|
ADM TRONICS UNLIMITED INC/DE - 10-Q - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Edgar Glimpses Via Acquire Media NewsEdge) 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.
12
--------------------------------------------------------------------------------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, 2011.
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 is recognized upon shipment of product to the end user. Shipping and
handling charges and costs are de minimis. 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. Historically, the amount of warranty revenue
included in the sales of our electronic products have been de minimis. We have
no other post shipment obligations and sales returns have been de minimis.
WARRANTY LIABILITIES
We offer a limited 90 day warranty on our electronics products and a 5 year
limited warranty on all of our electronic controllers for spas and hot tubs sold
through Action. These product lines' past experience has resulted in de minimis
costs associated with warranty issues. Based on prior experience, no amounts
have been accrued for potential warranty costs and such costs were de minimus,
for the three and nine months ended December 31, 2011 and 2010.
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 US. 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.
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, 2011 and 2010, our
operations were conducted through ADM itself and its subsidiaries, Pegasus
Laboratories, Inc. (PLI) and Sonotron Medical Systems, Inc and since August
2008, Action. In addition, the Company owns a minority interest in Montvale
Technologies Inc, (formerly known as Ivivi Technologies Inc.) ("ITI"), which
until October 18, 2006 was operated as a subsidiary of the Company. ITI was
deconsolidated as of October 18, 2006 upon the consummation of ITI's initial
public offering. Our investment in ITI from October 18, 2006 through March 31,
2008 was reported under the equity method of accounting. Since April 1, 2008 we
reported our investment in ITI at fair value. As reported by ITI, on February
12, 2010 all of ITI's assets were acquired by IHS, an unaffiliated entity
controlled by ITI's former Chairman of the Board. Concurrent with such asset
sale, the Company entered into agreements with IHS for services related to
engineering and regulatory matters, and the previous manufacturing agreement
with ITI was assigned to IHS.
13
--------------------------------------------------------------------------------In 2009, we invested in Wellington Scientific, LLC ("Wellington") which has
rights to an electronic uroflowmetry diagnostic medical device
technology. During the nine months ended December 31, 2011, we completed
development of a new version of the device (Flo-Med device) for compliance with
FDA and international standards and created the required documentation for
distribution of this product in the US. In July, an order was received from a
distributor for approximately $740,000 including a 25% cash deposit for the
purchase of the Flo-Med device and related disposables. Production of the
Flo-Med device and disposables continued during the period and the complete
order is expected to be shipped by March 31, 2012.
We are a technology-based developer and manufacturer of diversified lines of
products in the following four 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, (3) cosmetic and topical dermatological products and (4)
Antistatic paint and coatings 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. 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, 2011 AS COMPARED
TO DECEMBER 31, 2010
REVENUES
Net revenues were $452,943 for the three months ended December 31, 2011 as
compared to $316,895 for the three months ended December 31, 2010, an increase
of $136,048, or 43 %. The increase resulted from an increase in sales to
customers in our electronics division in the amount of $196,772, coupled with a
decrease in sales in our chemical division in the amount of $56,724. The sale of
the Flo-Med product to a customer accounted for $168,260 of revenue in our
electronic division during the three months ended December 31, 2011. Gross
profit was $259,390, or 57%, for the three months ended December 31, 2011 and
$155,700, or 49% for the three months ended December 31, 2010. Gross profit
percentages increased overall 8% due to an overall cost of material percentage
decrease of 6%, while labor cost percentages dropped 11% from 21% of sales in
2010 to 10% of sales in 2011.
We are highly dependent upon certain customers to generate our revenues. During
the three month period ended December 31, 2011, three customers accounted for
65% of our revenue and for the three months ended December 31, 2010 three
customers accounted for 40% of our revenue. As of December 31, 2011, two
customers represented 85% of our accounts receivable and as of December 31,
2010, three customers represented 78% of our accounts receivable. The complete
loss of or significant reduction in business from, or a material adverse change
in the financial condition of any of our customers could cause a material and
adverse change in our revenues and operating results.
OPERATING LOSS
Loss from operations for the three months ended December 31, 2011 was $33,754
compared to a loss from operations for the three months ended December 31, 2010
of $109,699. Selling, general and administrative expenses increased by $27,122,
from $246,207 for the three months ended December 31, 2010 to $273,329 for the
three months ended December 31, 2011. We had increased compensation costs in the
amount of approximately $44,000, increased royalties and commissions of
approximately $17,000, mainly due to the sales of the Flo-Med product, increased
accounting fees in the amount of approximately $11,000 coupled with decreased
engineering and patent costs in the amount of approximately $60,000. Cost of
sales increased by $32,358 or 20% from $161,195 for the three months ended
December 31, 2010 to $193,553 for the three months ended December 31, 2011 due
to an increase in sales in our electronics, chemical and Action subsidiary.
NET LOSS AND NET LOSS PER SHARE
Net loss for the three months ended December 31, 2011 was $33,606, or $0.00 per
share, compared to a net loss for the three months ended December 31, 2010 of
$109,769, or $0.00 per share. Interest income increased $403 to $1,484 in the
three months ended December 31, 2011, from $1,081 in the three months ended
December 31, 2010, due to increased funds invested in a money market account and
an increase in accrued interest receivable on a convertible note issued to
Wellington.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED DECEMBER 31, 2011 AS COMPARED TO
DECEMBER 31, 2010
REVENUES
Net revenues were $1,344,694 for the nine months ended December 31, 2011 as
compared to $934,418 for the nine months ended December 31, 2010, an increase of
$410,276, or 44 %. The increase in the nine month revenue ending December 31,
2011 resulted from an increase in sales to customers in our electronics division
in the amount of $416,300 over the nine month period ended December 31, 2010
revenues and coupled with a decrease in sales in our chemical division in the
amount of $6,024 over the nine month period ended December 31, 2010. The
delivery of the FloMed product accounted for $282,820 of revenue in our
electronic division during nine months ended December 31, 2011. Gross profit was
$745,678 or 55%, for the nine months ended December 31, 2011 and $451,123 or 48%
for the nine months ended December 31, 2010. Gross profit percentages increased
overall 7% due to an overall labor cost percentages decrease of 5% from 15% of
sales in 2010 to 10% of sales in 2011 and a reduction of 3% in material costs.
14
--------------------------------------------------------------------------------We are highly dependent upon certain customers to generate our revenues. During
the nine month period ended December, 2011, two customers accounted for 36% of
our revenue and for the nine months ended December 31, 2010 two customers
accounted for 31% of our accounts receivable. The complete loss of or
significant reduction in business from, or a material adverse change in the
financial condition of any of our customers could cause a material and adverse
change in our revenues and operating results.
OPERATING LOSS
Loss from operations for the nine months ended December 31, 2011 was $53,695
compared to a loss from operations for the nine months ended December 31, 2010
of $385,820. Selling, general and administrative expenses decreased by $31,451,
from $771,549 for the nine months ended December 31, 2010 to $740,098 for the
nine months ended December 31, 2011. We had increased compensation costs of
approximately $44,000, coupled with decreased engineering costs in the amount of
approximately $70,000. Cost of sales increased by $115,721 or 24% from $483,295
for the nine months ended December 31, 2010 to $599,016 for the nine months
ended December 31, 2011 due to an increase in sales in our electronics, chemical
and Action subsidiary.
NET LOSS AND NET LOSS PER SHARE
Net loss for the nine months ended December 31, 2011 was $52,405, or $0.00 per
share, compared to a net loss for the nine months ended December 31, 2010 of
$384,024, or $0.01 per share. Interest income decreased $903 to $4,724 for the
nine months ended December 31, 2011, from $5,627 for the nine months ended
December 31, 2010, due to decreased funds invested in a money market account,
offset by an increase in accrued interest receivable on a convertible note
issued to Wellington.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2011, we had cash and cash equivalents of $119,349 as compared
to $155,149 at March 31, 2011. The decrease was primarily the result of a
decrease in cash used in operations during the nine month period in the amount
of $9,236 , cash used in financing activities in the amount of $22,900. 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.
On July 17, 2009 we purchased the assets of Antistatic, a company involved in
the research, development and manufacture of water-based and proprietary
electrically conductive paints, coatings and other products and accessories. The
purchase price for the assets was $66,920 of which $6,650 was paid during the
quarter ended December 31, 2011, $4,350 was paid during the quarter ended
September 30, 2011, $2,900 was paid during the quarter ended June 30, 2011,
$14,500 was paid during the fiscal year ended March 31, 2011, $38,520 was paid
during the fiscal year ended March 31, 2010. As of December 31, 2011 the note
has been paid in full.
Future Sources of Liquidity:
We expect our primary source of cash during fiscal 2012 to be net cash provided
by operating activities. We expect that growth in revenues and continued focus
on new customers will enable us to continue to generate cash flows from
operating activities. In January 2012, the company completed the sale of their
Net Operating Loss (NOL) carry-forward through the New Jersey Corporate Benefit
Transfer program. The Company sold $2,069,864 of tax loss carry-forward for the
gross amount of $173,248. The net amount realized by the Company was $169,522
after State fees and expenses.
If we do not generate sufficient cash from operations, face unanticipated cash
needs or do not otherwise have sufficient cash, we may need to consider the sale
of certain intellectual property which does not support the Company's
operations. In addition, we have the ability to reduce certain expenses
depending on the level of business operation.
Based on current expectations, we believe that our existing working capital,
including cash of $119,349 as of December 31, 2011 and other potential sources
of cash will be sufficient to meet our cash requirements. Our ability to meet
these requirements will depend on our ability to generate cash in the future,
which is subject to general economic, financial, competitive, legislative,
regulatory and other factors that are beyond our control.
OPERATING ACTIVITIES
Net cash used by operating activities was $9,236 for the nine months ended
December 31, 2011, as compared to net cash used by operating activities of
$374,171 for the nine months ended December 31, 2010. The reduction of $364,935
of cash used during the nine months ended December 31, 2011 was primarily due to
net loss reduction of $331,619, an increase in accounts receivable of $57,929
and an increase in prepaid expenses of $39,212 offset with an increase in
accrued expenses of $112,921 and a deposit payable from a customer in the amount
of $108,751.
Net cash used during the nine months ended December 31, 2010 was primarily due
to a net loss of $384,024 and an increase in net operating assets of $21,375,
offset by an increase in operating liabilities of $2,319 and depreciation
adjustments of $32,310.
15
--------------------------------------------------------------------------------INVESTING ACTIVITIES
Net cash used in investing activities was $3,664 for the nine months ended
December 31, 2011, mainly as a result of the payments for patents and trademarks
and equipment during the period.
Net cash provided in investing activities was $11,076 for the nine months ended
December 31, 2010 mainly due to an advance from a related party in the amount of
$19,696 offset by payments for patents and trademarks of $7,185 and deposits
into a restricted cash account of $1,435.
FINANCING ACTIVITIES
For the nine months ended December 31, 2011, net cash used for financing
activities was $22,900, of which $9,000 was used for repayment on a note from a
commercial bank to facilitate our acquisition of Action and $13,900 was used for
repayment of notes payable - other.
For the nine months ended December 31, 2010, net cash used for financing
activities was $22,050, of which $9,000 was used for repayment on a note from a
commercial bank to facilitate our acquisition of Action. In addition, $13,050
was used for repayment of notes payable - other.
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 that is material to investors.
[ Back To TMCnet.com's Homepage ]
|
TMCnet LOGIN
Webinars
