SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2007
OR
[ ] 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 Small Business Issuer As Specified in its Charter)
Delaware 22-1896032
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or organization) Identification Number)
224-S Pegasus Ave., Northvale, New Jersey 07647
(Address of Principal Executive Offices)
Issuer's Telephone Number, including area code: (201) 767-6040
Check whether the Issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the Issuer was required to file such reports), and (2) has
been subject to the filing requirements for the past 90 days:
YES [X] NO [ ]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act)
YES [ ] NO [X]
State the number of shares outstanding of each of the Issuer's classes of common
equity, as of the latest practicable date:
53,882,037 shares of Common Stock, $.0005 par value, as of February 1, 2008
ADM TRONICS UNLIMITED, INC.
INDEX
Page Number
-----------
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements:
Condensed Consolidated Balance Sheets - December 31, 2007
(unaudited) and March 31, 2007.................................... 3
Condensed Consolidated Statements of Operations - For
the three and nine months ended December 31, 2007
and 2006 (unaudited).............................................. 4
Condensed Consolidated Statements of Cash Flows - For
the nine months ended December 31, 2007 and 2006
(unaudited)....................................................... 5
Notes to Condensed Consolidated Financial Statements
(unaudited)....................................................... 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS............................. 9
ITEM 3. CONTROLS AND PROCEDURES ........................................ 14
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS ....................................................... 15
2
ADM TRONICS UNLIMITED, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2007 MARCH 31, 2007
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 2,191,590 $ 2,498,276
Accounts receivable, net of allowance for doubtful
accounts of $900 and $8,361, respectively 74,161 89,598
Receivables - Affiliate 39,668 36,657
Inventories 683,116 205,517
Prepaid expenses and other current assets 7,255 35,130
------------ ------------
Total current assets 2,995,790 2,865,178
Property and equipment, net of accumulated depreciation
of $13,665 and $5,467, respectively 53,221 37,989
Inventory - long term portion 88,392 81,573
Investment in Ivivi 2,669,792 2,638,562
Loan receivable and accrued interest, officer 74,040 92,933
Other assets 86,873 89,772
------------ ------------
Total assets $ 5,968,108 $ 5,806,007
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 249,226 $ 180,935
Accrued expenses and other current liabilities 56,910 35,290
Customer deposits - affiliate 323,444 --
------------ ------------
Total current liabilities 629,580 216,225
------------ ------------
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, 53,882,037 shares issued and outstanding at
December 31, 2007 and March 31, 2007 26,941 26,941
Additional paid-in capital 32,004,055 30,297,955
Accumulated deficit (26,692,468) (24,735,114)
------------ ------------
Total stockholders' equity 5,338,528 5,589,782
------------ ------------
Total liabilities and stockholders' equity $ 5,968,108 $ 5,806,007
============ ============
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
3
ADM TRONICS UNLIMITED, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED DECEMBER 31, 2007 AND 2006
(Unaudited)
Three months ended December 31, Nine Months ended December 31,
2007 2006 2007 2006
------------ ------------ ------------ ------------
Revenues $ 496,261 $ 234,627 $ 1,189,194 $ 1,270,188
------------ ------------ ------------ ------------
Costs and expenses:
Cost of sales 352,942 79,794 772,171 330,845
Research and development 115 828 3,665 298,219
Selling, general and administrative 273,691 821,622 768,208 4,117,748
------------ ------------ ------------ ------------
Total operating expenses 626,748 902,244 1,544,044 4,746,812
------------ ------------ ------------ ------------
Operating loss (130,487) (667,617) (354,850) (3,476,624)
Interest and financing costs, net 21,576 (1,263,146) 72,366 (3,128,569)
Change in fair value of warrant and
registration rights liabilities -- (352,188) -- (378,033)
Equity in net loss of Ivivi (594,446) (575,853) (1,674,870) (575,853)
------------ ------------ ------------ ------------
Net loss $ (703,357) $ (2,858,804) $ (1,957,354) $ (7,559,079)
============ ============ ============ ============
Net loss per share, basic and diluted $ (0.01) $ (0.05) $ (0.04) $ (0.14)
============ ============ ============ ============
Weighted average shares outstanding,
basic and diluted 53,882,037 53,882,037 53,882,037 53,882,037
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
4
ADM TRONICS UNLIMITED, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED DECEMBER 31, 2007 AND 2006
(Unaudited)
2007 2006
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,957,354) $(7,559,079)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 12,461 17,559
Loss from equity investment 1,674,870 575,853
Interest accrued on officer loan (1,107) --
Stock based compensation -- 1,779,913
Amortization of loan costs and discount -- 1,692,354
Share based financing penalties -- 1,355,837
Bad debts -- 16,882
Change in fair value of warrant and registration rights liabilities -- 196,682
Amortization of deferred revenue -- (4,833)
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable (24,231) (34,225)
Inventory (484,418) (30,330)
Prepaid expenses and other current assets 27,875 (101,785)
Other assets 34,003 (1,107)
Increase in:
Accounts payable and accrued expenses 89,911 1,268,414
Customer deposit - affiliate 323,444 --
Deferred revenue -- 290,000
----------- -----------
Net cash used by operating activities (304,546) (537,865)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (22,140) (2,657)
Repayment of officer loan receivable 20,000 --
Receivable from affiliate -- 2,598,662
Cash retained by Ivivi -- (67,483)
----------- -----------
Net cash provided (used) by investing activities (2,140) 2,528,522
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable, net -- 245,725
Deferred offering costs -- (571,291)
----------- -----------
Net cash used by financing activities -- (325,566)
----------- -----------
Net increase (decrease) in cash (306,686) 1,665,091
Cash and cash equivalents, beginning of period 2,498,276 982,670
----------- -----------
Cash and cash equivalents, end of period $ 2,191,590 $ 2,647,761
=========== ===========
Cash paid for:
Interest $ -- $ 166,174
Income taxes 4,060 --
NONCASH FINANCING AND INVESTING ACTIVITIES:
During the nine months ended December 31, 2007, Ivivi recorded an
increase in additional paid-in capital as a result of the recognition
of compensation expense related to option grants to employees and
others. We have recorded a proportional increase in our investment in
Ivivi in the amount of $410,558, with a related credit to additional
paid-in capital. We have also recorded a change of ownership
percentage adjustment of $1,295,542.
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
5
ADM TRONICS UNLIMITED, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007
(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,
2007 (unaudited) and March 31, 2007 and for the three and nine month periods
ended December 31, 2007 and 2006 (unaudited) have been prepared by ADM pursuant
to the rules and regulations of the Securities and Exchange Commission,
including Form 10-QSB. 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. We believe that the disclosures provided
are adequate to make the information presented not misleading. 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, 2007 as disclosed in our 10-KSB for that year
as filed with the SEC, as it may be amended. The results of the three and nine
months ended December 31, 2007 (unaudited) are not necessarily indicative of the
results to be expected for the pending full year ending March 31, 2008.
NATURE OF BUSINESS
We are a manufacturer and engineering concern whose principal lines of business
are the production and sale of chemical products and the manufacture and sale of
medical devices. Our 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, Asia and Europe. Medical equipment is manufactured in accordance with
customer specification on a contract basis. Our medical device product line
consists principally of proprietary devices used in the treatment of joint pain,
postoperative edema, and tinnitus. These devices are FDA cleared medical devices
known as "Electroceutical" units. These products are sold or rented to customers
located principally in the United States.
IVIVI OPERATIONS
Our former majority owned subsidiary, Ivivi Technologies, Inc. ("Ivivi"), filed
a Registration Statement with the Securities and Exchange Commission ("SEC") for
the initial public offering of a portion of its common stock. The Registration
Statement was declared effective by the SEC on October 18, 2006. As a result of
the consummation of Ivivi's initial public offering, we no longer own a majority
of the outstanding common stock of Ivivi. We do own approximately 30% of Ivivi's
outstanding common stock at December 31, 2007 and can exert significant
influence based upon the percentage of Ivivi's stock owned by us. As a result,
our investment in Ivivi subsequent to October 18, 2006 is reported under the
equity method of accounting, whereby we recognize our share of Ivivi's earnings
or losses as they are incurred. For the three months ended December 31, 2006,
Ivivi's revenues included in these condensed, consolidated financial statements
were $29,354 and Ivivi's operating loss was $2,079,094. For the nine months
ended December 31, 2006, Ivivi's revenues included in these consolidated
financial statements were $615,307 and Ivivi's operating loss was $6,315,624.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION
The 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 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 and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Significant
estimates made by management include expected economic life and value of our
medical devices, deferred tax assets, option and warrant expenses related to
compensation to employees and directors, consultants and investment banks, the
value of warrants issued in conjunction with convertible debt, allowance for
doubtful accounts, and warranty reserves. Actual results could differ from those
estimates.
6
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.
MEDICAL DEVICES:
We recognized revenue primarily from the rental and to a lesser extent from the
sale of our medical devices. Revenue from the rental and sales of medical
devices was primarily generated by our former subsidiary Ivivi. The Ivivi
operations have been consolidated in these financial statements through October
18, 2006. After October 18, 2006, we recognize revenue from the sale of the
medical devices we manufacture for Ivivi upon completion of the manufacturing
process.
Rental revenue, resulting from the Ivivi operations, had been recognized as
earned on either a monthly or pay-per-use basis in accordance with individual
customer agreements.
Sales are recognized when our products are shipped to end users including
medical facilities and distributors. Our products are principally shipped on a
"freight collect" basis. Shipping and handling charges and costs are immaterial.
We have no post shipment obligations, and sales returns have been immaterial.
We provide an allowance for doubtful accounts determined primarily through
specific identification and evaluation of significant past due accounts,
supplemented by an estimate applied to the remaining balance of past due
accounts.
NET LOSS PER SHARE
We use SFAS No. 128, "Earnings Per Share" for calculating the basic and diluted
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 $0.01 and $0.05 for the three
months ended December 31, 2007 and 2006, respectively. Per share basic and
diluted net loss amounted to $0.04 and $0.14 for the nine months ended December
31, 2007 and 2006, respectively. The assumed exercise of common stock
equivalents was not utilized for the three and nine month periods ended December
31, 2007 and 2006, since the effect would be anti-dilutive. There were
11,626,854 common stock equivalents at December 31, 2007 and 2006, respectively.
NOTE 3 - INVENTORY
Inventory at December 31, 2007 (unaudited) consists of the following:
Current Long Term Total
-------- -------- --------
Raw materials $539,774 $ 88,392 $628,116
Finished goods 143,342 -- 143,342
-------- -------- --------
$683,116 $ 88,392 $771,508
======== ======== ========
NOTE 4 - INVESTMENT IN IVIVI AND RELATED CAPITAL TRANSACTIONS
On October 18, 2006, Ivivi's Registration Statement on Form SB-2 related to its
initial public offering was declared effective by the SEC. Upon the consummation
of Ivivi's initial public offering, we no longer own a majority of the
outstanding common stock of Ivivi and do not control Ivivi's operations, but can
exert significant influence based upon the percentage of Ivivi's stock owned by
us. As a result, we have deconsolidated the operations of Ivivi subsequent to
October 18, 2006. Any future change of percentage of interest gains or losses
related to our investment in Ivivi will be recorded as a credit or charge to
additional paid-in capital.
7
During the period from April 1, 2007 to December 31, 2007, Ivivi recorded an
increase in additional paid-in capital as a result of the recognition of
compensation expense related to option grants to employees and others. We have
recorded a proportional increase in our investment in Ivivi in the amount of
$410,558, with a related credit to additional paid-in capital. We have also
recorded a change of ownership percentage adjustment of $1,295,542.
The market value of our investment in Ivivi at December 31, 2007 was
approximately $13,423,000. However, our common shares of Ivivi have not been
registered with the SEC and are subject to restriction on transfer as a result
of federal securities laws.
The following table sets forth summarized results of operations of Ivivi for the
three and nine months ended December 31, 2007:
Three Months Ended Nine Months Ended
December 31, 2007 December 31, 2007
(unaudited) (unaudited)
------------------ -----------------
Revenue $ 393,616 $ 1,080,347
Costs and expenses, net 2,444,420 6,350,824
----------- -----------
Net loss $(2,050,804) $(5,270,477)
=========== ===========
Assets at December 31, 2007 $10,524,264
Liabilities at December 31, 2007 1,534,307
-----------
Equity at December 31, 2007 $ 8,989,957
===========
NOTE 5 - CONCENTRATIONS
The Company maintains cash balances which, at times, may exceed federally
insured limits.
During the nine month period ended December 31, 2007, Ivivi accounted for
approximately 40% of our revenue, and two other customers accounted for
approximately 21% of our revenue. As of December 31, 2007, four customers
represented approximately 73% of our accounts receivable.
NOTE 6 - SEGMENT INFORMATION
Information about segments is as follows:
Chemical Medical Total
---------------- ---------------- ---------------
Nine months ended December 31, 2007
Revenues from external customers $ 652,719 $ 536,475 $ 1,189,194
Segment operating profit (loss) (249,133) (105,717) (354,850)
Nine months ended December 31, 2006
Revenues from external customers 584,271 685,917 1,270,188
Segment operating profit (loss) (694,316) (2,782,308) (3,476,624)
Three months ended December 31, 2007
Revenues from external customers 209,031 287,230 496,261
Segment operating profit (loss) 9,717 (140,204) (130,487)
Three months ended December 31, 2006
Revenues from external customers 183,564 51,063 234,627
Segment operating profit (loss) (225,312) (442,305) (667,617)
Total assets at December 31, 2007 5,190,046 778,062 5,968,108
NOTE 7 - RELATED PARTY TRANSACTIONS
We charged Ivivi $55,781 and $171,646 in management services
pursuant to the management services agreement during the three and nine months
ended December 31, 2007, respectively, which represent allocations of expenses.
We charged Ivivi $3,807 for the manufacture of Ivivi's products pursuant to
the manufacturing agreement during nine months ended December 31, 2007. We had
total sales of $247,799 and $459,702 to Ivivi during the three and nine months
ended December 31, 2007, respectively, which includes a mark-up.
As of December 31, 2007, we have received $323,444 from Ivivi for sales
deposits, and were owed $39,668 in accounts receivable from Ivivi.
Our equity in the net loss of Ivivi during the nine months ended December 31,
2007 was $1,674,870, which excludes the profit on our products that remain in
Ivivi's inventory.
8
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-QSB.
Unless otherwise referred to in this report, references to "we," "us," "our" or
the "Company" refer to ADM Tronics Unlimited, Inc. and its subsidiaries.
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-QSB 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 report 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, the Company's Annual Report on
Form 10-KSB for the fiscal year ended March 31, 2007 and other filings with the
Securities and Exchange Commission.
We maintain a website at www.admtronics.com. We make available free of charge on
our website all electronic filings with the Securities and Exchange Commission
(including proxy statements and reports on Forms 8-K, 10-KSB and 10-QSB and any
amendments to these reports) as soon as reasonably practicable after such
material is electronically filed with or furnished to the Securities and
Exchange Commission. The Securities and Exchange Commission maintains an
internet site (http://www.sec.gov) that contains reports, proxy and information
statements, and other information regarding issuers that file electronically
with the Securities and Exchange Commission.
CRITICAL ACCOUNTING POLICIES
REVENUE RECOGNITION:
Sales revenues from our chemical products are recognized when products are
shipped to end users. Shipments to distributors are recognized as sales where no
right of return exists.
We recognized medical device revenue primarily from the rental and, to a lesser
extent, from the sale of our medical devices. Revenue from the rental and sales
of medical devices was primarily generated by our former subsidiary Ivivi. The
Ivivi operations have been consolidated in these financial statements through
October 18, 2006.
After October 18, 2006, we recognize revenue from the sale of the medical
devices we manufacture for Ivivi upon completion of the manufacturing process.
Rental revenue from medical devices, resulting from the Ivivi operations, has
been recognized as earned on either a monthly or pay-per- use basis in
accordance with individual customer agreements.
Sales of medical devices are recognized when our products are shipped to end
users including medical facilities and distributors. Our products are
principally shipped on a "freight collect" basis. Shipping and handling charges
and costs are immaterial. We have no post shipment obligations and sales returns
have been immaterial.
USE OF ESTIMATES:
Our 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 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 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.
9
BUSINESS OVERVIEW
ADM is a corporation that was organized under the laws of the State of Delaware
on November 24, 1969. During the years ended March 31, 2007 and 2006, our
operations were conducted through ADM itself and its subsidiaries, Ivivi
Technologies, Inc. (through October 18, 2006), Pegasus Laboratories, Inc. and
Sonotron Medical Systems, Inc. Ivivi has been deconsolidated as of October 18,
2006 upon the consummation of Ivivi's initial public offering, as we no longer
own a majority of the outstanding common stock of Ivivi and do not control
Ivivi's operations, but can exert significant influence based on the percentage
of Ivivi's stock owned by us. As a result, our investment in Ivivi subsequent to
October 18, 2006 is reported under the equity method of accounting and Ivivi's
results of operations and cash flows have not been consolidated with our results
of operations and cash flows since that date.
We are 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. We have
historically derived most of our revenues from the development, manufacture and
sale of chemical products, and, to a lesser extent, from our therapeutic
non-invasive electronic medical devices and topical dermatological products.
However, during the three and nine months ended December 31, 2006, we derived an
increased amount of our revenue from the sale and rental of our therapeutic
non-invasive medical devices, through Ivivi. With the consummation of Ivivi's
IPO, our continuing revenues will be derived from contract manufacturing for
Ivivi, from the development, manufacture and sale of chemical products, and, to
a lesser extent, from our therapeutic non-invasive electronic medical devices
and topical dermatological products. Our current medical segment includes our
Sonotron subsidiary.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED DECEMBER 31, 2007 AS COMPARED
TO DECEMBER 31, 2006
REVENUES
Net revenues were $496,261 for the three months ended December 31, 2007 as
compared to $234,627 for the three months ended December 31, 2006, an increase
of $261,634, or 112%. The increase resulted from an increase in sales of
finished medical devices to Ivivi, along with increased sales to new and
existing chemical customers. Gross profit was $143,319 and $154,833 for the
three months ended December 31, 2007 and 2006, respectively. Gross margins
decreased as a result of margins on $247,799 of sales of medical devices of
approximately 17% to Ivivi, as compared to margins achieved from chemical
products, which are generally higher.
NET LOSS
Net loss for the three months ended December 31, 2007 was $703,357 compared to a
net loss for the three months ended December 31, 2006 of $2,858,804.
Selling, general and administrative expenses decreased by $547,931 or 67%, from
$821,622 for the three months ended December 31, 2006, to $273,691 for the three
months ended December 31, 2007, mainly due to decreased compensation, consulting
and professional fees, resulting from the deconsolidation of Ivivi. Interest and
financing costs, net also decreased by $1,284,722 or 102%, from $1,263,146 for
the three months ended December 31, 2006, to income of $21,576 for the three
months ended December 31, 2007. This was mainly due to unamortized loan
discounts that were expensed during the three months ended December 31, 2006,
when $6,087,500 of unsecured convertible notes automatically converted into
shares of Ivivi's stock, with the consummation of Ivivi's IPO. We also recorded
an equity method investment loss of $594,446 for the three months ended December
31, 2007, compared to $575,853 for the three months ended December 31, 2006,
from our investment in Ivivi.
10
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED DECEMBER 31, 2007 AS COMPARED TO
DECEMBER 31, 2006
REVENUES
Revenues were $1,189,194 for the nine months ended December 31, 2007 as compared
to $1,270,188 for the nine months ended December 31, 2006, a decrease of
$80,994, or 7%. The decrease resulted from the deconsolidation of Ivivi, which
had $615,307 in net revenues for the nine months ended December 31, 2006. Gross
profit was $417,023 and $939,343 for the nine months ended December 31, 2007 and
2006, respectively. Gross margins decreased as a result of margins on $459,702
of sales of medical devices of approximately 17% to Ivivi during the nine months
ended December 31, 2007, along with approximately $544,000 in gross margins on
Ivivi's net revenues that were consolidated in the nine months ended December
31, 2006.
NET LOSS
Net loss for the nine months ended December 31, 2007 was $1,957,354 compared to
a net loss for the nine months ended December 31, 2006 of $7,559,078.
Selling, general and administrative expenses decreased by $3,349,540, or 436%,
from $4,117,748 for the nine months ended December 31, 2006, to $768,208 for the
nine months ended December 31, 2007, mainly due to decreased compensation,
consulting and professional fees, resulting from the deconsolidation of Ivivi.
Interest and financing costs, net also decreased by approximately $3,200,000,
from $3,128,569 for the nine months ended December 31, 2006, to income of
$72,366 for the nine months ended December 31, 2007, mainly as a result of
approximately $3,048,000 in amortized loan costs and financing penalties
incurred during 2006 in connection with the consummation of Ivivi's IPO. We also
recorded an equity method investment loss of $1,674,870 in 2007 from our
investment in Ivivi, compared to $575,853 in 2006.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2007, we had cash and equivalents of $2,191,590 as compared to
$2,498,276 at March 31, 2007. The $306,686 decrease was primarily the result of
our loss from operations during the nine month period. Our cash will be used for
increased administrative and marketing costs in order to attempt to increase our
revenue. The market value of our investment in Ivivi at December 31, 2007 was
approximately $13,423,000. However, our common shares of Ivivi have not been
registered with the SEC and are subject to restriction on transfer as a result
of federal securities laws.
OPERATING ACTIVITIES
Net cash used by operating activities was $304,546 for the nine months ended
December 31, 2007 as compared to net cash used by operating activities of
$537,865 for the nine months ended December 31, 2006. The use of cash in 2007
was primarily due to a net loss of $1,957,354 and an increase in net operating
assets of $446,771, which was primarily offset by a non-cash charge for the
equity investment loss of $1,674,870 and increases in net operating liabilities
of $413,355.
The use of cash in 2006 was primarily due to a net loss of $7,559,079, related
mostly to Ivivi's operations, partially offset by non cash charges for the
amortization of loan costs and amortization of discount of $1,692,354 on the
convertible notes issued in the private placements, stock based compensation of
$1,779,913, equity based penalty expense of $1,355,837, equity investment loss
of $575,853 and increases in net operating liabilities of $1,558,414.
INVESTING ACTIVITIES
For the nine months ended December 31, 2007, net cash used by investing
activities was $2,140. Of this amount, $22,140 was used for the purchase of
machinery and equipment and $20,000 was received from an officer for repayment
of advances made to the officer prior to 2000. For the nine months ended
December 31, 2006, cash provided by investing activities was $2,528,522.
Of this amount, $2,657 was used for the purchase of office equipment, $2,598,662
was received from Ivivi for repayments of advances made to them, and $67,483
was retained by Ivivi after its IPO.
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FINANCING ACTIVITIES
During the nine months ended December 31, 2006, we paid $571,291 for deferred
costs related to Ivivi's IPO, and Ivivi had net proceeds from notes payable of
$245,725. We had no comparable items during 2007.
Subsequent to the receipt of funds from Ivivi in repayment of Ivivi's
indebtedness to us, management launched a sales and marketing initiative which
included, among other things, the re-branding of our water-based industrial
chemical products through the establishment of a new division, Aqua-Based
Technologies. In addition, we hired a Director of Sales and Marketing for such
division. This is part of a business plan to enhance our operations and to
increase sales and marketing efforts for its products. Such plan includes
seeking to hire additional sales employees as well as pursuing strategic
relationships to help market and promote certain product lines. Although we
expect available funds and funds generated from our operations to be sufficient
to meet our anticipated needs for a minimum of 12 months, we may need to obtain
additional capital to continue to operate and grow our business. Our cash
requirements may vary materially from those currently anticipated due to changes
in our operations, including our marketing and sales activities, product
development, and the timing of our receipt of revenues. We do not have any
material external sources of liquidity or unused sources of funds. Our ability
to obtain additional financing in the future will depend in part upon the
prevailing capital market conditions, as well as our business performance. There
can be no assurance that we will be successful in our efforts to arrange
additional financing on terms satisfactory to us or at all.
PRO-FORMA RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED DECEMBER 31,
2007 AS COMPARED TO DECEMBER 31, 2006
We believe the following table, which compares the results of operations for the
three and nine month periods ended December 31, 2007 with the pro-forma results
of operations for the three and nine month periods ended December 31, 2006 as if
Ivivi's operations were reported on one line, gives a more informative
disclosure of our ongoing operations.
The pro forma financial information set forth below should be read in
conjunction with a reading of our historical financial statements. The pro forma
information is presented for illustrative purposes only and is not intended to
be indicative of our results of operations that may be reported in the future.
Three Months Nine Months
Ended Ended
December 31, December 31,
2006 2006
Pro Forma Pro Forma
Three Months Ivivi Nine Months Ivivi
Ended Operations Ended Operations
December 31, Reported December 31, Reported
2007 on One Line 2007 on One Line
------------ ------------ ------------ ------------
Revenues $ 496,261 $ 205,272 $ 1,189,194 $ 654,881
------------ ------------ ------------ ------------
Costs and expenses:
Cost of sales 352,942 76,601 772,171 259,385
Research and development 115 -- 3,665 --
Selling, general and administrative 273,691 356,019 768,208 1,091,079
------------ ------------ ------------ ------------
Total operating expenses 626,748 432,620 1,544,044 1,350,464
------------ ------------ ------------ ------------
Operating loss (130,487) (227,348) (354,850) (695,583)
Interest and financing costs, net 21,576 23,491 72,366 27,981
Equity in net loss of Ivivi (594,446) (575,853) (1,674,870) (575,853)
Loss from Ivivi operations -- (2,079,094) -- (6,315,624)
------------ ------------ ------------ ------------
Net loss $ (703,357) $ (2,858,804) $ (1,957,354) $ (7,559,079)
============ ============ ============ ============
Net loss per share, basic and diluted $ (0.01) $ (0.05) $ (0.04) $ (0.14)
============ ============ ============ ============
Weighted average shares outstanding,
basic and diluted 53,882,037 53,882,037 53,882,037 53,882,037
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PRO-FORMA RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED DECEMBER 31, 2007 AS
COMPARED TO DECEMBER 31, 2006
REVENUES
We have included the operations of our Ivivi subsidiary in our consolidated
results of operations through October 18, 2006. For the three month period ended
December 31, 2006, revenues from such operations were $29,354.
Net revenues were $496,261 for the three months ended December 31, 2007 as
compared to $205,272 for the three months ended December 31, 2006 (excluding
Ivivi's operations), an increase of $290,989, or 142%. The increase resulted
from an increase in sales of finished medical devices to Ivivi, along with
increased sales to new and existing chemical customers. Gross profit was
$143,319 and $128,671 (excluding Ivivi's operations) for the three months ended
December 31, 2007 and 2006, respectively. Gross margins decreased as a result of
margins on $247,799 of sales of medical devices of approximately 17% to Ivivi,
as compared to margins achieved from chemical products, which are generally
higher.
NET LOSS
We have included the operations of our Ivivi subsidiary in our consolidated
results of operations through October 18, 2006. For the three month period ended
December 31, 2006, net loss attributable to the Ivivi operations was $2,079,094.
Net loss for the three months ended December 31, 2007 was $703,357 compared to a
net loss for the three months ended December 31, 2006 of $2,858,804.
Selling, general and administrative expenses decreased by $82,328 or 23%, from
$356,019 for the three months ended December 31, 2006, excluding Ivivi's
operations, to $273,691 for the three months ended December 31, 2007, mainly due
to decreased consulting and professional fees, offset by increased compensation
and various other expenses. We also recorded an equity method investment loss of
$594,446 for the three months ended December 31, 2007, compared to an equity
method loss of $575,853 for the three months ended December 31, 2006, from our
investment in Ivivi.
PRO-FORMA RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED DECEMBER 31, 2007 AS
COMPARED TO DECEMBER 31, 2006
REVENUES
We have included the operations of our Ivivi subsidiary in our consolidated
results of operations through October 18, 2006. For the nine month period ended
December 31, 2006, revenues from such operations were $615,307.
Revenues were $1,189,194 for the nine months ended December 31, 2007 as compared
to $654,881 for the nine months ended December 31, 2006 (excluding Ivivi's
operations), an increase of $534,313, or 82%. The increase resulted from an
increase in sales of finished medical devices to Ivivi, along with increased
sales to new and existing chemical customers. Gross profit was $417,023 and
$395,496 (excluding Ivivi's operations) for the nine months ended December 31,
2007 and 2006, respectively. Gross margins decreased as a result of margins on
$459,702 of sales of medical devices of approximately 17% to Ivivi, as compared
to margins achieved from chemical products, which are generally higher.
NET LOSS
We have included the operations of our Ivivi subsidiary in our consolidated
results of operations through October 18, 2006. For the nine month period ended
December 31, 2006, net loss attributable to the Ivivi operations was $6,315,624.
Net loss for the nine months ended December 31, 2007 was $1,957,354 compared to
a net loss for the nine months ended December 31, 2006 of $7,559,079.
Selling, general and administrative expenses decreased by $322,871, or 30%, from
$1,091,079 for the nine months ended December 31, 2006, excluding Ivivi's
operations, to $768,208 for the nine months ended December 31, 2007, mainly due
to decreased compensation, consulting and professional fees, offset by increases
in various other expenses. We also recorded an equity method investment loss of
$1,674,870 in 2007, compared to an equity method loss of $575,853 in 2006, from
our investment in Ivivi. Interest income increased $44,385, to $72,366 in the
nine months ended December 31, 2007 from $27,981 in the nine months ended
December 31, 2006, due to increased funds invested in a money market account.
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.
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ITEM 3. 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- QSB, 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, 2007, 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) are effective.
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.
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PART II. OTHER INFORMATION
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 14, 2008
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