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 September 30, 2004
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.
(Exact name of registrant as specified in its Charter)
Delaware 22-1896032
(State or Other Jurisdiction (I.R.S. Employer Identifi-
of Incorporation or organization) cation Number)
224-S 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:
51,882,037 shares of Common Stock, $.0005 par value,
as of October 25, 2004
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 November 19, 2004 with the Securities and Exchange Commission
(the "SEC") is filed (i) as a result of a restatement of the financial
statements for the three and six month period ended September 30, 2004
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 November
19, 2004 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 - September 30, 2004
and March 31, 2004 3
Consolidated Statements of Operations - For the
three months and six months ended September
30, 2004 and 2003 4
Consolidated Statement of Changes in Stockholders'
Equity - For the six months ended September 30, 2004 4
Consolidated Statements of Cash Flows - For the
six months ended September 30, 2004 and 2003 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
2
ADM TRONICS UNLIMITED, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
SEPTEMBER MARCH
ASSETS 30, 2004 31, 2004
(RESTATED)
Current assets:
Cash and equivalents $2,161,390 $ 90,081
Accounts receivable - trade, less allowance
for doubtful accounts of $4,593 and $29,000
respectively 124,988 118,433
Inventories:
Raw materials and supplies 105,034 159,497
Finished goods 79,695 107,688
Other current assets 39,133 32,993
Total current assets 2,510,240 508,692
Property and equipment - at cost, net of
accumulated depreciation of $267,930 and
$268,353, respectively 11,329 8,887
Equipment in use and under lease agreements -
At cost, net of accumulated depreciation of
$821,731 and $758,330, respectively 116,494 179,895
Inventory, long term portion 298,851 344,465
Loan receivable from officer, bearing
interest at 3% per annum, unsecured 49,188 49,188
Deferred financing costs and other assets 491,776 31,039
Total assets $3,477,878 $1,122,166
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable - trade $ 124,985 $ 159,798
Accrued expenses and other current liabilities 91,723 51,340
Total current liabilities 216,708 211,138
Unsecured convertible 6% notes payable,
net of discount of $782,262 1,905,238 -
Note payable, long-term 135,000 135,000
Warrants issued with registration rights 159,999 -
Total long term liabilities 2,200,237 135,000
Stockholders' equity 1,060,933 776,028
Total liabilities and
stockholders' equity $3,477,878 $1,122,166
3
ADM TRONICS UNLIMITED, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2004 2003 2004 2003
(RESTATED) (RESTATED)
Revenues $267,686 $321,475 $652,983 $ 593,783
Costs and expenses:
Cost of sales 196,191 172,321 365,770 331,574
Selling, general and
administrative 564,634 182,621 756,441 343,254
Total costs and expenses 760,825 354,942 1,122,211 674,828
Operating loss (493,139) (33,467) (469,228) (81,045)
Other income:
Interest and other income 39,879 77 39,946 166
Amortization of debt discount (40,960) - (40,960) -
Change in fair value of
Warrant liability 127,352 - 127,352 -
Net loss $(366,868) $(33,390) $(342,890) $(80,879)
Net loss per share, basic and
Diluted $(0.01) $(0.001) $(0.01) $(0.002)
Weighted average shares
Outstanding 51,882,037 50,382,037 51,882,037 50,382,037
ADM TRONICS UNLIMITED, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2004
(UNAUDITED)
(RESTATED)
Preferred Common
Shares Shares Capital
5,000,000 150,000,000 in
Authorized Authorized excess
$.01 Par $.0005 Par of Par Deferred Accumulated
Value Par Value Value Value Compensation Deficit Total
Balances -
March 31,
2004 - 51,882,037 $25,941 $6,861,574 $(69,600) $(6,041,887) $776,028
Beneficial
Conversion
feature 528,571 528,571
Warrants issued with
Debt 75,416 75,416
Amortization of
Deferred compensation 23,808 23,808
Net loss for
the period
ended
September 30,
2004 (342,890) (342,890)
Balances -
September 30,
2004 - 51,882,037 $25,941 $7,465,561 $(45,792)$(6,384,777) 1,060,933
4
ADM TRONICS UNLIMITED, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED
SEPTEMBER 30,
2004 2003*
(RESTATED)
Cash flows from Operating activities:
Net (loss) $ (342,890) $( 80,879)
Adjustments to reconcile net (loss)
to net cash provided by (used in)
operating activities:
Depreciation and amortization 69,174 77,505
Amortization of debt discount 40,960 -
Amortization of deferred discount 23,808 -
Change in fair value of warrant liability (127,352) -
Changes in operating assets and liabilities:
Accounts receivable - trade (6,555) (11,701)
Inventories 128,070 75,107
Other current assets (6,140) (600)
Other assets (22,281) 3,507
Accounts payable - trade (34,813) (16,296)
Accrued expenses and other current liabilities 40,383 (20,689)
Net cash flows provided by (used in)
operating activities (237,636) 25,954
Cash flows from Investing activities:
Purchases of property and equipment (8,215) -
Net cash flows (used in)
investing activities (8,215) -
Cash flows from Financing activities:
Gross proceeds from private placement offering -
notes payable 2,687,500 -
Costs of private placement offering (370,340) -
Net cash provided by financing activities 2,317,160 -
Net change in cash and equivalents 2,071,309 25,954
Cash and equivalents--beginning of period 90,081 49,765
Cash and equivalents--end of period $2,161,390 $ 75,719
Supplemental disclosure of cash flow activities:
Interest paid - -
Income taxes paid - -
*reclassified
5
ADM TRONICS UNLIMITED, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1-Basis of Presentation:
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 six months ended September 30, 2004 are not necessarily
indicative of the results that may be expected for the year ending March
31, 2005. The accompanying consolidated financial statements and the
information included under the heading "Management's Discussion and
Analysis of Financial Condition and Results of Operations" 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, 2004.
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 periods. 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 six and three month periods ended September 30,
2004 since the effect would be anti-dilutive. There were 24,582,015
common stock equivalents at September 30, 2004 and none at September 30,
2003.
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 September 30, 2004, and none at September 30, 2003.
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 For the
Three Months Six Months
Ended Ended
September 30, September 30, September 30, September 30,
2004 2003 2004 2003
Net loss as reported $(366,868) $(33,390) $(342,890) $(80,879)
Stock compensation
calculated under
SFAS No. 123 (2,492) - (4,983) -
Pro forma net loss $(369,360) $(33,390) $(347,873) $(80,879)
Historical basic and
diluted loss per share $(0.01) $(0.001) $(0.01) $(0.002)
Pro forma basic and
diluted loss per share $(0.01) $(0.001) $(0.01) $(0.002)
Restatement:
The September 30, 2004 financial statements have been restated to record
a beneficial conversion feature related to convertible notes payable
issued by the Company in the amount of $528,571. The Company has also
recorded an amount of $287,351 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 $815,922. Additionally, the Company issued
compensation warrants related to the debt placement with a fair value of
$75,416. The amortization of these items for the three and six month
periods ended September 30, 2004 was $40,960. Also, the fair value of the
warrants has been recorded at $159,999 at September 30, 2004, and a
recovery of expense for the three and six months ended September 30, 2004
of $127,352 has been recorded. As a result of these corrections, net loss
for the three and six months ended September 30, 2004 has decreased by
$86,392 for each period, to $366,868 and $342,890, respectively, and loss
per share was unchanged at $0.01 and $0.01, respectively.
Changes to the balance sheet at September 30, 2004 resulting from these
corrections are as follows:
As reported Restated
Unamortized debt discount $ -- $ 782,262
Deferred financing costs and other assets 425,246 493,362
Warrants issued with registration rights -- 159,999
Capital in excess of par value 6,813,368 7,417,355
Accumulated deficit (6,467,169)
(6,380,777)
Note 2. Segment Information
Information about segment information is as follows:
Six Months Ended September 30, 2004: CHEMICAL MEDICAL TOTAL
Revenues from external customers 436,486 216,497 652,983
Segment profit (loss) 26,196 (495,424) (469,228)
Identifiable assets 2,888,071 591,393 3,479,464
Six Months Ended September 30, 2003:
Revenues from external customers 466,747 127,036 593,783
Segment profit (loss) (58,543) (22,502) (81,045)
Three Months Ended September 30, 2004:
Revenues from external customers 196,529 71,157 267,686
Segment profit (loss) (7,917) (485,222) (493,139)
Three Months Ended September 30, 2003:
Revenues from external customers 225,530 95,945 321,475
Segment profit (loss) (35,299) 1,832 (33,467)
Note 3. Private Placement Offering
a) The Company is in the process of a private placement offering with
regard to its subsidiary, Ivivi Technologies, Inc., formerly known as AA
Northvale Medical Associates, Inc. ("Ivivi"), of up to 35 Units for an
aggregate price of $3,500,000. Each Unit consists of a i) $100,000 Joint
Unsecured
6
Convertible Note payable on December 31, 2009, ii) one Class A Common
Stock Purchase Warrant of the Company, and iii) one Class A Common Stock
Purchase Warrant of Ivivi. Investors may exercise either warrant, but
not both. Those warrants which are non-exercised must be surrendered to
either the Company or Ivivi. The Joint unsecured 6% Convertible Notes
may be converted into Common Stock of Ivivi or Common Stock of the
Company at a conversion price as defined in the private placement
memorandum. As of September 30, 2004, the Company has raised $2,687,500
of 6% Convertible Notes Payable from such offering, of which
approximately $370,000 were for costs incurred in raising such funds.
These costs have been deferred and included in other assets. The
conversion feature of the notes and the exercise of the warrants is
allowed through November, 2009. It is anticipated by management that the
holders of the notes will convert the notes payable into either common
stock of Ivivi or of the Company in the near future. If the noteholders
convert the notes to common stock, the costs of such financing will be
charged to the capital in excess of par value account. If the notes are
not converted, then such costs will be amortized over the term of the
notes.
As additional consideration for the purchase of the notes, the Company
granted to the purchasers warrants entitling them to purchase 9,267,241
common shares at the price of $0.41 per share. These warrants lapse if
unexercised after five years, or upon an effective registration statement
of Ivivi. A registration rights agreement was executed requiring the
Company to register the shares of its common stock underlying the notes
and warrants so as to permit the public resale thereof. In accordance
with EITF 00-27, a portion of the proceeds was allocated to the warrant
liability based on its fair value, which totaled $287,351 using the
Black-Scholes option pricing model. The remaining balance was allocated
to the convertible notes and was used to compute the beneficial
conversion feature. The Company attributed a beneficial conversion
feature of $528,571 to the convertible notes based upon the difference
between the effective conversion price of those shares and the closing
price of the Company's common shares on the date of issuance. The
assumptions used in the Black-Scholes model are as follows: (1) dividend
yield of 0%; (2) expected volatility of 64%, (3) risk-free interest rate
of 1.5%, and (4) expected life of six months. The total debt discount
of $815,922 is being amortized over the term of the notes. During the
six months ended September 30, 2004, amortization as interest expense
amounted to $33,660.
Since the warrant is a contract requiring settlement through the delivery
of registered shares, and the delivery of such registered shares was not
deemed controllable by the Company, the Company recorded the net value of
the warrants at the date of issuance as a warrant liability on the
balance sheet $287,351 and included the change in fair value from the
date of issuance to September 30, 2004 in other income (expense), in
accordance with EITF 00-19, "Accounting for Derivative Financial
Instruments Indexed to, and Potentially Settled in, a Company's Own
Stock". The fair value of the warrant was $159,999 at
September 30, 2004.
Selling, general and administrative expenses for the three-month period
ended September 30, 2004 include the compensation for Ivivi's new
management team which has been employed to develop, expand and market
Ivivi's business which is principally the SofPulse medical device
technology and the expenses related thereto.
In connection with the private placement offering, Ivivi is planning to
file a Registration Statement with the Securities and Exchange Commission
for its common stock. There is a mandatory conversion of the notes into
the common stock of Ivivi upon the effectiveness of such registration.
Reference is made to the Company's Current Report on Form 8K dated August
31, 2004.
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 with 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 Form 10-QSB 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 Risk Factors set forth in Exhibit 99.1 and elsewhere in,
or incorporated by reference into the Company's Annual Report on Form
10-KSB/A.
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 September 30, 2004 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.
Liquidity and Capital Resources
At September 30, 2004, the Company had cash and equivalents of $2,161,390
as compared to $90,081 at March 31, 2004. This increase was the result
of proceeds received by the Company from a private placement financing
offset by costs of such financing and by cash used in operations.
Operating Activities
Net cash flows used in operating activities were $237,636 for the six
months ended September 30, 2004 as compared to net cash flow provided by
operating activities of $25,954 for the six months ended September 30,
2003. This increase was primarily due to increased costs related to the
Company's medical device subsidiary's expansion of personnel and
increased other operational expenses related thereto.
7
Investing Activities
The Company purchased property and equipment of $8,215 during the six
months ended September 30, 2004.
Financing Activities
The Company has received net proceeds of $2,317,160 from a private
placement offering of Unsecured Convertible Notes and Warrants for the
Company's and a subsidiary's common stock.
The Company does not have any material external sources of liquidity or
unused sources of funds.
Results of Operations
Quarter Ended September 30, 2004
Revenues
Revenues were $267,686 in 2004 as compared to $321,475 in 2003
representing a decrease of $53,789 or 17%. This decrease was the result
of a decrease in revenues from the Company's medical electronic
activities of $24,788 and a decrease in chemical revenues of $29,001.
Gross Profit
Gross profit of $71,495 in 2004 was $77,659 below the gross profit of
$149,154 in 2003. Gross profit was 27% of revenues in 2004 as compared
with 46% of revenues in 2003. The decrease in gross profit margin was
primarily due to the product mix of sales with higher sales of products
with a lower gross margin.
Operating Loss
Operating loss in 2004 was $493,139 compared to $33,467 in 2003. Selling,
general and administrative expenses increased by $382,013 or 209% in the
2004 period primarily due to significant increases in personnel and
overhead expenses of the Company's medical device subsidiary, Ivivi
Technologies, Inc. that were funded by the receipt of proceeds from a
private placement offering instituted to fund such increased operations.
Other Income
Net other income in 2004 was $126,271 as compared to $77 in 2003. Other
net income for 2004 was primarily from a change in fair value of the
warrant liability of $127,352, partially offset by amortization of debt
discount of $40,960, and from payments received pursuant to the
settlement of litigation and increased interest income from increased
amounts invested.
8
Results of Operations
Six Months Ended September 30, 2004
Revenues
Revenues were $652,983 in 2004 as compared to $593,783 in 2003
representing an increase of $59,200 or 10%. Revenues from the Company's
medical electronics activities increased $89,461 and chemical revenues
decreased
$30,261.
Gross Profit
Gross profit of $287,213 in 2004 was $25,004 or 10% higher than the gross
profit of $262,209 in 2003. Gross profit was 44% of revenues in 2004 and
2003.
Operating Loss
Operating loss was $469,228 in 2004 compared to $81,045 in 2003.
Selling, general and administrative expenses increased by $413,187 or
120% in 2004 primarily due to significant increases in personnel and
overhead expenses of the Company's medical device subsidiary, Ivivi
Technologies, Inc. that were funded by the receipt of proceeds from a
private placement offering instituted to fund such increased operations.
Other Income
Net other income in 2004 was $126,338 as compared to $166 in 2003. Other
net income for 2004 was primarily from a change in fair value of the
warrant liability of $127,352, partially offset by amortization of debt
discount of $40,960, and from payments received pursuant to the
settlement of litigation and increased interest income from increased
amounts invested.
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 September 30,
2004, 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 September 30, 2004, 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 "Changes
in Internal Control Over Financial Reporting."
CHANGES IN INTERNAL CONTROLS OVER FINANCIAL REPORTING
There have been no changes in our internal control over financial
reporting that occurred during our last fiscal quarter to which this
Quarterly Report on Form 10-QSB relates that have materially affected, or
are reasonably likely to materially affect, our internal control over
financial reporting.
However, 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.
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 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. 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.
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K.
(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.
(b) Reports on Form 8-K.
A current report on Form 8-K dated August 31, 2004
was filed during the quarter for which this report
is filed and is incorporated herein by reference.
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.
(Registrant)
By:\s\ Andre' DiMino
Chief Executive
Officer and Chief Financial
Officer
Dated: Northvale, New Jersey
December 9, 2005