FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K 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-K 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 this Annual Report on Form
10-K.
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. Based on prior
experience, no amounts have been accrued for potential warranty costs and actual
costs were less than $2,000, for each of the fiscal years ended March 31,
2022 and 2021. For contract manufacturing, revenues are recognized after
shipment of the completed products.
--------------------------------------------------------------------------------
Amounts received from customers in advance of our satisfaction of applicable
performance obligations are recorded as customer deposits. Such amounts are
recognized as revenues when the related performance obligations are satisfied.
Customer deposits of approximately $179,000 as of March 31, 2021 were recognized
as revenues during the year ended March 31, 2022.
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.
ACCOUNTS RECEIVABLE
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.
USE OF ESTIMATES
Our discussion and analysis of our financial condition and results of operations
is based upon our consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States of
America ("GAAP"). The preparation of these 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.
NEW ACCOUNTING STANDARDS
On December 18, 2019, 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.
In June 2016, the FASB issued ASU2016-13 "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, 2022, including interim periods with those fiscal years. The Company is
evaluating the potential impact on the Company's consolidated financial
statements.
Management does not believe that any other recently issued, but not yet
effective accounting pronouncement, if adopted, would have a material effect on
the accompanying consolidated financial statements.
BUSINESS OVERVIEW
ADM is a corporation that was organized under the laws of the State of Delaware
on November 24, 1969.
We are a technology-based developer and manufacturer of diversified lines of
products and services in the following areas: electronics for non-invasive
medical and other applications; research, development, regulatory and
engineering services; and, environmentally safe chemical products for
industrial, cosmetic and topical uses.
--------------------------------------------------------------------------------
REVENUES
Revenues increased $115,963, or 4% from the prior year, which resulted from
increases of $76,875 in the electronic segment, $75,217 in the chemicals segment
offset by a decrease of $36,129 in the engineering segment. The increases were
primarily the result of increased purchasing from customers due to the effect of
the COVID shutdowns being lifted.
OPERATING LOSS
Loss from operations for the year ended March 31, 2022 was ($1,129,314). Loss
from operations for the year ended March 31, 2021 was ($680,478), an increase in
loss of $448,836. This was a result of an increase in selling, general and
administrative expenses.
Selling, general and administrative expenses increased by $624,492 or 60%, from
$1,049,198 to $1,673,690, mainly due to an increase of $172,214 in consulting
expense and $625,000 in bad debt, partially offset by a decrease of $58,770 in
professional fees and $47,064 in insurance expense.
NET LOSS PER SHARE
Net loss for the fiscal years ended March 31, 2022 and 2021 was ($1,384,263) and
($598,276) or ($0.02) and ($0.01) per share, respectively.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2022, we had cash and cash equivalents of $1,038,498 as compared to
$1,546,950 at March 31, 2021. The decrease of $508,452 was primarily the result
of cash used in operations in the amount of $574,951, offset by cash provided by
financing activities of $66,499. We expect to have enough cash to fund
operations for the next twelve months.
Future Sources of Liquidity:
We expect our primary source of cash during fiscal 2023 to be net cash provided
by operating activities. We expect that growth in profitable revenues and
continued focus on new customers will enable us to generate cash flows from
operating activities.
If we do not generate sufficient cash from operations, face unanticipated cash
needs or do not otherwise have sufficient cash, we have the ability to reduce
certain expenses depending on the level of business operation.
Based on current expectations, we believe that our existing cash of $1,038,498
as of March 31, 2022 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.
Although we expect available funds and funds generated from our operations to be
sufficient to meet our anticipated needs for a minimum of 12 months, we may need
to obtain additional capital to continue to operate and grow our business. Our
cash requirements may vary materially from those currently anticipated due to
changes in our operations, including our marketing and sales activities, product
development, and the timing of our receipt of revenues. As of March 31, 2022, we
have approximately $65,000 available for use through our line of credit. Our
ability to obtain additional financing in the future will depend in part upon
the prevailing capital market conditions, as well as our business performance.
There can be no assurance that we will be successful in our efforts to arrange
additional financing on terms satisfactory to us or at all. Additionally, we
will continue to reduce certain of our expenses in order to assist in meeting
our capital needs.
IMPACT OF THE COVID-19 PANDEMIC
The COVID-19 pandemic has significantly curtailed global economic activity and
caused significant volatility and disruption in global financial markets. We
began to see the impact of COVID-19 during our fourth quarter of fiscal 2020
with certain of our customers being required to close and/or suspend their own
operations due to the COVID-19 pandemic. As a result, net sales and production
levels during the fourth quarter of fiscal 2020 and the majority of fiscal 2021
were reduced, thus impacting our results of operations during these
quarters. The Company was impacted by supply chain shortages during the 2022
fiscal year. In May 2020, we received a loan of approximately $381,000 under the
U.S. Small Business Administration Paycheck Protection Program, to assist with
the economic hardships caused by the pandemic. In February 2021, we received a
second loan of approximately $333,000 under the U.S. Small Business
Administration Paycheck Protection Program.
The Company applied for loan forgiveness of both PPP loans. On September 7,
2021, the Company received approval from the SBA for $361,275 of PPP loan
forgiveness. On December 21, 2021, the Company received approval from the Bank
for $332,542. This amount was recorded as Forgiveness of Paycheck Protection
loan in the accompanying condensed Consolidated Statements of Operations for the
year ended March 31, 2022.
--------------------------------------------------------------------------------
The unforgiven portion of the first PPP loan is $19,725, which was converted to
a term loan payable in equal installments of principal plus interest at 1% with
a maturity date of May 15, 2025. No collateral or personal guarantees are
required for the loan. At March 31, 2022, the outstanding balance is $17,035.
The extent of the impact of the COVID-19 pandemic on our business, financial
results and liquidity will depend 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 first quarter of fiscal 2023, as well as the full fiscal year, and such
impact may be material.
OPERATING ACTIVITIES
Net cash used by operating activities was $574,951 for the fiscal year ended
March 31, 2022. Cash used during the year ended March 31, 2022 was primarily due
to net loss of $1,384,263, an increase in net operating assets of $267,909, and
forgiveness of PPP loans of $693,517, partially offset by an increase in net
operating liabilities of $18,095, a decrease in deferred taxes of $956,000,
write-off of inventories of $34,406, an increase in reserve for bad debt of
$625,000, depreciation and amortization of $107,253 and non-cash interest
expense of $30,284.
Net cash used by operating activities was $769,637 for the fiscal year ended
March 31, 2021. Cash used during the year ended March 31, 2021 was primarily due
to net loss of $598,276, an increase in net operating assets of $337,307, a
decrease in net operating liabilities of $136,191 and an increase in deferred
taxes of $62,000, partially offset by write-off of inventories of $121,999, an
increase in reserve for bad debt of $75,000, depreciation and amortization of
$149,535, and stock based compensation of $17,603.
INVESTING ACTIVITIES
For the fiscal years ended March 31, 2022 and 2021, net cash used in investing
activities was zero.
FINANCING ACTIVITIES
For the fiscal year ended March 31, 2022, net cash provided by financing
activities was $66,499, due to advances on the line of credit of $308,000,
off-set by payments toward the line of credit of $199,653, payments on PPP loan
of $2,690, and a decrease in due to stockholder of $39,158.
For the fiscal year ended March 31, 2021, net cash provided by financing
activities was $877,873, due to advances on the line of credit of $241,413,
off-set by payments toward the line of credit of $45,000, proceeds from PPP Loan
of $713,542, payments toward the capital lease of $21,458 and a decrease in due
to stockholder of $10,624.
INFLATION
We believe our operations has not been materially and adversely affected by
inflation or changing prices. However, general economic factors beyond our
control, and changes in the global economic environment, specifically
fluctuations in inflation and currency exchange rates, could result in lower
revenues, higher costs and decreased margins and earnings in the foreseeable
future.
OFF-BALANCE SHEET ARRANGEMENTS
The Company has no off-balance sheet arrangements.
© Edgar Online, source Glimpses
ADM TRONICS UNLIMITED, INC. 
