UNITED STATES

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2019

 

OR

 

[  ] TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from _______ to _______

 

COMMISSION FILE NO. 0-17629

 

ADM TRONICS UNLIMITED, INC.
(Exact name of registrant as specified in its charter)

 

 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 [X] 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 [X] 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 [X]

 

 

 

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 [X]

 

State the number of shares outstanding of each of the Issuer's classes of common equity, as of the latest practicable date:

 

67,588,492 shares of Common Stock, $.0005 par value, as of August 19, 2019.

 

 

 

 

 

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, 2019 (unaudited) and March 31, 2019 (audited)

3

 

 

 

 

Condensed Consolidated Statements of Income for the three months ended June 30, 2019 and 2018 (unaudited)

4

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the three months ended June 30, 2019 and 2018 (unaudited)

5

 

 

 

 

Notes to Condensed Consolidated Financial Statements (unaudited)

6

 

 

 

Item 2.

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

11

 

 

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

13

 

 

 

Item 4.

Controls and Procedures

14

 

 

 

Part II - Other Information

 

 

 

 

Item 1.

Legal Proceedings

14

 

 

 

Item 1A.

Risk Factors

14

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

14

 

 

 

Item 3.

Defaults Upon Senior Securities

15

 

 

 

Item 4.

Mine Safety Disclosures

15

 

 

 

Item 5.

Other Information

15

 

 

 

Item 6.

Exhibits

15

 

 

 

 

 

PART I. FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

ADM TRONICS UNLIMITED, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS

 

 

   

June 30,

   

March 31,

 
   

2019

   

2019

 
    (Unaudited)    

(Audited)

 

ASSETS

               
                 

Current assets:

               

Cash and cash equivalents

  $ 1,456,633     $ 1,555,687  

Accounts receivable, net of allowance for doubtful accounts of $160,000 at June 30, 2019 and March 31, 2019

    1,008,913       916,844  

Inventories

    424,825       326,308  

Prepaid expenses and other current assets

    51,930       28,582  
                 

Total current assets

    2,942,301       2,827,421  
                 

Other Assets:

               

Property and equipment, net of accumulated depreciation of $117,475 and $108,099 at June 30, 2019 and March 31, 2019, respectively

    86,085       95,461  

Right of use assets - operating leases

    941,875       -  

Accounts receivable-related party

    330,090       330,090  

Inventories - long-term portion

    85,457       85,457  

Intangible assets, net of accumulated amortization of $12,384 and $12,035 at June 30, 2019 and March 31, 2019, respectively

    8,550       8,899  

Other assets

    90,764       90,764  

Deferred tax asset

    1,086,000       1,107,000  

Total other assets

    2,628,821       1,717,671  
                 

Total assets

  $ 5,571,122     $ 4,545,092  
                 

LIABILITIES AND STOCKHOLDERS' EQUITY

               
                 

Current liabilities:

               
Current portion of obligations under operating leases   $ 101,875     $ -  

Current portion of obligations under capital leases

    31,196       31,196  

Line of credit

    35,123       169,885  

Accounts payable

    283,303       275,591  

Accrued expenses and other current liabilities

    121,517       150,549  

Customer deposits

    514,186       321,441  

Due to stockholder

    142,092       139,322  

Total current liabilities

    1,229,292       1,087,984  
                 

Long-term liabilities

               

Noncurrent portion of obligations under capital leases

    14,403       22,450  

Noncurrent portion of obligations under operating leases

    840,000       -  

Total long-term liabilities

    854,403       22,450  
                 
                 

Total liabilities

    2,083,695       1,110,434  
                 

Stockholders' equity:

               

Preferred stock, $.01 par value; 5,000,000 shares authorized, no shares issued and outstanding

    -       -  

Common stock, $0.0005 par value; 150,000,000 shares authorized, 67,588,492 shares issued and outstanding

    33,794       33,794  

Additional paid-in capital

    33,294,069       33,294,069  

Accumulated deficit

    (29,840,436 )     (29,893,205 )

Total stockholders' equity

    3,487,427       3,434,658  
                 

Total liabilities and stockholders' equity

  $ 5,571,122     $ 4,545,092  

 

 

 

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

 

3

 

 

ADM TRONICS UNLIMITED, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

FOR THE THREE MONTHS ENDED JUNE 30, 3019 AND 2018

(Unaudited) 

 

 

   

2019

   

2018

 
                 

Net revenues

  $ 830,821     $ 756,967  
                 

Cost of sales

    396,009       304,421  
                 

Gross Profit

    434,812       452,546  
                 

Operating expenses:

               

Research and development

    145,766       109,868  

Selling, general and administrative

    214,255       320,025  

Depreciation and amortization

    5,506       5,557  
                 

Total operating expenses

    365,527       435,450  
                 

Income from operations

    69,285       17,096  
                 

Other income (expense):

               

Interest income

    7,153       6,249  

Interest expense

    (1,669 )     (728 )

Total other income (expense)

    5,484       5,521  
                 

Income before provision for income taxes

    74,769       22,617  
                 

Provision for income taxes:

               

Current

    1,000       -  

Deferred

    21,000       -  
              .  

Total provision for income taxes

    22,000       -  
                 

Net income 

  $ 52,769     $ 22,617  
                 

Basic and diluted earnings per common share:

  $ 0.00     $ 0.00  
                 

Weighted average shares of common stock outstanding - basic

    67,588,492       67,588,492  
                 

Weighted average shares of common stock outstanding - diluted

    67,588,492       67,588,492  

 

 

 

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

 

4

 

 

 ADM TRONICS UNLIMITED, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED JUNE 30, 2019 AND 2018

(Unaudited)

 

 

   

2019

   

2018

 

Cash flows from operating activities:

               

Net income

  $ 52,769     $ 22,617  

Adjustments to reconcile net income to net cash used in operating activities:

               

Depreciation and amortization

    9,725       9,818  

Write-off of inventories

    15,639       -  

Deferred taxes

    21,000       -  

Changes in operating assets and liabilities balances:

               

Accounts receivable

    (92,069 )     (45,649 )

Inventories

    (114,156 )     (87,760 )

Prepaid expenses and other current assets

    (23,348 )     (15,575 )

Right of use assets - operating leases

    (941,875 )     -  
Accounts payable     7,712       (28,419 )

Accrued expenses and other current liabilities

    (29,032 )     (23,864 )
Customer deposits     192,745       -  

Due to stockholder

    2,770       -  

Operating lease liability

    941,875       -  

Net cash provided by (used in) operating activities

    43,755       (168,832 )
                 

Cash flows provided (used) in financing activities:

               

Proceeds from line of credit

    78,000       35,000  

Repayments of line of credit

    (212,762 )     -  

Borrowings from stockholder

    -       6,971  

Repayments of obligations under capital leases

    (8,047 )     (8,047 )
                 

Net cash provided by (used in) financing activities

    (142,809 )     33,924  
                 

Net (decrease) in cash and cash equivalents

    (99,054 )     (134,908 )
                 

Cash and cash equivalents - beginning of period

    1,555,687       1,693,532  
                 

Cash and cash equivalents - end of period

  $ 1,456,633     $ 1,558,624  
                 
                 

Cash paid for:

               

Interest

  $ 704     $ 728  

 

 

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

 

5

 

 

ADM TRONICS UNLIMITED, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

JUNE 30, 2019 AND MARCH 31, 2019

  

 

 

NOTE 1 - NATURE OF BUSINESS

 

ADM Tronics Unlimited, Inc., incorporated under the laws of the state of Delaware on November 24, 1969, and subsidiary (collectively, “we”, “us”, the “Company” or “ADM”), is a technology-based developer and manufacturer of diversified lines of products and derive revenues from the production and sale of electronics for medical devices and other applications; environmentally safe chemical products for industrial, medical and cosmetic uses; and, research, development, regulatory and engineering services.

 

The accompanying unaudited condensed consolidated financial statements have been prepared by ADM pursuant to accounting principles generally accepted in the United States (“US GAAP”) and the rules and regulations of the Securities and Exchange Commission (“SEC”) including Form 10-Q and Regulation S-X. The information furnished herein reflects all adjustments (consisting of normal recurring accruals and adjustments) which are, in the opinion of management, necessary to fairly present the condensed financial position and operating results for the respective periods. Certain information and footnote disclosures normally present in annual financial statements prepared in accordance with US GAAP have been omitted pursuant to such rules and regulations. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and explanatory notes for the year ended March 31, 2019 as disclosed in our annual report on Form 10-K for that year. The operating results and cash flows for the three months ended June 30, 2019 (unaudited) are not necessarily indicative of the results to be expected for the pending full year ending March 31, 2020.  

 

 

 

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES

 

PRINCIPLES OF CONSOLIDATION

 

The condensed consolidated financial statements include the accounts of ADM Tronics Unlimited, Inc. and its wholly owned subsidiary, Sonotron Medical Systems, Inc. All significant intercompany balances and transactions have been eliminated in consolidation.

 

USE OF ESTIMATES

 

These unaudited condensed consolidated financial statements have been prepared in accordance with US GAAP and, accordingly, requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. Significant estimates made by management include expected economic life and value of our medical devices, reserves, deferred tax assets, valuation allowance, impairment of long lived assets, fair value of equity instruments issued to consultants for services and fair value of equity instruments issued to others, option and warrant expenses related to compensation to employees and directors, consultants and investment banks, allowance for doubtful accounts, and warranty reserves. Actual results could differ from those estimates.  

 

REVENUE RECOGNITION 

 

ADM extends credit terms to our customers based on their credit worthiness. As such, we record accounts receivable at the time of shipment, when our right to the consideration becomes unconditional. Accounts receivable from our customers are typically due within 30 days of invoicing. An allowance for doubtful accounts is provided based on a periodic analysis of individual account balances, including an evaluation of days outstanding, payment history, recent payment trends, and our assessment of our customers' creditworthiness.

 

6

 

 

CHEMICAL PRODUCTS:

 

Revenues are recognized upon shipment to a customer because that is when the customer obtains control of the promised good.

  

ELECTRONICS: 

 

We recognize revenue from the sale of our electronic products upon shipment to a customer because that is when the customer obtains control of the promised good. We offer a limited 90-day warranty on our electronics products. We have no other post shipment obligations. Based on prior experience, no amounts have been accrued for potential warranty costs and actual costs were less than $2,000, for the three months ended June 30, 2019 and 2018. For contract manufacturing, revenues are recognized after shipment of the completed products. 

 

Amounts received from customers in advance of our satisfaction of applicable performance obligations are recorded as customer deposits. Such amounts are recognized as revenues when the related performance obligations are satisfied. No customer deposits were recognized as revenues during the three month period ended June 30, 2019. Customer deposits of approximately $102,000 as of March 31, 2018 were recognized as revenues during the year ended March 31, 2019.

 

ENGINEERING SERVICES: 

 

We provide certain engineering services, including research, development, quality control, and quality assurance services along with regulatory compliance services. We recognize revenue from engineering services as the services are provided.  

 

EARNINGS PER SHARE

 

Basic earnings per share is calculated based on the weighted average number of common shares outstanding during the periods. Diluted earnings per share is computed similar to basic earnings per share, except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential shares had been issued and if the additional shares were dilutive.

  

Per share basic and diluted earnings amounted to $0.00 for both the three months ended June 30, 2019 and June 30, 2018, respectively.

 

RECENT ACCOUNTING PRONOUNCEMENTS

 

Effective April 1, 2019, the Company adopted ASU 2016-02, “Leases”, which is intended to improve financial reporting for lease transactions. This ASU requires organizations that lease assets, such as real estate and manufacturing equipment, to recognize both assets and liabilities on their balance sheet for the rights to use those assets for the lease term and obligations to make the lease payments created by those leases that have terms of greater than 12 months. The recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee primarily depends on its classification as finance or operating lease. This ASU also requires disclosures to help investors and other financial statement users better understand the amount and timing of cash flows arising from leases. These disclosures include qualitative and quantitative requirements, providing additional information about the amounts recorded in the financial statements. Under the new standard, the most significant change is the requirement of balance sheet recognition of right of use assets and lease liabilities by lessees for those leases classified as operating leases. We adopted the new accounting standard utilizing the modified retrospective method using a simplified transition approach, and, therefore, no adjustments were made to our prior period financial statements. We have elected the package of practical expedients for transition which are permitted in the new standard. Accordingly, we did not reassess whether (i) any expired or existing contracts are or contain leases under the new standard, (ii) classification of leases as operating leases or capital leases would be different under the new standard, or (iii) any initial direct costs would have met the definition of initial direct costs under the new standard.

 

In June 2016, the FASB issued ASU-2016-13 “Financial Instruments – Credit Losses”. This guidance affects organizations that hold financial assets and net investments in leases that are not accounted for at fair value with changes in fair value reported in net income. The guidance requires organizations to measure all expected credit losses for financial instruments at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts. It is effective for fiscal years beginning after December 15, 2019. The Company is evaluating the potential impact on the Company’s consolidated financial statements.

 

7

 

 

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, 2019 consisted of the following:

                 
                         
   

Current

   

Long Term

   

Total

 

Raw materials

  $ 370,216     $ 84,721     $ 454,937  

Finished goods

    54,609       736       55,345  

Totals

  $ 424,825     $ 85,457     $ 510,282  

 

Inventories at March 31, 2019 consisted of the following:

                 
                         
   

Current

   

Long Term

   

Total

 

Raw materials

  $ 273,039     $ 84,721     $ 357,760  

Finished goods

    53,269       736       54,005  

Totals

  $ 326,308     $ 85,457     $ 411,765  

 

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

 

 

NOTE 4 – CONCENTRATIONS

 

During the three months ended June 30, 2019, two customers accounted for 60% of our net revenue.

 

During the three months ended June 30, 2018, two customers accounted for 52% of our net revenue.  

 

As of June 30 2019, two customers represented 84% of our gross accounts receivable.

 

As of March 31, 2019, two customers represented 88% 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 months ended June 30, 2019 was $125,372 or 15%.

 

Net revenues from foreign customers for the three months ended June 30, 2018 was $101,965 or 13%. 

 

8

 

 

At June 30, 2019 and March 31, 2019, accounts receivable included $46,693 and $405, respectively, from foreign customers.

 

 

NOTE 5 - DISAGGREGATED REVENUES AND SEGMENT INFORMATION

 

The following tables show the Company's revenues disaggregated by reportable segment and by product and service type:

 

   

Three Months Ended June 30,

 
   

2019

   

2018

 

Net Revenue in the US

               

Chemical

  $ 262,260     $ 257,206  

Electronics

    154,767       148,966  

Engineering

    288,422       248,830  
      705,449       655,002  
                 

Net Revenue outside the US

               

Chemical

    125,372       101,965  

Electronics

    -       -  

Engineering

    -       -  
      125,372       101,965  
                 

Total Revenues

  $ 830,821     $ 756,967  

 

 

Information about segments is as follows:

 

   

Chemical

   

Electronics

   

Engineering

   

Total

 

Three months ended June 30, 2019

                               

Revenue from external customers

  $ 387,632     $ 154,767     $ 288,422     $ 830,821  

Segment operating income (loss)

  $ 74,901     $ (56,860 )   $ 51,244     $ 69,285  
                                 

Three months ended June 30, 2018

                               

Revenue from external customers

  $ 359,171     $ 148,966     $ 248,830     $ 756,967  

Segment operating income (loss)

  $ 40,575     $ (62,843 )   $ 39,364     $ 17,096  
                                 
                                 

Total assets at June 30, 2019

  $ 2,618,427     $ 947,091     $ 2,005,604     $ 5,571,122  
                                 

Total assets at March 31, 2019

  $ 1,985,501     $ 1,099,983     $ 1,459,608     $ 4,545,092  

 

9

 

 

 

NOTE 6 - LEASES

 

We lease our office and manufacturing facility under a non-cancelable operating lease, which expires on June 30, 2028. The Company’s future minimum lease payments at June 30, 2019 is as follows: 

 

 

For the twelve-month period ending June 30,

 

Amount

 

2020

  $ 101,875  

2021

    101,875  

2022

    101,875  

2023

    101,875  

2024

    106,875  

Thereafter

    427,500  
         
    $ 941,875  

 

 

Rent and real estate tax expense for all facilities for the three months ended June 30, 2019 and 2018 was approximately $33,000 and $32,000, respectively. 

 

 

NOTE 7 – CAPITAL LEASES

 

During September 2016, the Company leased equipment with a cost of approximately $129,000 under provisions of various long-term leases whereby the minimum lease payments have been capitalized. Accumulated depreciation at June 30, 2019 is approximately $68,000. 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.

 

Future minimum lease payments under the above capital leases, as of June 30, 2019, are approximately as follows:

 

         

For the twelve-month period ending June 30,

       

2020

  $ 35,000  

2021

    11,000  
      46,000  

Less: Amount attributable to imputed interest

    500  

Present value of minimum lease payments

    45,500  

Less: Current maturities

    31,000  
    $ 14,500  

 

 

NOTE 8 – LINE OF CREDIT

 

On June 15, 2018, the Company obtained an unsecured revolving line of credit, with a limit of $400,000.  The line expires May 16, 2020, renewing automatically every year.  The Company is required to make monthly interest payments, at a rate of 6.12% as of June 30, 2019.  Any unpaid principal will be due upon maturity.  At June 30, 2019, the outstanding balance was $35,123.

   

 

NOTE 9 - INCOME TAXES

 

At  June 30, 2019, the Company had federal net operating loss carry-forwards ("NOL")'s of approximately $2,191,000. 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 three months ended June 30, 2019, the Company utilized approximately $75,000 of the net operating losses, and expects to utilize the entire $2,191,000 before expiration.

 

The effective rates were approximately 29% and 59% for the three months ended June 30, 2019 and 2018, respectively. 

  

 

NOTE 10 – DUE TO STOCKHOLDER

 

The Company’s President has been deferring his salary and bonuses periodically to assist the Company’s cash flow. There are no repayment terms or interest accruing on this liability. 

  

 

NOTE 11 – SUBSEQUENT EVENTS

 

We evaluated all subsequent events from the date of the condensed consolidated balance sheet through the issuance date and determined that there are no events or transactions occurring during the subsequent event reporting period which require recognition or disclosure in the condensed consolidated financial statements. 

   

10

 

 

 

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion of our operations and financial condition should be read in conjunction with the condensed consolidated financial statements and notes thereto included elsewhere in this Quarterly Report on Form 10-Q. 

   

FORWARD-LOOKING STATEMENTS

 

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the "safe harbor" provisions under section 21E of the Securities and Exchange Act of 1934 and the Private Securities Litigation Act of 1995. We use forward-looking statements in our description of our plans and objectives for future operations and assumptions underlying these plans and objectives. Forward-looking terminology includes the words "may", "expects", "believes", "anticipates", "intends", "forecasts", "projects", or similar terms, variations of such terms or the negative of such terms. These forward-looking statements are based on management's current expectations and are subject to factors and uncertainties which could cause actual results to differ materially from those described in such forward-looking statements. We expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained in this Form 10-Q to reflect any change in our expectations or any changes in events, conditions or circumstances on which any forward-looking statement is based. Factors which could cause such results to differ materially from those described in the forward-looking statements include those set forth under "Item. 1 Description of Business – Risk Factors" and elsewhere in or incorporated by reference into our Annual Report on Form 10-K for the year ended March 31, 2019.   

 

CRITICAL ACCOUNTING POLICIES

 

REVENUE RECOGNITION

We recognize revenue from engineering services on a project or monthly basis and contract manufacturing revenues are recognized after shipment of completed products. For the sale of our electronic products, revenues are recognized when they are shipped to the purchaser. Shipping and handling charges and costs are de minimis. We offer a limited 90-day warranty on our electronics products and a limited 5-year warranty on our electronic controllers for spas and hot tubs. Historically, the amount of warranty revenue included in the sales of our electronic products have been de minimis. We have no other post shipment obligations and sales returns have been de minimis. 

 

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

  

USE OF ESTIMATES

 

Our discussion and analysis of our financial condition and results of operations is based upon our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these condensed consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to reserves, deferred tax assets and valuation allowance, impairment of long-lived assets, fair value of equity instruments issued to consultants for services and fair value of equity instruments issued to others. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions; however, we believe that our estimates, including those for the above described items, are reasonable.

 

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

  

RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2019 AS COMPARED TO JUNE 30, 2018  

 

Revenues for the three months ended June 30, 2019 increased by $73,854. The increase is a result of increased sales of $39,592 in the engineering segment, increased sales of $28,461 in the chemical segment, and increased revenues in the electronics of $5,801. The increases are primarily the result of the changes in customer ordering patterns.

 

Gross profit for the three months ended June 30, 2019 decreased by $17,734. The decrease in gross profit resulted from increased labor costs and a write-off of inventory during the quarter of $15,639.

 

We are highly dependent upon certain customers. During the three months ended June 30, 2019 two customers accounted for 60% of our net revenue. Net revenues from foreign customers for the three months ended June 30, 2019 was $125,372 or 15%.

 

The complete loss of or significant reduction in business from, or a material adverse change in the financial condition of any of our customers could cause a material and adverse change in our revenues and operating results.

 

Income from operations for the three months ended June 30, 2019 increased by $52,189. The increase in operating income for the three-month period is from a decrease of the following expenses: approximately $37,000 in consulting fees, $8,000 in health insurance, $2,000 in royalties and $4,000 in travel expenses.

 

Interest income increased $904 for the three months ended June 30, 2019. The increase is due to increased funds invested in a money market account. Interest expense increased $941 primarily due to increased balance in the line of credit.

 

The foregoing resulted in net income before provision for income taxes for the three months ended June 30, 2019 of $52,769. Earnings per share were $0.00 for the three ended June 30, 2019 and 2018, respectively.

 

LIQUIDITY AND CAPITAL RESOURCES   

 

At June 30, 2019, we had cash and cash equivalents of $1,456,633 as compared to $1,555,687 at March 31, 2019. The $99,054 decrease was primarily the result of cash provided by operations during the three-month period in the amount of $43,755, offset with cash used in financing activities of $142,809. Our cash will continue to be used for increased marketing costs, and the related administrative expenses 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 in profitable revenues 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 of $1,456,633 as of June 30, 2019, and other potential sources of cash will be sufficient to meet our cash requirements. Our ability to meet these requirements will depend on our ability to generate cash in the future, which is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control.

  

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OPERATING ACTIVITIES 

 

Net cash provided by operating activities was $43,755 for the three months ended June 30, 2019, as compared to net cash used by operating activities of $168,832 for the three months ended June 30, 2018.  The cash provided during the three months ended June 30, 2019 was primarily due to net income of $52,769 plus depreciation and amortization of $9,725 coupled with an increase in net operating liabilities of $1,116,070, coupled with a increase in net operating assets of $1,171,448.

 

In addition, we have increased our internal R&D expenditures as we are now devoting more of our engineering resources to advance our own proprietary medical device technologies.

 

INVESTING ACTIVITIES

 

No cash was provided for or used in investing activities for the three months ended June 30, 2019.

 

FINANCING ACTIVITIES

 

For the three months ended June 30, 2019, net cash used by financing activities was $142,809 due to repayments on capital lease obligations and the line of credit. 

  

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, accounts receivable and our investment in ITI. We have no control over the market value of our investment in ITI. 

 

Cash and cash equivalents – For financial statement purposes, the Company considers as cash equivalents all highly liquid investments with an original maturity of three months or less at inception. The Company deposits cash and cash equivalents with high credit quality financial institutions and believes that any amounts in excess of insurance limitations to be at minimal risk. Cash and cash equivalents held at these accounts are current insured by the Federal Deposit Insurance Corporation (“FDIC”) up to a maximum of $250,000. At June 30, 2019, approximately $1,334,000 exceeded the FDIC limit.

 

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

 

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ITEM 4. CONTROLS AND PROCEDURES

 

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

 

The Company's management, including the Company's principal executive officer and principal financial officer, have evaluated the effectiveness of the Company's "disclosure controls and procedures," as such term is defined in Ru1e 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended, (the "Exchange Act"). Based upon their evaluation, the principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report, the Company's disclosure controls and procedures were not effective for the purpose of ensuring that the information required to be disclosed in the reports that the Company files or submits under the Exchange Act with the Securities and Exchange Commission (the "SEC") (1) is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and (2) is accumulated and communicated to the Company's management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. During the quarterly period ended December 31, 2018, 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, 2019, is a result of:

 

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

 

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

 

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

  

CHANGES IN INTERNAL CONTROLS OVER FINANCIAL REPORTING

 

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

 

PART II. OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

In July 2018, the Company filed a complaint for damages, attorney's fees, costs and a declaratory judgement against Securities Transfer Corporation (STC) to compel STC to release the Company's stock transfer records to a new transfer agent.  STC refused to do so unless a termination fee of $10,578.76 was paid by the Company, although the agreement between STC and the Company provides for a termination fee of $500.  STC filed a counterclaim for damages in the above amount plus approximately $4,000 in unpaid fees.  The Company believes the counterclaim is without merit.  On November 30, 2018, the declamatory judgement was decided in favor of the Company and STC released the Company’s stock transfer records to the new transfer agent in December 2018. Although the declaratory judgement was decided in favor of the Company, the lawsuit and counterclaim are in the early stages and additional information is not available at this time.

 

ITEM 1A. RISK FACTORS

 

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

 

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

 

None

 

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ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None 

 

ITEM 4. MINE SAFETY DISCLOSURES

 

None

 

ITEM 5. OTHER INFORMATION

 

None 

 

ITEM 6. EXHIBITS.

 

(a) Exhibit No.

 

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

 

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

 

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

 

August 19, 2019

 

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