ADM TRONICS UNLIMITED, INC. - Quarter Report: 2020 December (Form 10-Q)

 

 

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

 

 

 

 

		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

 

		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

 

		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

 

		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

 

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.

 

 

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.

 

 

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:

 

 

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.

 

 

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:

 

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

 

 

 

NOTE 4 - PROPERTY AND EQUIPMENT 

 

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

 

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.

 

 

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

 

 

 

 

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:

 

 

 

 

 

Information about segments is as follows:

 

 

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: 

 

 

 

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. 

 

 

 

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. 

 

 

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

 

 

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:

 

 

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. 

 

 

 

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.