ADMT 10-Q Quarter ended Dec. 31, 2017

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 December 31, 2017

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

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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). YES [X] NO [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting 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 [  ] (Do not check if a smaller reporting company)	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 February 14, 2018.

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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, 2017 (unaudited) and March 31, 2017 (audited)	3
	Condensed Consolidated Statements of Operations for the three and nine months ended December 31, 2017 and 2016 (unaudited)	4
	Condensed Consolidated Statements of Cash Flows for the nine months ended December 31, 2017 and 2016 (unaudited)	5
	Notes to Condensed Consolidated Financial Statements (unaudited)	6
Item 2.	Management ’s Discussion and Analysis of Financial Condition and Results of Operations	10
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	16
Item 4.	Controls and Procedures	16
Part II - Other Information
Item 1.	Legal Proceedings	17
Item 1A.	Risk Factors	17
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	17
Item 3.	Defaults Upon Senior Securities	17
Item 4.	Mine Safety Disclosures	17
Item 5.	Other Information	17
Item 6.	Exhibits	17

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		December 31,				March 31,
		2017				2017
		(Unaudited)				(Audited)
ASSETS
Current assets:
Cash and cash equivalents		$	1,624,338			$	1,982,276
Accounts receivable, net of allowance for doubtful accounts of $25,000			1,493,375				862,619
Inventories			500,946				369,796
Prepaid expenses and other current assets			16,533				35,752
Total current assets			3,635,192				3,250,443
Property and equipment, net of accumulated depreciation of $60,970 and $32,562, at December 31, 2017 and and March 31, 2017, respectively			142,590				170,998
Inventories - long-term portion			56,611				56,611
Intangible assets, net of accumulated amortization of $10,290 and $9,244, at December 31, 2017 and and March 31, 2017, respectively			10,643				11,690
Other assets			91,814				104,907
Deferred tax asset			537,000				926,000
Total other assets			838,658				1,270,206
Total assets		$	4,473,850			$	4,520,649
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Capital lease payable		$	31,196			$	30,895
Accounts payable			308,370				269,007
Accrued expenses and other current liabilities			137,782				148,731
Customer deposits			125,142				125,142
Due to stockholder			130,551				195,562
Total current liabilities			733,041				769,337
Long-term liabilities
Capital lease payable, net of current portion			62,684				83,812
Total liabilities			795,725				853,149
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			(29,649,738	)			(29,660,363	)
Total stockholders' equity			3,678,125				3,667,500
Total liabilities and stockholders' equity		$	4,473,850			$	4,520,649

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		Three months ended								Nine months ended
		December 31,								December 31,
		2017				2016				2017				2016
Net revenues		$	1,021,042			$	1,156,512			$	3,237,103			$	3,914,281
Cost of sales			539,184				599,607				1,351,667				1,695,765
Gross profit			481,858				556,905				1,885,436				2,218,516
Operating expenses:
Research and development			109,167				113,752				398,351				151,548
Selling, general and administrative			351,609				433,712				1,075,411				1,105,081
Stock based compensation			-				46,400				-				46,400
Depreciation and amortization			5,429				2,951				16,672				5,890
Total operating expenses			466,205				596,815				1,490,434				1,308,919
Income (loss) from operations			15,653				(39,910	)			395,002				909,597
Other income (expense):
Interest income			5,258				835				11,806				2,295
Interest and finance expenses			(728	)			(3,546	)			(2,183	)			(4,389	)
Total other income (expense)			4,530				(2,711	)			9,623				(2,094	)
Income (loss) before provision for income taxes			20,183				(42,621	)			404,625				907,503
Provision for income taxes:
Current			1,000				-				5,000				-
Deferred			235,000				-				389,000				-
Total provision for income taxes			236,000				-				394,000				-
Net (loss) income		$	(215,817	)		$	(42,621	)		$	10,625			$	907,503
Basic and diluted earnings per common share:		$	0.00			$	(0.00	)		$	0.00			$	0.01
Weighted average shares of common stock outstanding - basic and diluted			67,588,492				67,216,545				67,588,492				67,078,102

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		2017				2016
Cash flows from operating activities:
Net income		$	10,625			$	907,503
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation and amortization			29,455				46,400
Stock based compensation			-				8,892
Deferred taxes			389,000				-
Changes in operating assets and liabilities balances:
Accounts receivable			(630,756	)			(712	)
Inventories			(131,150	)			(237,126	)
Prepaid expenses and other current assets			32,312				(150,879	)
Accounts payable			39,363				116,407
Accrued expenses and other current liabilities			(10,949	)			(214,525	)
Due to stockholder			(65,011	)			28,027
Net cash (used in) provided by operating activities			(337,111	)			503,987
Cash flows from investing activities:
Purchase of property and equipment			-				(8,070	)
Restricted cash			-				(224	)
Net cash (used in) investing activities			-				(8,294	)
Cash flows (used in) financing activities:
Repayments on notes payable			-				(18,000	)
Repayments on capital lease payable			(20,827	)			(2,739	)
Net cash (used in) financing activities			(20,827	)			(20,739	)
Net increase (decrease) in cash and cash equivalents			(357,938	)			474,954
Cash and cash equivalents - beginning of period			1,982,276				1,398,848
Cash and cash equivalents - end of period		$	1,624,338			$	1,873,802
Cash paid for:
Interest		$	2,183			$	4,389
Non-cash investing activities
Purchase of equipment with the assumption of capital lease obligation		$	-			$	128,807

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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 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 generally accepted accounting principles in the United States 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 accounting principles generally accepted in the United States of America 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, 2017 as disclosed in our annual report on Form 10 -K for that year. The operating results and cash flows for three and nine months ended December 31, 2017 ( unaudited) are not necessarily indicative of the results to be expected for the pending full year ending March 31, 2018.

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. 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 accounting principles generally accepted in the United States of America and, accordingly, require 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

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.

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 a limited 5 -year warranty on our electronic controllers for spas and hot tubs. 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 three and nine months ended December 31, 2017 and 2016. For contract manufacturing, revenues are recognized after shipment of the completed products.

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 and nine months ended December 31, 2017 and $( 0.00 ) and $0.01 for the three and nine months ended December 31, 2016, respectively. There were 3,000,000 common stock equivalents at December 31, 2017 and 2016, respectively.

RECENT ACCOUNTING PRONOUNCEMENTS

In July 2015, the FASB issued ASU 2015 - 11, “ Inventory. Simplifying the Measurement of Inventory.” This amendment requires companies to measure inventory at the lower of cost and net realizable value. The Company adopted this amendment in April of 2017, and the implementation did not have a material impact on the Company's financial statements.

Management is still evaluating the impact of recently issued, but not yet effective accounting pronouncements, if adopted. The effects of the standards on the Company ’s consolidated financial statements are not known at this time.

NOTE 3 - INVENTORIES

Inventories at December 31, 2017 consisted of the following:

Inventories at March 31, 2017 consisted of the following:

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

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NOTE 4 – CONCENTRATIONS

During the three months ended December 31, 2017 three customers accounted for 52% of our net revenue. During the nine months ended December 31, 2017 three customers accounted for 59% of our net revenue.

During the three -month period ended December 31, 2016, one customer accounted for 71% of our net revenue. During the nine -month period ended December 31, 2016, one customer accounted for 61% of our net revenue

As of December 31, 2017, three customers represented 90% of our accounts receivable.

As of March 31, 2017, one customer represented 83% of our 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 31, 2017 was $92,967 or 10% and $251,825 or 8%, respectively.

Revenues from foreign customers represented $48,750 of net revenue or 4.2% for the three months ended December 31, 2016. Revenues from foreign customers represented $602,405 of net revenue or 15.4% for the nine months ended December 31, 2016.

As of December 31, 2017, and March 31, 2017, accounts receivable included $1,902 and $48,213, respectively, from foreign customers.

NOTE 5 - SEGMENT INFORMATION

Information about segments is as follows:

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NOTE 6 - OPTIONS OUTSTANDING

On September 2, 2015, ADM granted 3,000,000 stock options to employees at an exercise price of $0.20 per option and with a term of three years. The options were valued at $598,699 using the Black Scholes option pricing model with the following assumptions: risk free interest rate of 2.03%, volatility of 353%, 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 for the periods ended December 31, 2017 and March 31, 2017.

NOTE 7 - COMMITMENTS AND CONTINGENCIES

We lease our office and manufacturing facility under a non-cancelable operating lease, which expires on June 30, 201 8. The Company’s future minimum lease commitment at December 31, 2017 is as follows:

Rent and real estate tax expense for all facilities for the three and nine months ended December 31, 2017 and 2016 was approximately $28,000 and $96,000, respectively.

On December 2, 2016, the Company entered into a capital lease agreement with a commercial bank in the amount of $85,680, including $6,930 in deferred interest, for the purchase of certain property and equipment. The lease has a term of forty-eight ( 48 ) months and is payable in forty-eight equal installments of $1,785. The balance of this obligation as of December 31, 2017, was $57,422.

On December 2, 2016, the Company entered into a capital lease agreement with a commercial bank in the amount of $54,710, including $4,710 in deferred interest, for the purchase of certain property and equipment. The lease has a term of forty-eight ( 48 ) months and is payable in forty-eight equal installments of $1,139. The balance of this obligation as of December 31, 2017, was $36,458

NOTE 8 - INCOME TAXES

At December 31, 2017, the Company had federal net operating loss carry-forwards ("NOL")'s of approximately $1,881,000, which are due to expire through fiscal 2034. These NOLs may be used to offset future taxable income through their respective expiration dates 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 NOL's and 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.

The Company provides a partial valuation allowance for the deferred tax asset resulting from the uncertainty that the stock-based compensation will be deductible. During the nine months ended December 31, 2017, the Company utilized approximately $407,000 in net operating losses and expects to utilize the entire $1,881,000 before expiration.

The effective rates were approximately 97% and 0% for the three and nine months ended December 31, 2017 and 2016, respectively.

The Tax cuts and Job Acts, enacted on December 22, 2017, among other provisions, reduces the top corporate tax rate from 35% to a flat 21% and eliminates the Corporate Alternative Minimum Tax for tax years beginning after January 1, 2018. This new law change necessitated a discrete adjustment to reduce the deferred income tax asset by $227,000.

NOTE 9 – 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 10 – 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.

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