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, 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  ☐

 

 

Non-accelerated filer ☐

Smaller reporting company ☒

 

 

 

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:

 

67,588,504 shares of Common Stock, $.0005 par value, as of February 12, 2021

 

 

 

 

ADM TRONICS UNLIMITED, INC. AND SUBSIDIARY

 

INDEX

 

 

Page

Number

Part I - Financial Information

 

 

 

 

Item 1.

Condensed Consolidated Financial Statements:

 

 

 

 

 

Condensed Consolidated Balance Sheets – December 31, 2020 (unaudited) and March 31, 2020 (audited)

3

 

 

 

 

Condensed Consolidated Statements of Operations for the three and nine months ended December 31, 2020 and 2019 (unaudited)

4

 

 

 

 

Condensed Consolidated Statement of Stockholders’ Equity for the nine months ended December 31, 2020 (unaudited)

5

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the nine months ended December 31, 2020 and 2019 (unaudited)

6

 

 

 

 

Notes to Condensed Consolidated Financial Statements (unaudited)

7

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

16

 

 

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

19

 

 

 

Item 4.

Controls and Procedures

19

 

 

 

Part II - Other Information

 

 

 

 

Item 1.

Legal Proceedings

20

 

 

 

Item 1A.

Risk Factors

20

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

20

 

 

 

Item 3.

Defaults Upon Senior Securities

20

 

 

 

Item 4.

Mine Safety Disclosures

20

 

 

 

Item 5.

Other Information

20

 

 

 

Item 6.

Exhibits

21

 

 

 

 
 

PART I. FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

ADM TRONICS UNLIMITED, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS 

 

 

   

December 31,

   

March 31,

 
   

2020

   

2020

 
    (Unaudited)    

(Audited)

 

ASSETS

               
                 

Current assets:

               

Cash and cash equivalents

  $ 1,449,629     $ 1,438,714  

Accounts receivable, net of allowance for doubtful accounts of $225,000 at December 31, 2020 and March 31, 2020

    877,408       860,539  

Inventories

    448,032       372,635  

Prepaid expenses and other current assets

    66,185       23,525  
                 

Total current assets

    2,841,254       2,695,413  
                 

Other Assets:

               

Property and equipment, net of accumulated depreciation of $173,275 and $145,602 December 31, 2020 and March 31, 2020, respectively

    30,285       57,958  

Operating lease asset

    655,547       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 $16,151 and $14,091 at December 31, 2020 and March 31, 2020, respectively

    19,643       21,703  

Other assets

    90,538       90,538  

Deferred tax asset

    1,013,000       1,019,000  

Total other assets

    2,271,183       2,357,676  
                 

Total assets

  $ 5,112,437     $ 5,053,089  
                 

LIABILITIES AND STOCKHOLDERS' EQUITY

               
                 

Current liabilities:

               

PPP loan - current

  $ 190,500     $ -  

Financing lease payable

    -       21,458  

Line of credit

    85,000       30,000  

Operating lease liability-current

    70,703       68,106  

Accounts payable

    337,640       365,475  

Accrued expenses and other current liabilities

    100,231       136,188  

Customer deposits

    350,340       354,745  

Due to stockholder

    82,678       100,017  

Total current liabilities

    1,217,092       1,075,989  
                 

Long-term liabilities

               

Operating lease liability

    584,844       638,201  

PPP loan - noncurrent

    190,500       -  

Total long-term liabilities

    775,344       638,201  
                 
                 

Total liabilities

  $ 1,992,436     $ 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

    33,302,871       33,294,069  

Accumulated deficit

    (30,216,664 )     (29,988,964 )

Total stockholders' equity

    3,120,001       3,338,899  
                 

Total liabilities and stockholders' equity

  $ 5,112,437     $ 5,053,089  

 

 

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

 

3

 

 

 

ADM TRONICS UNLIMITED, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE AND NINE MONTHS ENDED DECEMBER 31, 2020 AND 2019

(Unaudited) 

 

 

   

Three months ended

   

Nine months ended

 
   

December 31,

   

December 31,

 
   

2020

   

2019

   

2020

   

2019

 
                                 

Net revenues

  $ 762,644     $ 805,126     $ 2,258,822     $ 2,592,738  
                                 

Cost of sales

    500,320       487,055       1,480,369       1,427,512  
                                 

Gross Profit

    262,324       318,071       778,453       1,165,226  
                                 

Operating expenses:

                               

Research and development

    164,109       169,650       416,519       464,167  

Selling, general and administrative

    172,788       208,639       601,870       724,729  

Stock based compensation

    -       -       8,802       -  

Depreciation and amortization

    2,148       5,506       6,487       16,517  
                                 

Total operating expenses

    339,045       383,795       1,033,678       1,205,413  
                                 

Loss from operations

    (76,721 )     (65,724 )     (255,225 )     (40,187 )
                                 

Other income (expense):

                               

EIDL Grant

    -       -       10,000       -  

Interest income

    3,307       6,051       13,023       19,745  

Interest and finance expenses

    (1,261 )     (857 )     (3,798 )     (3,728 )

Total other income (expense)

    2,046       5,194       19,225       16,017  
                                 

Loss before provision for (benefit) of income taxes

    (74,675 )     (60,530 )     (236,000 )     (24,170 )
                                 

Provision for (benefit) of income taxes:

                               

Current

    (1,800 )     (12,985 )     (14,300 )     (11,985 )

Deferred

    (5,000 )     72,000       6,000       82,000  

Total provision for (benefit) of income taxes

    (6,800 )     59,015       (8,300 )     70,015  
                                 

Net (loss)

  $ (67,875 )   $ (119,545 )   $ (227,700 )   $ (94,185 )
                                 

Basic and diluted loss per common share:

  $ (0.00 )   $ (0.00 )   $ (0.00 )   $ (0.00 )
                                 

Weighted average shares of common stock outstanding - basic and diluted

    67,588,504       67,588,504       67,588,504       67,588,504  

 

 

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

 

4

 

 

ADM TRONICS UNLIMITED, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERSEQUITY

FOR THE NINE MONTHS ENDED DECEMBER 31, 2020 

(Unaudited)

 

 

   

Common

Stock

   

Common

Stock

   

Additional Paid-

in

   

Accumulated

         
   

Shares

   

Amount

   

Capital

   

Deficit

   

Total

 
                                         
                                         

Balance at March 31, 2020

    67,588,504     $ 33,794     $ 33,294,069     $ (29,988,964 )   $ 3,338,899  
                                         

Net loss

    -       -       -       (227,700 )     (227,700 )
                                         

Stock based compensation

    -       -       8,802       -       8,802  
                                         

Balance at December 31, 2020

    67,588,504     $ 33,794     $ 33,302,871     $ (30,216,664 )   $ 3,120,001  

 

 

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

 

5

 

 

 

ADM TRONICS UNLIMITED, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED DECEMBER 31, 2020 AND 2019

(Unaudited) 

 

 

   

2020

   

2019

 

Cash flows from operating activities:

               

Net (loss)

  $ (227,700 )   $ (94,185 )

Adjustments to reconcile net (loss) to net cash provided by (used in) operating activities: cash used in operating activities:

               

Depreciation and amortization

    29,733       29,174  

Write-off of inventories

    20,103       34,363  

Stock based compensation

    8,802       -  

Deferred taxes

    6,000       82,000  

Non-cash operating lease expense

    50,760       41,823  

Non-cash interest expense

    25,646       -  
Bad debt expense     65,000       -  

Changes in operating assets and liabilities balances:

               

Accounts receivable

    (81,869 )     204,703  

Inventories

    (95,500 )     (231,295 )

Prepaid expenses and other current assets

    (42,660 )     (78,114 )

Accounts payable

    (27,835 )     12,541  

Customer deposits

    (4,405 )     346,803  

Accrued expenses and other current liabilities

    (35,957 )     (15,429 )

Due to shareholder

    (17,339 )     (16,205 )

Payments of operating lease liability

    (76,406 )     (76,406 )

Net cash provided by (used in) operating activities

    (403,627 )     239,773  
                 
                 

Cash flows provided (used) in financing activities:

               

Proceeds from line of credit

    100,000       185,000  

Repayments of line of credit

    (45,000 )     (354,885 )

Proceeds from PPP loan

    381,000       -  

Repayments on capital lease payable

    (21,458 )     (24,140 )
                 

Net cash provided by (used in) financing activities

    414,542       (194,025 )
                 

Net increase in cash and cash equivalents

    10,915       45,748  
                 

Cash and cash equivalents - beginning of period

    1,438,714       1,555,687  
                 

Cash and cash equivalents - end of period

  $ 1,449,629     $ 1,601,435  
                 
                 

Cash paid for:

               
Taxes   $ -     $ 750  

Interest

  $ 3,727     $ 3,728  

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.

 

6

 

ADM TRONICS UNLIMITED, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

For the Three and Nine Months Ended DECEMBER 31, 2020

 

 

 

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. We are a manufacturing and engineering concern whose principal lines of business are the design, manufacture and sale of electronics of our own products or on a contract manufacturing basis; the production and sale of chemical 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 products. These products are sold to customers located in the United States, Australia, Asia and Europe. We also provide research, development, regulatory and engineering services to customers. Our Sonotron Medical Systems, Inc. subsidiary (“Sonotron”) is 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 of America (“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, 2020 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, 2020 (unaudited) are not necessarily indicative of the results to be expected for the pending full year ending March 31, 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 deferred tax assets and related valuation allowance, write down of inventory, impairment of long-lived assets, allowance for doubtful accounts, and warranty reserves. Actual results could differ from those estimates.

 

FAIR VALUE OF FINANCIAL INSTRUMENTS

 

For certain of our financial instruments, including accounts receivable, accounts payable, and accrued expenses, the carrying amounts approximate fair value due to their relatively short maturities.

 

CASH AND CASH EQUIVALENTS

 

Cash equivalents are comprised of  highly liquid investments with original maturities of three months or less when purchased. We maintain our cash in bank deposit accounts, which at times, may exceed federally insured limits. We have not experienced any losses to date as a result of this policy. Cash and cash equivalents held in these accounts are currently insured by the Federal Deposit Insurance Corporation (“FDIC”) up to a maximum of $250,000. At December 31, 2020, approximately $1,303,000 exceeded the FDIC limit.

 

7

 

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 

 

ELECTRONICS: 

 

We recognize revenue from the sale of our electronic products when they are shipped to the purchaser. 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 sales of our electronic products have been de minimus. We have no other post shipment obligations. For contract manufacturing, revenues are recognized after shipments 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 $215,000 as of March 31, 2020 were recognized as revenues during the nine months ended December 31, 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 applicable performance obligations are 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 and nine months ended December 31, 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 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.

 

Paycheck Protection Program Loan

 

The Company has obtained a Paycheck Protection Program loan during May 2020 from the Small Business Administration in the amount of $381,000. Management has elected to record the loan under FASB ASC 470, Debt and in the event the Company is successful in receiving forgiveness, will treat the qualifying amounts as a gain upon extinguishment in accordance with ASC 405, Liabilities. As of December 31, 2020, management believes that all expenses have met the criteria of qualifying expenses as set forth by the terms of the loan.

 

8

 

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. Although the Company experienced a decrease in sales due to the COVID-19 pandemic, there is no impairment loss for the nine months ended December 31, 2020.

 

ADVERTISING COSTS 

 

Advertising costs are expensed as incurred and amounted to $6,079 and $9,936 and $25,779 and $33,108 for the three and nine months ended December 31, 2020 and 2019, respectively.

 

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 December 31, 2020, and 2019, the Company has no accrued interest or penalties related to uncertain tax positions.

 

NET EARNINGS PER SHARE

 

We compute basic earnings per share by dividing net income/loss by the weighted average number of common shares 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) for the three and nine months ended December 31, 2020 and December 31, 2019, 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.

 

9

 

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 leasee 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 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, operating lease liability – current, and operating lease liability – noncurrent 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.

 

RECLASSIFICATION

 

Certain amounts in the prior periods presented have been reclassified to conform to the current period financial statement presentation.  These reclassifications have no effect on previously reported net income.

 

RECENT ACCOUNTING PRONOUNCEMENTS

 

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 adopted this ASU as of April 1, 2020 and it 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 December 31, 2020 consisted of the following:

 

 

 

 

   

Current

   

Long Term

   

Total

 

Raw materials

  $ 381,226     $ 121,013     $ 502,239  

Finished goods

    66,806       11,067       77,873  

Totals

  $ 448,032     $ 132,080     $ 580,112  

 

Inventories at March 31, 2020 (Audited) consisted of the following:

 

 

 

 

   

Current

   

Long Term

   

Total

 

Raw materials

  $ 289,369     $ 121,013     $ 410,382  

Finished goods

    83,266       11,067       94,333  

Totals

  $ 372,635     $ 132,080     $ 504,715  

 

10

 

 

NOTE 4 - PROPERTY AND EQUIPMENT 

 

Property and equipment as of December 31, 2020 and March 31, 2020 is as follows:

         
   

December 31,

2020

   

March 31,

2020

(Audited)

 

Machinery and equipment

  $ 199,810     $ 199,810  

Leasehold improvements

    3,750       3,750  
      203,560       203,560  
                 

Accumulated depreciation and amortization

    (173,275 )     (145,602 )
                 

Property and equipment, net

  $ 30,285     $ 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.

 

   

December 31, 2020

   

March 31, 2020

(Audited)

 
   

Cost

   

Weighted Average

Amortization Period

(Years)

   

Accumulated Amortization

   

Net

Carrying

Amount

   

Cost

   

Weighted Average

Amortization Period

(Years)

   

Accumulated Amortization

   

Net

Carrying

Amount

 

Patents & Trademarks

  $ 35,794       15     $ (16,151 )   $ 19,643     $ 35,794       15     $ (14,091 )   $ 21,703  
                                                                 

 

Estimated aggregate future amortization expense related to intangible assets is as follows:

 

For the fiscal years ended December 31,

       

2021

  $ 2,882  

2022

    2,882  

2023

    2,882  

2024

    2,632  

2025

    2,077  

Thereafter

    6,288  
    $ 19,643  

 

11

 

 

NOTE 6 – CONCENTRATIONS

 

During the three months ended December 31, 2020, two customers accounted for 52% of net revenue.  During the nine months ended December 31, 2020, two customers accounted for 51% of net revenue. 

 

During the three months ended December 31, 2019, one customer accounted for 51% of net revenue. During the nine months ended December 31, 2019, one customer accounted for 49% of net revenue.

 

As of December 31, 2020, three customers represented 82% of our gross accounts receivable. As of March 31, 2020, three customers represented 83% of our gross accounts receivable.

 

The Company’s customer base is comprised of foreign and domestic entities with diverse demographics. Net revenues from foreign customers for the three and nine months ended December 30, 2020 were $89,029 or 12% and $212,517 or 9%, respectively. Net revenues from foreign customers for the three and nine months ended December 31, 2019 were $38,944 or 5% and $281,226 or 11%, respectively.

 

 

NOTE 7 - 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,

 
   

2020

   

2019

 

Net Revenue in the US

               

Chemical

  $ 263,455     $ 256,318  

Electronics

    270,245       430,114  

Engineering

    139,915       79,750  
      673,615       766,182  
                 

Net Revenue outside the US

               

Chemical

  $ 89,029     $ 38,944  

Electronics

    -       -  

Engineering

    -       -  
      89,029       38,944  
                 

Total Net Revenues

  $ 762,644     $ 805,126  

 

 

   

Nine Months Ended December 31,

 
   

2020

   

2019

 

Net Revenue in the US

               

Chemical

  $ 737,057     $ 814,317  

Electronics

    955,217       866,091  

Engineering

    354,031       631,104  
      2,046,305       2,311,512  
                 

Net Revenue outside the US

               

Chemical

  $ 212,517     $ 281,226  

Electronics

    -       -  

Engineering

    -       -  
      212,517       281,226  
                 

Total Net Revenues

  $ 2,258,822     $ 2,592,738  

 

12

 

Information about segments is as follows:

 

   

Chemical

   

Electronics

   

Engineering

   

Total

 

Three months ended December 31, 2020

                               

Net Revenue from external customers

  $ 352,484     $ 270,245     $ 139,915     $ 762,644  

Segment operating income (loss)

  $ (14,585 )   $ (83,033 )   $ 20,897     $ (76,721 )
                                 

Nine months ended December 31, 2020

                               

Net Revenue from external customers

  $ 949,574     $ 955,217     $ 354,031     $ 2,258,822  

Segment operating income (loss)

  $ (70,895 )   $ (259,137 )   $ 74,807     $ (255,225 )
                                 

Three months ended December 31, 2019

                               

Net Revenue from external customers

  $ 295,262     $ 430,114     $ 79,750     $ 805,126  

Segment operating income (loss)

  $ 68,392     $ (114,589 )   $ (19,527 )   $ (65,724 )
                                 

Nine months ended December 31, 2019

                               

Net Revenue from external customers

  $ 1,095,543     $ 866,091     $ 631,104     $ 2,592,738  

Segment operating income (loss)

  $ 100,659     $ (200,973 )   $ 60,127     $ (40,187 )
                                 
                                 

Total assets at December 31, 2020

  $ 2,096,098     $ 2,198,349     $ 817,990     $ 5,112,437  
                                 

Total assets at March 31, 2020 (Audited)

  $ 2,021,235     $ 1,970,705     $ 1,061,149     $ 5,053,089  

 

 

NOTE 8 – ACCOUNTS RECEIVABLE - RELATED PARTY   

 

The Company has a $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. As of December 31, 2020, the Company reported a long term receivable as a component of accounts receivable - related party in the accompanying consolidated balance sheets.

 

 

NOTE 9 – LEASES

 

We lease our office and manufacturing facility under a non-cancelable operating lease, which expires on June 30, 2028. The following is a maturity analysis of the annual undiscounted cash flows of the operating lease liabilities as of December 31, 2020: 

 

For the Years Ending December 31,

       

2021

  $ 101,875  

2022

    101,875  

2023

    104,375  

2024

    106,875  

2025

    106,875  

Thereafter

    267,187  
      789,062  

Less: Amount attributable to imputed interest

    (133,515 )

Net liability at December 31, 2020

  $ 655,547  
         

Weighted average remaining lease term (in years)

    8.0  

Weighted average discount rate

    5.00

%

 

13

 

Rent and real estate tax expense for all facilities for the three and nine months ended December 31, 2020 and 2019 was approximately $34,000 and $103,000, respectively, and $34,000 and $101,000, respectively and are reported as a component of cost of sales and selling, general and administrative expenses in the accompanying consolidated statements of operations. The Company paid in $76,397 in lease payments during the nine months ending December 31, 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, 2020 is approximately $108,000. The leases expire over various years through 2021. Depreciation of the leased assets is included in depreciation and amortization expense. The lease obligations are secured by the leased assets.

 

 

NOTE 10 – PAYROLL PROTECTION PROGRAM (PPP) Loan   

 

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 depends 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. Due to the global pandemic, the Company experienced a decrease in sales due to the following: certain major customers were not in operation due to the temporary shutdown for several months or experienced a significant decrease in demand due to the stay at home orders and a decrease in elective surgeries and other medical procedures during the period. At this time, management is unable to quantify its potential effects on the operations and financial performance of the Company.

 

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 has used the entire PPP loan proceeds for designated qualifying expenses and intends to apply for forgiveness of the PPP loan in accordance with the terms of the PPP. No assurance can be given that the Company will obtain forgiveness of the PPP loan in whole or in part. With respect to any portion of the PPP loan 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 11 – 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 15, 2021, renewing automatically every year.  The Company is required to make monthly interest payments, at a rate of 3.870% as of December 31, 2020. Any unpaid principal will be due upon maturity.  At December 31, 2020 and March 31, 2020, the outstanding balance was $85,000 and $30,000, respectively.

 

 

NOTE 12 - INCOME TAXES

 

At December 31, 2020, the Company had federal net operating loss carry-forwards ("NOLs") of approximately $2,515,000. 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, 2020, the Company generated approximately $228,000 of the net operating losses, and expects to utilize the NOL’s before expiration.

 

The effective tax rates were approximately 4% and (290)% for the nine months ended December 31, 2020 and 2019, respectively. 

 

14

 

 

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 shares 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 dividend rate of 0%.

 

The following table summarizes information on all common share purchase options issued by us as of December 31, 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

    75,000     $ 0.20       -       -  

 

The following table summarizes the information about nonvested options for the nine months ended December 31, 2020:

 

   

Options

   

Weighted Average

Exercise Price

 

Nonvested - April 1, 2020

    300,000          
                 

Granted

    -     $ -  

Vested

    (75,000

)

    0.20  

Cancelled

    -       -  

Forfeited

    -       -  
                 

NonvestedDecember 31, 2020

    225,000          

 

Stock based compensation related to the vested options was $8,802 and $0 for the nine months ended December 31, 2020 and 2019, respectively.

 

As of December 31, 2020, there was $26,404 of unrecognized compensation costs, which is expected to be recognized as follows:

 

For the years ending December 31,

 

Amount

 

2021

  $ 11,735  

2022

    11,735  

2023

    2,934  
    $ 26,404  

 

 

NOTE 14 – 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. 

 

15

 

 

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 16 – 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, 2020.

 

CRITICAL ACCOUNTING POLICIES

 

REVENUE RECOGNITION

 

ELECTRONICS: 

 

We recognize revenue from the sale of our electronic products when they are shipped to the purchaser. 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 sales of our electronic products have been de minimus. We have no other post shipment obligations. 

 

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 $215,000 as of March 31, 2020 were recognized as revenues during the nine months ended December 31, 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.

 

16

 

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

 

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 of our deferred tax assets and related valuation allowance, write down of inventory, impairment of long-lived assets, allowance for doubtful accounts, and warranty reserves. Actual results could differ from those estimates. 

 

LEASES

 

In February 2016, the 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 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, operating lease liability – current, and operating lease liability – noncurrent 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.

 

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 and its subsidiary Sonotron.  

 

17

 

RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED DECEMBER 31, 2020 AS COMPARED TO DECEMBER 31, 2019  

 

Revenues for the three and nine months ended December 31, 2020 decreased by $42,482 and $333,916, respectively. The three-month decrease is a result of increased sales of $57,222 in the Chemical segment and $60,165 in the Engineering segment offset by a decrease of $159,869 in the Electronics segment. The nine-month decrease is a result of decreased sales of $145,969 in the Chemical segment and $277,073 in the Engineering segment offset by an increase of $89,126 in the Electronics segment.

 

Due to the global pandemic, the Company experienced a decrease in sales due to the following: certain major customers were not in operation due to the temporary shutdown for several months or experienced a significant decrease in demand due to the stay at home orders and a decrease in elective surgeries and other medical procedures during the period.

 

Gross profit for the three months ended December 31, 2020 decreased by $55,747. Gross profit for the nine months ended December 31, 2020 decreased by $386,773. The decrease in gross profit resulted primarily from decreased sales in Chemical and Engineering related to the COVID-19 pandemic.

 

We are highly dependent upon certain customers. During the three and nine months ended December 31, 2020, two customers accounted for 52% and 51% of our net revenue. Net revenues from foreign customers for the three and nine months ended December 31, 2020 was $89,029 or 12% and $212,517 or 9%, respectively.

 

During the three months ended December 31, 2019, one customer accounted for 51% and 49% of our net revenue. Net revenues from foreign customers for the three and nine months ended December 31, 2019 was $38,944 or 5% and $281,226 or11%, respectively.

 

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, 2020 increased by $10,997. Coupled with the aforementioned reduction in revenue, the decrease in operating loss for the three-month period is from an increase of the following expenses: approximately $10,000 in bank and credit card fees, $48,000 in salaries, offset by reductions in health insurance of $12,000, and $55,000 in professional fees.

 

Loss from operations for the nine months ended December 31, 2020 increased by $215,038. Coupled with the aforementioned reduction in revenue, the decrease in operating income for the nine-month period is primarily from an increase of the following expenses: approximately $18,000 in salaries, $18,000 in stock-based compensation and consulting, offset by decreases in insurance fees of $21,000.

 

Other income decreased $3,148 for the three months ended December 31, 2020 and increased $3,208 for the nine months ended December 31, 2020. The increase is primarily due EIDL grant of $10,000 offset by decrease in funds invested in a money market account.

 

The foregoing resulted in a net loss before provision for income taxes for the three months ended December 31, 2020 of $74,675 and net loss of $236,000 for the nine months ended December 31, 2020. Earnings per share were $(0.00) for the three and nine months ended December 31, 2020.

 

LIQUIDITY AND CAPITAL RESOURCES   

 

At December 31, 2020, we had cash and cash equivalents of $1,449,629 as compared to $1,438,714 at March 31, 2020. The $10,915 increase was primarily the result of cash used in operations during the nine-month period in the amount of $403,627, offset with cash provided in financing activities of $414,542. 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 $1,449,629 as of December 31, 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.

 

18

 

OPERATING ACTIVITIES 

 

Net cash used by operating activities was $403,627 for the nine months ended December 31, 2020, as compared to net cash provided by operating activities of $239,773 for the nine months ended December 31, 2019.  The cash used during the nine months ended December 31, 2020 was primarily due to net loss of $227,500 less depreciation and amortization of $29,733 and stock based compensation of $8,802 coupled with a decrease in net operating liabilities of $161,942 and a decrease in net operating assets of $52,520

 

INVESTING ACTIVITIES

 

No cash was provided for or used in investing activities for the nine months ended December 31, 2020.

 

FINANCING ACTIVITIES

 

For the nine months ended December 31, 2020, net cash provided by financing activities was $414,542 due to advances from the line of credit of $100,000, proceeds from the PPP loan of $381,000 offset by repayments on finance lease obligations and the line of credit of $66,458. 

 

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 currently insured by the Federal Deposit Insurance Corporation (“FDIC”) up to a maximum of $250,000. At December 31, 2020, approximately $1,303,000 exceeded the FDIC limit.

 

Our sales are materially dependent on a small group of customers, as noted in Note 6 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 and year to date period ended December 31, 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. 

 

19

 

The determination that our disclosure controls and procedures were not effective as of December 31, 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, 2020, and March 31, 2020 and the related condensed consolidated statements of income, and cash flows for the three and nine months ended December 31, 2020 and 2019, 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 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. 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, 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 

 

20

 

ITEM 6. EXHIBITS.

 

(a) Exhibit No.

 

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

 

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

 

 

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.

 

 

(Registrant)

 

 

 

 

 

 

 

 

 

 

By:

/s/ Andre' DiMino

 

 

 

Andre' DiMino, Chief Executive

 

 

 

Officer and Chief Financial Officer

 

 

Dated: Northvale, New Jersey

 February 12, 2021

 

21
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