Adm Tronics Unlimited, Inc 10-Q for FY2022 Q1
Adm Tronics Unlimited, Inc. (ADMT)
About this 10-Q
Adm Tronics Unlimited, Inc filed this 10-Q on August 23, 2021, covering the quarter ended June 30, 2021 (FY2022 Q1).
Headline figures
Quarter ended June 30, 2021, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $721.36K
- up 26.8% from $569.09K a year earlier
- Net loss
- $30.67K
- compared with a net loss of $115.74K a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
(Mark One)
For the quarterly period ended
OR
For the transition period from _______ to _______
COMMISSION FILE NO.
ADM TRONICS UNLIMITED, INC.
(Exact name of registrant as specified in its charter)
| (State or Other Jurisdiction of Incorporation or organization) | (I.R.S. Employer Identification Number) |
(Address of Principal Executive Offices)
Registrant's Telephone Number, including area code: (
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:
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).
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 ☐ |
| | 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
State the number of shares outstanding of each of the Issuer's classes of common equity, as of the latest practicable date:
ADM TRONICS UNLIMITED, INC. AND SUBSIDIARY
INDEX
| Page Number |
||
| Part I - Financial Information |
||
| Item 1. |
Condensed Consolidated Financial Statements: |
|
| Condensed Consolidated Balance Sheets – June 30, 2021 (unaudited) and March 31, 2021 (audited) |
3 |
|
| Condensed Consolidated Statements of Operations for the three months ended June 30, 2021 and 2020 (unaudited) |
4 |
|
| Condensed Consolidated Statement of Stockholders’ Equity for the three months ended June 30, 2021 (unaudited) |
5 |
|
| Condensed Consolidated Statements of Cash Flows for the three months ended June 30, 2021 and 2020 (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
| June 30, | March 31, | |||||||
| 2021 | 2021 | |||||||
| (Unaudited) | (Audited) | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net of allowance for doubtful accounts of at June 30, 2021 and March 31, 2021 | ||||||||
| Inventories | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Other Assets: | ||||||||
| Property and equipment, net of accumulated depreciation of and at June 30, 2021 and March 31, 2021, respectively | ||||||||
| Operating lease right-of-use asset, net of accumulated depreciation of and at June 30, 2021 and March 31, 2021, respectively | ||||||||
| Accounts receivable - long-term portion | ||||||||
| Accounts receivable-related party, net of allowance for doubtful accounts of at June 30, 2021 and March 31, 2021 | ||||||||
| Inventories - long-term portion | ||||||||
| Intangible assets, net of accumulated amortization of and at June 30, 2021 and March 31, 2021, respectively | ||||||||
| Other assets | ||||||||
| Deferred tax asset | ||||||||
| Total other assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
| Current liabilities: | ||||||||
| PPP loans | $ | $ | ||||||
| Line of credit | ||||||||
| Operating lease liability-current | ||||||||
| Accounts payable | ||||||||
| Accrued expenses and other current liabilities | ||||||||
| Customer deposits | ||||||||
| Due to stockholder | ||||||||
| Total current liabilities | ||||||||
| Long-term liabilities | ||||||||
| PPP loans, net of current liabilities | ||||||||
| Operating lease liability, net of current portion | ||||||||
| Total long-term liabilities | ||||||||
| Total liabilities | ||||||||
| Stockholders' equity: | ||||||||
| Preferred stock, par value; shares authorized, shares issued and outstanding | ||||||||
| Common stock, par value; shares authorized, shares issued and outstanding | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders' equity | ||||||||
| Total liabilities and stockholders' equity | $ | $ | ||||||
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 MONTHS ENDED JUNE 30, 2021 AND 2020
(Unaudited)
| 2021 |
2020 (reclassified) |
|||||||
| Net revenues |
$ | $ | ||||||
| Cost of sales |
||||||||
| Gross Profit |
||||||||
| Operating expenses: |
||||||||
| Research and development |
||||||||
| Selling, general and administrative |
||||||||
| Depreciation and amortization |
||||||||
| Total operating expenses |
||||||||
| (Loss) from operations |
( |
) | ( |
) | ||||
| Other income (expense): |
||||||||
| EIDL Grant |
||||||||
| Interest income |
||||||||
| Interest expense |
( |
) | ( |
) | ||||
| Total other income (expense) |
( |
) | ||||||
| (Loss) before provision for taxes |
( |
) | ( |
) | ||||
| (Benefit) for income taxes: |
||||||||
| Current |
( |
) | ||||||
| Deferred |
( |
) | ( |
) | ||||
| . | ||||||||
| Total (benefit) for income taxes |
( |
) | ( |
) | ||||
| Net loss |
$ | ( |
) | ( |
) | |||
| Basic and diluted earnings per common share: |
$ | ( |
) | $ | ( |
) | ||
| Weighted average shares of common stock outstanding - basic and diluted |
||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
ADM TRONICS UNLIMITED, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
FOR THE THREE MONTHS ENDED JUNE 30, 2021
(Unaudited)
| Common Stock |
Common Stock |
Additional Paid-in |
Accumulated |
|||||||||||||||||
| Shares |
Amount |
Capital |
Deficit |
Total |
||||||||||||||||
| Balance at March 31, 2021 |
$ | $ | $ | ( |
) | $ | ||||||||||||||
| Net loss |
- | ( |
) | ( |
) | |||||||||||||||
| Balance at June 30, 2021 |
$ | $ | $ | ( |
) | $ | ||||||||||||||
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 THREE MONTHS ENDED JUNE 30, 2021 AND 2020
(Unaudited)
| 2021 |
2020 (reclassified) |
|||||||
| Cash flows from operating activities: |
||||||||
| Net loss |
$ | ( |
) |
$ | ( |
) |
||
| Adjustments to reconcile net (loss) to net cash (used in) operating activities: |
||||||||
| Depreciation and amortization |
||||||||
| Write-off of inventories |
||||||||
| Deferred taxes |
( |
) | ( |
) | ||||
| Non-cash interest expense |
||||||||
| Changes in operating assets and liabilities balances: |
||||||||
| Accounts receivable |
( |
) |
||||||
| Inventories |
( |
) |
( |
) |
||||
| Prepaid expenses and other current assets |
( |
) |
( |
) |
||||
| Accounts payable |
( |
) |
( |
) | ||||
| Customer deposits |
( |
) |
||||||
| Accrued expenses and other current liabilities |
( |
) |
( |
) |
||||
| Payments of operating lease liability |
( |
) |
( |
) |
||||
| Net cash (used in) operating activities |
( |
) |
( |
) | ||||
| Cash flows provided (used) in financing activities: |
||||||||
| Due to stockholder |
( |
) | ||||||
| Proceeds from line of credit |
||||||||
| Proceeds from PPP loan |
||||||||
| Repayments on capital lease payable |
( |
) |
||||||
| Net cash provided by financing activities |
||||||||
| Net (decrease) increase in cash and cash equivalents |
( |
) | ||||||
| Cash and cash equivalents - beginning of period |
||||||||
| Cash and cash equivalents - end of period |
$ | $ | ||||||
| Cash paid for: |
||||||||
| Interest |
$ | $ | ||||||
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)
For the Three Months Ended JUNE 30, 2021
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 (“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 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, 2021 as disclosed in our annual report on Form 10-K for that year. The operating results and cash flows for the three months ended June 30, 2021 (unaudited) are not necessarily indicative of the results to be expected for the pending full year ending March 31, 2022.
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 (the “Company”). 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 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 June 30, 2021, approximately $
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
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 $
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 $
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 to years, the estimated useful lives of the property and equipment.
INTANGIBLE ASSETS
Intangible assets are reviewed for impairment annually whenever changes in circumstances indicate that the carrying amount may not be recoverable. In reviewing for impairment, the Company compares the carrying value of the relevant asset to the estimated undiscounted future cash flows expected from the use of the assets and their eventual disposition. When the estimated undiscounted future cash flows are less than their carrying amount, an impairment loss is recognized equal to the difference between the assets’ fair value and its carrying value.
ADVERTISING COSTS
Advertising costs are expensed as incurred and amounted to $
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 | ||||
| New Jersey | ||||
There are currently no tax years under examination by any major tax jurisdictions.
The Company will recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. As of June 30, 2021, and 2020, the Company has
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 (loss) amounted to $() for the three months ended June 30, 2021 and June 30, 2020.
LEASES
In February 2016, the Financial Accounting Standards Board (“FASB”) issued authoritative guidance which changes financial reporting as it relates to leasing transactions. Under the new guidance, lessees are required to recognize a lease liability, measured on a discounted basis; and a right-of-use asset, for the lease term. The Company adopted this guidance as of April 1, 2019, using the modified retrospective approach which allowed it to initially apply the guidance as of the adoption date. The Company elected the package of practical expedients available under the new standard, which allowed the Company to forgo a reassessment of (1) whether any expired or existing contracts are or contain leases, (2) the lease classification for any expired or existing leases, and (3) the initial direct costs for any existing leases.
The Company made a policy election to recognize short-term lease payments as an expense on a straight-line basis over the lease term. The Company defines a short-term lease as a lease that, at the commencement date, has a lease term of twelve months or less and does not contain an option to purchase the underlying asset that the lease is reasonably certain to exercise. Related variable lease payments are recognized in the period in which the obligation is incurred.
The Company's lease agreement contains related non-lease components (e.g. taxes, etc.). The Company separates lease components and non-lease components for all underlying asset classes.
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.
NEW ACCOUNTING STANDARDS
On December 18, 2021, the FASB issued ASU 2019-12, “Simplifying the Accounting for Income Taxes”, which modifies ASU 740 to simplify the accounting for income taxes. The amendments in ASU 2019-12 are effective for fiscal years beginning after December 15, 2020. The Company adopted this ASU effective April 1, 2021.
Management does not believe that any other recently issued, but not yet effective accounting pronouncement, if adopted, would have a material effect on the accompanying consolidated financial statements.
NOTE 3 - INVENTORIES
| Inventories at June 30, 2021 consisted of the following: |
||||||||||||
| Current |
Long Term |
Total |
||||||||||
| Raw materials |
$ | $ | $ | |||||||||
| Finished goods |
||||||||||||
| Totals |
$ | $ | $ | |||||||||
| Inventories at March 31, 2021 consisted of the following: |
||||||||||||
| Current |
Long Term |
Total |
||||||||||
| Raw materials |
$ | $ | $ | |||||||||
| Finished goods |
||||||||||||
| Totals |
$ | $ | $ | |||||||||
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment as of June 30, 2021 and March 31, 2021 is as follows:
| June 30, |
March 31. |
|||||||
| 2021 |
2021 |
|||||||
| Machinery and equipment |
$ | $ | ||||||
| Leasehold improvements |
||||||||
| Accumulated depreciation and amortization |
( |
) | ( |
) | ||||
| Property and equipment, net |
$ | $ | ||||||
NOTE 5 - INTANGIBLE ASSETS
Intangible assets are being amortized using the straight-line method over periods ranging from
| June 30, 2021 |
March 31, 2021 |
|||||||||||||||||||||||||||||||||
| Cost |
Weighted Average Amortization Period (Years) |
Accumulated Amortization |
Net Carrying Amount |
Cost |
Weighted Average Amortization Period (Years) |
Accumulated Amortization |
Net Carrying Amount |
|||||||||||||||||||||||||||
| Patents & Trademarks |
$ | - | $ | ( |
) | $ | $ | - | $ | ( |
) | $ | ||||||||||||||||||||||
Estimated aggregate future amortization expense related to intangible assets is as follows:
| For the twelve months ended June 30, |
||||
| 2022 |
$ | |||
| 2023 |
||||
| 2024 |
||||
| 2025 |
||||
| 2026 |
||||
| Thereafter |
||||
| $ |
NOTE 6 – CONCENTRATIONS
During the three months ended June 30, 2021,
As of June 30, 2021,
The Company’s customer base is comprised of foreign and domestic entities with diverse demographics. Net revenues from foreign customers for the three months ended June 30, 2021 were $
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 June 30, |
||||||||
| 2021 |
2020 |
|||||||
| Net Revenue in the US |
||||||||
| Chemical |
$ | $ | ||||||
| Electronics |
||||||||
| Engineering |
||||||||
| Net Revenue outside the US |
||||||||
| Chemical |
||||||||
| Electronics |
||||||||
| Engineering |
||||||||
| Total Revenues |
$ | $ | ||||||
Information about segments is as follows:
| Chemical |
Electronics |
Engineering |
Total |
|||||||||||||
| Three months ended June 30, 2021 |
||||||||||||||||
| Revenue from external customers |
$ | $ | $ | $ | ||||||||||||
| Segment operating income (loss) |
$ | ( |
) | $ | ( |
) | $ | $ | ( |
) | ||||||
| Three months ended June 30, 2020 |
||||||||||||||||
| Revenue from external customers |
$ | $ | $ | $ | ||||||||||||
| Segment operating (loss) |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| Total assets at June 30, 2021 |
$ | $ | $ | $ | ||||||||||||
| Total assets at March 31, 2021 |
$ | $ | $ | $ | ||||||||||||
NOTE 8 – ACCOUNTS RECEIVABLE - RELATED PARTY
The Company has a $
The Company provided $
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 June 30, 2021:
| For the Years Ending June 30, |
||||
| 2022 |
$ | |||
| 2023 |
||||
| 2024 |
||||
| 2025 |
||||
| 2026 |
||||
| Thereafter |
||||
| Less: Amount attributable to imputed interest |
( |
) |
||
| Net liability at June 30, 2021 |
$ | |||
| Weighted average remaining lease term (in years) |
||||
| Weighted average discount rate |
% |
Rent and real estate tax expense for all facilities for the three months ended June 30, 2021 and 2020 was approximately $
NOTE 10 – PAYROLL PROTECTION PROGRAM (PPP) Loan
In May 2020, the Company obtained funding through the Small Business Administration (“SBA”) Paycheck Protection Program (“PPP”) of $
NOTE 11 – LINE OF CREDIT
On June 15, 2018, the Company obtained an unsecured revolving line of credit, with a limit of $
NOTE 12 - INCOME TAXES
At June 30, 2021, the Company had federal net operating loss carry-forwards ("NOLs") of approximately $
During the three months ended June 30, 2021, the Company generated approximately $
The effective tax rates were approximately
NOTE 13 – STOCK BASED COMPENSATION
On January 13, 2020, ADM granted
The following table summarizes information on all common share purchase options issued by us as of June 30, 2021 and 2020.
| 2021 |
2020 |
|||||||||||||||
| # of Shares |
Weighted |
# of Shares |
Weighted |
|||||||||||||
| Average |
Average |
|||||||||||||||
| Exercise |
Exercise |
|||||||||||||||
| Price |
Price |
|||||||||||||||
| Outstanding, beginning of year |
$ | $ | ||||||||||||||
| Issued |
||||||||||||||||
| Exercised |
||||||||||||||||
| Expired |
||||||||||||||||
| Cancelled |
( |
) | ||||||||||||||
| Outstanding, end of period |
$ | $ | ||||||||||||||
| Exercisable, end of period |
$ | $ | ||||||||||||||
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
NOTE 15 – LEGAL PROCEEDINGS
We are involved, from time to time, in litigation and proceedings arising out of the ordinary course of business. 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
On July 2, 2021, ADM granted a consultant a warrant to purchase up to
We evaluated all subsequent events from the date of the condensed consolidated balance sheets 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, 2021.
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 $80,000 as of March 31, 2021 were recognized as revenues during the three months ended June 30, 2021.
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.
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 $821,020, 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 $821,020. 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.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2021 AS COMPARED TO JUNE 30, 2020.
Revenues for the three ended June 30, 2021 increased by $152,265. The three-month increase is a result of increased sales of $128,734 in the Chemical segment and $89,019 in the Engineering segment offset by a decrease of $65,488 in the Electronics segment.
The Company sales suffered for the three months ended June 30, 2020 due to the global pandemic. Business resumed to normal levels during the three months ended June 30, 2021.
Gross profit for the three months ended June 30, 2021 increased by $117,602. The increase in gross profit resulted primarily from increased sales in Chemical and Engineering as the Company is recovering from the COVID-19 pandemic.
We are highly dependent upon certain customers. During the three months ended June 30, 2021, two customers accounted for 46% of our net revenue. Net revenues from foreign customers for the three months ended June 30, 2021 was $81,953 or 11%.
During the three months ended June 30, 2020, two customers accounted for 54% of our net revenue. Net revenues from foreign customers for the three months ended June 30, 2020 was $24,666 or 4%.
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 June 30, 2021 decreased by $140,873 due to the increase in revenue as the Company is recovering from the global pandemic.
Other income decreased $14,809 for the three months ended June 30, 2021. The decrease is primarily due EIDL grant of $10,000 and a decrease in interest rates.
The foregoing resulted in a net loss before provision for income taxes for the three months ended June 30, 2021 of $44,172. Earnings per share were $(0.00) for the three months ended June 30, 2021.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2021, we had cash and cash equivalents of $1,305,101 as compared to $1,546,950 at March 31, 2021. The $241,849 decrease was primarily the result of cash used in operations during the three-month period in the amount of $267,902, offset with cash provided in financing activities of $26,053. 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 2022.
Based on current expectations, we believe that our existing cash and cash equivalents of $1,305,101 as of June 30, 2021, and other potential sources of cash will be sufficient to meet our cash requirements. Our ability to meet these requirements will depend on our ability to generate cash in the future, which is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control.
OPERATING ACTIVITIES
Net cash used by operating activities was $267,902 for the three months ended June 30, 2021, as compared to net cash used by operating activities of $245,909 for the three months ended June 30, 2020. The cash used during the three months ended June 30, 2021 was primarily due to net loss of $30,672, an increase in net operating assets of $130,839, a decrease in net operating liabilities of $142,683, and an increase in deferred taxes of $19,000, partially offset by write-off of inventories of $18,375, depreciation and amortization of $29,012 and non-cash interest expense of $7,905.
INVESTING ACTIVITIES
No cash was provided for or used in investing activities for the three months ended June 30, 2021.
FINANCING ACTIVITIES
For the three months ended June 30, 2021, net cash provided by financing activities was $26,053 due to advances from the line of credit of $22,000 and an increase in due to stockholder of $4,503.
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 June 30, 2021, approximately $1,155,000 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 June 30, 2021, 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 June 30, 2021, 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 June 30, 2021, and March 31, 2021 and the related condensed consolidated statements of operations, and cash flows for the three months ended June 30, 2021 and 2020, 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
None
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, 2021.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. MINE SAFETY DISCLOSURES
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS.
(a) Exhibit No.
| 101.INS** |
Inline XBRL Instance |
| 101.SCH** |
Inline XBRL Taxonomy Extension Schema |
| 101.CAL** |
Inline XBRL Taxonomy Extension Calculation |
| 101.DEF** |
Inline XBRL Taxonomy Extension Definition |
| 101.LAB** |
Inline XBRL Taxonomy Extension Labels |
| 101.PRE** |
Inline XBRL Taxonomy Extension Presentation |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL and contained in Exhibit 101) |
** XBRL information is furnished and not filed or a part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| ADM TRONICS UNLIMITED, INC. |
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| (Registrant) |
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| By: |
/s/ Andre' DiMino |
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| Andre' DiMino, Chief Executive |
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| Officer and Chief Financial Officer |
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| Dated: Northvale, New Jersey August 23, 2021 |