Attached files
| file | filename |
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| EX-32.1 - EXHIBIT 32.1 - ADM TRONICS UNLIMITED, INC. | ex_172897.htm |
| EX-31.1 - EXHIBIT 31.1 - ADM TRONICS UNLIMITED, INC. | ex_172896.htm |
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, 2019
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)
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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:
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Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered |
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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.
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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:
67,588,492 shares of Common Stock, $.0005 par value, as of February 19, 2020.
ADM TRONICS UNLIMITED, INC. AND SUBSIDIARY
INDEX
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Page Number |
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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 – December 31, 2019 (unaudited) and March 31, 2019 (audited) |
3 |
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Condensed Consolidated Statements of Operations for the three and nine months ended December 31, 2019 and 2018 (unaudited) |
4 |
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| Condensed Consolidated Statement of Stockholders’ (Deficiency) for the nine months ended December 31, 2019 | 5 | |
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Condensed Consolidated Statements of Cash Flows for the nine months ended December 31, 2019 and 2018 (unaudited) |
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 |
13 |
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Item 3. |
Quantitative and Qualitative Disclosures about Market Risk |
15 |
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Item 4. |
Controls and Procedures |
16 |
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Part II - Other Information |
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Item 1. |
Legal Proceedings |
17 |
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Item 1A. |
Risk Factors |
17 |
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Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds |
17 |
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Item 3. |
Defaults Upon Senior Securities |
17 |
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Item 4. |
Mine Safety Disclosures |
17 |
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Item 5. |
Other Information |
17 |
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Item 6. |
Exhibits |
17 |
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
ADM TRONICS UNLIMITED, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
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December 31, |
March 31, |
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2019 |
2019 |
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(Unaudited) |
(Audited) |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
$ | 1,601,435 | $ | 1,555,687 | ||||
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Accounts receivable, net of allowance for doubtful accounts of $160,000 for each period |
712,141 | 916,844 | ||||||
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Inventories |
523,240 | 326,308 | ||||||
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Prepaid expenses and other current assets |
106,922 | 28,582 | ||||||
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Total current assets |
2,943,738 | 2,827,421 | ||||||
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Other Assets: |
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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 | ||||||
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Right-of-use asset |
719,825 | - | ||||||
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Accounts receivable-related party |
330,090 | 330,090 | ||||||
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Inventories - long-term portion |
85,457 | 85,457 | ||||||
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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 | ||||||
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Other assets |
90,538 | 90,764 | ||||||
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Deferred tax asset |
1,025,000 | 1,107,000 | ||||||
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Total other assets |
2,326,096 | 1,717,671 | ||||||
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Total assets |
$ | 5,269,834 | $ | 4,545,092 | ||||
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LIABILITIES AND STOCKHOLDERS' EQUITY |
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Current liabilities: |
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Capital lease payable |
$ | 29,505 | $ | 31,196 | ||||
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Line of credit |
- | 169,885 | ||||||
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Accounts payable |
288,132 | 275,591 | ||||||
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Accrued expenses and other current liabilities |
135,120 | 150,549 | ||||||
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Customer deposits |
668,244 | 321,441 | ||||||
| Current operating lease liability | 68,588 | |||||||
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Due to stockholder |
123,117 | 139,322 | ||||||
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Total current liabilities |
1,312,766 | 1,087,984 | ||||||
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Long-term liabilities |
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Capital lease payable, net of current portion |
- | 22,450 | ||||||
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Operating lease liability, net of current portion |
616,654 | - | ||||||
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Total long-term liabilities |
616,654 | 22,450 | ||||||
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Total liabilities |
$ | 1,929,360 | $ | 1,110,434 | ||||
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Stockholders' equity: |
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Preferred stock, $.01 par value; 5,000,000 shares authorized, no shares issued and outstanding |
$ | - | $ | - | ||||
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Common stock, $0.0005 par value; 150,000,000 shares authorized, 67,588,492 shares issued and outstanding |
33,794 | 33,794 | ||||||
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Additional paid-in capital |
33,294,069 | 33,294,069 | ||||||
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Accumulated deficit |
(29,987,390 | ) | (29,893,205 | ) | ||||
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Total stockholders' equity |
3,340,473 | 3,434,658 | ||||||
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Total liabilities and stockholders' equity |
$ | 5,269,833 | $ | 4,545,092 | ||||
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, 2019 AND 2018
(Unaudited)
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Three months ended |
Nine months ended |
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December 31, |
December 31, |
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2019 |
2018 |
2019 |
2018 |
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Net revenues |
$ | 805,126 | $ | 739,538 | $ | 2,592,738 | $ | 2,351,201 | ||||||||
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Cost of sales |
487,055 | 506,562 | 1,427,512 | 1,143,600 | ||||||||||||
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Gross Profit |
318,071 | 232,976 | 1,165,226 | 1,207,601 | ||||||||||||
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Operating expenses: |
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Research and development |
169,650 | 115,202 | 464,167 | 331,785 | ||||||||||||
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Selling, general and administrative |
208,639 | 332,190 | 724,729 | 975,584 | ||||||||||||
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Depreciation and amortization |
5,506 | 5,506 | 16,517 | 16,603 | ||||||||||||
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Total operating expenses |
383,795 | 452,898 | 1,205,413 | 1,323,972 | ||||||||||||
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(Loss) from operations |
(65,724 | ) | (219,922 | ) | (40,187 | ) | (116,371 | ) | ||||||||
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Other income (expense): |
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Interest income |
6,051 | 6,846 | 19,745 | 20,292 | ||||||||||||
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Interest and finance expenses |
(857 | ) | (838 | ) | (3,728 | ) | (2,811 | ) | ||||||||
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Total other income (expense) |
5,194 | 6,008 | 16,017 | 17,481 | ||||||||||||
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(Loss) before provision for income taxes |
(60,530 | ) | (213,914 | ) | (24,170 | ) | (98,890 | ) | ||||||||
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Provision (benefit) for income taxes: |
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Current |
(12,985 | ) | (6,000 | ) | (11,985 | ) | - | |||||||||
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Deferred |
72,000 | (65,000 | ) | 82,000 | (97,000 | ) | ||||||||||
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Total provision (benefit) for income taxes |
59,015 | (71,000 | ) | 70,015 | (97,000 | ) | ||||||||||
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Net (loss) |
$ | (119,545 | ) | $ | (142,914 | ) | $ | (94,185 | ) | $ | (1,890 | ) | ||||
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Basic and diluted per common share: |
$ | (0.00 | ) | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.00 | ) | ||||
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Weighted average shares of common stock outstanding - basic and diluted |
67,588,492 | 67,588,492 | 67,588,492 | 67,588,492 | ||||||||||||
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)
| 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 | ||||||||||||||
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 NINE MONTHS ENDED DECEMBER 31, 2019 AND 2018
(Unaudited)
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2019 |
2018 |
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Cash flows from operating activities: |
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Net (loss) |
$ | (94,185 | ) | $ | (1,890 | ) | ||
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Adjustments to reconcile net (loss) to net cash provided (used in) operating activities: |
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Depreciation and amortization |
29,174 | 29,331 | ||||||
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Write-off of inventories |
34,363 | - | ||||||
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Deferred taxes |
82,000 | (97,000 | ) | |||||
| Non-cash operating lease cost | 41,823 | |||||||
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Changes in operating assets and liabilities balances: |
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Accounts receivable |
204,703 | (41,744 | ) | |||||
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Inventories |
(231,295 | ) | (155,430 | ) | ||||
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Prepaid expenses and other current assets |
(78,114 | ) | (17,293 | ) | ||||
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Accounts payable |
12,541 | 61,321 | ||||||
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Customer deposits |
346,803 | 60,140 | ||||||
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Accrued expenses and other current liabilities |
(15,429 | ) | (22,354 | ) | ||||
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Due to shareholder |
(16,205 | ) | (3,694 | ) | ||||
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Payments of operating lease liability |
(76,406 | ) | - | |||||
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Net cash provided by (used in) operating activities |
239,773 | (188,613 | ) | |||||
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Cash flows provided (used) in financing activities: |
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Proceeds from line of credit |
185,000 | - | ||||||
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Repayments of line of credit |
(354,885 | ) | - | |||||
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Repayments on capital lease payable |
(24,140 | ) | (24,141 | ) | ||||
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Net cash (used in) financing activities |
(194,025 | ) | (24,141 | ) | ||||
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Net increase (decrease) in cash and cash equivalents |
45,748 | (212,754 | ) | |||||
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Cash and cash equivalents - beginning of period |
1,555,687 | 1,693,532 | ||||||
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Cash and cash equivalents - end of period |
$ | 1,601,435 | $ | 1,480,778 | ||||
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Cash paid for: |
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Interest |
$ | 3,728 | $ | 2,811 | ||||
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Taxes |
$ | 750 | $ | - | ||||
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, 2019 AND MARCH 31, 2019
NOTE 1 - NATURE OF BUSINESS
ADM Tronics Unlimited, Inc., incorporated under the laws of the state of Delaware on November 24, 1969, and subsidiary (collectively, “we”, “us”, the “Company” or “ADM”), is a technology-based developer and manufacturer of diversified lines of products and derives revenues 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's customer base is comprised of foreign and domestic entities with diverse demographics.
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, 2019 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, 2019 (unaudited) are not necessarily indicative of the results to be expected for the pending full year ending March 31, 2020.
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, 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, 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 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, approximately $1,288,000 exceeded the FDIC limit.
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 shipment to a customer because that is when the customer obtains control of the promised good. We offer a limited 90-day warranty on our electronics products. 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 shipment 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 were recognized as revenues during the nine months ended December 31, 2019.
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 as the services are provided.
EARNINGS PER SHARE
Basic earnings per share is calculated based on the weighted average number of common shares outstanding during the periods. 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.
Per share basic and diluted earnings amounted to $0.00 for the three and nine months ended December 31, 2019 and December 31, 2018, respectively.
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, and noncurrent operating lease liabilities on the Company’s 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 the commencement date, has a lease term of 12 months or less and does not contain an option to purchase the underlying asset that the lease is reasonably certain to exercise, and recognizes short-term lease payments as an expense on a straight-line basis over the lease term. Lease and nonlease components are generally accounted for separately.
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 potential 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
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Inventories at December 31, 2019 consisted of the following: |
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Current |
Long Term |
Total |
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Raw materials |
$ | 474,916 | $ | 84,721 | $ | 559,637 | ||||||
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Finished goods |
48,324 | 736 | 49,060 | |||||||||
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Totals |
$ | 523,240 | $ | 85,457 | $ | 608,697 | ||||||
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Inventories at March 31, 2019 consisted of the following: |
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Current |
Long Term |
Total |
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Raw materials |
$ | 273,039 | $ | 84,721 | $ | 357,760 | ||||||
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Finished goods |
53,269 | 736 | 54,005 | |||||||||
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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 – CONCENTRATIONS
During the three months ended December 31, 2019, one customer accounted for 51% of our net revenue. During the nine months ended December 31, 2019, one customer accounted for 49% 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 December 31, 2019, one customer represented 72% of our gross accounts receivable.
As of March 31, 2019, two customers represented 88% of our gross accounts receivable.
Net revenues from foreign customers for the three and nine months ended December 31, 2019 was $38,944 or 5% and $281,226 or 11%, respectively.
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%, respectively.
At December 31, 2019 and March 31, 2019, accounts receivable included $2,293 and $405, respectively, from foreign customers.
NOTE 5 - DISAGGREGATED REVENUES AND SEGMENT INFORMATION
The following tables show the Company's revenues disaggregated by reportable segment and by product and service type:
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Three months Ended December 31, |
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2019 |
2018 |
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Net Revenue in the US |
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Chemical |
$ | 256,318 | $ | 204,156 | ||||
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Electronics |
430,114 | 181,779 | ||||||
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Engineering |
79,750 | 276,328 | ||||||
| 766,182 | 662,263 | |||||||
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Net Revenue outside the US |
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Chemical |
38,944 | 77,275 | ||||||
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Electronics |
- | - | ||||||
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Engineering |
- | - | ||||||
| 38,944 | 77,275 | |||||||
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Total Revenues |
$ | 805,126 | $ | 739,538 | ||||
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Nine Months Ended December 31, |
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2019 |
2018 |
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Net Revenue in the US |
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Chemical |
$ | 814,317 | $ | 768,485 | ||||
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Electronics |
866,091 | 405,486 | ||||||
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Engineering |
631,104 | 852,416 | ||||||
| 2,311,512 | 2,026,387 | |||||||
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Net Revenue outside the US |
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Chemical |
281,226 | 299,814 | ||||||
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Electronics |
- | 25,000 | ||||||
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Engineering |
- | - | ||||||
| 281,226 | 324,814 | |||||||
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Total Revenues |
$ | 2,592,738 | $ | 2,351,201 | ||||
Information about segments is as follows:
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Chemical |
Electronics |
Engineering |
Total |
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Three months ended December 31, 2019 |
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Revenue from external customers |
$ | 295,262 | $ | 430,114 | $ | 79,750 | $ | 805,126 | ||||||||
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Segment operating income |
$ | 68,392 | $ | (114,589 | ) | $ | (19,527 | ) | $ | (65,724 | ) | |||||
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Nine months ended December 31, 2019 |
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Revenue from external customers |
$ | 1,095,543 | $ | 866,091 | $ | 631,104 | $ | 2,592,738 | ||||||||
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Segment operating income |
$ | 100,659 | $ | (200,973 | ) | $ | 60,127 | $ | (40,187 | ) | ||||||
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Three months ended December 31, 2018 |
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Revenue from external customers |
$ | 281,431 | $ | 181,779 | $ | 276,328 | $ | 739,538 | ||||||||
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Segment operating income |
$ | (70,274 | ) | $ | (166,740 | ) | $ | 17,092 | $ | (219,922 | ) | |||||
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Nine months ended December 31, 2018 |
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Revenue from external customers |
$ | 1,068,299 | $ | 430,486 | $ | 852,416 | $ | 2,351,201 | ||||||||
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Segment operating income |
$ | 89,456 | $ | (313,649 | ) | $ | 107,822 | $ | (116,371 | ) | ||||||
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Total assets at December 31, 2019 |
$ | 2,266,028 | $ | 1,686,347 | $ | 1,317,459 | $ | 5,269,834 | ||||||||
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Total assets at March 31, 2019 |
$ | 1,985,501 | $ | 1,099,983 | $ | 1,459,608 | $ | 4,545,092 | ||||||||
NOTE 6 – LEASES
The Company has an operating lease for their office and manufacturing facility. 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:
| December 31, 2019 | ||||
| Weighted average remaining lease term for operating leases (in years) | 8.3 | |||
| Weighted average discount rate for operating leases | 5.0 | % | ||
The following is a maturity analysis of the annual undiscounted cash flows of the operating lease liability as of December 31, 2019 (in thousands):
|
2020 |
$ | 101,875 | ||
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2021 |
101,875 | |||
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2022 |
101,875 | |||
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2023 |
104,375 | |||
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2024 |
106,875 | |||
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Thereafter |
374,063 | |||
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Total lease payments |
890,937 | |||
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Less: Imputed interest |
(205,696 | ) | ||
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Present value of operating lease liabilities (a) |
$ | 685,242 |
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(a) |
Includes current portion of $68,588 for operating leases |
NOTE 7 – CAPITAL LEASES
During September 2016, the Company leased equipment with a cost of approximately $129,000 under provisions of various long-term leases whereby the minimum lease payments have been capitalized. Accumulated depreciation at December 31, 2019 is approximately $81,000. The leases expire over various months through 2020. Depreciation of the leased assets is included in depreciation and amortization expense. The lease obligations are secured by the leased assets.
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Future minimum lease payments under the above capital leases, as of December 31, 2019, are approximately as follows: |
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For the twelve-month period ending December 31, |
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2020 |
$ | 30,000 | ||
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Less: Amount attributable to imputed interest |
(500 | ) | ||
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Present value of minimum lease payments |
29,500 | |||
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Less: Current maturities |
29,500 | |||
| $ | -0- |
NOTE 8 – 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, renewing automatically every year. The Company is required to make monthly interest payments, at a rate of 5.62% and 5.37% as of December 31, 2019 and March 31, 2019, respectively. Any unpaid principal will be due upon maturity. At December 31, 2019 and March 31, 2019, the outstanding balance was $-0- and $169,885, respectively.
NOTE 9 - INCOME TAXES
At December 31, 2019, the Company had federal net operating loss carry-forwards ("NOL")'s of approximately $2,546,000. 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 nine months ended December 31, 2019, the Company utilized approximately $94,000 of the net operating losses, and expects to utilize the remaining NOL’s before expiration.
The effective rates were approximately (290)% and 98% for the nine months ended December 31, 2019 and 2018, respectively.
NOTE 10 – 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 11 – SUBSEQUENT EVENTS
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
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 NINE MONTHS ENDED DECEMBER 31, 2019 AS COMPARED TO DECEMBER 31, 2018
Revenues for the three months ended December 31, 2019 increased by $65,588. The increase is a result of increased sales of $248,335 in the Electronics segment and $13,831 in the Chemical segment offset by a decrease of $196,578 in the Engineering segment.
Gross profit for the three months ended December 31, 2019 increased by $85,095. The increase in gross profit resulted primarily from increased sales in Electronics coupled with lower manufacturing costs.
We are highly dependent upon certain customers. During the three months ended December 31, 2019, one customer accounted for 51% of our net revenue. Net revenues from foreign customers for the three months ended December 31, 2019 was $38,944 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%.
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. 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.
Loss from operations for the three months ended December 31, 2019 decreased by $154,198. The increase in operating income for the three-month period is from an increase in income from both the Chemical and Electronic segments of $62,260 and $138,298, respectively.
Loss from operations for the nine months ended December 31, 2019 decreased by $76,184. The increase in operating 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 $795 for the three months ended December 31, 2019. The decrease is due to decreased 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, 2019 of $60,530 and net loss of $24,170 for the nine months ended December 31, 2019. Earnings per share were $0.00 for the three and nine months ended December 31, 2019 and 2018, respectively.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2019, we had cash and cash equivalents of $1,601,435 as compared to $1,555,687 at March 31, 2019. The $45,748 increase was primarily the result of cash provided by operations during the nine-month period in the amount of $239,773, offset with cash used in financing activities of $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 $1,601,435 as of 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 $239,773 for the nine months ended December 31, 2019, as compared to net cash used in operating activities of $188,613 for the nine months ended December 31, 2018. The cash provided during the nine months ended December 31, 2019 was primarily due to net loss of $22,184 plus depreciation and amortization of $29,174 coupled with an increase in net operating liabilities of $1,012,952, coupled with a decrease in net operating assets of $824,531.
INVESTING ACTIVITIES
No cash was provided for or used in investing activities for the nine months ended December 31, 2019.
FINANCING ACTIVITIES
For the nine months ended December 31, 2019, net cash used by financing activities was $194,025 due to repayments on capital lease obligations and repayments on the line of 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 December 31, 2019, approximately $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 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 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 December 31, 2019, and March 31, 2019 and the related condensed consolidated statements of income, and cash flows for the three and nine months ended 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.
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101.INS** |
XBRL Instance |
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101.SCH** |
XBRL Taxonomy Extension Schema |
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101.CAL** |
XBRL Taxonomy Extension Calculation |
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101.DEF** |
XBRL Taxonomy Extension Definition |
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101.LAB** |
XBRL Taxonomy Extension Labels |
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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.
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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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February 19, 2020 |
18