SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB/A
(Amendment No. 1)
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2005
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.
(Name of Small Business Issuer in its Charter)
Delaware 22-1896032
(State or Other Jurisdiction (I.R.S. Employer Identifi-
of Incorporation or Organization) cation Number)
224 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 ______
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 August 22,
2005
EXPLANATORY NOTE
This Amendment No. 1 on Form 10-QSB/A to the Quarterly Report on
Form 10-QSB (the "Quarterly Report") of ADM Tronics Unlimited, Inc. (the
"Company" or "ADM") filed on August 22, 2005 with the Securities and
Exchange Commission (the "SEC") is filed (i) as a result of a
restatement of the financial statements for the three month period ended
June 30, 2005 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. See Note 1 of the Notes to
the Company's Consolidated Financial Statements contained in Item 1 of
this Amendment No. 1 for a discussion of the restatement. Therefore, the
Company is amending and restating in its entirety the Quarterly Report.
In addition, the Company is including with this Amendment No. 1 certain
currently dated certifications. Except as described above, no other
amendments are being made to the Quarterly Report. This Form 10-QSB/A
does not reflect events occurring after the August 22, 2005 filing of
this Quarterly Report or modify or update the disclosure contained in the
Quarterly Report in any way other than as required to reflect the
amendments discussed above and reflected below.
1
ADM TRONICS UNLIMITED, INC.
INDEX
Page Number
Part I. Financial Information
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheets - June 30, 2005
and March 31, 2005 3
Consolidated Statements of Operations - For the
three months ended June 30, 2005 and 2004 4
Consolidated Statements of Cash Flows - For the
three months ended June 30, 2005 and 2004 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
Item 3. Controls and Procedures 12
Part II. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
2
ADM TRONICS UNLIMITED, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June March
30, 2005 31, 2005
(Unaudited) (Restated)
ASSETS
Current assets:
Cash and cash equivalents $1,722,441 $3,011,631
Accounts receivable, net of allowance
for doubtful accounts of $132,827 and
$72,593, respectively 92,679 102,691
Inventories:
Raw materials and supplies 170,031 124,393
Finished goods 228,055 248,324
Prepaid expenses and other current assets 389,360 319,296
Total current assets 2,602,566 3,806,335
Property and equipment, net of accumulated
depreciation of $275,483 and $271,188,
respectively 53,319 40,550
Equipment in use and under rental agreements,
net of accumulated depreciation of $862,497
and $832,059, respectively 21,353 51,791
Inventory, long term portion 298,570 287,582
Loan receivable, officer 49,188 49,188
Other assets 103,107 104,928
Deferred loan costs, net 790,774 823,564
Deferred offering costs 187,891 133,125
Total assets $4,106,768 $5,297,063
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable-trade $ 230,165 $ 172,978
Accrued expenses and other current
liabilities 178,480 299,790
Interest payable 116,140 -
Total current liabilities 524,785 472,768
Convertible debentures payable, net of
unamortized debt discount of $2,488,190 and
$2,628,219, respectively 3,599,310 3,459,281
Warrants issued with registration rights 424,858 1,449,326
Total liabilities 4,548,953 5,381,375
Stockholders' deficit:
Preferred stock, $.01 par value, 5,000,000
authorized, no shares issued and
outstanding - -
Common stock, $.0005 par value, 150,000,000
authorized 53,882,037 issued and
outstanding 26,941 26,941
Additional paid-in capital 9,394,718 9,391,972
Deferred compensation (321,576) (327,615)
Accumulated deficit (9,542,268) (9,175,610)
Total stockholders' (deficit) equity (442,185) (84,312)
Total liabilities and stockholders'
(deficit)
equity $4,106,768 $5,297,063
See accompanying notes to consolidated financial statements.
3
ADM TRONICS UNLIMITED, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTH PERIODS ENDED JUNE 30, 2005 AND 2004
(Unaudited)
THREE MONTHS ENDED
June 30,
2005 2004
(Restated)
Revenues $ 321,010 $ 385,297
Costs and expenses:
Cost of revenue 133,262 169,579
Research and development 167,349 -
Interest and finance costs, net 267,054 (67)
Selling, general and administrative 1,144,471 191,807
Change in fair value of warrant
Liability (1,024,468) -
Total operating expenses 687,668 361,319
Net (loss) income $ (366,658) $ 23,978
Net loss per share, basic and diluted $ (0.01) $ 0.00
Weighted average shares
outstanding 53,882,037 51,882,037
See accompanying notes to consolidated financial statements.
4
ADM TRONICS UNLIMITED, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTH PERIOS ENDED JUNE 30, 2005 AND 2004
(Unaudited)
THREE MONTHS ENDED
JUNE 30,
2005 2004
CASH FLOWS FROM OPERATING ACTIVITIES: (Restated)
Net (loss) income $ (366,658) 23,978
Adjustments to reconcile net (loss)income to net
Cash provided by (used in) operating activities:
Depreciation and amortization 36,533 33,309
Stock based compensation 18,447 -
Amortization of loan costs 47,429 -
Amortization of debt discount 140,029 -
Change in fair value of warrant liability (1,024,468) -
Bad debts 55,490 -
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable--trade (45,478) (45,667)
Inventories and equipment held for sale (36,357) 62,513
Prepaid expenses (70,064) (6,059)
Deposits and other assets - 1,311
Increase (decrease) in:
Accounts payable and accrued expenses 27,716 (32,311)
Accrued expenses and other - (4,561)
Net cash (used) provided by operating activities (1,217,381) 32,513
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (17,043) -
Net cash used by investing activities (17,043) -
CASH FLOWS FROM FINANCING ACTIVITIES:
Deferred offering costs (54,766) (19,785)
Net cash provided by financing activities (54,766) (19,785)
Net increase in cash and equivalents (1,289,190) 12,728
Cash and equivalents, beginning of period 3,011,631 90,081
Cash and equivalents, end of period 1,722,441 102,808
Cash paid for:
Interest 51,133 -
Income taxes paid - -
See accompanying notes to consolidated financial statements.
5
ADM TRONICS UNLIMITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying condensed consolidated financial statements include the
accounts of ADM Tronics Unlimited, Inc. and its subsidiaries
(collectively, the "Company"). These consolidated financial statements
have been prepared in accordance with accounting principles generally
accepted in the United States of America for interim financial
information and the instructions to Form 10-QSB and do not include all
the information and footnotes required by accounting principles generally
accepted in the United States of America for complete financial
statements. In the opinion of management, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair presentation
of the results for the interim periods have been included. Operating
results for the three months ended June 30, 2005 are not necessarily
indicative of the results that may be expected for the year ending March
31, 2006. The accompanying consolidated financial statements and the
information included under the heading "Management's Discussion and
Analysis" should be read in conjunction with the Company's audited
consolidated financial statements and related notes included in the
Company's Form 10-KSB for the fiscal year ended March 31, 2005.
Restatement:
The June 30, 2005 financial statements have been restated to record a
beneficial conversion feature related to convertible notes payable issued
by the Company in the amount of $1,940,693. The Company has also recorded
an amount of $867,577 related to the fair value of warrants issued with
the debt, which was recorded as a liability due to a registration rights
agreement. The result is to record an aggregate discount on debt of
$2,808,270. Additionally, the Company issued compensation warrants
related to the debt placement with a fair value of $208,690. The
amortization of these items for the three months ended June 30, 2005
increased expense by $144,744. Also, the fair value of the warrants has
been recorded at $424,858 at June 30, 2005, and a recovery of expense for
the three months ended June 30, 2005 of $1,024,468 has been recorded. As
a result of these corrections, net loss for the three months ended June
30, 2005 has decreased by $879,724, to $366,658, and loss per share
decreased from $0.02 to $0.01.
Changes to the balance sheet at June 30, 2005 resulting from these
corrections are as follows:
As reported Restated
Unamortized deferred loan costs $ 581,446 $ 790,774
Unamortized deferred compensation $ 93,245 $ 21,576
Unamortized debt discount $ 283,255 $ 2,488,190
Warrants issued with registration
rights 325,000 424,858
Capital in excess of par value 7,022,397 9,394,718
Accumulated deficit (9,612,682) (9,542,268)
The March 31, 2005 financial statements have been restated to record the
corrections described above, along with additional warrants issued as
compensation, cumulative through March 31, 2005.
Changes to the balance sheet at March 31, 2005 resulting from these
corrections are as follows:
As reported Restated
Unamortized deferred loan costs $ 670,498 $ 823,564
Unamortized 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)
Reclassifications:
Certain items in the fiscal 2005 financial statements have been
reclassified to conform to the current period presentation.
Use of Estimates
The preparation of consolidated 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 disclosures of contingent
assets and liabilities at the date of the consolidated financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Loss Per Share
Basic and diluted loss per common share for all periods presented is
computed based on the weighted average number of common shares
outstanding during the periods presented as defined by SFAS No. 128,
"Earnings Per Share". The assumed exercise of common stock equivalents
was not utilized for the three month periods ended June 30, 2005 and 2004
since the effect would be anti-dilutive. There were 50,182,341 common
stock equivalents at June 30, 2005 and none at June 30, 2004.
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 June 30, 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 ranges: (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 Three For the Three
Months Ended Months Ended
June 30, 2005 June 30, 2004
Net loss as reported $( 366,658) $ 23,978
Current period expense calculated
under APB 25 - -
Stock compensation calculated
under SFAS 123 (2,491) (2,491)
Pro forma net loss $( 369,149) $ 21,487
Historical basic and diluted
loss per share $ (0.01) $ 0.00
Pro forma basic and diluted
loss per share $ (0.01) $ 0.00
Recent Accounting Pronouncements
In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error
Corrections" ("SFAS 154") which replaces Accounting Principles Board
Opinions No. 20 "Accounting Changes" and SFAS No. 3, "Reporting
Accounting Changes in Interim Financial Statements-An Amendment of APB
Opinion No. 28." SFAS 154 provides guidance on the accounting for and
reporting of accounting changes and error corrections. It establishes
retrospective application, or the latest practicable date, as the
required method for reporting a change in accounting principle and the
reporting of a correction of an error. SFAS 154 is effective for
accounting changes and corrections of errors made in fiscal years
beginning after December 15, 2005 and is required to be adopted by the
Company in the first quarter of fiscal 2007. The Company is currently
evaluating the effect that the adoption of SFAS 154 will have on its
consolidated results of operations and financial condition.
7
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) would have been required to apply SFAS 123(R) as of the
first interim or annual reporting period that begins after June 15, 2005.
SFAS 123(R) would have been applicable for the Company effective the
first interim period that starts after December 15, 2005. In April 2005,
the Securities and Exchange Commission announced the adoption of a rule
that defers the required effective date of SFAS 123(R) for registrants.
SFAS 123(R) is now effective for all registrants as of the beginning of
the first fiscal year beginning after June 15, 2005. SFAS 123(R), when
effective, will supercede both SFAS 123 and SFAS 148. All public
companies will transition to the new standard under the "modified
prospective method", which means that the fair value of any stock options
which vest after the effective date would be expensed and recorded in the
statement of operations. Companies must use fair values reported on a pro
forma basis in the notes to the financial statements previously filed.
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 future
overall results of operations and financial position.
NOTE 2 GOING CONCERN
The accompanying condensed consolidated financial statements have been
prepared on a going concern basis, which contemplates the realization of
assets and the settlement of liabilities and commitments in the normal
course of business. As reflected in the accompanying condensed
consolidated financial statements, the Company has a net loss of $366,658
and a negative cash flow from operations of $1,217,381 for the three
months ended June 30, 2005, and a stockholders' deficiency of $120,609 as
of June 30, 2005. These factors raise substantial doubt about its ability
to continue as a going concern. The ability of the Company to continue as
a going concern is dependent on the Company's ability to raise additional
funds to finance its operations. The consolidated financial statements do
not include any adjustments that might be necessary if the Company is
unable to continue as a going concern.
8
NOTE 3 SEGMENT INFORMATION
Segment information is as follows:
Three Months Ended June 30, 2005: Chemical Medical Total
Revenues from external customers 280,442 40,568 321,010
Segment profit (loss) 30,537 (397,195) (366,658)
Identifiable assets 896,959 3,209,809 4,106,768
Three Months Ended June 30, 2004:
Revenues from external customers 239,957 145,340 385,297
Segment profit (loss) 34,113 (10,135) 23,978
NOTE 4 SUBSEQUENT EVENTS
On April 1, 2005, Ivivi Technologies, Inc. ("Ivivi"), a majority-owned
subsidiary of the Company, entered into an agreement (the "Agreement")
with Global Medical, L.L.C. ("Global") pursuant to which Global was to
provide Ivivi with certain managerial services (the "Services") with
respect to the medical devices and products manufactured, distributed,
sold or rented by Ivivi (the "Ivivi Products"). The term of the Agreement
was two years commencing on April 1, 2005 and was renewable for
successive one-year terms if mutually agreed in writing by the parties.
After evaluation of the Agreement, Ivivi elected to terminate the
Agreement. Accordingly, on July 22, 2005, Ivivi and Global entered into
an agreement (the "Termination Agreement") pursuant to which the
Agreement was terminated (the "Termination"). Pursuant to the terms of
the Termination Agreement, from July 15, 2005 through September 16, 2005
(the "Transition Period"), Global shall continue to provide certain of
the Services to Ivivi as set forth in the Termination Agreement. As
compensation for such Services, Ivivi shall pay Global: (i) $20,000 each
month during the Transition Period; and (ii) an amount equal to 13% of
the aggregate amount invoiced by Global (net of taxes, returns and
adjustments) on behalf of and in the name of Ivivi, for the sale or
rental of Ivivi Products during the Transition Period.
Pursuant to the terms of the Termination Agreement, from the date of the
Termination Agreement until September 30, 2005, or such later date as
mutually agreed to by the parties (the "Managed Care Commission Period"),
Global shall have the right to enter into agreements with managed care
companies pursuant to which Global shall service the managed care
companies and their respective patients/members, utilizing Ivivi Products
on a local/regional basis. Pursuant to the Termination Agreement, for a
period of three years following the date of the Termination, Global shall
be entitled to receive commissions equal to 45% of revenues generated
from such agreements entered into during the Managed Care Commission
Period; provided, that Global continues to service the managed care
companies and their respective patients/members under such agreements
during such three-year period.
Notwithstanding the Termination, Ivivi and Global agreed that Global may
continue to act as a distributor of Ivivi Products under the existing
distributor agreement between Ivivi and Global, as such agreement may
otherwise be amended by such parties from time to time.
9
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion of the Company's operations and financial
condition should be read in conjunction the Financial Statements and
notes thereto included elsewhere in this Quarterly Report on Form 10-QSB.
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 "Item. 1 Description of Business - Risk Factors" 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 the Company itself and its three subsidiaries,
Ivivi Technologies, Inc., Pegasus Laboratories, Inc. and Sonotron Medical
Systems, Inc.
The June 30, 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 of the Notes to the
Company's Consolidated Financial Statements contained in Item 1 of this
Amendment No. 1 for a discussion of the restatement.
Results of Operations for the three months ended June 30, 2005 as
compared to June 30, 2004
Revenues
Revenues were $321,010 for the three months ended June 30, 2005 as
compared to $385,297 for the three months ended June 30, 2004, a decrease
of $64,287 or 17%. Revenues from the Company's chemical activities
increased by $40,549, offset by a decrease of $104,836 in the Company's
medical activities in 2005 as compared to 2004. Although chemical
revenues increased for the current period, a customer of the Company's
chemical products that had previously represented approximately 15% of
the Company's chemical revenues in prior periods informed the Company on
August 19, 2005, that it was ceasing operations. Such customer had
limited orders during the quarter ended June 30, 2005 and accounted for
approximately $30,000 of the Company revenues for such period. The
decrease in revenues from the Company's medical technology activities was
due to a loss of revenue of $54,560 from a customer, due to the
uncertainty of collectability of amounts due to the Company. The Company
intends to continue seeking payment of such receivable; however, there
can be no assurance that the Company will be able to collect any or all
of such receivable.
Net (Loss) Income
Net loss for the three months ended June 30, 2005 was $366,658 or $0.01
per share compared to net income for the three months ended June 30, 2004
of $23,978 or $0.00 per share. Selling, general and administrative
expenses increased by $952,664 of which, approximately $850,000 or 89%
was due to the significant increase in personnel, marketing, and overhead
costs from the Company's Ivivi subsidiary to support Ivivi's expanded
activities related to the distribution and marketing of its SofPulse
technology and the balance of approximately $103,000 was attributable to
the Company's chemical activities primarily comprised of an increase in
personnel costs by the addition of an employee and increased technical
consulting expenses. Research and development expense was $167,349 during
the three months ended June 30, 2005 for the Ivivi subsidiary for
laboratory studies for its SofPulse technology, with no expense in the
2004 period. Net Interest and financing costs increased $267,121 due to
interest expense and amortization of discount on the convertible notes
issued in the private placement offset by interest earned from amounts
invested in money market funds. The Company has recorded a recovery of
expense of $1,024,468 due to the decrease in the fair value of the
liability for warrants issued with registration rights.
Liquidity and Capital Resources
At June 30, 2005, the Company had cash and equivalents of $1,722,441 as
compared to $3,011,631 at March 31, 2005. The decrease was primarily the
result of the increased operating expenses at the Company's subsidiary,
Ivivi Technologies, Inc. ("Ivivi").
Operating Activities
Net cash flows used by operating activities were $1,217,381 for the three
months ended June 30, 2005 as compared to net cash flows provided by
operating activities of $32,513 for the quarter ended June 30, 2004. This
decrease in cash used was primarily due to a net loss of $366,658 related
mostly to the Company's medical technologies activities, increases in
prepaid expenses of $70,064, accounts receivable of $45,478 and
inventories of $36,357. These increases were offset by non cash charges
for bad debt expense of $55,490 and for the amortization of loan costs of
$47,429 and amortization of discount on the convertible notes issued in
the private placement of $140,029. The Company has recorded a non-cash
recovery of expense of $1,024,468 due to the decrease in the fair value
of the liability for warrants issued with registration rights.
11
Investing Activities
For the quarter ended June 30, 2005 cash used in investing activities of
$17,043 related to the purchase of equipment. For the quarter ended June
30, 2004 zero cash was used in investing activities.
Financing Activities
During the quarter ended June 30, 2005 the Company paid $54,766 for
deferred costs related to the private placement offering as compared to
$19,785 paid during the quarter ended June 30, 2004.
The Company does not have any material external sources of liquidity or
unused sources of funds.
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 June 30, 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 will need to obtain additional capital to continue to operate
and grow its business, including the business of its subsidiaries, and
its ability to obtain additional financing in the future will depend in
part upon the prevailing capital market conditions, as well as its and
its subsidiaries' business performance. In February 2005, the Company's
subsidiary, Ivivi, filed a registration statement with the Securities and
Exchange Commission related to the proposed initial public offering of
Ivivi's common stock. There can be no assurance that the Company or Ivivi
will be successful in their efforts to arrange additional financing,
including through the proposed initial public offering of Ivivi's common
stock, on terms satisfactory to the Company and/or Ivivi or at all.
Item 3. 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 primarily
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 Note 1 of the Notes to
Consolidated Financial Statements.
In the Company's Form 10-QSB for the quarter ended June 30, 2005,
the Company's principal executive officer and principal financial officer
concluded that the Company's disclosure controls and procedures (as
defined in Rules 13a-15(e) and 15d-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 13a-15(e) and 15d-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. 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 13a-15(e) and 15d-15(e) under the
Exchange Act) as of June 30, 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."
Changes In Internal Controls Over Financial Reporting.
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.
As a result of the restatement, 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 (which
occurred during the three month period ended June 30, 2005) 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 (which occurred following the
three month period ended June 30, 2005). 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.
Except as set forth above, there have been no changes in the Company's
internal controls over financial reporting that occurred during the
Company's last fiscal quarter to which this Quarterly Report on Form 10-
QSB/A relates that have materially affected, or are reasonably likely to
materially affect, the Company's internal controls over financial
reporting.
PART II. OTHER INFORMATION
Item 6. Exhibits.
(a) Exhibit No.
10.1 Termination Agreement with Global Medical, LLC.*
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.
*Previously filed.
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.
By:\s\ Andre' DiMino
Andre' DiMino
Chief Executive Officer and
Chief Financial Officer
Dated: Northvale, New Jersey
December 9, 2005