SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(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, 2006
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 ______
Check whether the Issuer 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 August 21, 2006
1
ADM TRONICS UNLIMITED, INC.
INDEX
Page Number
Part I. Financial Information
Item 1. Condensed Consolidated Financial Statements:
Consolidated Balance Sheet - June 30, 2006 3
Consolidated Statements of Operations - For the
three months ended June 30, 2006 and 2005 (restated) 4
Statement of Stockholders' Deficiency For the
three Months Ended June 30, 2006 5
Consolidated Statements of Cash Flows - For the
three months ended June 30, 2006 and 2005 (restated) 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Item 3. Controls and Procedures 13
Part II. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
2
ADM TRONICS UNLIMITED, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
June
30, 2006
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $679,767
Accounts receivable, net of allowance for doubtful
accounts of $27,354 227,199
Inventories 275,277
Prepaid expenses and other current assets 8,842
----------
Total current assets 1,191,085
Property and equipment, net of accumulated
depreciation of $250,182 46,486
Equipment in use and under rental agreements, net of
accumulated depreciation of $883,850 -
Inventory - long term portion 329,138
Loan receivable and accrued interest, officer 91,827
Other assets 96,086
Deferred loan costs, net 736,635
Deferred offering costs 433,355
----------
Total assets $2,924,612
==========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
Accounts payable $ 895,972
Accrued expenses and other current liabilities 344,964
Accrued interest 415,987
Notes payable, current 250,000
----------
Total current liabilities 1,876,923
Convertible debentures payable, net of
unamortized debt discount of $2,275,475 5,812,024
Warrants and registration rights liabilities 3,392,502
----------
Total liabilities 11,081,449
----------
Stockholders' deficiency:
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
Additional paid-in capital 10,573,152
Accumulated deficit (18,756,930)
----------
Total stockholders' deficiency (8,156,837)
----------
Total liabilities and stockholders' deficiency $2,924,612
==========
See accompanying notes to condensed consolidated financial statements.
3
ADM TRONICS UNLIMITED, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTH PERIODS ENDED JUNE 30, 2006 AND 2005
(Unaudited)
THREE MONTHS ENDED
June 30,
2006 2005
(Restated)
Revenues $ 464,979 $ 321,010
---------- ---------
Costs and expenses:
Cost of sales 122,955 133,262
Research and development 131,078 167,349
Selling, general and administrative 1,194,494 1,172,370
--------- ---------
Total operating expenses 1,448,527 1,472,981
--------- ---------
Operating loss $(983,548) $(1,151,971)
Interest and finance costs, net (980,151) (365,582)
Change in fair value of warrant and
registration rights liabilities (224,003) 1,024,468
-------- ---------
Net (loss) $(2,187,702) $(493,085)
=========== =========
Net loss per share, basic and diluted $ (0.04) $ (0.01)
Weighted average number of shares
outstanding 53,882,037 51,882,037
4
ADM TRONICS UNLIMITED, INC. AND SUBSIDIARIES
STATEMENT OF STOCKHOLDERS' DEFICIENCY
FOR THE THREE MONTHS PERIOD ENDED JUNE 30, 2006
(Unaudited)
Additional
Common Stock Paid-in Accumulated
Shares Amount Capital Deficit Total
Balance,
March 31, 2006 53,882,037 $26,941 $10,342,480 $(16,569,228) $(6,199,807)
Share based
compensation 230,672 230,672
Net loss (2,187,702) (2,187,702)
---------- ------- ----------- ------------- -----------
Balance
June 30, 2006 53,882,037 $26,941 $10,573,152 $(18,756,930) $(8,156,837)
========== ======= =========== ============= ============
See accompanying notes to condensed consolidated financial statements.
5
ADM TRONICS UNLIMITED, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTH PERIOS ENDED JUNE 30, 2006 AND 2005
(Unaudited)
THREE MONTHS ENDED
JUNE 30,
2006 2005
(Restated)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) $(2,187,702) $(493,085)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 4,846 36,533
Stock based compensation 230,672 46,346
Amortization of loan costs 211,462 187,458
Equity based penalty expense 640,717 98,528
Bad debts 7,338 55,490
Change in fair value of warrant and
Registration rights liabilities 224,003 (1,024,468)
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable 60,626 (45,478)
Inventory (3,479) (36,357)
Other current assets 4,610 (70,064)
Deposits and other assets (476) -
Increase (decrease) in:
Accounts payable and accrued expenses 368,454 27,716
------- ------
Net cash used in operating activities (438,929)(1,217,381)
CASH FLOWS FROM INVESTING ACTIVITIES: -------- ---------
Purchases of property and equipment - (17,043)
-------- ---------
Net cash used in investing activities - (17,043)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from note payable 250,000 -
Deferred financing and offering costs (113,974) (54,766)
------- ------
Net cash (used in) provided by financing activities 136,026 (54,766)
------- ------
Net (decrease) in cash and cash equivalents (302,903)(1,289,190)
Cash and cash equivalents, beginning of period 982,670 3,011,631
------- ---------
Cash and cash equivalents, end of period $679,767 $1,722,441
======== ==========
Cash paid for:
Interest 37,118 51,133
Income taxes paid - -
See accompanying notes to condensed consolidated financial statements.
6
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, 2006 are not
necessarily indicative of the results that may be expected for the year
ending March 31, 2007. 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, 2006.
Ivivi Operations
The Company's majority owned subsidiary, Ivivi Technologies, Inc., has filed
a Registration Statement with the Securities and Exchange Commission for the
public offering of a portion of its common stock. Upon the effectiveness of
the registration statement and the consummation of a public offering of
Ivivi common stock, ADM will no longer own a majority of the outstanding
common stock of Ivivi, and, if so, then Ivivi's operations will no longer be
reported on a consolidated basis. For the three months ended June 30, 2006
and 2005, Ivivi's revenues included in these consolidated financial
statements were $217,419 and $37,477, respectively, and Ivivi's operating
loss was $1,002,002 and $1,192,463, respectively.
Going Concern
The Company had net losses of $2,187,702 and $493,085 for the three months
ended June 30, 2006 and 2005, respectively, negative cash flow from
operating activities of $438,929 and $1,217,381 for the three months ended
June 30, 2006 and 2005, respectively, and a stockholders' deficiency of
$8,156,837 at June 30, 2006. These factors raise substantial doubt about our
ability to continue as a going concern.
The continuation of the Company as a going concern is dependent on our
ability to increase revenues, receive additional financing from outside
sources, including a public offering of the common stock of a subsidiary,
Ivivi Technologies, Inc.("Ivivi") and a return to profitable operations.
Management is continuing to secure ongoing revenue relationships for our
products, including those with several strategic partners who will assist us
in marketing and distribution of our products. Ivivi has developed
additional commercially viable product offerings for both the wound market
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and the cosmetic surgery markets, and Ivivi is currently seeking strategic
partnerships that would provide upfront payments, in return for possible
geographic and/or market exclusivity, as well as certain guaranteed annual
minimum revenue.
If the Company is not able to raise the necessary funding, we may be forced
to curtail our operations and this may have a material adverse impact on our
future financial position and results of operations.
Restatement:
The June 30, 2005 financial statements have been restated to record
additional non-cash charges for equity based penalties of $98,528 and
additional stock based compensation of $27,899. As a result of these
corrections, net loss for the three months ended June 30, 2005 has increased
by $126,427, to $493,085, and loss per share remained unchanged at $0.01.
Changes to the balance sheet at June 30, 2005 resulting from these
corrections are as follows:
As reported Restated
Warrant and registration rights
Liabilities 424,858 523,386
Additional paid-in capital 9,394,718 9,422,617
Accumulated deficit (9,542,268) (9,668,695)
Reclassifications:
Certain items in the fiscal 2006 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. Significant
estimates made by management include the valuation of sock options and
warrants.
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 2006 since the effect
would be anti-dilutive. There were 50,182,341 common stock equivalents at
June 30, 2005 and 2006.
8
Stock Options and Warrants
The Company adopted the fair value recognition provisions of SFAS No.
123(R), Accounting for Stock-Based Compensation, to account for compensation
costs under our stock option plans and those of our subsidiary. We
previously utilized the intrinsic value method under Accounting Principles
Board Opinion No. 25, Accounting for Stock Issued to Employees (as amended)
("APB 25").
Pro forma information is computed using the Black-Scholes model at the date
of grant of the options based on the following assumptions ranges: risk free
interest rates of 3.62% to 4.6%; dividend yield of 0%; volatility factors of
the expected market price of our common stock of 60% to 67%; and expected
lives of the options of 2.5 to 5 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
estimate, the existing model does not in the opinion of our management
necessarily provide a reliable single measure of 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
Months Ended
June 30, 2005
Net loss as reported $(493,085)
Current period expense calculated under
APB 25 2,856
Stock compensation calculated under
SFAS 123 (5,260)
Pro forma net loss $(495,489)
Basic and diluted historical loss per share $(0.01)
Pro forma basic and diluted loss per share $(0.01)
NOTE 2 NOTE PAYABLE
On June 16, 2006, Ivivi entered into a $250,000 unsecured subordinated
loan with Ajax Capital LLC. This loan bears interest at an annual rate of
8% and is due upon the earlier to occur of (i) December 31, 2006, (ii)
the consummation of an offering of Ivivi securities, whether in a private
or public offering, in which Ivivi raises gross proceeds of at least
9
$5,000,000 and (iii) receipt by Ivivi from a strategic partner of a lump
sum cash payment of at least $5,000,000. If the principal amount,
together with all accrued and unpaid interest, is not paid on or before
the maturity date, the interest rate will increase by 1% every year after
the maturity date to a maximum of 13% per annum until all amounts due and
payable under the note are paid in full. Steven Gluckstern, the Chairman
of Ajax Capital LLC, will serve as the Ivivi Chairman of the Board upon
the effectiveness of Ivivi's public offering.
NOTE 3 SEGMENT INFORMATION
Segment information is as follows:
Three Months Ended June 30, 2006: Chemical Medical Total
Revenues from external customers $199,535 $265,444 $464,979
Segment profit (loss) (14,409) (969,139) (983,548)
Identifiable assets 672,101 2,252,511 2,924,612
Three Months Ended June 30, 2005:
Revenues from external customers $280,442 $40,568 $321,010
Segment profit (loss) 27,539 (1,179,510) (1,151,971)
Identifiable assets 896,959 3,209,809 4,106,768
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 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. 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 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, 2006 and
other filings with the Securities and Exchange Commission.
10
Critical Accounting Policies
The Company adopted the fair value recognition provisions of SFAS No.
123(R), Accounting for Stock-Based Compensation, to account for
compensation costs under our stock option plans and those of our
subsidiary. We previously utilized the intrinsic value method under
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees (as amended) ("APB 25").
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 currently 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.
Results of Operations for the three months ended June 30, 2006
as compared to June 30, 2005
Revenues
Revenues were $464,979 in for the three months ended June 30, 2006 as
compared to $321,010 for the three months ended June 30, 2005, an increase
of $143,969 or 45%. Revenues from the Company's chemical activities
decreased by $80,907, offset by an increase of $224,876 in the Company's
medical technology activities, primarily from our subsidiary, Ivivi
Technologies, Inc. ("Ivivi") in 2006 as compared to 2005. The increase in
revenues from the Company's technology activities was primarily due to
increased marketing of Ivivi's products. Revenues from Ivivi were
$217,419 and $37,727 for the three months ended June 30, 2006 and 2005
respectively.
Operating (Loss)
Operating loss for the three months ended June 30, 2006 was $983,548
compared to operating loss for the same period in 2005 of $1,151,971 a
decrease of $168,423, or 15%. For the three months ended June 30, 2006 as
compared to the three months ended June 30, 2005 revenues increased
$143,969 and selling, general and administrative expenses increased by
$22,124, as a result of increased costs from Ivivi to support its expanded
activities related to the distribution and marketing of its product,
offset by decreases of $36,271 and $10,307 in research and development and
cost of sales, respectively.
Net (Loss)
Net loss is $2,187,702 or $0.04 per share for the three months ended June
30, 2006 compared to a net loss of $493,085, or $0.01 per share for the
three months ended June 30, 2005 an increased of $1,694,617 or $0.03 per
share. For the three months ended June 30, 2006 as compared to the three
months ended June 30, 2005 the change in fair value of warrant and
11
registration rights liabilities increased $1,248,471 and net interest and
finance costs increased $614,569 due to interest expense on the
convertible notes issued in the private placement offset by interest
earned from amounts invested in money market funds.
Liquidity and Capital Resources
At June 30, 2006, the Company had cash and equivalents of $679,767 as
compared to $982,670 at March 31, 2006. The decrease was primarily the
result of the increased operating expenses at Ivivi.
Operating Activities
Net cash flows used by operating activities were $438,929 for the three
months ended June 30, 2006 as compared to net cash flows used by operating
activities of $1,217,381 for the quarter ended June 30, 2005. This
decrease in cash used was primarily due to a net loss of $2,187,702
related mostly to the Company's medical technologies activities. These
increases were partially offset by non cash charges for the equity based
penalty expense of $640,717, stock based compensation of $230,672, the
amortization of loan costs related to the Company's Private Placement of
$211,462 and an increase in accounts payable and accrued expenses of
$368,454.
Investing Activities
For the quarter ended June 30, 2006 cash used in investing activities was
zero. For the quarter ended June 30, 2005 cash used in investing
activities was $17,043 related to the purchase of equipment.
Financing Activities
For the quarter ended June 30, 2006 cash provided in financing activities
was $136,026 compared to cash used in financing activities of $54,766 for
the quarter ended June 30, 2005. The increase in cash from financing
activities for the three months ended June 30, 2006 was primarily related
to an unsecured subordinated financing of $250,000 at Ivivi offset
by deferred financing and offering costs of $113,974.
The Company does not have any material external sources of liquidity or
unused sources of funds.
The Company's operating loss, net loss, 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, including Ivivi,
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 and bear interest at an
annual rate of interest of 6%. The notes are due at various times from
July 2009 through February 2010, unless converted earlier, and will
convert automatically into shares of Ivivi's common stock upon the
consummation of Ivivi's initial public offering.
12
In November 2005 and March 2006, Ivivi completed private placements
pursuant to which Ivivi issued unsecured convertible notes in an aggregate
principal amount of $2,000,000 and bears interest at an annual rate of
interest of 8% increasing by 1% every 365 days from the date of issuance
of the notes to a maximum of 12% per annum. The notes are due from
November 2010 through March 2011, unless converted earlier, and will
convert automatically into shares of Ivivi's common stock upon the
consummation of Ivivi's initial public offering.
In June 2006, Ivivi entered into a $250,000 unsecured subordinated loan
with Ajax Capital LLC. This loan bears interest at an annual rate of 8%
and is due upon the earlier to occur of (i) December 31, 2006, (ii) the
consummation of an offering of Ivivi securities, whether in a private or
public offering, in which Ivivi raises gross proceeds of at least
$5,000,000 and (iii) receipt by Ivivi from a strategic partner of a lump
sum cash payment of at least $5,000,000. If the principal amount,
together with all accrued and unpaid interest, is not paid on or before
the maturity date, the interest rate will increase by 1% every year after
the maturity date to a maximum of 13% per annum until all amounts due and
payable under the note are paid in full.
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.
As of August 15, 2006, the Company was in compliance with all its
covenants.
Item 3. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Company maintains 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 its Exchange Act reports is
recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commission's rules regulations
and related forms, and that such information is accumulated and
communicated to our 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.
13
Changes In Internal Controls.
There have been no significant changes in our internal controls or in
other factors that could significantly affect these controls and
procedures subsequent to the date we completed our evaluation. Therefore
no corrective actions were taken.
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.
By:\s\ Andre' DiMino
Andre' DiMino
President
Dated: Northvale, New Jersey
August 21, 2006
14