ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of our operations and financial condition should be read in conjunction with the consolidated financial statements and notes thereto included elsewhere in this Quarterly Report on Form 10-Q.

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the "safe harbor" provisions under section 21E of the Securities and Exchange Act of 1934 and the Private Securities Litigation Act of 1995. We use forward-looking statements in our description of our plans and objectives for future operations and assumptions underlying these plans and objectives. Forward-looking terminology includes the words "may", "expects", "believes", "anticipates", "intends", "forecasts", "projects", or similar terms, variations of such terms or the negative of such terms. These forward-looking statements are based on management's current expectations and are subject to factors and uncertainties which could cause actual results to differ materially from those described in such forward-looking statements. We expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained in this Form 10-Q to reflect any change in our expectations or any changes in events, conditions or circumstances on which any forward-looking statement is based. Factors which could cause such results to differ materially from those described in the forward-looking statements include those set forth under "Item. 1 Description of Business - Risk Factors" and elsewhere in or incorporated by reference into our Annual Report on Form 10-KSB for the fiscal year ended March 31, 2008.

CRITICAL ACCOUNTING POLICIES

REVENUE RECOGNITION:

CHEMICALS:
Revenues are recognized when products are shipped to end users. Shipments to distributors are recognized as sales where no right of return exists.

ELECTRONICS:

We recognize revenue from the sale of our electronic products when they are shipped to the purchaser. Revenue from the sale of the electronics we manufacture for Ivivi is recognized upon completion of the manufacturing process. Shipping and handling charges and costs are immaterial. We offer a limited 5 year warranty on our spa/hot tub controller units. We have no other post shipment obligations and sales returns have been immaterial.

USE OF ESTIMATES:

Our discussion and analysis of our financial condition and results of operations is based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including 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.

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BUSINESS OVERVIEW

ADM is a corporation that was organized under the laws of the State of Delaware on November 24, 1969. During the nine months ended December 31, 2008 and 2007, our operations were conducted through ADM itself and its subsidiaries, Action Industries Unlimited, LLC (formed August 20, 2008) ("Action"), Pegasus Laboratories, Inc. ("PLI") and Sonotron Medical Systems, Inc ("SMS"). Our investment in Ivivi Technologies, Inc. ("Ivivi") from October 18, 2006 to March 31, 2008 was reported under the equity method of accounting, whereby we recognized our share of Ivivi's earnings or losses as they are incurred. Effective April 1, 2008, we adopted SFAS No. 159 "The Fair Value Option for Financial Assets and Liabilities" with respect to our investment in Ivivi, whereby we report our investment in Ivivi at fair value.

We are a technology-based developer and manufacturer of diversified lines of products in the following three areas: (1) environmentally safe chemical products for industrial use, (2) electronic products for numerous industries, including therapeutic non-invasive electronic medical devices and electronic controllers for spas and hot tubs, 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 electronics and topical dermatological products. Although, during the three and nine months ended December 31, 2008 and 2007, we derived an increased amount of our revenue from contract manufacturing of electronics for Ivivi, we have completed our scheduled production for Ivivi, and have not received any material additional purchase orders from Ivivi to date. Our Electronics segment includes our Action and SMS subsidiaries, and our Chemical segment includes our PLI subsidiary.

RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED DECEMBER 31, 2008 AS COMPARED TO DECEMBER 31, 2007

REVENUES
Revenues were $257,609 for the three months ended December 31, 2008 as compared to $496,261 for the three months ended December 31, 2007, a decrease of $238,652, or 48%. The decrease resulted from declines in sales to existing chemical customers of approximately $26,361, and, decreased sales of approximately $243,065 in contract manufacturing for Ivivi partially offset by increased sales of approximately $24,000 of electronic controllers for spas and hot tubs being generated by our subsidiary Action. Gross profit was $74,255, or 29%, for the three months ended December 31, 2008 compared to $143,319, or 29%, for the three months ended December 31, 2007. The comparative gross margin for the periods was equal.

OPERATING LOSS
Loss from operations for the three months ended December 31, 2008 was $217,536, compared to a loss from operations for the three months ended December 31, 2007 of $130,487. Selling, general and administrative expenses increased by $18,100, or 7%, from $273,691 to $291,791, mainly due to increased compensation and health insurance costs and rent, offset by a decrease in consulting expense and samples expense. Research and development expenses were zero during the three months ended December 31, 2008 compared to $115 during the three months ended December 31, 2007, as a result of no research and development activities during the third quarter of 2008.

NET LOSS AND NET LOSS PER SHARE
Net loss for the three months ended December 31, 2008 was $860,999, or $0.02 per share, compared to a net loss for the three months ended December 31, 2007 of $703,357, or $0.01 per share. With the adoption of SFAS No. 159, "The Fair Value Option for Financial Assets and Liabilities", we recorded a decrease in fair value of $650,000 with respect to our investment in Ivivi, for the three months ended December 31, 2008. During the three months ended December 31, 2007, we recorded an equity method investment loss of $594,446 from our investment in
Ivivi. Net interest income decreased $15,039 to $6,537 in the three months ended December 31, 2008, from $21,576 in the three months ended December 31, 2007, primarily due to decreased funds invested in a money market account and lower interest rates on such funds, coupled with the interest expense on our borrowings under our bank loan

RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED DECEMBER 31, 2008 AS COMPARED TO
DECEMBER 31, 2007

REVENUES
Revenues were $1,248,140 for the nine months ended December 31, 2008 as compared to $1,189,194 for the nine months ended December 31, 2007, an increase of $58,946, or 5%. This increase was mainly the result of approximately $60,000 greater sales in contract manufacturing for Ivivi and approximately $31,000 in sales of electronic controllers for spas and hot tubs, being generated by our subsidiary Action, which were partially offset by declines in sales to our existing chemical customers of approximately $49,000. Gross profit was $407,305, or 33%, for the nine months ended December 31, 2008 compared to $417,023, or 35%, for the nine months ended December 31, 2007. Gross margins decreased as a result of margins on approximately $517,823 of sales of electronics at approximately 17% to Ivivi, as compared to margins achieved from chemical and spa controller product lines, which are generally higher.

OPERATING LOSS
Loss from operations for the nine months ended December 31, 2008 was $485,067, compared to a loss from operations for the nine months ended December 31, 2007 of $354,850. Selling, general and administrative expenses increased by $124,164, or 16%, from $768,208 to $892,372, mainly due to increased compensation costs, health insurance rates, reduced cost allocations to Ivivi, and the implementation of a

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new accounting software system offset by a decrease in accounting fees and consulting fees. Research and development expenses decreased by $3,665, or 100%, from $3,665 to zero, as a result of no research and development activities during the first three quarters of 2009.

NET LOSS AND NET LOSS PER SHARE
Net loss for the nine months ended December 31, 2008 was $8,489,701, or $0.16 per share, compared to a net loss for the nine months ended December 31, 2007 of $1,957,354, or $0.04 per share. With the adoption of SFAS No. 159 "The Fair Value Option for Financial Assets and Liabilities", we recorded a decrease in fair value of $10,465,000 with respect to our investment in Ivivi, for the nine months ended December 31, 2008. During the nine months ended December 31, 2007, we recorded an equity method investment loss of $1,674,870 from our investment in Ivivi. Net interest income decreased $37,188 to $35,178 during the nine months ended December 31, 2008, from $72,366 in the nine months ended December 31, 2007, primarily due to decreased funds invested in a money market account and lower interest rates on such funds, coupled with the interest expense on our borrowings under our bank loan. Income tax credits of $2,425,188 were recognized during the nine months ended December 31, 2008, as a result of the decrease in fair value of our investment in Ivivi.

LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2008, we had cash and equivalents of $1,325,511 as compared to $2,072,325 at March 31, 2008. The $746,814 decrease was primarily the result of our loss from operations during the nine month period and $225,000 of cash that was placed on restriction in connection with the bank loan. To a lesser extent our cash was reduced by the investment we made to acquire Action Spas. Our cash will continue to be used for increased marketing costs, and the related administrative expenses, in order to attempt to increase our revenue. We expect to have enough cash to fund operations for the next twelve months. The market value of our investment in Ivivi at December 31, 2008 was $910,000. However, our common shares of Ivivi have not been registered with the SEC and are subject to restriction as a result of securities laws.

OPERATING ACTIVITIES
Net cash used by operating activities was $517,241 for the nine months ended December 31, 2008, as compared to net cash used by operating activities of $304,546 for the nine months ended December 31, 2007. The use of cash during the nine months ended December 31, 2008 was primarily due to a net loss of $8,489,701, recognition of a deferred tax benefit of $2,425,188 and decreases in operating liabilities of $289,001, which was primarily offset by a change in the fair market value of our investment in Ivivi of $10,465,000 and a decrease in net operating assets of $199,170. The use of cash during the nine months ended December 31, 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 in Ivivi of $1,674,870 and increases in operating liabilities of $413,355.

INVESTING ACTIVITIES
For the nine months ended December 31, 2008, net cash used by investing activities was $429,573. The primary use of cash was for our acquisition of Action Spas, whereby we acquired intangible assets of $200,000, property and equipment of $14,888, and $225,000 in operating cash pledged for collateral on borrowings under our bank loan. Uses of cash were partially offset by collections from related parties of $23,456, which was received from an officer for repayment of advances made prior to 2000. For the nine months ended December 31, 2007, cash used in investing activities was $2,140. Of this amount, $22,140 was used for the purchase of property and equipment and $20,000 was received from an officer for repayment of advances made prior to 2000.

FINANCING ACTIVITIES
During the nine months ended December 31, 2008, we borrowed $200,000 from a commercial bank to facilitate our acquisition of Action Spas. There was no such activity during the nine months ended December 31, 2007.

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.