UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2019June 30, 2020
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 (State or Other Jurisdiction of Incorporation or organization) | 22-1896032 (I.R.S. Employer Identification Number) |
224-S Pegasus Ave., Northvale, New Jersey 07647
(Address of Principal Executive Offices)
Registrant's Telephone Number, including area code: (201) 767-6040
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
None | N/A | N/A |
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: YES ☒ NO ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
YES ☒ NO ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ | Accelerated filer ☐ |
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Non-accelerated filer ☐ | Smaller reporting company ☒ |
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| Emerging growth company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
YES ☐ NO ☒
State the number of shares outstanding of each of the Issuer's classes of common equity, as of the latest practicable date:
67,588,49267,588,504 shares of Common Stock, $.0005 par value, as of FebruaryAugust 19, 2020.
ADM TRONICS UNLIMITED, INC. AND SUBSIDIARY
INDEX
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Part I - Financial Information |
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Item 1. | Condensed Consolidated Financial Statements: |
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| Condensed Consolidated Balance Sheets – | 3 |
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| Condensed Consolidated Statements of Operations for the three | 4 |
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Condensed Consolidated Statement of Stockholders’ | 5 | |
| Condensed Consolidated Statements of Cash Flows for the | 6 |
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| Notes to Condensed Consolidated Financial Statements (unaudited) | 7 |
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Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. | Quantitative and Qualitative Disclosures about Market Risk |
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Item 4. | Controls and Procedures |
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Part II - Other Information |
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Item 1. | Legal Proceedings |
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Item 1A. | Risk Factors |
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Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
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Item 3. | Defaults Upon Senior Securities |
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Item 4. | Mine Safety Disclosures |
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Item 5. | Other Information |
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Item 6. | Exhibits |
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PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
ADM TRONICS UNLIMITED, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, | March 31, | |||||||
2019 | 2019 | |||||||
(Unaudited) | (Audited) | |||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 1,601,435 | $ | 1,555,687 | ||||
Accounts receivable, net of allowance for doubtful accounts of $160,000 for each period | 712,141 | 916,844 | ||||||
Inventories | 523,240 | 326,308 | ||||||
Prepaid expenses and other current assets | 106,922 | 28,582 | ||||||
Total current assets | 2,943,738 | 2,827,421 | ||||||
Other Assets: | ||||||||
Property and equipment, net of accumulated depreciation of $136,226 and $108,099 at December 31, 2019 and March 31, 2019, respectively | 67,334 | 95,461 | ||||||
Right-of-use asset | 719,825 | - | ||||||
Accounts receivable-related party | 330,090 | 330,090 | ||||||
Inventories - long-term portion | 85,457 | 85,457 | ||||||
Intangible assets, net of accumulated amortization of $13,082 and $12,035 at December 31, 2019 and March 31, 2019, respectively | 7,852 | 8,899 | ||||||
Other assets | 90,538 | 90,764 | ||||||
Deferred tax asset | 1,025,000 | 1,107,000 | ||||||
Total other assets | 2,326,096 | 1,717,671 | ||||||
Total assets | $ | 5,269,834 | $ | 4,545,092 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
Current liabilities: | ||||||||
Capital lease payable | $ | 29,505 | $ | 31,196 | ||||
Line of credit | - | 169,885 | ||||||
Accounts payable | 288,132 | 275,591 | ||||||
Accrued expenses and other current liabilities | 135,120 | 150,549 | ||||||
Customer deposits | 668,244 | 321,441 | ||||||
| Current operating lease liability | 68,588 | |||||||
Due to stockholder | 123,117 | 139,322 | ||||||
Total current liabilities | 1,312,766 | 1,087,984 | ||||||
Long-term liabilities | ||||||||
Capital lease payable, net of current portion | - | 22,450 | ||||||
Operating lease liability, net of current portion | 616,654 | - | ||||||
Total long-term liabilities | 616,654 | 22,450 | ||||||
Total liabilities | $ | 1,929,360 | $ | 1,110,434 | ||||
Stockholders' equity: | ||||||||
Preferred stock, $.01 par value; 5,000,000 shares authorized, no shares issued and outstanding | $ | - | $ | - | ||||
Common stock, $0.0005 par value; 150,000,000 shares authorized, 67,588,492 shares issued and outstanding | 33,794 | 33,794 | ||||||
Additional paid-in capital | 33,294,069 | 33,294,069 | ||||||
Accumulated deficit | (29,987,390 | ) | (29,893,205 | ) | ||||
Total stockholders' equity | 3,340,473 | 3,434,658 | ||||||
Total liabilities and stockholders' equity | $ | 5,269,833 | $ | 4,545,092 | ||||
June 30, | March 31, | |||||||
2020 | 2020 | |||||||
(Audited) | ||||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 1,575,472 | $ | 1,438,714 | ||||
Accounts receivable, net of allowance for doubtful accounts of $225,000 at June 30, 2020 and March 31, 2020, respectively | 837,581 | 860,539 | ||||||
Inventories | 452,098 | 372,635 | ||||||
Prepaid expenses and other current assets | 49,180 | 23,525 | ||||||
Total current assets | 2,914,331 | 2,695,413 | ||||||
Other Assets: | ||||||||
Property and equipment, net of accumulated depreciation of $154,978 and $145,602 June 30, 2020 and March 31, 2020, respectively | 48,582 | 57,958 | ||||||
Right-of-use asset | 689,597 | 706,307 | ||||||
Accounts receivable-related party | 330,090 | 330,090 | ||||||
Inventories - long-term portion | 132,080 | 132,080 | ||||||
Intangible assets, net of accumulated amortization of $14,710 and $14,093 at June 30, 2020 and March 31, 2020, respectively | 21,084 | 21,703 | ||||||
Other assets | 90,538 | 90,538 | ||||||
Deferred tax asset | 1,061,000 | 1,019,000 | ||||||
Total other assets | 2,372,971 | 2,357,676 | ||||||
Total assets | $ | 5,287,302 | $ | 5,053,089 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
Current liabilities: | ||||||||
Paycheck Protection Program Loan | $ | 381,000 | $ | - | ||||
Financing lease payable | 13,412 | 21,458 | ||||||
Line of credit | 55,000 | 30,000 | ||||||
| Operating lease liability - current | 68,961 | 68,106 | ||||||
Accounts payable | 281,058 | 365,475 | ||||||
Accrued expenses and other current liabilities | 108,312 | 136,188 | ||||||
Customer deposits | 451,030 | 354,745 | ||||||
Due to stockholder | 84,730 | 100,017 | ||||||
Total current liabilities | 1,443,503 | 1,075,989 | ||||||
Long-term liabilities | ||||||||
Operating lease liability - noncurrent | 620,636 | 638,201 | ||||||
Total long-term liabilities | 620,636 | 638,201 | ||||||
Total liabilities | 2,064,139 | 1,714,190 | ||||||
Stockholders' equity: | ||||||||
Preferred stock, $.01 par value; 5,000,000 shares authorized, no shares issued and outstanding | $ | - | $ | - | ||||
Common stock, $0.0005 par value; 150,000,000 shares authorized, 67,588,504 shares issued and outstanding | 33,794 | 33,794 | ||||||
Additional paid-in capital | 33,294,069 | 33,294,069 | ||||||
Accumulated deficit | (30,104,700 | ) | (29,988,964 | ) | ||||
Total stockholders' equity | 3,223,163 | 3,338,899 | ||||||
Total liabilities and stockholders' equity | $ | 5,287,302 | $ | 5,053,089 | ||||
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 NINE MONTHS ENDED DECEMBER 31, 2019JUNE 30, 2020 AND 20182019
(Unaudited)
Three months ended | Nine months ended | |||||||||||||||||||||||
December 31, | December 31, | |||||||||||||||||||||||
2019 | 2018 | 2019 | 2018 | 2020 | 2019 | |||||||||||||||||||
Net revenues | $ | 805,126 | $ | 739,538 | $ | 2,592,738 | $ | 2,351,201 | $ | 569,093 | $ | 830,821 | ||||||||||||
Cost of sales | 487,055 | 506,562 | 1,427,512 | 1,143,600 | 401,503 | 396,009 | ||||||||||||||||||
Gross Profit | 318,071 | 232,976 | 1,165,226 | 1,207,601 | 167,590 | 434,812 | ||||||||||||||||||
Operating expenses: | ||||||||||||||||||||||||
Research and development | 169,650 | 115,202 | 464,167 | 331,785 | 125,904 | 145,766 | ||||||||||||||||||
Selling, general and administrative | 208,639 | 332,190 | 724,729 | 975,584 | 219,780 | 214,255 | ||||||||||||||||||
Depreciation and amortization | 5,506 | 5,506 | 16,517 | 16,603 | 5,776 | 5,506 | ||||||||||||||||||
Total operating expenses | 383,795 | 452,898 | 1,205,413 | 1,323,972 | 351,460 | 365,527 | ||||||||||||||||||
(Loss) from operations | (65,724 | ) | (219,922 | ) | (40,187 | ) | (116,371 | ) | ||||||||||||||||
Income (loss) from operations | (183,870 | ) | 69,285 | |||||||||||||||||||||
Other income (expense): | ||||||||||||||||||||||||
EIDL grant income | 10,000 | - | ||||||||||||||||||||||
Interest income | 6,051 | 6,846 | 19,745 | 20,292 | 4,909 | 7,153 | ||||||||||||||||||
Interest and finance expenses | (857 | ) | (838 | ) | (3,728 | ) | (2,811 | ) | ||||||||||||||||
Interest expense | (1,275 | ) | (1,669 | ) | ||||||||||||||||||||
Total other income (expense) | 5,194 | 6,008 | 16,017 | 17,481 | 13,634 | 5,484 | ||||||||||||||||||
(Loss) before provision for income taxes | (60,530 | ) | (213,914 | ) | (24,170 | ) | (98,890 | ) | ||||||||||||||||
Income (loss) before provision for taxes | (170,236 | ) | 74,769 | |||||||||||||||||||||
Provision (benefit) for income taxes: | ||||||||||||||||||||||||
Benefit (provision) for income taxes: | ||||||||||||||||||||||||
Current | (12,985 | ) | (6,000 | ) | (11,985 | ) | - | 12,500 | (1,000 | ) | ||||||||||||||
Deferred | 72,000 | (65,000 | ) | 82,000 | (97,000 | ) | 42,000 | (21,000 | ) | |||||||||||||||
Total provision (benefit) for income taxes | 59,015 | (71,000 | ) | 70,015 | (97,000 | ) | ||||||||||||||||||
| . | ||||||||||||||||||||||||
Net (loss) | $ | (119,545 | ) | $ | (142,914 | ) | $ | (94,185 | ) | $ | (1,890 | ) | ||||||||||||
Total benefit (provision) for income taxes | 54,500 | (22,000 | ) | |||||||||||||||||||||
Basic and diluted per common share: | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.00 | ) | ||||||||||||
Net income (loss) | $ | (115,736 | ) | $ | 52,769 | |||||||||||||||||||
Weighted average shares of common stock outstanding - basic and diluted | 67,588,492 | 67,588,492 | 67,588,492 | 67,588,492 | ||||||||||||||||||||
Basic and diluted earnings per common share: | $ | (0.00 | ) | $ | 0.00 | |||||||||||||||||||
Weighted average shares of common stock outstanding - basic | 67,588,504 | 67,588,504 | ||||||||||||||||||||||
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)EQUITY
FOR THE NINETHREE MONTHS ENDED DECEMBER 31, 2019 JUNE 30, 2020
(Unaudited)
| Common Stock Shares | Common Stock Amount | Additional Paid-in Capital | Accumulated Deficit | Total | ||||||||||||||||
| Balance at March 31, 2019 | 67,588,492 | $ | 33,794 | $ | 33,294,069 | $ | (29,893,205 | ) | 3,434,658 | |||||||||||
| Net income (loss) | - | - | - | (94,185 | ) | (94,185 | ) | |||||||||||||
| Balance at December 31, 2019 | 67,588,492 | 33,794 | 33,294,069 | (29,987,390 | ) | 3,340,473 | ||||||||||||||
Common | Common Stock Amount | Additional Paid-in Capital | Accumulated Deficit | Total | ||||||||||||||||
Balance at March 31, 2020 | 67,588,492 | $ | 33,794 | $ | 33,294,069 | $ | (29,988,964 | ) | $ | 3,338,899 | ||||||||||
Net (loss) | - | - | - | (115,736 | ) | (115,736 | ) | |||||||||||||
Balance at June 30, 2020 | 67,588,492 | $ | 33,794 | $ | 33,294,069 | $ | (30,104,700 | ) | $ | 3,223,163 | ||||||||||
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 NINETHREE MONTHS ENDED DECEMBER 31, 2019JUNE 30, 2020 AND 20182019
(Unaudited)
2019 | 2018 | |||||||
Cash flows from operating activities: | ||||||||
Net (loss) | $ | (94,185 | ) | $ | (1,890 | ) | ||
Adjustments to reconcile net (loss) to net cash provided (used in) operating activities: | ||||||||
Depreciation and amortization | 29,174 | 29,331 | ||||||
Write-off of inventories | 34,363 | - | ||||||
Deferred taxes | 82,000 | (97,000 | ) | |||||
| Non-cash operating lease cost | 41,823 | |||||||
Changes in operating assets and liabilities balances: | ||||||||
Accounts receivable | 204,703 | (41,744 | ) | |||||
Inventories | (231,295 | ) | (155,430 | ) | ||||
Prepaid expenses and other current assets | (78,114 | ) | (17,293 | ) | ||||
Accounts payable | 12,541 | 61,321 | ||||||
Customer deposits | 346,803 | 60,140 | ||||||
Accrued expenses and other current liabilities | (15,429 | ) | (22,354 | ) | ||||
Due to shareholder | (16,205 | ) | (3,694 | ) | ||||
Payments of operating lease liability | (76,406 | ) | - | |||||
Net cash provided by (used in) operating activities | 239,773 | (188,613 | ) | |||||
Cash flows provided (used) in financing activities: | ||||||||
Proceeds from line of credit | 185,000 | - | ||||||
Repayments of line of credit | (354,885 | ) | - | |||||
Repayments on capital lease payable | (24,140 | ) | (24,141 | ) | ||||
Net cash (used in) financing activities | (194,025 | ) | (24,141 | ) | ||||
Net increase (decrease) in cash and cash equivalents | 45,748 | (212,754 | ) | |||||
Cash and cash equivalents - beginning of period | 1,555,687 | 1,693,532 | ||||||
Cash and cash equivalents - end of period | $ | 1,601,435 | $ | 1,480,778 | ||||
Cash paid for: | ||||||||
Interest | $ | 3,728 | $ | 2,811 | ||||
Taxes | $ | 750 | $ | - | ||||
2020 | 2019 (restated) | |||||||
Cash flows from operating activities: | ||||||||
Net income (loss) | $ | (115,736 | ) | $ | 52,769 | |||
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | ||||||||
Depreciation and amortization | 9,995 | 9,725 | ||||||
Write-off of inventories | 14,593 | 15,639 | ||||||
Deferred taxes | (42,000 | ) | 21,000 | |||||
Non-cash operating lease expense | 16,710 | 15,896 | ||||||
Non-cash interest expense | 8,758 | 9,572 | ||||||
Changes in operating assets and liabilities balances: | ||||||||
Accounts receivable | 22,958 | (92,069 | ) | |||||
Inventories | (94,056 | ) | (114,156 | ) | ||||
Prepaid expenses and other current assets | (25,655 | ) | (23,348 | ) | ||||
Accounts payable | (84,417 | ) | 7,712 | |||||
Customer deposits | 96,285 | 192,745 | ||||||
Accrued expenses and other current liabilities | (27,876 | ) | (29,032 | ) | ||||
Due to shareholder | (15,287 | ) | 2,770 | |||||
Payments of operating lease liability | (25,468 | ) | (25,468 | ) | ||||
Net cash provided by (used in) operating activities | (261,196 | ) | 43,755 | |||||
Cash flows provided (used) in financing activities: | ||||||||
Proceeds from line of credit | 25,000 | 78,000 | ||||||
Repayments of line of credit | - | (212,762 | ) | |||||
Proceeds from PPP loan | 381,000 | - | ||||||
Repayments on capital lease payable | (8,046 | ) | (8,047 | ) | ||||
Net cash provided by (used in) financing activities | 397,954 | (142,809 | ) | |||||
Net increase (decrease) in cash and cash equivalents | 136,758 | (99,054 | ) | |||||
Cash and cash equivalents - beginning of period | 1,438,714 | 1,555,687 | ||||||
Cash and cash equivalents - end of period | $ | 1,575,472 | $ | 1,456,633 | ||||
Cash paid for: | ||||||||
Interest | $ | 1,275 | $ | 704 | ||||
| Non-cash operating activities: | ||||||||
| Operating lease right-of-use asset and liability recorded upon adoption of ASC 842 | $ | - | $ | 771,098 | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
ADM TRONICS UNLIMITED, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
DECEMBER 31, 2019JUNE 30, 2020 AND MARCH 31, 20192020
NOTE 1 - NATURE OF BUSINESS
ADM Tronics Unlimited, Inc. ("we", "us", "the Company" or "ADM"), was incorporated under the laws of the state of Delaware on November 24, 1969,1969. We are a manufacturing and subsidiary (collectively, “we”, “us”, the “Company” or “ADM”), is a technology-based developer and manufacturer of diversifiedengineering concern whose principal lines of business are the design, manufacture and sale of electronics of our own products and derives revenues fromor on a contract manufacturing basis; the production and sale of electronicschemical and antistatic products; and, research, development and engineering services.
Electronic equipment is manufactured in accordance with customer specifications on a contract basis. Our electronic device product line consists principally of proprietary devices used in diagnostics and therapeutics of humans and animals and electronic controllers for spas and hot tubs. These products are sold to customers located principally in the United States. We are registered with the FDA as a contract manufacturing facility and we manufacture medical devices for customers in accordance with their designs and specifications. Our chemical product line is principally comprised of water-based chemical products used in the food packaging and converting industries, and anti-static conductive paints, coatings and other applications; environmentally safe chemicalproducts. These products for industrial, medicalare sold to customers located in the United States, Australia, Asia and cosmetic uses; and,Europe. We also provide research, development, regulatory and engineering services. The Company's customer baseservices to customers. Our Sonotron Medical Systems, Inc. subsidiary (“Sonotron”) is comprised of foreign and domestic entities with diverse demographics.involved in medical electronic therapeutic technology.
The accompanying unaudited condensed consolidated financial statements have been prepared by ADM pursuant to accounting principles generally accepted in the United States (“US GAAP”) and the rules and regulations of the Securities and Exchange Commission (“SEC”) including Form 10-Q and Regulation S-X. The information furnished herein reflects all adjustments (consisting of normal recurring accruals and adjustments) which are, in the opinion of management, necessary to fairly present the condensed financial position and operating results for the respective periods. Certain information and footnote disclosures normally present in annual financial statements prepared in accordance with US GAAP have been omitted pursuant to such rules and regulations. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and explanatory notes for the year ended March 31, 20192020 as disclosed in our annual report on Form 10-K for that year. The operating results and cash flows for the three and nine months ended December 31, 2019June 30, 2020 (unaudited) are not necessarily indicative of the results to be expected for the pending full year ending March 31, 2020.2021.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The condensed consolidated financial statements include the accounts of ADM Tronics Unlimited, Inc. and its wholly owned subsidiary, Sonotron Medical Systems, Inc. All significant intercompany balances and transactions have been eliminated in consolidation.
USE OF ESTIMATES
These unaudited condensed consolidated financial statements have been prepared in accordance with US GAAP and, accordingly, requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. Significant estimates made by management include expected economic life and value of our medical devices, reserves, deferred tax assets and related valuation allowance, write down of inventory, impairment of long livedlong-lived assets, fair value of equity instruments issued to consultants for services and fair value of equity instruments issued to others, option and warrant expenses related to compensation to employees and directors, consultants and investment banks, allowance for doubtful accounts, and warranty reserves. Actual results could differ from those estimates.
CREDIT RISKFAIR VALUE OF FINANCIAL INSTRUMENTS
FinancialFor certain of our financial instruments, that potentially subject usincluding accounts receivable, accounts payable, and accrued expenses, the carrying amounts approximate fair value due to significant concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable.their relatively short maturities.
CASH AND CASH EQUIVALENTS
For financial statement purposes, the Company considers as cashCash equivalents allare comprised of highly liquid investments with an original maturitymaturities of three months or less when purchased. We maintain our cash in bank deposit accounts, which at inception. The Company deposits cash and cash equivalents with high credit quality financial institutions and believes thattimes, may exceed federally insured limits. We have not experienced any amounts in excesslosses to date as a result of insurance limitations to be at minimal risk.this policy. 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 December 31, 2019,June 30, 2020, approximately $1,288,000$1,295,000 exceeded the FDIC limit.
ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS
Accounts receivable are stated at the amount management expects to collect from outstanding balances. The carrying amounts of accounts receivable is reduced by a valuation allowance that reflects management's best estimate of the amounts that will not be collected. Management individually reviews all accounts receivable balances that exceed the due date and estimates the portion, if any, of the balance that will not be collected. Management provides for probable uncollectible amounts through a charge to expenses and a credit to a valuation allowance, based on its assessment of the current status of individual accounts. Balances that are still outstanding after management has used reasonable collection efforts are written off through a charge to the valuation allowance and a credit to accounts receivable.
REVENUE RECOGNITION
ADM extends credit terms to our customers based on their credit worthiness. As such, we record accounts receivable at the time of shipment, when our right to the consideration becomes unconditional. Accounts receivable from our customers are typically due within 30 days of invoicing. An allowance for doubtful accounts is provided based on a periodic analysis of individual account balances, including an evaluation of days outstanding, payment history, recent payment trends, and our assessment of our customers' creditworthiness.
CHEMICAL PRODUCTS:
Revenues are recognized upon shipment to a customer because that is when the customer obtains control of the promised good.
ELECTRONICS:
We recognize revenue from the sale of our electronic products upon shipmentwhen they are shipped to a customer because that is when the customer obtains control of the promised good.purchaser. We offer a limited 90-day warranty on our electronics products.products and contract manufacturing and a limited 5-year warranty on our electronic controllers for spas and hot tubs. Historically, the amount of warranty revenue included in sales of our electronic products have been de minimus. We have no other post shipment obligations. Based on prior experience, no amounts have been accrued for potential warranty costs and actual costs were less than $2,000, for the three and nine months ended December 31, 2019 and 2018. For contract manufacturing, revenues are recognized after shipmentshipments of the completed products.
Amounts received from customers in advance of our satisfaction of applicable performance obligations are recorded as customer deposits. Such amounts are recognized as revenues when the related performance obligations are satisfied. Customer deposits of approximately $310,000$93,715 as of March 31, 2020 were recognized as revenues during the ninethree months ended December 31, 2019.June 30, 2020.
CHEMICAL PRODUCTS:
Revenues are recognized when products are shipped to end users. Shipments to distributors are recognized as revenue when no right of return exists.
ENGINEERING SERVICES:
We provide certain engineering services, including research, development, quality control, and quality assurance services along with regulatory compliance services. We recognize revenue from engineering services on a monthly basis over time as the servicesapplicable performance obligations are provided.satisfied.
All revenue is recognized net of discounts.
WARRANTY LIABILITIES
The Company’s provision for estimated future warranty costs is based upon historical relationship of warranty claims to sales. Based upon historical experience, the Company has concluded that no warranty liability is required as of the condensed consolidated balance sheet dates. However, the Company periodically reviews the adequacy of its product warranties and will record an accrued warranty reserve if necessary. Based on prior experience, no amounts have been accrued for potential warranty costs and actual costs were less than $2,000, for the three months ended June 30, 2020 and 2019.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out method) and net realizable value. Inventories that are expected to be sold within one operating cycle (1 year) are classified as a current asset. Inventories that are not expected to be sold within 1 year, based on historical trends, are classified as Inventories - long term portion. Obsolete inventory is written off annually based on prior and expected future usage.
PROPERTY AND EQUIPMENT
We record our property and equipment at historical cost. We expense maintenance and repairs as incurred. Depreciation is provided for by the straight-line method over five to seven years, the estimated useful lives of the property and equipment.
INTANGIBLE ASSETS
Intangible assets are reviewed for impairment annually whenever changes in circumstances indicate that the carrying amount may not be recoverable. In reviewing for impairment, the Company compares the carrying value of the relevant asset to the estimated undiscounted future cash flows expected from the use of the assets and their eventual disposition. When the estimated undiscounted future cash flows are less than their carrying amount, an impairment loss is recognized equal to the difference between the assets’ fair value and its carrying value.
ADVERTISING COSTS
Advertising costs are expensed as incurred and amounted to $6,636 and $12,456 for the three months ended June 30, 2020 and 2019, respectively.
SHIPPING AND HANDLING COSTS
Shipping and handling costs incurred for the three months ended June 30, 2020 and 2019 were approximately $1,400 and $900, respectively. Such costs are included in selling, general, and administrative expenses in the accompanying consolidated statements of operations.
INCOME TAXES
We report the results of our operations as part of a consolidated Federal tax return with our subsidiary. Deferred income taxes result primarily from temporary differences between financial and tax reporting. Deferred tax assets and liabilities are determined based on the difference between the financial statement basis and tax basis of assets and liabilities using enacted tax rates. A valuation allowance is recorded to reduce a deferred tax asset to that portion that is expected to more likely than not be realized.
The Company has adopted the authoritative accounting guidance with respect to accounting for uncertainty in income taxes, which clarified the accounting and disclosures for uncertain tax positions related to income taxes recognized in the consolidated financial statements and addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the consolidated financial statements. The Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the consolidated financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority.
The Company files income tax returns in several jurisdictions. The Company’s tax returns remain subject to examination, by major jurisdiction, for the years ended March 31, as follows:
Jurisdiction | Fiscal Year |
Federal | 2015 and beyond |
New Jersey | 2014 and beyond |
There are currently no tax years under examination by any major tax jurisdictions.
The Company will recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. As of June 30, 2020, and 2019, the Company has no accrued interest or penalties related to uncertain tax positions.
NET EARNINGS PER SHARE
BasicWe compute basic earnings per share is calculated based onby dividing net income/loss by the weighted average number of common shares outstanding during the periods.outstanding. Diluted earnings per share is computed similar to basic earnings per share, except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential shares had been issued and if the additional shares were dilutive. Common equivalent shares are excluded from the computation of net earnings per share if their effect is anti-dilutive.
Per share basic and diluted earnings amounted to $(0.00) and $0.00 for the three and nine months ended December 31,June 30, 2020 and June 30, 2019, and December 31, 2018, respectively.
LEASES
In February 2016, the Financial Accounting Standards Board (“FASB”) issued authoritative guidance which changes financial reporting as it relates to leasing transactions. Under the new guidance, lessees are required to recognize a lease liability, measured on a discounted basis; and a right-of-use asset, for the lease term. The Company adopted this guidance as of April 1, 2019, using the modified retrospective approach which allowed it to initially apply the guidance as of the adoption date. The Company elected the package of practical expedients available under the new standard, which allowed the Company to forgo a reassessment of (1) whether any expired or existing contracts are or contain leases, (2) the lease classification for any expired or existing leases, and (3) the initial direct costs for any existing leases.
The Company made a policy election to recognize short-term lease payments as an expense on a straight-line basis over the lease term. The Company defines a short-term lease as a lease that, at the commencement date, has a lease term of twelve months or less and does not contain an option to purchase the underlying asset that the lease is reasonably certain to exercise. Related variable lease payments are recognized in the period in which the obligation is incurred.
The Company's lease agreement contains related non-lease components (e.g. taxes, etc.). The Company separates lease components and non-lease components for all underlying asset classes.9
The adoption of this guidance had a material impact on the Company's Condensed Consolidated Balance Sheet beginning April 1, 2019 when the Company recognized (a) a lease liability of $771,098, which represents the present value of the remaining lease payments of $967,344, discounted using the Company's incremental borrowing rate of 5% and (b) the related right-of-use asset of $771,098 which represents the lease liability. Prior periods were not restated. Adoption of this standard had no change on financing leases previously subject to capital lease treatment under ASC Topic 840, Leases. See Note 9 for further discussion of leases.
The Company determines if a contractual arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, current operating lease liabilities,liability – current, and noncurrent operating lease liabilitiesliability – noncurrent on the Company’s Condensed Consolidated Balance Sheets.condensed consolidated balance sheets. ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the commencement date of the lease based on the present value of lease payments over the lease term. The lease payments included in the present value are fixed lease payments. As most of the Company’s leases do not provide an implicit rate, the Company estimates its collateralized incremental borrowing rate, based on information available at the commencement date, in determining the present value of lease payments. The operating lease ROU assets include any payments made before the commencement date and exclude lease incentives. Lease expense for lease payments is recognized on a straight-line basis over the lease term. The Company defines a short-term lease as a lease that, at
RECLASSIFICATION
Certain amounts in the commencement date, has a lease term of 12 months or less and does not contain an optionprior periods presented have been reclassified to purchaseconform to the underlying asset that the lease is reasonably certain to exercise, and recognizes short-term lease payments as an expensecurrent period financial statement presentation. These reclassifications have no effect on a straight-line basis over the lease term. Lease and nonlease components are generally accounted for separately.previously reported net income.
RECENT ACCOUNTING PRONOUNCEMENTS
Lease Accounting. In February 2016, the Financial Accounting Standards Board (“FASB”) issued authoritative guidance which changes financial reporting as it relates to leasing transactions. Under the new guidance, lessees are required to recognize a lease liability, measured on a discounted basis; and a right-of-use asset, for the lease term. The Company adopted this guidance as of April 1, 2019, using the transition method that allowed it to initially apply the guidance as of the adoption date. The Company elected the package of practical expedients available under the new standard, which allowed the Company to forgo a reassessment of (1) whether any expired or existing contracts are or contain leases, (2) the lease classification for any expired or existing leases, and (3) the initial direct costs for any existing leases. The Company made a policy election to recognize short-term lease payments as an expense on a straight-line basis over the lease term. The adoption of this guidance had a material impact on the Company’s Condensed Consolidated Balance Sheet beginning April 1, 2019. Prior periods were not restated. See Note 6 for further discussion of leases.
In June 2016, the FASB issued ASU-2016-13 “Financial Instruments – Credit Losses”. This guidance affects organizations that hold financial assets and net investments in leases that are not accounted for at fair value with changes in fair value reported in net income. The guidance requires organizations to measure all expected credit losses for financial instruments at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts. It is effective for fiscal years beginning after December 15, 2019. The Company is evaluating the potentialThis ASU has no impact on the Company’s consolidated financial statements.
Management does not believe that any other recently issued, but not yet effective accounting pronouncement, if adopted, would have a material effect on the accompanying consolidated financial statements.
NOTE 3 - INVENTORIES
|
Inventories at June 30, 2020 consisted of the following: | ||||||||||||
Current | Long Term | Total | ||||||||||
Raw materials | $ | 375,647 | $ | 121,013 | $ | 496,660 | ||||||
Finished goods | 76,451 | 11,067 | 87,518 | |||||||||
Totals | $ | 452,098 | $ | 132,080 | $ | 584,178 | ||||||
Inventories at March 31, 2020 consisted of the following: | Inventories at March 31, 2020 consisted of the following: | |||||||||||||||||||||||
Current | Long Term | Total | Current | Long Term | Total | |||||||||||||||||||
Raw materials | $ | 474,916 | $ | 84,721 | $ | 559,637 | $ | 289,369 | $ | 121,013 | $ | 410,382 | ||||||||||||
Finished goods | 48,324 | 736 | 49,060 | 83,266 | 11,067 | 94,333 | ||||||||||||||||||
Totals | $ | 523,240 | $ | 85,457 | $ | 608,697 | $ | 372,635 | $ | 132,080 | $ | 504,715 | ||||||||||||
|
Current | Long Term | Total | ||||||||||
Raw materials | $ | 273,039 | $ | 84,721 | $ | 357,760 | ||||||
Finished goods | 53,269 | 736 | 54,005 | |||||||||
Totals | $ | 326,308 | $ | 85,457 | $ | 411,765 | ||||||
The Company values its inventories at the lower of cost and net realizable value using the first in, first out (“FIFO”) method.
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment as of June 30, 2020 and March 31, 2020 is as follows:
June 30, 2020 | March 31,2020 | |||||||
Machinery and equipment | $ | 199,810 | $ | 199,810 | ||||
Leasehold improvements | 3,750 | 3,750 | ||||||
| 203,560 | 203,560 | |||||||
Accumulated depreciation and amortization | (154,978 | ) | (145,602 | ) | ||||
Property and equipment, net | $ | 48,582 | $ | 57,958 | ||||
NOTE 5 - INTANGIBLE ASSETS
Intangible assets are being amortized using the straight line method over periods ranging from 10-15 years with a weighted average remaining life of approximately 6 years.
June 30, 2020 | March 31, 2020 | ||||||||||||||||||||||||||||||||||
Cost | Accumulated Amortization | Net Carrying Amount | Amortization Period (Years) | Cost |
Accumulated Amortization | Net Carrying Amount | Amortization Period (Years) | ||||||||||||||||||||||||||||
Patents & Trademarks | $ | 35,794 | $ | (14,710 | ) | $ | 21,084 | 10 | - | 15 | $ | 35,794 | $ | (14,091 | ) | $ | 21,703 | 10 | - | 15 | |||||||||||||||
Estimated aggregate future amortization expense related to intangible assets is as follows:
For the fiscal years ended June 30, | ||||
2021 | $ | 2,882 | ||
2022 | 2,882 | |||
2023 | 2,882 | |||
2024 | 2,882 | |||
2025 | 2,275 | |||
Thereafter | 7,281 | |||
| $ | 21,084 |
NOTE 6 – CONCENTRATIONS
During the three months ended December 31, 2019, one customerJune 30, 2020, two customers accounted for 51%54% of our net revenue. During the ninethree months ended December 31,June 30, 2019, one customertwo customers accounted for 49%60% of our net revenue.
During the three months ended December 31, 2018 two customers accounted for 61% of our net revenue. During the nine months ended December 31, 2018 two customers accounted for 56% of our net revenue.
As of DecemberJune 30, 2020, three customers represented 84% of our gross accounts receivable. As of March 31, 2019, one customer2020, three customers represented 72%83% of our gross accounts receivable.
AsThe Company’s customer base is comprised of March 31, 2019, two customers represented 88% of our gross accounts receivable.
Net revenuesforeign and domestic entities with diverse demographics. Revenues from foreign customers for the three and nine months ended December 31, 2019June 30, 2020 was $38,944$24,666 or 5% and $281,226 or 11%, respectively.4%.
Net revenuesRevenues from foreign customers for the three and nine months ended December 31, 2018June 30, 2019 was $77,275$125,372 or 10% and $324,814 or 14%, respectively.
At December 31, 2019 and March 31, 2019, accounts receivable included $2,293 and $405, respectively, from foreign customers.15%.
NOTE 57 - DISAGGREGATED REVENUES AND SEGMENT INFORMATION
The following tables show the Company's revenues disaggregated by reportable segment and by product and service type:
Three months Ended December 31, | ||||||||
2019 | 2018 | |||||||
Net Revenue in the US | ||||||||
Chemical | $ | 256,318 | $ | 204,156 | ||||
Electronics | 430,114 | 181,779 | ||||||
Engineering | 79,750 | 276,328 | ||||||
| 766,182 | 662,263 | |||||||
Net Revenue outside the US | ||||||||
Chemical | 38,944 | 77,275 | ||||||
Electronics | - | - | ||||||
Engineering | - | - | ||||||
| 38,944 | 77,275 | |||||||
Total Revenues | $ | 805,126 | $ | 739,538 | ||||
Nine Months Ended December 31, | ||||||||
2019 | 2018 | |||||||
Net Revenue in the US | ||||||||
Chemical | $ | 814,317 | $ | 768,485 | ||||
Electronics | 866,091 | 405,486 | ||||||
Engineering | 631,104 | 852,416 | ||||||
| 2,311,512 | 2,026,387 | |||||||
Net Revenue outside the US | ||||||||
Chemical | 281,226 | 299,814 | ||||||
Electronics | - | 25,000 | ||||||
Engineering | - | - | ||||||
| 281,226 | 324,814 | |||||||
Total Revenues | $ | 2,592,738 | $ | 2,351,201 | ||||
Three Months Ended June 30, | ||||||||
2020 | 2019 | |||||||
Net Revenue in the US | ||||||||
Chemical | $ | 161,857 | $ | 262,260 | ||||
Electronics | 288,062 | 154,767 | ||||||
Engineering | 94,508 | 288,422 | ||||||
| 544,427 | 705,449 | |||||||
Net Revenue outside the US | ||||||||
Chemical | 24,666 | 125,372 | ||||||
Electronics | - | - | ||||||
Engineering | - | - | ||||||
| 24,666 | 125,372 | |||||||
Total Revenues | $ | 569,093 | $ | 830,821 | ||||
Information about segments is as follows:
Chemical | Electronics | Engineering | Total | |||||||||||||
Three months ended December 31, 2019 | ||||||||||||||||
Revenue from external customers | $ | 295,262 | $ | 430,114 | $ | 79,750 | $ | 805,126 | ||||||||
Segment operating income | $ | 68,392 | $ | (114,589 | ) | $ | (19,527 | ) | $ | (65,724 | ) | |||||
Nine months ended December 31, 2019 | ||||||||||||||||
Revenue from external customers | $ | 1,095,543 | $ | 866,091 | $ | 631,104 | $ | 2,592,738 | ||||||||
Segment operating income | $ | 100,659 | $ | (200,973 | ) | $ | 60,127 | $ | (40,187 | ) | ||||||
Three months ended December 31, 2018 | ||||||||||||||||
Revenue from external customers | $ | 281,431 | $ | 181,779 | $ | 276,328 | $ | 739,538 | ||||||||
Segment operating income | $ | (70,274 | ) | $ | (166,740 | ) | $ | 17,092 | $ | (219,922 | ) | |||||
Nine months ended December 31, 2018 | ||||||||||||||||
Revenue from external customers | $ | 1,068,299 | $ | 430,486 | $ | 852,416 | $ | 2,351,201 | ||||||||
Segment operating income | $ | 89,456 | $ | (313,649 | ) | $ | 107,822 | $ | (116,371 | ) | ||||||
Total assets at December 31, 2019 | $ | 2,266,028 | $ | 1,686,347 | $ | 1,317,459 | $ | 5,269,834 | ||||||||
Total assets at March 31, 2019 | $ | 1,985,501 | $ | 1,099,983 | $ | 1,459,608 | $ | 4,545,092 | ||||||||
Chemical | Electronics | Engineering | Total | |||||||||||||
Three months ended June 30, 2020 | ||||||||||||||||
Revenue from external customers | $ | 186,523 | $ | 288,062 | $ | 94,508 | $ | 569,093 | ||||||||
Segment operating (loss) | $ | (45,152 | ) | $ | (114,805 | ) | $ | (23,913 | ) | $ | (183,870 | ) | ||||
Three months ended June 30, 2019 | ||||||||||||||||
Revenue from external customers | $ | 387,632 | $ | 154,767 | $ | 288,422 | $ | 830,821 | ||||||||
Segment operating income (loss) | $ | 74,901 | $ | (56,860 | ) | $ | 51,244 | $ | 69,285 | |||||||
Total assets at June 30, 2020 | $ | 1,732,939 | $ | 2,676,313 | $ | 878,050 | $ | 5,287,302 | ||||||||
Total assets at March 31, 2020 | $ | 2,021,235 | $ | 1,970,705 | $ | 1,061,149 | $ | 5,053,089 | ||||||||
NOTE 68 – LEASESACCOUNTS RECEIVABLE - RELATED PARTY
The Company has an operatinga $75,000 investment for approximately 23% of Qol Devices Inc. (Qol), which is carried at cost and reported as a component of other assets in the accompanying consolidated balance sheets.
The Company provided $330,090 in engineering services to Qol during the year March 31, 2018. Qol owes the Company $330,090 as of June 30, 2020.
NOTE 9 – LEASES
We lease for theirour office and manufacturing facility.facility under a non-cancelable operating lease, which expires on June 30, 2028. The Company’s lease has a remaining lease term of approximately 8.3 years. Operating lease expense for the nine months ended December 31, 2019, was approximately $23,000. Rental expense, for office and manufacturing premise, was approximately $38,000 for the nine months ended December 31, 2018, respectively.
Supplemental balance sheet information related to leases consisted of the following:
Company The following is a maturity analysis of the annual undiscounted cash flows of the operating lease liabilityliabilities as of December 31, 2019 (in thousands):June 30, 2020:
2020 | $ | 101,875 | ||||||
For the Years Ending June 30, | ||||||||
2021 | 101,875 | $ | 101,875 | |||||
2022 | 101,875 | 101,875 | ||||||
2023 | 104,375 | 101,875 | ||||||
2024 | 106,875 | 106,875 | ||||||
2025 | 106,875 | |||||||
Thereafter | 374,063 | 320,625 | ||||||
Total lease payments | 890,937 | |||||||
Less: Imputed interest | (205,696 | ) | ||||||
Present value of operating lease liabilities (a) | $ | 685,242 | ||||||
| 840,000 | ||||||||
Less: Amount attributable to imputed interest | (150,403 | ) | ||||||
Net liability at June 30, 2020 | $ | 689,597 | ||||||
Weighted average remaining lease term (in years) | 8.0 | |||||||
Weighted average discount rate | 5.00 | % | ||||||
|
|
NOTE 7 – CAPITAL LEASESRent and real estate tax expense for all facilities for the years ended June 30, 2020 and 2019 was approximately $18,000 and $18,000, respectively, and are reported as a component of cost of sales and selling, general and administrative expenses in the accompanying statement of operations. The Company paid in $25,468 in lease payments during the three months ending June 30, 2020.
During September 2016 the Company leased equipment with a cost of approximately $129,000, under provisions of various long-term financing leases whereby the minimum lease payments have been capitalized. Accumulated depreciation at December 31, 2019June 30, 2020 is approximately $81,000.$94,000. The leases expire over various monthsyears through 2020.2021. Depreciation of the leased assets is included in depreciation and amortization expense. The lease obligations are secured by the leased assets.
|
For the twelve-month period ending December 31, | ||||
2020 | $ | 30,000 | ||
Less: Amount attributable to imputed interest | (500 | ) | ||
Present value of minimum lease payments | 29,500 | |||
Less: Current maturities | 29,500 | |||
| $ | -0- |
NOTE 10 – PAYROLL PROTECTION PROGRAM (PPP) Loan
On May 6, 2020, the Company received loan proceeds in the amount of approximately $381,000 under the Small Business Administration ("SBA") Paycheck Protection Program (“PPP”). The PPP, will be fully forgiven if the funds are used for payroll costs, interest on mortgages, rent, and utilities, with at least 60% being used for payroll. Forgiveness will be reduced if full-time headcount declines, or if salaries and wages decrease. Principal and interest payments on any unforgiven portion of the PPP will be deferred to the date the SBA remits the borrower’s loan forgiveness amount to the lender or, if the borrower does not apply for loan forgiveness, 10 months after the end of the borrower’s loan forgiveness covered period. This loan has an interest rate of 1% and a maturity of 2 years, which can be extended to up to 5 years if the Company and lender agree. No collateral or personal guarantees were required for the loan.
The Company intends to use the entire PPP proceeds for designated qualifying expenses and to apply for forgiveness of the PPP in accordance with the terms of the PPP. No assurance can be given that the Company will obtain forgiveness of the PPP in whole or in part. With respect to any portion of the PPP that is not forgiven, the PPP will be subject to customary provisions for a loan of this type, including customary events of default relating to, among other things, payment defaults, breaches of the provisions of the PPP note and cross defaults
NOTE 811 – LINE OF CREDIT
On June 15, 2018, the Company obtained an unsecured revolving line of credit, with a limit of $400,000. The line expires May 16, 2020,15, 2021, renewing automatically every year. The Company is required to make monthly interest payments, at a rate of 5.62% and 5.37%3.875% as of December 31, 2019 and March 31, 2019, respectively.June 30, 2020. Any unpaid principal will be due upon maturity. At December 31, 2019June 30, 2020 and March 31, 2019,2020, the outstanding balance was $-0-$55,000 and $169,885,$30,000, respectively.
NOTE 912 - INCOME TAXES
At December 31, 2019,June 30, 2020, the Company had federal net operating loss carry-forwards ("NOL"NOLs")'s of approximately $2,546,000.$2,639,000. These NOLs may be used to offset future taxable income and thereby reduce or eliminate our federal income taxes otherwise payable. A valuation allowance is provided when it is more likely than not that some portion or all of the deferred tax assets will not be realized. Ultimate utilization of such NOLs and research and development credits is dependent upon the Company's ability to generate taxable income in future periods and may be significantly curtailed if a significant change in ownership occurs.
During the ninethree months ended December 31, 2019,June 30, 2020, the Company utilizedgenerated approximately $94,000$116,000 of the net operating losses, and expects to utilize the remaining NOL’s before expiration.
The effective rates were approximately (290)%32% and 98%20% for the ninethree months ended December 31,June 30, 2020 and 2019, respectively.
NOTE 13 – STOCK BASED COMPENSATION
On January 13, 2020, ADM granted 300,000 stock options to one employee at an exercise price of $0.20 per option with a term of two years subject to vesting in four equal amounts of 75,000 share every six months. The options were valued at $35,206 using the Black Scholes option pricing model with the following assumptions: risk free interest rate of 1.58%, volatility of 132%, estimated useful life of 3 years and 2018, respectively.dividend rate of 0%.
The following table summarizes information on all common share purchase options issued by us as of June 30, 2020 and 2019.
2020 | 2019 | |||||||||||||||
# of Shares | Weighted | # of Shares | Weighted | |||||||||||||
Average | Average | |||||||||||||||
Exercise | Exercise | |||||||||||||||
Price | Price | |||||||||||||||
Outstanding, beginning of year | 300,000 | $ | .20 | - | $ | - | ||||||||||
Issued | - | - | - | - | ||||||||||||
Exercised | - | - | - | - | ||||||||||||
Expired | - | - | - | - | ||||||||||||
Outstanding, end of period | 300,000 | $ | 0.20 | - | - | |||||||||||
Exercisable, end of period | - | $ | - | - | - | |||||||||||
As of June 30, 2020, there was $35,206 of unrecognized compensation costs, which is expected to be recognized as follows:
For the years ending June 30, | Amount | |||
2021 | $ | 11,735 | ||
2022 | 11,735 | |||
2023 | 11,736 | |||
| $ | 35,206 | |||
NOTE 1014 – DUE TO STOCKHOLDER
The Company’s President has been deferring his salary and bonuses periodically to assist the Company’s cash flow. There are no repayment terms or interest accruing on this liability.
NOTE 15 – LEGAL PROCEEDINGS
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. This matter was settled by mutual agreement for the Company to pay $7,500 to the defendant. All claims were dismissed by both parties on June 2, 2020.
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.
NOTE 1116 – SUBSEQUENT EVENTS
The World Health Organization characterized the COVID-19 virus as a global pandemic on March 11, 2020. The duration and economic impact of this pandemic are uncertain. The economic impact depend on future developments and the financial condition of our customers that we may not be able to foresee. Any of these factors, and other factors beyond our control, can adversely impact our results for the full fiscal year and such impact may be material. At this time, management is unable to quantify its potential effects on the operations and financial performance of the Company.
We evaluated all subsequent events from the date of the condensed consolidated balance sheet through the issuance date and determined that there are no events or transactions occurring during the subsequent event reporting period which require recognition or disclosure in the condensed consolidated financial statements.
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
ELECTRONICS:
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 contract manufacturing 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.minimus. We have no other post shipment obligations and sales returns have been de minimis.obligations.
RevenuesAmounts received from salescustomers in advance of chemical productsour satisfaction of applicable performance obligations are recorded as customer deposits. Such amounts are recognized as revenues when the related performance obligations are satisfied. Customer deposits of approximately $93,715 as of March 31, 2020 were recognized as revenues during the three months ended June 30, 2020.
CHEMICAL PRODUCTS:
Revenues are recognized when products are shipped to end users. Shipments to distributors are recognized as sales whererevenue when no right of return exists.
ENGINEERING SERVICES:
We provide certain engineering services, including research, development, quality control, and quality assurance services along with regulatory compliance services. We recognize revenue from engineering services on a monthly basis over time as the applicable performance obligations are satisfied.
All revenue is recognized net of discounts.
USE OF ESTIMATES
Our discussion and analysis of our financial condition and results of operations is based upon ourThese unaudited 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 statementsUS GAAP and, accordingly, requires usmanagement to make estimates and judgmentsassumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. On an ongoing basis, we evaluateSignificant estimates made by management include expected economic life and value of our estimates, including those related to reserves,of our deferred tax assets and related valuation allowance, write down of inventory, impairment of long-lived assets, fairallowance for doubtful accounts, and warranty reserves. Actual results could differ from those estimates.
LEASES
In February 2016, the Financial Accounting Standards Board (“FASB”) issued authoritative guidance which changes financial reporting as it relates to leasing transactions. Under the new guidance, lessees are required to recognize a lease liability, measured on a discounted basis; and a right-of-use asset, for the lease term. The Company adopted this guidance as of April 1, 2019, using the modified retrospective approach which allowed it to initially apply the guidance as of the adoption date. The Company elected the package of practical expedients available under the new standard, which allowed the Company to forgo a reassessment of (1) whether any expired or existing contracts are or contain leases, (2) the lease classification for any expired or existing leases, and (3) the initial direct costs for any existing leases.
The Company made a policy election to recognize short-term lease payments as an expense on a straight-line basis over the lease term. The Company defines a short-term lease as a lease that, at the commencement date, has a lease term of twelve months or less and does not contain an option to purchase the underlying asset that the lease is reasonably certain to exercise. Related variable lease payments are recognized in the period in which the obligation is incurred.
The Company's lease agreement contains related non-lease components (e.g. taxes, etc.). The Company separates lease components and non-lease components for all underlying asset classes.
The adoption of this guidance had a material impact on the Company's Condensed Consolidated Balance Sheet beginning April 1, 2019 when the Company recognized (a) a lease liability of $771,098, which represents the present value of equity instruments issuedthe remaining lease payments of $967,344, discounted using the Company's incremental borrowing rate of 5% and (b) the related right-of-use asset of $771,098 which represents the lease liability. Prior periods were not restated. Adoption of this standard had no change on financing leases previously subject to consultantscapital lease treatment under ASC Topic 840, Leases. See Note 9 for servicesfurther discussion of leases.
The Company determines if a contractual arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, operating lease liability – current, and fair value of equity instruments issuedoperating lease liability – noncurrent on the Company’s condensed consolidated balance sheets. ROU assets represent the Company’s right to others. We base our estimates on historical experienceuse an underlying asset for the lease term and on various other assumptions that we believelease liabilities represent the Company’s obligation to be reasonable undermake lease payments arising from the circumstances, the results of which form the basis for making judgments about the carrying value oflease. Operating lease ROU assets and liabilities that are recognized at the commencement date of the lease based on the present value of lease payments over the lease term. The lease payments included in the present value are fixed lease payments. As most of the Company’s leases do not readily apparent from other sources. Actual results may differ from theseprovide an implicit rate, the Company estimates under different assumptions or conditions; however, we believe that our estimates, including thoseits collateralized incremental borrowing rate, based on information available at the commencement date, in determining the present value of lease payments. The operating lease ROU assets include any payments made before the commencement date and exclude lease incentives. Lease expense for lease payments is recognized on a straight-line basis over the above described items, are reasonable.lease term.
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"Sonotron").
RESULTS OF OPERATIONS FOR THE THREE AND NINEMONTHS ENDED DECEMBER 31JUNE 30, 2020, 2019 AS COMPARED TO DECEMBER 31JUNE 30, 2019, 2018
Revenues for the three months ended December 31, 2019 increasedJune 30, 2020 decreased by $65,588.$261,728. The increasedecrease is a result of increaseddecreased sales of $248,335 in the Electronics segment and $13,831$201,109 in the Chemical segment offset by a decrease of $196,578and $193,914 in the Engineering segment.
Grosssegment offset by an increase of $133,295 in the Electronics segment.Gross profit for the three months ended December 31, 2019 increasedJune 30, 2020 decreased by $85,095.$267,222. The increasedecrease in gross profit resulted primarily from increaseddecreased sales in Electronics coupled with lower manufacturing costs.Chemical and Engineering related to the COVID-19 pandemic.
We are highly dependent upon certain customers. During the three months ended December 31, 2019, one customerJune 30, 2020, two customers accounted for 51%54% of our net revenue. Net revenues from foreign customers for the three months ended December 31, 2019June 30, 2020 was $38,944$24,666 or 5%.
During the nine months ended December 31, 2019 one customer accounted for 49% of our net revenue. Net revenues from foreign customers for the nine months ended December 31, 2019 was $281,226 or 11%4%.
During the three months ended December 31, 2018,June 30, 2019 two customers accounted for 61% of our net revenue. During the nine months ended December 31, 2018 two customers accounted for 56%60% of our net revenue. Net revenues from foreign customers for the three and nine months ended December 31, 2018June 30, 2019 was $77,275$125,372 or 10% and $324,814 or 14%15%.
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.
LossIncome from operations for the three months ended December 31, 2019June 30, 2020 decreased by $154,198.$253,155. The decrease in operating income for the three-month period is from a decrease in income from the Chemical segment of $116,538, a decrease in income of $61,460 from the Electronic segments and a decrease of $75,157 from Engineering.
Income from operations for the three months ended June 30, 2019 increased by $52,189. The increase in operating income for the three-month period is from an increasemainly attributable to a decrease of the following expenses: approximately $37,000 in income from both the Chemicalconsulting fees, $8,000 in health insurance, and Electronic segments of $62,260 and $138,298, respectively.$7,000 in advertising expenses.
Loss from operations for the nine months ended December 31, 2019 decreased by $76,184. The increase in operatingOther income for the nine-month period is primarily from an increase in operating income from Electronics and Chemical segments of $116,831 and $16,788 respectively.
Interest income decreased $795increased $8,150 for the three months ended December 31, 2019.June 30, 2020. The increase is primarily due EIDL grant of $10,000 offset by decrease is due to decreasedin funds invested in a money market account. Interest expense increased $19.
Interest income decreased $547 for the nine months ended December 31, 2019. Interest expense decreased $917.
The foregoing resulted in a net loss before provision for income taxes for the three months ended December 31, 2019June 30, 2020 of $60,530 and net loss of $24,170 for the nine months ended December 31, 2019.$170,236. Earnings per share were $(0.00) and $0.00 for the three and nine months ended December 31,June 30, 2020 and 2019, and 2018, respectively.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2019,June 30, 2020, we had cash and cash equivalents of $1,601,435$1,575,472 as compared to $1,555,687$1,438,714 at March 31, 2019.2020. The $45,748$136,758 increase was primarily the result of cash provided byused in operations during the nine-monththree-month period in the amount of $239,773,$261,196, offset with cash usedprovided in financing activities of $194,025.$397,954. 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 $1,601,435$1,575,472 as of December 31, 2019,June 30, 2020, 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 $261,196 for the three months ended June 30, 2020, as compared to net cash provided by operating activities was $239,773of $43,755 for the ninethree months ended December 31, 2019, as compared to netJune 30, 2019. The cash used in operating activities of $188,613 forduring the ninethree months ended December 31, 2018. The cash provided during the nine months ended December 31, 2019June 30, 2020 was primarily due to net loss of $22,184 plus$115,736 less depreciation and amortization of $29,174 coupled with an increase in net operating liabilities of $1,012,952,$9,995 coupled with a decrease in net operating liabilities of $56,763 and an increase in net operating assets of $824,531.$96,753.
INVESTING ACTIVITIES
No cash was provided for or used in investing activities for the ninethree months ended December 31, 2019.June 30, 2020.
FINANCING ACTIVITIES
For the ninethree months ended December 31, 2019,June 30, 2020, net cash usedprovided by financing activities was $194,025$397,954 due to proceeds from the line of credit of $25,000, proceeds from the PPP loan of $381,000 offset by repayments on capital lease obligations and repayments on the line of credit net of borrowings.$8,046.
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 December 31, 2019,June 30, 2020, approximately $1,288,000$1,295,000 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 December 31, 2019,June 30, 2020, 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 December 31, 2019,June 30, 2020, 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 December 31, 2019,June 30, 2020, and March 31, 20192020 and the related condensed consolidated statements of income, and cash flows for the three and nine months ended December 31,June 30, 2020 and 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 inThis matter was settled by mutual agreement for the early stages of litigation, its ultimate outcome cannot be predicted with certainty at this time.
We are involved, from timeCompany to time, in litigation and proceedings arising out ofpay $7,500 to the ordinary course of business.defendant. All claims were dismissed by both parties on June 2, 2020. 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, 2019.2020.
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.
101.INS** | XBRL Instance |
101.SCH** | XBRL Taxonomy Extension Schema |
101.CAL** | XBRL Taxonomy Extension Calculation |
101.DEF** | XBRL Taxonomy Extension Definition |
101.LAB** | XBRL Taxonomy Extension Labels |
101.PRE** | XBRL Taxonomy Extension Presentation |
** 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.
| ADM TRONICS UNLIMITED, INC. |
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| (Registrant) |
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| By: | /s/ Andre' DiMino |
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| Andre' DiMino, Chief Executive |
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| Officer and Chief Financial Officer |
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Dated: | Northvale, New Jersey |
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