PART I. FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

ADM TRONICS UNLIMITED, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS

The accompanying notes are an integral part of these condensed consolidated financial statements.

ADM TRONICS UNLIMITED, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE AND SIXNINE MONTHS ENDED SEPTEMBER 30, 3019DECEMBER 31, 2019 AND 2018

(Unaudited) 

The accompanying notes are an integral part of these condensed consolidated financial statements.

ADM TRONICS UNLIMITED, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDER’S (DEFICIENCY)

FOR THE NINE MONTHS ENDED DECEMBER 31, 2019 

(Unaudited)

The accompanying notes are an integral part of these condensed consolidated financial statements.

ADM TRONICS UNLIMITED, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIXNINE MONTHS ENDED SEPTEMBER 30,DECEMBER 31, 2019 AND 2018

(Unaudited)

The Company values its inventories at the lower of cost and net realizable value using the first in, first out (“FIFO”) method. 

Information about segments is as follows:

Rent and real estate tax expense for all facilities for the three and six months ended September 30, 2019 and 2018 was approximately $19,000 and $19,000 and $37,000 and $32,000, respectively. 

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 condensed 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, 2019.   

CRITICAL ACCOUNTING POLICIES

REVENUE RECOGNITION

We recognize revenue from engineering services on a project or monthly basis and contract manufacturing revenues are recognized after shipment of completed products. For the sale of our electronic products, revenues are recognized when they are shipped to the purchaser. 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. 

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

USE OF ESTIMATES

Our discussion and analysis of our financial condition and results of operations is based upon our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these condensed 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

The Company is a technology-based developer and manufacturer of diversified lines of products and derives revenue from the production and sale of electronics for medical devices and other applications; environmentally safe chemical products for industrial, medical and cosmetic uses; and, research, development, regulatory and engineering services. The Company has increased internal research and development by utilizing their engineering resources to advance their own proprietary medical device technologies.

The Company is a corporation that was organized under the laws of the State of Delaware on November 24, 1969. Our operations are conducted through ADM Tronics Unlimited, Inc. ("ADM") and its subsidiary Sonotron Medical Systems, Inc. ("SMI").  

RESULTS OF OPERATIONS FOR THE THREE AND AND SIX NINEMONTHS ENDED SEPTEMBERDECEMBER 31 30,, 2019 AS COMPARED TO SEPTEMBERDECEMBER 31 30,, 2018  

Revenues for the three months ended September 30,December 31, 2019 increased by $102,095.$65,588. The increase is a result of increased sales of $181,469$248,335 in the electronicsElectronics segment and $13,831 in the Chemical segment offset by reductionsa decrease of $15,048 and $64,326$196,578 in the Chemical and Engineering segments, respectively.segment.

Gross profit for the three months ended September 30,December 31, 2019 decreasedincreased by $109,736.$85,095. The decreaseincrease in gross profit resulted primarily from increased labor costs and associated payroll taxes.sales in Electronics coupled with lower manufacturing costs.

We are highly dependent upon certain customers. During the three months ended September 30,December 31, 2019, one customerscustomer accounted for 47%51% of our net revenue. Net revenues from foreign customers for the three months ended September 30,December 31, 2019 was $116,910$38,944 or 12%5%.

During the sixnine months ended September 30,December 31, 2019 one customer accounted for 48%49% of our net revenue. Net revenues from foreign customers for the sixnine months ended September 30,December 31, 2019 was $247,539$281,226 or 15%11%.

During the three months ended September 30,December 31, 2018, one customertwo customers accounted for 39%61% of our net revenue. During the sixnine months ended  September 30,December 31, 2018 two customers accounted for 49%56% of our net revenuerevenue. Net revenues from foreign customers for the three and nine months ended December 31, 2018 was $77,275 or 10% and $324,814 or 14%.

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.

IncomeLoss from operations for the three months ended September 30,December 31, 2019 decreased by $130,203.$154,198. The decreaseincrease in operating income for the three-month period is from an increase in income from both the Chemical and Electronic segments of the following expenses: approximately $18,000 in accounting fees, $17,000 in administrative salary, $30,000 in health insurance,$62,260 and $41,000 in research and development.$138,298, respectively.

IncomeLoss from operations for the sixnine months ended September 30,December 31, 2019 decreased by $78,014.$76,184. The decreaseincrease in operating income for the six-monthnine-month period is primarily from an increase in operating income from Electronics and Chemical segments of the following expenses: approximately $18,000 in accounting fees, $22,000 in health insurance,$116,831 and $78,000 in research and development offset by decreases in consulting fees of $45,000.$16,788 respectively.

Interest income decreased $656$795 for the three months ended September 30,December 31, 2019. The decrease is due to decreased funds invested in a money market account. Interest expense increased $43.$19.

Interest income increased $248decreased $547 for the sixnine months ended September 30,December 31, 2019. Interest expense increased $898. primarily due to increase in the interest rate.decreased $917.

The foregoing resulted in a net loss before provision for income taxes for the three months ended September 30,December 31, 2019 of $28,409$60,530 and net incomeloss of $25,360$24,170 for the sixnine months ended September 30, 2019 .December 31, 2019. Earnings per share were $0.00 for the three and sixnine months ended September 30,December 31, 2019 and 2018, respectively.

LIQUIDITY AND CAPITAL RESOURCES   

At September 30,December 31, 2019, we had cash and cash equivalents of $1,627,203$1,601,435 as compared to $1,555,687 at March 31, 2019. The $71,516$45,748 increase was primarily the result of cash provided by operations during the six-monthnine-month period in the amount of $257,495,$239,773, offset with cash used in financing activities of $185,979.$194,025. Our cash will continue to be used for increased marketing costs, and increased production labor costs all in an attempt to increase our revenue, as well as increased expenditures for our internal R&D.  We expect to have enough cash to fund operations for the next twelve months.    

Future Sources of Liquidity:

We expect that growth with profitable customers and continued focus on new customers will enable us to continue to generate cash flows from operating activities during fiscal 2020. 

Based on current expectations, we believe that our existing cash and cash equivalents of $1,627,203$1,601,435 as of September 30,December 31, 2019, 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 provided by operating activities was $257,495$239,773 for the sixnine months ended September 30,December 31, 2019, as compared to net cash used in operating activities of $60,640$188,613 for the sixnine months ended September 30,December 31, 2018.  The cash provided during the sixnine months ended September 30,December 31, 2019 was primarily due to net incomeloss of $25,360$22,184 plus depreciation and amortization of $19,449$29,174 coupled with an increase in net operating liabilities of $1,342,964,$1,012,952, coupled with a decrease in net operating assets of $1,186,993.$824,531.

INVESTING ACTIVITIES

No cash was provided for or used in investing activities for the sixnine months ended September 30,December 31, 2019.

FINANCING ACTIVITIES

For the sixnine months ended September 30,December 31, 2019, net cash used by financing activities was $185,979$194,025 due to repayments on capital lease obligations and repayments on the line of credit.credit net of borrowings. 

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.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Concentration of Credit Risk

Financial instruments that potentially subject us to significant concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable.

Cash and cash equivalents – For financial statement purposes, the Company considers as cash equivalents all highly liquid investments with an original maturity of three months or less at inception. The Company deposits cash and cash equivalents with high credit quality financial institutions and believes that any amounts in excess of insurance limitations to be at minimal risk. Cash and cash equivalents held at these accounts are current insured by the Federal Deposit Insurance Corporation (“FDIC”) up to a maximum of $250,000. At September 30,December 31, 2019, approximately $1,298,000$1,288,000 exceeded the FDIC limit.

Our sales are materially dependent on a small group of customers, as noted in Note 4 of our condensed consolidated financial statements. We monitor our credit risk associated with our receivables on a routine basis. We also maintain credit controls for evaluating and granting customer credit. 

ITEM 4. CONTROLS AND PROCEDURES

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

The Company's management, including the Company's principal executive officer and principal financial officer, have evaluated the effectiveness of the Company's "disclosure controls and procedures," as such term is defined in Ru1e 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended, (the "Exchange Act"). Based upon their evaluation, the principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report, the Company's disclosure controls and procedures were not effective for the purpose of ensuring that the information required to be disclosed in the reports that the Company files or submits under the Exchange Act with the Securities and Exchange Commission (the "SEC") (1) is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and (2) is accumulated and communicated to the Company's management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. During the quarterly period ended September 30,December 31, 2019, there were no changes in the Company's internal control over financial reporting which materially affected, or are reasonably likely to materially affect, the Company's internal controls over financial reporting. 

The determination that our disclosure controls and procedures were not effective as of September 30,December 31, 2019, is a result of:

a. Deficiencies in Internal Control Structure Environment. During the current year, the Company’s focus was on expanding their customer base to initiate revenue production.  

b. Inadequate staffing and supervision within the accounting operations of our company. The relatively small number of employees who are responsible for accounting functions prevents the Company from segregating duties within its internal control system. The inadequate segregation of duties is a weakness because it could lead to the untimely identification and resolution of accounting and disclosure matters or could lead to a failure to perform timely and effective reviews.  The Company’s plan is to expand its accounting operations as the business of the Company expands. 

The Company believes that the financial statements present fairly, in all material respects, the Company’s condensed consolidated balance sheets as of September 30,December 31, 2019, and March 31, 2019 and the related condensed consolidated statements of income, and cash flows for the three and sixnine months ended September 30,December 31, 2019 and 2018, in conformity with generally accepted accounting principles, notwithstanding the material weaknesses we identified. 

CHANGES IN INTERNAL CONTROLS OVER FINANCIAL REPORTING

There were no changes in our internal control over financial reporting that occurred during our last fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

In July 2018, the Company filed a complaint for damages, attorney's fees, costs and a declaratory judgement against Securities Transfer Corporation (STC) to compel STC to release the Company's stock transfer records to a new transfer agent.  STC refused to do so unless a termination fee of $10,578.76 was paid by the Company, although the agreement between STC and the Company provides for a termination fee of $500.  STC filed a counterclaim for damages in the above amount plus approximately $4,000 in unpaid fees.  The Company believed the counterclaim was without merit.  On November 30, 2018, the declamatory judgement was decided in favor of the Company and STC released the Company’s stock transfer records to the new transfer agent in December 2018. The lawsuit was settled on September 30, 2019 with a $5,000 settlement fee paid to STC.

In November 2019 the Company filed a civil suit in the Superior Court of New Jersey against an accounting firm seeking a declaratory judgement from the court that no sum is due to the accounting firm, plus damages, attorney's fees and costs with respect to the foregoing.  Since this civil suit is in the early stages of litigation, its ultimate outcome cannot be predicted with certainty at this time.

We are involved, from time to time, in litigation and proceedings arising out of the ordinary course of business.  Other than the foregoing, there are no pending material legal proceedings or environmental investigations to which we are a party or to which our property is subject.

ITEM 1A. RISK FACTORS

There have been no material changes to the risk factors contained in our Annual Report on Form 10-K for the year ended March 31, 2019. 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None 

ITEM 4. MINE SAFETY DISCLOSURES

None

ITEM 5. OTHER INFORMATION

None 

ITEM 6. EXHIBITS.

(a) Exhibit No.

31.1 Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1 Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

** XBRL information is furnished and not filed or a part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

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.

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