ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K 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-K 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-K.

CRITICAL ACCOUNTING POLICIES

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.

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 90 day warranty on our electronics products and a limited 5 year warranty on our electronic controllers for spas and hot tubs. 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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RECENT ACCOUNTING PRONOUNCEMENTS

On October 10, 2008, the FASB issued Staff Position ("FSP") FAS 157-3, Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active. This FSP clarifies the application of FASB Statement No. 157, Fair Value Measurements, in a market that is not active and provides an example to illustrate key considerations in determining the fair value of a financial asset when the market for that financial asset is not active. We have completed our evaluation of the impact of the effect of the adoption of FSP APB 14-1, and have determined it would have no impact on the Company's financial position, results of operations or cash flows.

In December 2007, the FASB issued SFAS No. 141R, "Business Combinations". This standard establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any non-controlling interest in the acquired entity and the goodwill acquired. This statement also establishes disclosure requirements which will enable users to evaluate the nature and financial effects of the business combination. SFAS No.141R is effective for us for acquisitions made after November 30, 2009. The Company is currently evaluating the potential impact, if any, that the adoption of SFAS No. 141R will have on its consolidated financial statements.

In December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in Consolidated Financial Statements". This standard outlines the accounting and reporting for ownership interest in a subsidiary held by parties other than the parent. SFAS No. 160 is effective for the first quarter of 2010. We do not expect the adoption of SFAS No. 160 to have a material impact on our financial statements.

In March 2008, the FASB issued SFAS No. 161, "Disclosures about Derivative Instruments and Hedging Activities - An Amendment of FASB Statement No. 133". This statement is intended to improve financial reporting of derivative instruments and hedging activities by requiring enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under SFAS 133 and its related interpretations and (c) how derivative instruments and related hedged items affect an entity's financial position, financial performance and cash flows. The provisions of SFAS 161 are effective for fiscal years beginning after November 15, 2008. SFAS 161 will be effective for the Company on April 1, 2009. We do not expect the adoption of SFAS No. 161 to have a material impact on our financial statements.

In May 2008, the FASB issued SFAS No. 162, "The Hierarchy of Generally Accepted Accounting Principles" (SFAS No. 162). This statement identifies the sources of accounting principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles (GAAP) in the United States (the GAAP hierarchy). The FASB believes that the GAAP hierarchy should be directed to the entity and has concluded that the GAAP hierarchy should reside in the accounting literature established by the FASB. This statement shall become effective 60 days following the SEC's approval of the Public company Accounting Oversight Board (PCAOB) amendments to AU Section 411, "The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles". We do not expect the adoption of SFAS No. 162 to have a material impact on our financial statements.

Management does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying financial statements.

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, 2009 and 2008, our operations were conducted through ADM itself and its subsidiaries, Pegasus Laboratories, Inc. and Sonotron Medical Systems, Inc and since August 2008, Action Industries Unlimited, LLC. Ivivi was deconsolidated as of October 18, 2006 upon the consummation of Ivivi's initial public offering. Our investment in Ivivi from to October 18, 2006 through March 31, 2008 was reported under the equity method of accounting. Since April 1, 2008 we reported 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) the manufacturing and sale of electronic medical and other 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 electronic devices and topical dermatological products. However, during the fiscal years ended March 31, 2009 and 2008, we derived an increased amount of our revenue from the sale/rental and manufacturing of electronic devices. Our electronics segment also includes our Sonotron and Action subsidiary.

RESULTS OF OPERATIONS FOR THE YEAR ENDED MARCH 31, 2009 AS COMPARED TO MARCH 31,
2008

REVENUES AND GROSS MARGINS

Revenues were $1,486,283 for the year ended March 31, 2009 as compared to $1,896,746 for the year ended March 31, 2008, a decrease of $410,463, or 22%. The decrease primarily resulted from decreased manufacturing services performed for Ivivi. Gross profits and gross margins were $405,212, or 27%, and $540,884, or 29%, for the years ended March 31, 2009 and 2008, respectively. Gross margins decreased as a result of margins on sales of electronic devices increasing approximately 8% as compared to a decrease in margins achieved from chemical products as a result of increased raw material and labor cost percentages, offset by electronic segment inventory cost adjustments and the write off of obsolete inventory.

OTHER OPERATING EXPENSES

Selling, general and administrative expenses decreased by $67,277, or 6%, from $1,179,976 to $1,112,699, mainly due to decreased consulting and professional fees offset by an increase in compensation and a decrease in allocated overhead costs to Ivivi. Research and development expenses decreased by $3,823, or 100%, from $3,823 to $0.

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NET LOSS AND NET LOSS PER SHARE

Net loss for the year ended March 31, 2009 was $8,899,132 or $(0.16) per share, compared to a net loss of $2,894,316, or $(0.05) per share, for the year ended March 31, 2008. Our net loss increased $6,004,816, or $0.11 per share. This was mainly the result of recording a loss from the change in fair value of our investment in Ivivi of $10,660,000 for the year ended March 31, 2009, compared to an equity method investment loss in Ivivi of $2,339,716 for the year ended March 31, 2008, offset by a deferred income tax credit of $2,425,188.

LIQUIDITY AND CAPITAL RESOURCES

At March 31, 2009, we had cash and equivalents of $1,155,786 as compared to $2,072,325 at March 31, 2008. The decrease of $916,539 was primarily the result of cash used in operations in the amount of $685,880 and cash used in investing activities of $427,659. The market value of our investment in Ivivi at March 31, 2009 was $715,000. 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 $685,880 for the year ended March 31, 2009, as compared to net cash used by operating activities of $416,246 for the year ended March 31, 2008. The use of cash in 2009 was primarily due to a net loss of $8,899,132 and a net decrease in operating assets and liabilities of $62,191, which was primarily offset by a non-cash charge for the equity investment loss of $10,660,000, depreciation of $38,218, and decreases in net operating liabilities of $291,991, offset by a deferred tax benefit of $2,425,188.

Net cash used by operating activities was $416,246 for the year ended March 31, 2008. The use of cash in 2008 was primarily due to a net loss of $2,894,316 and increases in operating assets of $287,000, which was primarily offset by a non-cash charge for the equity investment loss of $2,339,716, depreciation of $19,253, intangible asset write-downs of $57,094 and increases in net operating liabilities of $350,373.

INVESTING ACTIVITIES

For the year ended March 31, 2009, cash used in investing activities was $427,659. Of this amount, $14,888 was used for the purchase of equipment and $26,300 was received from an officer for repayment of advances made to the officer prior to 2000. We acquired intangible assets of $212,491 and restricted cash increased $226,580, used to collateralize the note for the acquisition of Action.

For the year ended March 31, 2008, cash used in investing activities was $9,705. Of this amount, $29,705 was used for the purchase of equipment and $20,000 was received from an officer for repayment of advances made to the officer prior to 2000.

FINANCING ACTIVITIES

During the year ended March 31, 2009, we had net proceeds from notes payable of $200,000, of which we repaid $3,000.

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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.