided for the year ended March 31,
2004 of $38,863 which was due to the net loss of $3,133,723, cash used
for expanded operations of Ivivi, and increases in accounts receivable
of $27,851, inventories of $105,532 and other current assets of $286,303
offset primarily by the change in fair value of warrant liability of
$581,749, depreciation and amortization of $447,478, accrued
expenses and other current liabilities of $248,450, equipment held for
sale of $56,883 and the issuance of common stock for services of $19,000.
Operating costs and expenses were increased due to the significant
expansion of operations of Ivivi funded by the proceeds from the private
placements completed by the Company and Ivivi.
Cash used in investing activities for the year ended March 31, 2005 was
$96,206 as compared to cash provided by investing activities for the year
ended March 31, 2004 of $703 which was due to the purchase of equipment of
$46,594 and patent costs incurred of $49,612.
Financing Activities
The Company received gross proceeds of $6,087,500 from private placements
offset by costs related thereto of $875,623 and repaid a note payable in
the principal amount of $135,000.
The Company's revenues, operations and cash flows over the past few
years have declined. Management has recognized the situation and has
developed a business plan to enhance the activities of one of its
subsidiaries which markets the SofPulse medical device. In December
2004 and February 2005, the Company, together with Ivivi, its majority-
owned subsidiary, completed two private placements pursuant to which
they issued, jointly and severally, unsecured convertible notes in an
aggregate principal amount of $3,637,500 and $2,450,000, respectively.
The private placements were completed in seven separate closings from
July 2004 through February 2005. The proceeds of the private placements
are being used primarily by Ivivi for the research and development and
sales and marketing of the SofPulse device line of products and for the
research and development of other potential products being developed by
Ivivi. Approximately $448,000 of the net proceeds of the private
placements were used to repay a portion of its indebtedness to the
Company. The liability for such borrowings has been recorded in the
Company's financial statements.
The notes are due and payable five years from the date of issuance,
unless earlier converted. The notes bear interest at 6% per annum and
under certain circumstances, the principal and accrued interest on the
notes will either be: (i) convertible into the Company's common stock at
$.29 per share or (ii) convertible into Ivivi's common stock at $8.30 per
share. For each Note in the principal amount of $100,000 issued in the
private placements, one warrant for the purchase of up to 344,828 shares
of the Company's common stock at $.41 per share (the "Company Warrant")
and one warrant for the purchase of up to 12,048 shares of Ivivi's
common stock at $5.70 per share (the "Ivivi Warrant") were issued.
Each of the Company Warrants and the Ivivi Warrants provides that in
addition to paying the exercise price, the holder must surrender the
non-exercised warrant (i.e., either the Company Warrant or the Ivivi
Warrant).
Pursuant to the terms of the private placements completed in each of
December 2004 and February 2005, the number of shares of the Company's
common stock issuable upon conversion of the notes and exercise of the
warrants will increase by 1% for each 30 day period, or portion thereof,
following the 90th day of a demand for registration of the shares of the
Company's common stock underlying the notes and warrants and such
registration statement is not declared effective. In addition, the number
of shares of Ivivi's common stock issuable upon conversion of the notes
and exercise of the warrants issued in December 2004 and February 2005
will increase by 2%, for each 30-day period, or portion thereof, after
March 1, 2005 and June 30, 2005 that a registration statement covering
the shares of the Company's common stock and the shares of Ivivi's
common stock, respectively, underlying securities issued in the private
placement is not declared effective.
The notes issued in the private placements contain covenants that limit
each of the Company's and Ivivi's ability to take certain actions
without the consent of the holders of the notes, including:
o incurring additional indebtedness for borrowed money, except in the
ordinary course of business;
o merging, selling substantially all of its assets or acquiring
another entity;
o making loans or investments;
o paying dividends or making distributions;
o incurring liens on its assets;
o making capital expenditures;
o entering into certain transactions with affiliates; and
o materially changing its business.
As of March 31, 2005, each of the Company and Ivivi was in material
compliance with the covenants contained in the notes. These covenants
will terminate upon conversion of the notes upon consummation of this
offering.
The Company is seeking sources of additional financing from several
sources. The Company does not have any material sources of liquidity
or unused sources of liquid assets.
Item 7. Financial Statements
ADM TRONICS UNLIMITED, INC. AND SUBSIDIARIES
MARCH 31, 2005
I N D E X
Page No.
FINANCIAL STATEMENTS:
Report of Independent Registered Public Accounting Firm F-1
Consolidated Balance Sheet as of March 31, 2005 F-2
Consolidated Statements of Operations
For the Years Ended March 31, 2005 and 2004 F-3
Consolidated Statements of Changes in
Stockholders' Equity (Deficiency)
For the Years Ended March 31, 2005 and 2004 F-4
Consolidated Statements of Cash Flows
For the Years Ended March 31, 2005 and 2004 F-5
Notes to Consolidated Financial Statements F-6/F-19
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
ADM Tronics Unlimited, Inc. and Subsidiaries
Northvale, New Jersey
We have audited the accompanying restated balance sheets of ADM
Tronics Unlimited, Inc. and Subsidiaries as of March 31, 2005, and
the related restated consolidated statements of operations, changes
in stockholders' equity (deficiency), and cash flows for the year
ended March 31, 2005. These financial statements are the
responsibility of the company's management. Our responsibility is to
express an opinion on these consolidated financial statements based
on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of ADM Tronics Unlimited, Inc. and Subsidiaries as of March
31, 2005, and the results of their operations and their cash flows
for the year ended March 31, 2005, in conformity with accounting
principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming
that the company will continue as a going concern. As discussed in
note 2 to the financial statements, the company has suffered
recurring losses from operations and has a stockholders deficiency
that raises substantial doubt about its ability to continue as a
going concern. Management's plans in regard to these matters are
also described in Note 2. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
Raich Ende Malter & Co. LLP
East Meadow, New York
October 26, 2005
THE FOLLOWING REPORT IS A COPY OF A REPORT PREVIOUSLY ISSUED BY WEINICK
SANDERS LEVENTHAL & CO., LLP ("WEINICK") AND HAS NOT BEEN REISSUED BY
WEINICK, NOR HAS WEINICK PROVIDED A CONSENT TO INLCUDE ITS PREVIOUSLY
ISSUED REPORT, AS WEINICK HAS CEASED OPERATIONS.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
ADM Tronics Unlimited, Inc. and Subsidiaries
Northvale, New Jersey
We have audited the accompanying consolidated balance sheet of ADM
Tronics Unlimited, Inc. and subsidiaries as of March 31, 2005, and the
related consolidated statements of operations, changes in stockholders'
equity (deficiency), and cash flows for the years ended March 31, 2005
and 2004. These consolidated financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion
on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of ADM
Tronics Unlimited, Inc. and subsidiaries as of March 31, 2005, and the
results of their operations and their cash flows for the years ended
March 31, 2005 and 2004, in conformity with accounting principles generally
accepted in the United States.
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 2 to
the financial statements, the Company has suffered recurring losses from
operations and has a stockholders' deficiency that raises substantial
doubt about its ability to continue as a going concern. Management's
plans in regard to these matters are also described in Note 2. The
financial statements do not include any adjustments that might result
from the outcome of this uncertainty.
/s/ Weinick Sanders Leventhal & Co., LLP
New York, New York
July 13, 2005
F-1
ADM TRONICS UNLIMITED, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
MARCH 31, 2005
(RESTATED)
ASSETS
Current assets:
Cash and cash equivalents $3,011,631
Accounts receivable - trade, less allowance
for doubtful accounts of $72,593 102,691
Inventories:
Raw materials and supplies 124,393
Finished goods 248,324
Prepaid expenses 283,048
Other current assets 36,248
----------
Total current assets $3,806,335
Property and equipment - at cost, net of
accumulated depreciation of $271,188 40,550
Equipment in use and under lease agreements - at cost,
net of accumulated depreciation of $832,059 51,791
Inventory - long term portion 287,582
Loan receivable from officer, bearing interest
at 3% per annum, unsecured 49,188
Deferred financing costs, net of accumulated
amortization of $127,644 823,564
Other assets 238,053
----------
Total assets $5,297,063
==========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
Accounts payable $ 172,978
Accrued expenses and other current liabilities 299,790
----------
Total current liabilities $ 472,768
Long-term debt:
Warrants issued with registration rights 1,449,326
6% unsecured notes payable - long-term 6,087,500
Discount on unsecured notes payable (2,628,219)
----------
Total long-term debt 4,908,607
Commitments and contingencies --
Stockholders' deficiency:
Preferred stock, $.01 par value, 5,000,000 shares
authorized --
Common stock, $.0005 par value, 150,000,000 shares
authorized; 53,882,037 shares issued and outstanding 26,941
Capital in excess of par value 9,391,972
Deferred compensation ( 327,615)
Accumulated deficit (9,175,610)
----------
Total stockholders' deficiency ( 84,312)
----------
Total liabilities and stockholders' deficiency $5,297,063
==========
See accompanying notes to consolidated financial statements.
F-2
ADM TRONICS UNLIMITED, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended
March 31,
2005 2004
(RESTATED)
Revenues:
Sales $ 955,438 $ 999,282
Rental income 330,636 106,085
Other income (including interest income) 96,039 57,889
Total revenues 1,382,113 1,163,256
Costs and expenses:
Cost of sales 530,872 528,569
Depreciation and amortization of property
and equipment and equipment in use and under
lease agreements 139,213 146,717
Salaries and officer's compensation 609,365 189,569
Research and development 270,894 --
Write-off of investments -- 52,259
Selling, general and administrative 2,048,935 379,780
Interest expense 154,756 8,100
Amortization of debt discount 180,052 --
Change in fair value of warrant liability 581,749 --
Total costs and expenses 4,515,836 1,304,994
Net loss ($ 3,133,723) ($ 141,738)
Weighted average number
of common shares outstanding 52,548,704 51,007,037
Net loss per share, basic and diluted ($ 0.06) $ 0.00
See accompanying notes to consolidated financial statements.
F-3
ADM TRONICS UNLIMITED, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY)
FOR THE YEARS ENDED MARCH 31, 2005 and 2004
(Restated)
Preferred Common
Shares Shares
5,000,000 150,000,000
Authorized Authorized Capital in
$.01 Par $.0005 Par Par Excess of Par Def'd Accumulated
Value Value Value Value Comp Deficit Total
Balance at
April 1, 2003 -- 50,382,037 $25,191 $6,773,724 $ -- ($5,900,149) $898,766
Issuance of
common stock -- 1,500,000 750 14,250 -- -- 15,000
Valuation of
920,000 shares
issued by
subsidiary -- -- -- 73,600 (69,600) -- 4,000
Net loss -- -- -- -- -- (141,738) (141,738)
Balance
March 31, 2004 -- 51,882,037 25,941 6,861,574 (69,600) (6,041,887) 776,028
Valuation of
warrants
issued to
underwriter
for services -- -- -- 67,253 -- -- 67,253
Beneficial
conversion
feature 1,940,694 -- 1,940,694
Issuance of
warrants 294,761 (294,761) --
Issuance of
warrants
for placement
services 208,690 208,690
Issuance of
common stock -- 2,000,000 1,000 19,000 -- -- 20,000
Amortization of
deferred
compensation 36,746 36,746
Net loss -- -- -- -- (3,133,723)(3,133,723)
Balance -
March 31, 2005
As restated -- 53,882,037 $26,941 $9,391,972 ($327,615)($9,175,610) ($84,312)
See accompanying notes to consolidated financial statements.
F-4
ADM TRONICS UNLIMITED, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended
March 31,
2005 2004
(RESTATED)
Cash flows from operating activities:
Net loss ($3,133,723) ($ 141,738)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 143,796 147,475
Amortization of deferred financing costs 86,884 --
Amortization of deferred compensation 36,746 --
Stock based compensation 67,253 --
Amortization of debt discount 180,052 --
Change in fair value of warrant liability 581,749 --
Issuance of common stock for services 20,000 14,250
Other 19,148 11,000
Write-off of investments -- 52,259
Increase (decrease) in allowance for doubtful
accounts 43,593 (10,000)
Increase (decrease) in cash flows as a result
of changes in asset and liabilities account
balances:
Accounts receivable - trade (27,851) (32,811)
Inventories (105,532) 25,402
Other current assets (286,303) 1,096
Equipment held for sale 56,883 16,056
Other assets (3,446) 4,946
Accounts payable 13,180 (40,833)
Accrued expenses and other current
liabilities 248,450 (8,239)
Total adjustments 1,074,602 180,601
Net cash provided by (used in) operating activities (2,059,121) 38,863
Cash flows from investing activities:
Repayments of loans by officer -- 703
Purchase of equipment, net (46,594) --
Patent costs incurred (49,612) --
Net cash provided by (used in) investing activities (96,206) 703
Cash flows from financing activities:
Issuance of common stock -- 750
Private placements costs incurred (742,498) --
Registration costs incurred (133,125) --
Payment of note payable - estate of former
officer/stockholder (135,000) --
Proceeds from issuance of unsecured notes payable 6,087,500 --
Net cash provided by financing activities 5,076,877 750
Net increase in cash and cash equivalents 2,921,550 40,316
Cash and cash equivalents - beginning of year 90,081 49,765
Cash and cash equivalents - end of year $ 3,011,631 $ 90,081
Supplemental information:
Interest paid $ 105,890 $ --
Income taxes paid $ 3,414 $ 3,434
Supplemental disclosure of non-cash operating
and financing activities:
Common stock and warrants issued as
consideration for consulting services $ 449,000 $ 87,850
See accompanying notes to consolidated financial statements.
F-5
ADM TRONICS UNLIMITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2005 and 2004
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.
(a) Consolidation:
The consolidated financial statements include the accounts of
ADM Tronics Unlimited, Inc. and its subsidiaries (the "Company").
All significant intercompany balances and transactions have been
eliminated in consolidation.
(b) Business Activity:
The Company is a manufacturer and engineering concern whose
principal lines of business are the production and sale of chemical
products and manufacturing, selling and leasing of medical equipment
and medical devices. The chemical product line is principally
comprised of water-based chemical products used in the food
packaging and converting industries. These products are sold to
customers located in the United States, Australia, and Europe.
Medical equipment is manufactured in accordance with customer
specification on a contract basis. The medical device product line
consists principally of proprietary devices used in the treatment of
joint pain, postoperative edema, and tinnitus. These products are
sold or leased to customers located in the United States and Asia.
For the years ended March 31, 2005 and 2004, the chemical
product line accounted for approximately 68% and 80% of revenues and
the medical device product line accounted for approximately 32% and
20%, respectively.
(c) Cash and Cash Equivalents:
The Company considers all highly-liquid investments with a
remaining maturity of three months or less at the time of purchase
and excess operating funds invested in cash management and money
market accounts to be cash.
The Company places its cash and money market investments with
high credit quality financial institutions. At times, such
investments may be in excess of the FDIC insurance limit. At March
31, 2005, cash balances exceeded FDIC insurance limits by $2,811,631.
(d) Inventories:
Inventories are stated at the lower of cost (first-in,
first-out method) or market. Inventory that is expected to be sold
within one operating cycle (1 year) is classified as a current asset.
Inventory that is not expected to be sold within 1 year, based on
historical trends, is classified as Inventory ? long term.
(e) Property and Equipment:
Property and equipment are recorded at cost. Depreciation is
computed using the straight-line method over the estimated useful
lives of 5 to 10 years. Leasehold improvements are amortized over
the lease term or useful lives, whichever is shorter. Expenditures
for major betterments and additions are charged to the asset
accounts while replacements, maintenance and repairs, which do not
improve or extend the lives of the respective assets, are charged to
expense currently.
(f) Sonotron Devices:
Sonotron Devices ("Devices") are held for sale or lease and
are included in the consolidated balance sheet under "Inventory ?
long term" and "Equipment in use and under lease agreements" on a
specific identification basis. Unless and until clearance to market
is obtained from the United States Food and Drug Administration
(FDA), the Devices cannot be marketed in the United States for human
applications, other than for research purposes, and may not be
marketable in certain foreign countries.
F-7
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES. (Continued)
Included in "Equipment in use and under lease agreements" are
Devices used internally and Devices loaned out for marketing and
testing. Devices in use and under lease agreements are depreciated
over seven years commencing at the date placed in service. Revenues
from leasing activities have not been significant.
(g) SofPulse Units:
SofPulse Units ("Units"), an FDA cleared device, are included
in the consolidated balance sheet under "Equipment held for sale"
and "Equipment in use and under lease rental agreements," on a
specific identification basis. Included in "Equipment in use and
under lease agreements" are Units leased to third parties,
Units used internally and Units loaned out for marketing and
testing. These Units are depreciated over seven years commencing on
the date placed in service.
(h) Other Assets:
Patents and patents assigned are stated at cost and are
included in other assets and are amortized on a straight-line basis
over the shorter of their legal or useful lives (15 to 17 years for
patents, and 2 years for patents assigned). Amortization expense is
expected to be approximately $10,000 in each of the succeeding five
years.
Deferred financing costs of the private placement offering are
being amortized through the five-year maturity dates of the related
unsecured notes payable.
The valuation of deferred compensation related to subsidiary
shares and warrants issued is being amortized over their respective
vesting periods of 5 to 6 years for those shares and warrants.
(i) Long-lived Assets:
Long-lived assets, including intangibles, to be held and used
are reviewed for impairment whenever events or changes in
circumstances indicate that the related carrying amount may not be
recoverable. If required, impairment losses on assets to be held and
used are recognized based on the excess of the asset's carrying
value over its fair value. Long-lived assets to be sold are reported
at the lower of carrying amount or fair value reduced by estimated
disposal costs.
The Company has adopted SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." The Company's adoption
of SFAS No. 144 did not have an effect on the Company's results of
operations, cash flows, or financial position.
(j) Revenue Recognition:
Sales revenues are recognized when products are shipped to
end users and rental and lease revenues are recognized principally
on either a monthly or a pay-per use basis in accordance with
individual rental or lease agreements and are recognized on a
monthly basis as earned. Shipments to distributors are recognized
as sales where no right of return exists. This is generally the
case with sales of chemicals. This is generally not the case with
sales of the SofPulse Units. The Company recognizes revenue from
the sale of the SofPulse products when the products are shipped to
end users. An increasing amount of rental revenue is recognized on
a fixed monthly recurring basis as product is utilized by the end-
user. Sales returns have been immaterial. Lease revenues through
third party distributors have also been immaterial and there have
been no sales through third party distributors. The Company's
products are principally shipped on a "freight collect" basis.
Shipping and handling charges and costs are immaterial.
F-8
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES. (Continued)
Other income for the year ended March 31, 2005 consists of
legal settlements of $64,833, interest income of $29,106 and
miscellaneous income of $2,100. For the year ended March 31, 2004
other income consists of office space rental and technical services
of $52,039, interest income of $1,997 and miscellaneous income of
$3,853.
(k) Advertising:
Advertising (approximately $138,000 and $4,000 in 2005 and
2004, respectively) is expensed as incurred and is included with
"Selling, general and administrative expenses" in the consolidated
statements of operations.
(l) Net Loss Per Share:
The Company applies Statement of Financial Accounting
Standards No. 128, "Earnings Per Share" (FAS 128). Net loss per
share excludes dilution and is computed by dividing net loss by the
weighted average number of common shares outstanding during the
reported periods. The assumed exercise of common stock equivalents
was not utilized for the year ended March 31, 2005 since the effect
would be anti-dilutive. There were 50,182,341 common stock
equivalents at March 31, 2005 and none at March 31, 2004.
(m) Use of Estimates:
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those
estimates.
(n) Fair Value of Financial Instruments:
The carrying values of cash, cash equivalents, accrued
expenses and notes payable approximate their fair values due to the
maturity of these instruments, net of discount.
The fair value of the officer loan receivable is determined by
calculating the present value of the note by a current market rate
of interest as compared to the stated rate of interest. The
difference between fair value and carrying value is not deemed to be
significant.
(o) Basis of Presentation:
The financial statements have been prepared in accordance with
generally accepted accounting principles in the United States of
America.
(p) Minority Interest:
A subsidiary, Ivivi Technologies, Inc. ("Ivivi"), of the
Company has a minority interest which owns 31.5% of that company.
Since the losses applicable to the minority interest in the
Ivivi subsidiary exceed the minority interest in the equity capital
of the subsidiary, such excess and any further losses applicable to
the minority interest are charged against the majority interest, as
there is no obligation of the minority interest to make good such
losses. However, if future earnings do materialize, the majority
interest shall be credited to the extent of such losses previously
absorbed.
(q) Research and Development Costs
Research and development costs are expensed as incurred.
(r) Restatement:
The March 31, 2005 financial statements have been restated to
record a beneficial conversion feature related to the Company's
convertible notes payable described in Note 3. The Company has also
recorded an additional discount related to the fair value of
warrants issued with the debt. The result is to increase the total
discount on debt to $2,808,271 from $325,000. Also, the fair value
of the warrants has been corrected to reflect a fair value of
$1,449,326 at March 31, 2005 as opposed to $325,000 as previously
reported.
Additionally, the Company issued compensation warrants related to
the debt placement with a fair value of $208,690 and has recorded
deferred compensation of $294,761 related to warrants issued for
services. As a result of these corrections, net loss for the year
ended March 31, 2005 has increased by $809,310, to $3,133,723, and
loss per share has increased to $0.06 from $0.04.
Changes to the balance sheet at March 31, 2005 resulting from these
corrections are as follows:
As reported Restated
Deferred financing costs 670,498 823,564
Deferred compensation 106,880 327,615
Unamortized debt discount $ 299,000 $ 2,628,219
Warrants issued with
registration rights 325,000 1,449,326
Capital in excess of par value 7,003,968 9,391,972
Accumulated deficit (8,366,300) (9,175,610)
The financial statements as at and for the year ended March
31, 2004 have been restated to reflect the fair market value of
920,000 shares of Ivivi's common stock issued in the fourth quarter
of the fiscal year ended March 31, 2004 to officers, employees, and
others in the amount of $73,600, and $4,000 additional amortization
of the related deferred compensation for the year ended March 31,
2004.
F-9
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES. (Continued)
(s)Trade Accounts Receivable
Trade accounts receivable are stated at the amount management
expects to collect from outstanding balances. Management provides
for probable uncollectible amounts through a charge to earnings and
a credit to a valuation allowance based on its assessment of the
current status of individual accounts. Balances that are still
outstanding after management has used reasonable collection efforts
are written off through a charge to the valuation allowance and a
credit to trade accounts receivable.
(t) Stock Options and Warrants
The Company accounts for its stock-based employee compensation
plans using the intrinsic value based method, under which
compensation cost is measured as the excess of the stock's market
price at the grant date over the amount an employee must pay to
acquire the stock. Stock options and warrants issued to non-
employees are accounted for using the fair value based method, under
which the expense is measured as the fair value of the security at
the date of grant based on the Black-Scholes pricing model. A
subsidiary of the Company had 578,500 employee stock options
outstanding at March 31, 2005 and 2004.
Pro Forma Information
Employee and Director Common Share Purchase Options- Pro forma
information regarding the effects on operations of employee and
director common share purchase options as required by SFAS No. 123
and SFAS No. 148 has been determined as if the Company's subsidiary
had accounted for those options under the fair value method. Pro
forma information is computed using the Black Scholes method at the
date of grant of the options based on the following assumptions:
(1) risk free interest rate of 3.62%; (2) dividend yield of
0%; (3) volatility factor of the expected market price of our common
stock of 67%; and (4) an expected life of the options of 6 years.
The foregoing option valuation model requires input of highly
subjective assumptions. Because common share purchase options
granted to employees and directors have characteristics
significantly different from those of traded options, and because
changes in the subjective input assumptions can materially affect
the fair value of estimates, the existing model does not in the
opinion of our management necessarily provide a reliable single
measure of the fair value of common share purchase options we have
granted to our employees and directors.
Pro forma information relating to employee and director common share
purchase options is as follows:
For the Year For the Year
Ended Ended
March 31, 2005 March 31, 2004
Net loss as reported $(3,133,723) $ (141,738)
Current period expense calculated
under APB 25 - -
Stock compensation calculated
under SFAS 123 (9,966) (12,458)
Pro forma net loss $(3,143,689) $ (154,196)
Historical basic and diluted
loss per share $ (0.06) $ 0.00
Pro forma basic and diluted
loss per share $ (0.06) $ 0.00
(u) New Accounting Pronouncements:
In December 2004, the FASB issued SFAS No.153, "Exchanges of
Nonmonetary Assets, an amendment of APB Opinion No. 29, Accounting
for Nonmonetary Transactions." The amendments made by Statement 153
are based on the principle that exchanges of nonmonetary assets
should be measured based on the fair value of the assets exchanged.
Further, the amendments eliminate the narrow exception for
nonmonetary exchanges of similar productive assets and replace it
with a broader exception for exchanges of nonmonetary assets that do
not have commercial substance. Previously, Opinion 29 required that
the accounting for an exchange of a productive asset for a similar
productive asset or an equivalent interest in the same or similar
productive asset should be based on the recorded amount of the asset
relinquished. Opinion 29 provided an exception to its basic
measurement principle (fair value) for exchanges of similar
productive assets. The FASB believes that exception required that
some nonmonetary exchanges, although commercially substantive, be
recorded on a carryover basis. By focusing the exception on
exchanges that lack commercial substance, the FASB believes this
statement produces financial reporting that more faithfully
represents the economics of the transactions. SFAS 153 is effective
for nonmonetary asset exchanges occurring in fiscal periods
beginning after June 15, 2005. Earlier application is permitted for
nonmonetary asset exchanges occurring in fiscal periods beginning
after the date of issuance. The provisions of SFAS 153 shall be
applied prospectively. The Company has evaluated the impact of the
adoption of SFAS 153, and does not believe the impact will be
significant to the Company's overall results of operations or
financial position.
In December 2004, the FASB issued SFAS No.123 (revised 2004),
"Share-Based Payment". SFAS 123(R) will provide investors and other
users of financial statements with more complete and neutral
financial information by requiring that the compensation cost
relating to share-based payment transactions be recognized in
financial statements. That cost will be measured based on the fair
value of the equity or liability instruments issued. SFAS 123(R)
covers a wide range of share-based compensation arrangements
including share options, restricted share plans, performance-based
awards, share appreciation rights, and employee share purchase
plans. SFAS 123(R) replaces FASB Statement No. 123, "Accounting for
Stock-Based Compensation", and supersedes APB Opinion No. 25,
"Accounting for Stock Issued to Employees". SFAS 123, as originally
issued in 1995, established as preferable a fair-value-based method
of accounting for share-based payment transactions with employees.
However, that statement permitted entities the option of continuing
to apply the guidance in Opinion 25, as long as the footnotes to
financial statements disclosed what net income would have been had
the preferable fair-value-based method been used. Public entities
(other than those filing as small business issuers) will be required
to apply SFAS 123(R) as of the first interim or annual reporting
period that begins after June 15, 2005. SFAS 123(R) is applicable
for the Company effective the first interim period that starts after
December 15, 2005. The Company has evaluated the impact of the
adoption of SFAS 123(R), and believes that the impact may be
significant to the Company's overall results of operations and
financial position (a pro forma effect, as estimated by management,
is disclosed elsewhere in these notes).
In January 2003, the FASB issued FASB Interpretation No.
("FIN") 46, "Consolidation of Variable Interest Entities" ("FIN
46"). In December 2003, FIN 46 was replaced by FASB interpretation
No. 46(R) "Consolidation of Variable Interest Entities." FIN 46(R)
clarifies the application of Accounting Research Bulletin No. 51,
"Consolidated Financial Statements," to certain entities in which
equity investors do not have the characteristics of a controlling
financial interest or do not have sufficient equity at risk for the
F-10
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES. (Continued)
entity to finance its activities without additional subordinated
financial support from other parties. FIN 46(R) requires an
enterprise to consolidate a variable interest entity if that
enterprise will absorb a majority of the entity's expected losses,
is entitled to receive a majority of the entity's expected residual
returns, or both. FIN 46(R) is effective for entities being
evaluated under FIN 46(R) for consolidation no later than the end of
the first reporting period that ends after March 15, 2004. The
Company does not currently have any variable interest entities that
will be impacted by adoption of FIN 46(R).
NOTE 2 - CONTINUATION AS A GOING CONCERN.
The Company has had substantial net losses of $3,133,723 and
$141,738 for the years ended March 31, 2005 and 2004, respectively.
The Company has a stockholders' deficiency of $84,312 at March
31, 2005. These factors raise substantial doubt about the ability to
continue as a going concern. The significant increase in the net
loss for the year ended March 31, 2005 is the result of expanded
activities of Ivivi. In anticipation of expanding the Company's
subsidiary operation, the Company raised $6,087,500 in a private
placement, (see Note 3), and at March 31, 2005 had cash and cash
equivalents of $3,011,631 and working capital of $3,333,567.
The Company's net loss for the year ended March 31, 2005 has
been principally funded from the net proceeds received from the
Private Placement Offering of the 6% Unsecured Notes Payable (see
Note 3).
The continuation of the Company as a going concern is
dependent on the Company's ability to increase revenues, in
receiving additional financing from outside sources including a
public offering of stock of a subsidiary company, and a return to
profitable operations. Management is pursuing a number of financing
avenues for the subsidiary as well as attempting to secure ongoing
revenue relationships for the subsidiary's products.
NOTE 3 - PRIVATE PLACEMENT FINANCINGS.
On December 1, 2004 and February 11, 2005, the Company
completed private placement financings (collectively, the
"Placements") to "accredited investors" only, consisting of an
aggregate of $6,087,500 aggregate principal amount of unsecured
convertible notes bearing interest at an annual rate of 6%. The
notes are due at various times from July 2009 through February 2010,
unless converted earlier, and will convert automatically upon the
consummation of a public offering into 733,434 shares of Ivivi's
common stock, subject to adjustment, plus up to an additional 5,060
shares of Ivivi's common stock for the payment of interest on the
notes through April 30, 2005 and 3,708 shares for each month
thereafter until the date that Ivivi files a registration statement
with the Securities and Exchange Commission and the offering of its
common stock is declared effective, assuming each holder elects to
have their interest paid in shares of the Ivivi's common stock.
Interest on the notes is payable quarterly in cash or shares of our
common stock, at the direction of the holder. In addition,
commencing March 1, 2005, with respect to the investors holding the
notes issued in the private placement that was completed in December
2004, and June 30, 2005, with respect to the investors holding the
notes issued in the private placement that was completed in February
2005, the investors will have the additional right to receive
interest payments in shares of ADM Tronics common stock in lieu of
cash or shares of Ivivi's common stock. In connection with the
F-11
NOTE 3 - PRIVATE PLACEMENT FINANCINGS. (Continued)
issuance of the notes, Ivivi also issued to the investors warrants
to purchase an aggregate of 733,434 shares of Ivivi's common stock
at $5.70 per share, as well as warrants to purchase an aggregate of
20,991,379 shares of the common stock of ADM Tronics at $.41 per
share. Warrants to purchase shares of ADM Tronic's common stock
automatically expire upon the consummation of a public offering.
Under the terms of the notes sold in the private placement that was
completed in December 2004 and February 2005, the number of shares
of Ivivi's common stock issuable upon conversion of the notes
and exercise of the warrants will increase by 2% for each 30-day
period, or portion thereof, after March 1, 2005 and June 30, 2005,
respectively, that the registration statement in connection to the
public offering of Ivivi's common stock is not declared effective.
As a result, as of April 30, 2005, an additional 17,530 shares of
common stock underlying the notes and 17,530 shares underlying the
warrants will be issuable by Ivivi. Based upon a Black Scholes
Option Valuation Model, the value attributable to the warrants
issued in the private placement through March 31, 2005 was $2,031,075.
Accordingly, the notes payable were discounted by $2,808,271. The
discount will be amortized over the term of the notes to their
maturity date.
As additional consideration for the purchase of the notes, the
Company granted to the purchasers warrants entitling them to
purchase 20,991,379 common shares at the price of $0.41 per share.
These warrants lapse if unexercised after five years, or upon an
effective registration statement of Ivivi. A registration rights
agreement was executed requiring the Company to register the shares
of its common stock underlying the notes and warrants so as to
permit the public resale thereof. In accordance with EITF 00-27, a
portion of the proceeds was allocated to the warrant liability based
on its fair value, which totaled $867,577 using the Black-Scholes
option pricing model. The remaining balance was allocated to the
convertible notes and was used to compute the beneficial conversion
feature. The Company attributed a beneficial conversion feature
of $1,940,694 to the convertible notes based upon the difference
between the effective conversion price of those shares and the
closing price of the Company's common shares on the date of
issuance. The assumptions used in the Black-Scholes model are as
follows: (1) dividend yield of 0%; (2) expected volatility of 64%,
(3) risk-free interest rate of 1.5%, and (4) expected life of six
months. The total debt discount of $2,808,271 is being amortized
over the term of the notes. During the year ended March 31, 2005,
amortization as interest expense amounted to $180,052.
Since the warrant is a contract requiring settlement through the
delivery of registered shares, and the delivery of such registered
shares was not deemed controllable by the Company, the Company
recorded the net value of the warrants at the date of issuance as a
warrant liability on the balance sheet ($867,577) and included the
change in fair value from the date of issuance to March 31, 2005 in
"Other income (expense)", in accordance with EITF 00-19, "Accounting
for Derivative Financial Instruments Indexed to, and Potentially
Settled in, a Company's Own Stock". The fair value of the warrants
was $1,449,326 at March 31, 2005.
Upon a registration statement covering the underlying shares being
declared effective, the fair value of the warrants on that date
will be reclassified to equity.
Ivivi has filed a Registration Statement with the Securities and
Exchange Commission for the issuance of a portion of its common
stock.
NOTE 4 - PROPERTY AND EQUIPMENT.
Property and equipment at March 31, 2005 consist of the
following:
Machinery and equipment $277,225
Office furniture and fixtures and equipment 34,513
--------
311,738
Less accumulated depreciation and amortization 271,188
--------
$ 40,550
========
Depreciation and amortization on property and equipment for
the years ended March 31, 2005 and 2004 aggregated $7,722 and
$15,268, respectively.
F-12
NOTE 5 - EQUIPMENT IN USE AND UNDER LEASE AGREEMENTS.
Equipment in use and under lease agreements at March 31, 2005
consist of the following:
SofPulse Units $874,580
Other Units 9,270
--------
883,850
Less accumulated depreciation 832,059
--------
$ 51,791
========
Depreciation of equipment in use and under lease agreements
for the years ended March 31, 2005 and 2004 aggregated $131,470 and
$126,965, respectively.
NOTE 6 - OTHER ASSETS.
Other assets at March 31, 2005 consist of the following:
Patents, net of accumulated amortization of $68,227 $ 91,320
Deferred registration costs of filings with the
Securities and Exchange Commission by Ivivi 133,125
Other 13,608
----------
$ 238,053
==========
(a) The costs connected with the registration statement
which is being filed with the SEC have been deferred.
Such costs will be charged to Paid-In Capital if the
Registration Statement becomes effective; otherwise,
such costs will be charged to operations.
NOTE 7 - INCOME TAXES.
The differences between the income taxes and the amount
computed by applying the federal statutory income tax rate of 34% to
income before taxes are as follows:
2005 2004
--------- ---------
Tax benefit at U.S. statutory rates $1,066,000 ($ 48,000)
Change in valuation allowance (1,066,000) 48,000
--------- ---------
Income taxes $ -- $ --
========= =========
F-13
NOTE 7 - INCOME TAXES. (Continued)
At March 31, 2005, the Company had deferred tax assets of
approximately $2,753,000 resulting from net operating loss
carryforwards. The deferred tax assets are offset by a valuation
allowance in the amount of $2,753,000.
A valuation allowance is recorded when management believes
it is more likely than not that tax benefits will not be realized. The
change in the valuation allowance was based upon the consistent
application of management's valuation procedures and circumstances
surrounding its future realization.
The Company and its subsidiaries file consolidated Federal
income tax returns. As of March 31, 2005, the Company has
consolidated net operating loss carryforwards of approximately
$6,883,000 that will expire during the years 2006 through 2024.
NOTE 8 - EMPLOYEE BENEFIT PLAN.
The Company has a 401(k) Plan covering substantially all
employees. Employer matching contributions to the plan are at the
discretion of management. There were no employer contributions to
the plan for the years ended March 31, 2005 and 2004.
NOTE 9 - COMMITMENTS AND CONTINGENCIES.
(a) Leases:
The Company leases its office and manufacturing facilities
under non-cancelable operating leases.
The approximate future minimum annual rental under these
leases at March 31, 2005 are as follows:
Years Ending:
---------------
March 31, 2006 $ 85,000
March 31, 2007 85,000
March 31, 2008 85,000
March 31, 2009 22,000
--------
$277,000
========
Other leases are month-to-month.
Rent expense for all facilities for the years ended March 31,
2005 and 2004 was approximately $127,000 and $92,000, respectively.
(b) Warranties:
The Company's medical devices are sold under agreements
providing for the repair or replacement of any devices in need of
repair, at the Company's cost, for up to one year from the date of
delivery, unless such need was caused by misuse or abuse of the
device.
At March 31, 2005, no amount has been accrued for potential
warranty costs and such costs are expected to be nominal.
(c) Legal Matters:
i. The Company is involved, from time to time, in
litigation and proceedings arising out of the ordinary
course of business. There are no pending material legal
proceedings or environmental investigations to which the
Company is a party or to which the property of the
Company is subject.
F-14
NOTE 9 - COMMITMENTS AND CONTINGENCIES. (Continued)
ii. On May 25, 2005, Ivivi filed a lawsuit against an
unrelated company and certain individuals. The complaint
alleges that certain of Ivivi's confidential information
was disseminated by the individuals to the other
company. Ivivi is seeking injunctive relief enjoining
the other company, its agents and employees for
preliminary and permanent injunctions for compensatory
and punitive damages, for an accounting and for
attorney's fees and costs.
Ivivi has filed a patent infringement suit against the
other company to protect its proprietary interests.
Legal counsel for the other company advised that several
documents were forwarded to intellectual property
counsel of the other company related to the filing of a
patent infringement suit against ADM Tronics and its
subsidiaries. Based upon the foregoing, there is the
possibility of litigation and counterclaims. It is
certainly possible and would not be unexpected for the
other company to file a counterclaim against Ivivi.
iii. On April 30, 2004, the Company entered into a
termination agreement with a lessor of some of the
SofPulse Units. The lessor agreed to pay the Company
$85,000 and return the rental units that were leased. In
the opinion of management, the agreement's termination
did not have a material adverse effect on rental income
of the Company.
The Company believes that the ultimate resolution of the
foregoing matters will not have a material adverse impact on the
Company's cash flows, financial condition or results of operations.
(d) Contractual Agreements:
i. On September 9, 2004 and on October 17, 2004, Ivivi
entered into Sponsored Research Agreements with the
Montefiore Medical Center ("Montefiore"). Both
agreements support research at Montefiore in areas
related to Ivivi's fields of interest. The agreement
dated September 9, 2004, is for a period of one year and
the committed funding amount is $28,750. The agreement
dated October 17, 2004 remains in effect until December
31, 2009 and the committed funding amount is $495,685.
The research and development costs are being expensed
over a one year period from inception of the agreements.
ii. Effective January 1, 2004, Ivivi entered into a
Consulting Agreement with the Chairman of the Department
of Plastic Surgery at Montefiore Medical Center pursuant
to which Ivivi engaged the consultant to render
consulting services to it for a term of six years with
automatic one-year renewals. Pursuant to the consulting
agreement, the consultant serves as Medical Director and
Chairman of Ivivi's Medical Advisory Board and advises
Ivivi on technological developments, future clinical and
research applications and product development and
efficacy in the pulsed magnetic frequencies field.
In exchange for the consultant's consulting services,
the consultant received 80,000 shares of Ivivi's common
stock, 10,000 of which vested immediately upon the
Company's entering into the consulting agreement with
him, 17.5% of which vested on January 5, 2005 and the
remaining 70% of which shall vest in three equal yearly
installments on January 5 of each year from January 5,
2006 through January 1, 2009. In addition, Ivivi has
agreed to pay the consultant an annual bonus (not to
F-15
NOTE 9 - COMMITMENTS AND CONTINGENCIES. (Continued)
(d) Contractual Agreements: (Continued)
exceed $500,000) equal to the sum of 0.5% of that
portion of Ivivi's annual revenues in excess of
$20,000,000 and up to $80,000,000, 0.25% of that portion
of Ivivi's annual revenues in excess of $120,000,000.
Ivivi has also agreed to pay the consultant a royalty
equal to 0.05% of revenues received for practicing
and/or commercializing any "new inventions" (as such term
is defined in the agreement) developed by the consultant
under the agreement. Bonuses and royalties payable for
the fiscal years ended March 31, 2006 and 2007 are
subject to a cap of 10% of Ivivi's pre-tax profit (after
deduction of such bonuses and royalty payments) for such
fiscal years. Bonuses and royalties payable under the
consulting agreement are also subject to certain
adjustments for returns, allowances or setoffs, to the
consultant's compliance with the non-compete provisions
of Ivivi's consulting agreement and certain other
restrictions.
iii. On April 1, 2005, Ivivi entered into an agreement with
Global Medical LLC ("Global") in which Global will
provide certain management services in regard to medical
devices and products manufactured, distributed, sold or
rented by Ivivi. The term of the agreement commences
October 1, 2005 for a two year period during which
Global will be paid a monthly fee of $45,000 and earn a
certain percentage of each sale or rental Global makes
of Ivivi's products. During the term of the agreement,
Ivivi has the right to purchase some or all of the
assets of Global utilized in the performance of the
management services in exchange for Ivivi's assumption
of certain on-going salary obligations of Global and
Ivivi's issuance of equity securities to Global.
(e) Other:
The Centers for Medicare and Medicaid Services have issued a
National Coverage Determination (NCD) providing coverage for the use
of the Company's SofPulse medical device for treatment of wounds.
The issuance of the NCD enables nursing homes, hospitals, physicians
and rehabilitation clinics to obtain reimbursement for treatment of
chronic, non-healing wounds with the Company's SofPulse medical
devices.
NOTE 10 - STOCKHOLDERS' EQUITY.
(a) Stock Options and Warrants:
From time to time, the Company grants stock options to
directors, officers and outside consultants.
A summary of the Company's stock option activity and related
information for the years ended March 31, 2005 and 2004 is as
follows:
F-16
NOTE 10 - STOCKHOLDERS' EQUITY. (Continued)
(a)Stock Options and Warrants: (Continued)
Year Ended Year Ended
March 31, 2005 March 31, 2004
Weighted Weighted
Average Average
Exercise Exercise
Options Price Options Price
Outstanding at beginning of year -- $ -- 5,192,819 $ 0.2927
Granted 29,190,962 0.39 -- --
Expired -- -- (5,192,819) (0.2927)
Outstanding at end of year 29,190,962 $0.39 -- $ --
Exercisable at end of year 29,190,962 $0.39 -- $ --
Ivivi has instituted a stock option plan for the issuance of
1,500,000 shares. As of March 31, 2005 and 2004, 751,200 and
686,500, respectively, options were awarded, with 748,800 reserved
for future issuance. The option holder, upon receiving the grant is
immediately vested in 20% of the grant and the option holder earns a
continuing vesting right of the remaining balance for each of the
next four years of service with Ivivi. The options have exercise
prices ranging from $.10 to $10.00.
F-17
NOTE 10 - STOCKHOLDERS' EQUITY. (Continued)
(b) Common Stock:
In November 2003, a consulting company provided services to
the Company valued at $15,000 and acquired 1,500,000 non-registered
common shares of the Company.
In January 2004, a group of individuals provided services
valued at $73,600 for Ivivi and received 920,000 common shares of
Ivivi, approximately 31.5% of the subsidiary's common stock. The
valuation of the shares is being amortized over a five year vesting
period with the fair market value having been credited to paid-in
capital.
In December 2004, a consulting company provided services to
the Company valued at $20,000 and acquired 2,000,000 non-registered
common shares of the Company.
NOTE 11 - SEGMENT INFORMATION, GEOGRAPHICAL INFORMATION,
MAJOR CUSTOMERS, AND CREDIT CONCENTRATION.
(a) Segment Information:
The Company adopted the provisions of SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related
Information" effective April 1, 1999. The Company operates in two
reportable segments, the production and sale of chemicals and the
manufacture and sale or lease of medical products. The reportable
segments are strategic business units that offer different products
and services. They are managed separately based on differences in
customer base, marketing strategies or regulatory environment.
The accounting policies of the segments are the same as those
described in Note 1. The Company evaluates performance on profit or
loss from operations before income taxes.
Information about segment operations follows:
Year Ended March 31, 2005 Chemical Medical Total
Revenues $ 876,679 $ 409,395 $ 1,286,074
Interest income 4,161 24,945 29,106
Interest expense 1,228 153,528 154,756
Depreciation and amortization 8,304 130,909 139,213
Segment income (loss) 96,537 (3,230,260) (3,133,723)
Segment assets 934,382 4,362,681 5,297,063
Capital expenditures 46,594 46,594
Year Ended March 31, 2004 Chemical Medical Total
Revenues $ 887,312 $ 218,055 $ 1,105,367
Interest income 1,997 -- 1,997
Interest expense 8,100 -- 8,100
Depreciation and amortization 12,661 134,056 146,717
Segment loss 101,747 (224,760) (141,738)
Segment assets 647,202 500,358 1,147,560
F-18
NOTE 11 - SEGMENT INFORMATION, GEOGRAPHICAL INFORMATION,
MAJOR CUSTOMERS, AND CREDIT CONCENTRATION.
(b) Geographical Information:
Sales and rentals to unaffiliated customers, based on location
of customer, are as follows:
Years Ended March 31,
2005 2004
-------- --------
Chemical Segment:
United States $797,020 $813,273
Foreign countries 79,659 74,039
-------- --------
$876,679 $887,312
======== ========
Medical Segment:
United States $338,058 $110,974
Asia 71,337 100,579
Other foreign countries -- 6,502
-------- --------
$409,395 $218,055
======== ========
(c) Major Customers:
Sales to individual unaffiliated customers in excess of 10% of
net sales to unaffiliated customers are shown below.
Years Ended March 31,
2005 2004
-------- --------
Chemical Segment:
Customer A $271,124 $255,254
======== ========
Customer B $144,831 $169,281
======== ========
Medical Segment $ -- $ --
======== ========
F-19
Item 8A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures.
On September 2, 2005, in response to a comment letter from the
staff of the Securities and Exchange Commission that, among other things,
requested information regarding the accounting for the fair value of
warrants issued with convertible debt and a beneficial conversion feature
related to convertible debt issued by the Company, the Board of Directors
of the Company (the "Board"), on the recommendation of the Company's
management and after discussions with its independent auditors, made an
internal determination and concluded that the financial statements
contained in the Company's Quarterly Report on Form 10-QSB for the
Company's fiscal quarters ended September 30, 2004, December 31, 2004 and
June 30, 2005 (the "Form 10-QSBs") and the financial statements
previously audited by the Company's prior auditors and contained in the
Company's Annual Report on Form 10-KSB for the Company's fiscal year
ended March 31, 2005 (the "Form 10-KSB"), required restatement related to
the accounting for the fair value of warrants issued with convertible
debt and a beneficial conversion feature related to the convertible debt
issued with respect to the financing for the Company's subsidiary, Ivivi
Technologies, Inc., as previously accounted for by the Company. The
restatements are described in Notes 1 and 12 of the Notes to Consolidated
Financial Statements.
In the Company's Form 10-KSB for the fiscal year ended March 31,
2005, the Company's principal executive officer and principal financial
officer concluded that the Company's disclosure controls and procedures
(as defined in Rules 13(a)-15(e) and 15(d)-15(e) under the Securities
Exchange Act of 1934) were effective to ensure that the information
required to be disclosed by the Company in the reports that it files or
submits under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods specified
in SEC rules and forms. However, in connection with the Company's
determination to restate the financial statements contained in the Form
10-QSBs and the Form 10-KSB, the Company's management, including the
principal executive officer and principal financial officer, reevaluated
its disclosure controls and procedures (as defined in Rules 13(a)-15(e) and
15(d)-15(e) under the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) related to the recording, processing, summarization, and
reporting of information in the Company's periodic reports that it files
with the SEC, as of the end of the fiscal year ended March 31, 2005.
These disclosure controls and procedures have been designed to ensure
that material information relating to the Company, including its
subsidiaries, is accumulated and communicated to the Company's
management, including these officers, by other of the Company's
employees, and that this information is recorded, processed, summarized,
evaluated, and reported, as applicable, within the time periods specified
in the SEC's rules and forms. Due to the inherent limitations of control
systems, not all misstatements may be detected. These inherent
limitations include the realities that judgments in decision-making can
be faulty and that breakdowns can occur because of simple error or
mistake. Additionally, controls can be circumvented by the individual
acts of some persons, by collusion of two or more people, or by
management override of the control. The Company's controls and
procedures can only provide reasonable, not absolute, assurance that the
above objectives have been met.
Based on the reevaluation of the Company's disclosure controls and
procedures (as defined in Rules 13(a)-15(e) and 15(d)-15(e) under the
Exchange Act) as of March 31, 2005, the Company's principal executive
officer and principal financial officer concluded that, solely because
there was a material weakness resulting from the Company not properly
recording the transaction described above under generally accepted
accounting principles, such disclosure controls and procedures were not
effective in ensuring that the information required to be disclosed by
the Company in the reports that it files or submits under the Exchange
Act is accumulated and communicated to the Company's management,
including its Chief Executive Officer and Chief Financial Officer, to
ensure that such information is recorded, processed, summarized and
reported within the time periods specified in SEC rules and forms. The
Company has taken steps to remediate the material weakness. See
"Internal Control Over Financial Reporting."
Internal Control Over Financial Reporting.
There were no changes in the Company's internal control over financial
reporting that occurred during the quarter ended March 31, 2005 that
materially affected, or were reasonably likely to materially affect, the
Company's internal control over financial reporting. However, as a
result of the reevaluation of the effectiveness of the Company's internal
control over financial reporting as of the end of the fiscal year ended
March 31, 2005, the management of the Company, including the principal
executive officer and principal financial officer, concluded that the
need for a restatement of the financial statements contained in the Form
10-QSBs and the Form 10-KSB were the result of a material weakness in the
internal control over financial reporting. A material weakness in
internal control is a significant deficiency, or combination of
significant deficiencies, that result in more than a remote likelihood
that a material misstatement of the financial statements would not be
prevented or detected on a timely basis by the Company. The Company's
reconciliation and review processes were not adequate to detect the
failure to record the beneficial conversion feature of the convertible
debt and the additional amount related to the fair value of warrants in
the Company's financial statements contained in the Form 10-QSBs and Form
10-KSB.
The Company has taken steps to remediate the material weakness by
(i) retaining a certified public accountant as a consultant to assist
with the Company's financial reporting obligations and improvement of its
internal controls over financial reporting and (ii) hiring a certified
public accountant as a part-time employee responsible for assisting
management with internal controls, financial reporting and closing the
Company's books and records. The Company believes that these remedial
steps will help correct the material weakness described above. However,
the Company cannot assure that it will not in the future identify further
material weaknesses in its internal controls over financial reporting.
PART III
Item 13. Exhibits
Exhibit
No. Description
3.1 Certificate of Incorporation and amendments thereto filed on
August 9, 1976 and May 15, 1978 is incorporated by reference to Exhibit
3(a) to the Company's Registration Statement Form 10 (File No. 0-17629)
(the "Form 10").
3.2 Certificate of Amendment to Certificate of Incorporation filed
December 9, 1996 is incorporated by reference to Exhibit 3(a) to the
Company's Annual Report on Form 10-KSB for the fiscal year ended March
31, 1997.
3.3 By-Laws are incorporated by reference to Exhibit 3(b) to the Form
10.
4.1 Warrant issued to the Global Opportunity Fund Inc. is incorporated
by reference to Exhibit 4.1 to Amendment No. 1 to the Company's Annual
Report on Form 10-KSB for the fiscal year ended March 31, 1998.
4.2 Warrant issued to Heiko H. Thieme is incorporated by reference to
Exhibit 4.2 to the Company's Annual Report on Form 10-KSB for the fiscal
year ended March 31, 1999.
4.3 Form of Company Warrant issued to certain investors (one in a
series of warrants with identical terms) is incorporated by reference to
Exhibit 4.1 to the Company's Current Report on Form 8-K dated February
11, 2005.
4.4 Form of Ivivi Warrant issued to certain investors (one in a series
of warrants with identical terms) is incorporated by reference to Exhibit
4.2 to the Company's Current Report on Form 8-K dated February 11, 2005.
4.5 Form of Note issued to certain investors (one in a series of notes
with identical terms) is incorporated by reference to Exhibit 4.3 to
the Company's Current Report on Form 8-K dated February 14, 2005.
9.1 Trust Agreements of November 7, 1980 by and between Dr. Alfonso Di
Mino et al. are incorporated by reference to Exhibit 9 to the Company's
Annual Report on Form 10-KSB for the fiscal year ended March 31, 1993.
10.1 Memorandum of Lease by and between the Company and Cresskill
Industrial Park III dated as of August 26, 1993 is hereby incorporated
by reference to Exhibit 10(a) to the Company's Annual Report on Form 10-
KSB for the fiscal year March 31, 1994.
10.2 Agreement of July 8, 1987 by and between Donna Di Mino, Dr.
Alfonso Di Mino, et al. is hereby incorporated by reference to Exhibit
10(q) to the Company's Annual Report on Form 10-KSB for the fiscal year
ended March 31, 1993.
10.3 Agreement of March 21, 2002 by and between the Company and New
England Acquisitions, Inc. is hereby incorporated by reference to
Exhibit 10.8 to the Company's Annual Report on Form 10-KSB for the fiscal
year ended March 31, 2002.
10.4 Agreement of April 29, 2003 by and between Vet-Sonotron Systems,
Inc. and THM Group, LLC is hereby incorporated by reference the Exhibit
10.4 to the Company's Annual Report on Form 10-KSB for the fiscal year
ended March 31, 2003.
10.5 Agreement of January 17, 2003 by and between the Company and Fifth
Avenue Venture Capital Partners is hereby incorporated by reference to
Exhibit 10.5 to the Company's Annual Report on Form 10-KSB for the fiscal
year ended March 31, 2003.
10.6 Amended and Restated Manufacturing Agreement, dated February 10,
2005, among the Company, Ivivi Technologies, Inc. and Sonotron Medical
Systems, Inc. is incorporated by reference to Exhibit 10.6 to the
Company's Annual Report on Form 10-KSB for the fiscal year ended March
31, 2005.
10.7 Management Services Agreement, dated August 15, 2001, among the
Company, Ivivi Technologies, Inc., Sonotron Medical Systems, Inc. and
Pegasus Laboratories, Inc., as amended, is incorporated by reference to
Exhibit 10.7 to the Company's Annual Report on Form 10-KSB for the fiscal
year ended March 31, 2005.
10.8 Agreement of April 3, 2004 by and between the Company and
Carepoint Group is incorporated by reference to Exhibit 10.6 to the
Company's Annual Report on Form 10-KSB for the fiscal year ended March
31, 2004.
10.9 Placement Agency Agreement of May 20, 2004 by and between the
Company and Maxim Group LLC. is incorporated by reference to Exhibit
10.1 to the Company's Current Report on Form 8-K dated December 1, 2005.
10.10 Agreement of April 1, 2005 by and between Ivivi Technologies, Inc.
and Global Medical, L.L.C. is incorporated by reference to Exhibit 10.10
to the Company's Annual Report on Form 10-KSB for the fiscal year ended
March 31, 2005.
14.1 Code of Ethics is incorporated by reference to Exhibit 14.1 to the
Company's Annual Report on Form 10-KSB for the fiscal year ended March
31, 2005.
21.1 Subsidiaries of the Company is incorporated by reference to
Exhibit 21.1 to the Company's Annual Report on Form 10-KSB for the fiscal
year ended March 31, 2005.
31.1 Certification of the Chief Executive Officer of the Company
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of the Chief Financial Officer of the Company
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification of the Chief Executive Officer and Chief Financial
Officer of the Company pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002
99.1 Risk Factors
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused the amendment to
this report to be signed on its behalf by the undersigned, thereunto duly
authorized this 9th day of December, 2005.
ADM TRONICS UNLIMITED, INC.
By: /s/ Andre' DiMino
-----------------
Andre' DiMino
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
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 Title Date
/s/ Andre' DiMino Chief Executive Officer and Chief December 9, 2005
Andre' DiMino Financial Officer (Principal
Executive Officer, Principal
Financial Officer and Principal
Accounting Officer) and Director
/s/ Vincent DiMino Director December 9, 2005
Vincent DiMino
/s/ David Saloff Director December 9, 2005
David Saloff