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| ADMT.OB > SEC Filings for ADMT.OB > Form 10-Q on 19-Aug-2009 | All Recent SEC Filings |
19-Aug-2009
Quarterly Report
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-K for the year ended March 31, 2009.
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 and shipment of product. 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 the expected economic life and value of our medical devices, options and warrant expenses related to compensation to employees and directors, consultants and investment banks, allowance for doubtful accounts, 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.
BUSINESS OVERVIEW
ADM is a corporation that was organized under the laws of the State of Delaware
on November 24, 1969. During the three months ended June 30, 2009 and June 30,
2008, 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 were 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. Recently our contract manufacturing schedule for Ivivi's electronics production has been completed and we 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 JUNE 30, 2009 AS COMPARED TO
JUNE 30, 2008
REVENUES
Revenues were $335,925 for the three months ended June 30, 2009 as compared to $600,941 for the three months ended June 30, 2008, a decrease of $265,016, or 44%. The decrease mainly resulted from a decrease in sales of finished medical devices to Ivivi of approximately $295,300, which decrease we expect to continue, partially offset by increased sales to new and existing electronic customers from our electronic subsidiaries in the amount of $16,443, and a slight increase in sales to existing chemical customers in the amount of $7,750. Gross profit was $167,677, or 50%, for the three months ended June 30, 2009 and $201,731, or 34% for the three months ended June 30, 2008. Gross profit percentages increased 17% from sales of our electronic devices offset by a slight decrease on gross profit percentages from our chemical sales.
We are highly dependent upon certain customers to generate our revenues, including Ivivi. For the quarter ended June 30, 2009 two customers accounted for 55% of our revenue for which Ivivi accounted for 12% and for the fiscal year ended June 30, 2008 Ivivi accounted for approximately 54% of our revenue. The complete loss of, or significant reduction in business from, or a material adverse change in the financial condition of, any of such customers, including Ivivi, could cause a material and adverse change in our revenues and operating results. As reported by Ivivi in its filings with the SEC, Ivivi will need to raise additional capital or seek strategic alternatives in order to (i) repay its outstanding loan of $2.5 million which matures August 30, 2009 and (ii) continue its operations. In the event Ivivi is unable to meet its debt obligations, the lender will have the right to foreclose on the loan and, as a result, Ivivi may have to cease its operations.
OPERATING LOSS
Loss from operations for the three months ended June 30, 2009 was $81,479, compared to a loss from operations for the three months ended June 30, 2008 of $86,937. Selling, general and administrative expenses decreased by $44,620, or 15%, from $288,668 to $244,048, mainly due to decreased compensation and health insurance costs, decreased computer costs, decreased consulting fees and decreased commissions, offset by an increase in accounting fees and rent. Research and development expenses increased by $5,108, or 100%, from $0 to $5,108, as a result of new research and development activities during the first quarter of 2009.
NET LOSS AND NET LOSS PER SHARE
Net loss for the three months ended June 30, 2009 was $794,640, or $0.01 per share, compared to a net loss for the three months ended June 30, 2008 of $3,221,527, or $0.06 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 $715,000 with respect to our investment in Ivivi, for the three months ended June 30, 2009. During the three months ended June 30, 2008, we recorded a decrease in fair value of $5,297,500 from our investment in Ivivi. Interest income decreased $13,495 to $1,839 in the three months ended June 30, 2009, from $15,334 in the three months ended June 30, 2008, due to decreased funds invested in a money market account.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2009, we had cash and equivalents of $1,049,098 as compared to $1,155,786 at March 31, 2009. The $106,688 decrease was primarily the result of our loss from operations during the three month period. 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 June 30, 2009 was $0. Our note payable of $193,000 at June 30, 2009, is secured and collateralized by restricted cash of $227,142. This note bears an interest rate of 2.98%.
OPERATING ACTIVITIES
Net cash used by operating activities was $92,055 for the three months ended June 30, 2009, as compared to net cash used by operating activities of $159,368 for the three months ended June 30, 2008. The use of cash during the three months ended June 30, 2009 was primarily due to a net loss of $794,640 and an increase in operating liabilities of $87,626, which was primarily offset by a change in the fair market value of our investment in Ivivi of $715,000 and an increase in net operating assets of $115,015.
Net cash used by operating activities was $159,368 for the three months ended June 30, 2008 as compared to net cash used by operating activities of $152,588 for the three months ended June 30, 2007. The use of cash during the three months ended June 30, 2008 was primarily due to a net loss of $3,221,527, recognition of a deferred tax benefit of $2,147,578 and a decrease in net operating liabilities of $228,958 which was primarily offset by a change in the fair market value of our investment in Ivivi of $5,297,500 and a decrease in net operating assets of $139,683.
INVESTING ACTIVITIES
For the three months ended June 30, 2009, net cash used by investing activities was $10,633. The primary use of cash was for an investment of $10,000 in Wellington Scientific LLC for the issuance of a secured convertible note with an interest rate of 10%.
For the three months ended June 30, 2008, net cash provided by investing activities was $8,795, which was received from an officer for repayment of advances made prior to 2000.
FINANCING ACTIVITIES
For the three months ended June 30, 2009, net cash used for financing activities was $4,000, which was used for repayment on a note from a commercial bank to facilitate our acquisition of Action Spas.
There was no such activity during the three months ended June 30, 2008.
OFF BALANCE SHEET ARRANGEMENTS
We have no off-balance sheet arrangements that have had or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
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