U.S. 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 September 30, 2020
| ☐ | | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File No. 0-28034
EKIMAS CORPORATION
(Name of small business issuer in its charter)
| Delaware | | 04-3186647 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
| 92 Washington Street, #154, Canton, Massachusetts | | 02021 |
| (Address of principal executive offices) | | (Zip Code) |
Issuer’s telephone number (978) 344-2124
Securities registered under Section 12(b) of the Exchange Act:
| None | | None |
| Title of each class | | Name of each exchange on which registered |
Securities registered pursuant to Section 12(g) of the Act: Common Stock, $0.001 par value per share
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 Act). Yes ☒ No ☐
As of September 9, 2021, there were 28,262,371 shares of the registrant’s Common Stock were outstanding.
EKIMAS CORPORATION
TABLE OF CONTENTS
EKIMAS CORPORATION
Balance Sheets
(In thousands, except per share and per share amounts)
| | | September 30, 2020 (Unaudited) | | | March 31, 2020 | |
| ASSETS | | | | | | | | |
| Current assets: | | | | | | | | |
| Cash | | $ | 399 | | | $ | 5,538 | |
| Accounts receivable | | | - | | | | 63 | |
| Prepaid expenses and other current assets | | | 7 | | | | 8 | |
| Total current assets | | | 406 | | | | 5,609 | |
| Total assets | | $ | 406 | | | $ | 5,609 | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | | |
| Current liabilities: | | | | | | | | |
| Accounts payable and accrued expenses | | $ | 100 | | | $ | 45 | |
| Customer advance payable | | | 71 | | | | 69 | |
| Total current liabilities | | | 171 | | | | 114 | |
| Total liabilities | | | 171 | | | | 114 | |
| | | | | | | | | |
| Commitments and contingencies | | | - | | | | - | |
| | | | | | | | | |
| Stockholders’ equity: | | | | | | | | |
| Preferred stock; $.001 par value; 5,000,000 shares authorized; no shares issued and outstanding as of September 30, 2020 and March 31, 2020 | | | - | | | | - | |
| Common stock; $.001 par value; 50,000,000 shares authorized; 28,339,063 shares issued and 28,262,371 shares outstanding as of September 30, 2020 and March 31, 2020, respectively | | | 28 | | | | 28 | |
| Additional paid-in capital | | | 33,522 | | | | 38,609 | |
| Accumulated deficit | | | (33,285 | ) | | | (33,112 | ) |
| Treasury stock, 76,692 shares at cost as of September 30, 2020 and March 31, 2020 | | | (30 | ) | | | (30 | ) |
| Total stockholders’ equity | | | 235 | | | | 5,495 | |
| Total liabilities and stockholders’ equity | | $ | 406 | | | $ | 5,609 | |
The accompanying notes are an integral part of these unaudited financial statements.
EKIMAS CORPORATION
Statements of Operations
(Unaudited – In thousands, except per share amounts)
| | | For the Three Months Ended September 30, | | | For the Six Months Ended September 30, | |
| | | 2020 | | | 2019 | | | 2020 | | | 2019 | |
| | | | | | | | | | | | | |
| Operating expenses | | $ | 70 | | | $ | 54 | | | $ | 173 | | | $ | 103 | |
| Loss from continuing operations before provision for income taxes | | | (70 | ) | | | (54 | ) | | | (173 | ) | | | (103 | ) |
| Provision for income taxes | | | - | | | | - | | | | - | | | | - | |
| Loss from continuing operations | | | (70 | ) | | | (54 | ) | | | (173 | ) | | | (103 | ) |
| Income from discontinued operations | | | - | | | | 66 | | | | - | | | | 198 | |
| Net income (loss) | | $ | (70 | ) | | $ | 12 | | | $ | (173 | ) | | $ | 95 | |
| | | | | | | | | | | | | | | | | |
| Income (loss) per common share - basic: | | | | | | | | | | | | | | | | |
| Continuing operations | | $ | (0.00 | ) | | $ | (0.00 | ) | | $ | (0.01 | ) | | $ | (0.00 | ) |
| Discontinued operations | | | 0.00 | | | | 0.00 | | | | 0.00 | | | | 0.00 | |
| Net income (loss) per share - basic | | $ | (0.00 | ) | | $ | 0.00 | | | $ | (0.01 | ) | | $ | 0.00 | |
| | | | | | | | | | | | | | | | | |
| Income (loss) per common share - diluted: | | | | | | | | | | | | | | | | |
| Continuing operations | | $ | (0.00 | ) | | $ | (0.00 | ) | | $ | (0.01 | ) | | $ | (0.00 | ) |
| Discontinued operations | | | 0.00 | | | | 0.00 | | | | 0.00 | | | | 0.00 | |
| Net income (loss) per share - diluted | | $ | (0.00 | ) | | $ | 0.00 | | | $ | (0.01 | ) | | $ | 0.00 | |
| | | | | | | | | | | | | | | | | |
| Shares used in computing net income (loss) per common share: | | | | | | | | | | | | | | | | |
| Basic | | | 28,262 | | | | 21,491 | | | | 28,262 | | | | 21,491 | |
| Diluted | | | 28,262 | | | | 25,824 | | | | 28,262 | | | | 25,630 | |
The accompanying notes are an integral part of these unaudited financial statements.
EKIMAS CORPORATION
Statement of Stockholders’ Equity (Deficit)
For the Three and Six Months Ended September 30, 2019 and 2020
(Unaudited – In thousands)
| | | Common Stock Outstanding | | Additional Paid-in | | | Accumulated | | | Treasury | | | Total Stockholders’ Equity | |
| | | Shares | | | Amount | | | Capital | | | Deficit | | | Stock | | | (Deficit) | |
| Balance at March 31, 2019 | | | 21,491 | | | $ | 21 | | | $ | 38,427 | | | $ | (38,564 | ) | | $ | (30 | ) | | $ | (146 | ) |
| Net income | | | | | | | | | | | | | | | 83 | | | | | | | | 83 | |
| Balance at June 30, 2019 | | | 21,491 | | | | 21 | | | | 38,427 | | | | (38,481 | ) | | | (30 | ) | | | (63 | ) |
| Net income | | | | | | | | | | | | | | | 12 | | | | | | | | 12 | |
| Balance at September 30, 2019 | | | 21,491 | | | $ | 21 | | | $ | 38,427 | | | $ | (38,469 | ) | | $ | (30 | ) | | $ | (51 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance at March 31, 2020 | | | 28,262 | | | $ | 28 | | | $ | 38,609 | | | $ | (33,112 | ) | | $ | (30 | ) | | $ | 5,495 | |
| Cash distribution to stockholders | | | | | | | | | | | (5,087 | ) | | | | | | | | | | | (5,087 | ) |
| Net loss | | | | | | | | | | | | | | | (103 | ) | | | | | | | (103 | ) |
| Balance at June 30, 2020 | | | 28,262 | | | | 28 | | | | 33,522 | | | | (33,215 | ) | | | (30 | ) | | | 305 | |
| Net loss | | | | | | | | | | | | | | | (70 | ) | | | | | | | (70 | ) |
| Balance at September 30, 2020 | | | 28,262 | | | $ | 28 | | | $ | 33,522 | | | $ | (33,285 | ) | | $ | (30 | ) | | $ | 235 | |
The accompanying notes are an integral part of these unaudited financial statements.
EKIMAS CORPORATION
Statements of Cash Flows
(Unaudited – In thousands)
| | | Six Months Ended September 30, | |
| | | 2020 | | | 2019 | |
| Cash flows from operating activities: | | | | | | | | |
| Loss from continuing operations | | $ | (173 | ) | | $ | (103 | ) |
| Income from discontinued operations | | | - | | | | 198 | |
| Adjustment to reconcile loss from continued operations to net cash flows provided by (used in) operating activities | | | | | | | | |
| Depreciation | | | - | | | | 28 | |
| Amortization of deferred financing costs | | | - | | | | 3 | |
| Changes in assets and liabilities | | | | | | | | |
| Accounts receivable | | | 63 | | | | 240 | |
| Prepaid expenses and other current assets | | | 1 | | | | (52 | ) |
| Accounts payable and accrued expense | | | 55 | | | | (16 | ) |
| Customer advance | | | 2 | | | | 1 | |
| Net cash flows provided by (used in) operating activities | | | (52 | ) | | | 299 | |
| Cash flows from financing activities: | | | | | | | | |
| Cash distribution to stockholders | | | (5,087 | ) | | | - | |
| Repayment of related party notes payable | | | - | | | | (15 | ) |
| Net cash flows (used in) financing activities | | | (5,087 | ) | | | (15 | ) |
| Net change in cash | | | (5,139 | ) | | | 284 | |
| Cash at beginning of year | | | 5,538 | | | | 172 | |
| Cash at end of year | | $ | 399 | | | $ | 456 | |
| | | | | | | | | |
| Supplemental disclosure of cash flow information: | | | | | | | | |
| Income taxes paid | | $ | - | | | $ | - | |
| Interest paid | | $ | - | | | $ | 175 | |
The accompanying notes are an integral part of these unaudited financial statements.
EKIMAS CORPORATION
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2020
(UNAUDITED)
1. Business Description
On January 31, 2020 (the “Closing Date”), we completed the sale of substantially all of our assets (the “Asset Sale”) for a total purchase price of $7,250,000 pursuant to an Asset Purchase Agreement entered into between us and Mitsubishi Chemical Performance Polymers, Inc., a Delaware corporation (“MCPP”). Prior to the Closing Date, we developed and manufactured advanced polymer materials which provide critical characteristics in the design and development of medical devices. Our biomaterials were marketed and sold to medical device manufacturers who used our advanced polymers in devices designed for treating a broad range of anatomical sites and disease states.
As a result of the Asset Sale, we ceased operating as a developer, manufacturer, marketer and seller of advanced polymers. Subsequent to the Closing Date, we became engaged in efforts to identify an operating company to acquire or merge with through an equity-based exchange transaction that would likely result in a change in control. As our efforts in engaging with an operating company subsequent to the Closing Date has not yet commenced, our activities are subject to significant risks and uncertainties, including the need to raise additional capital if we are unable to identify an operating company desiring to acquire or merge with us.
We do not own or lease any property and maintain a corporate address at 95 Washington Street, Canton Massachusetts.
2. Liquidity and Going Concern
Our financial statements have been presented on the basis that we are a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. As of January 31, 2020, we recorded our normal business operations as discontinued operations as a result of the previously described Asset Sale. Our Board of Directors declared a cash distribution of approximately $5,087,000 of the net proceeds from the Asset Sale to our stockholders, after making adjustments for (i) collection of accounts receivable retained as of January 31, 2020, (ii) payment of accounts payable assumed as of January 31, 2020; and (iii) retention of a reasonable amount of cash for anticipated future obligations and ongoing operations to maintain our status as a public registrant and identification and consummation of any possible merger or business combination as further described herein. We paid the cash distribution of approximately $5,087,000 on April 23, 2020 to our stockholders of record as of April 16, 2020. During the six months ended September 30, 2020, we reported a net loss from continuing operation of approximately $173,000. Cash flows of approximately $52,000 were used in operations for the six months ended September 30, 2020.
Management is seeking to identify an operating company for the purpose of effecting a merger or business combination, or to acquire assets or shares of an entity actively engaged in a business that generates sustained revenues. We do not intend to restrict our consideration to any particular business or industry segment. Because we have limited resources, the scope and number of suitable candidates to merge with is relatively limited. Because we may participate in a business opportunity with a newly formed firm, a firm that is in the development stage, or a firm that is entering a new phase of growth, we may incur further risk due to the inability of the target’s management to have proven its abilities or effectiveness, or the lack of an established market for the target’s products or services, or the inability to reach profitability in the next few years.
Any business combination or transaction will likely result in a significant issuance of shares and substantial dilution to our present stockholders. It is expected that if a transaction is consummated, although no such transaction is assured, then the closing of such a transaction will result in a change in control and such transaction would be expected to be accounted for as a reverse merger, with the operating company being considered the legal acquiree and accounting acquirer, and we would be considered the legal acquirer and the accounting acquiree. As a result, at and subsequent to closing of any such transaction, the financial statements of the operating company would become our financial statements for all periods presented.
EKIMAS CORPORATION
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2020
(UNAUDITED)
Although we have investigated certain opportunities to determine whether they would have the potential to add value to us for the benefit of our stockholders, we have not yet entered into any binding arrangements and there can be no assurance that we will ever identify an opportunity that could result in the consummation of merger or other business combination. As a result of the limited retained funds and uncertainty in consummating a possible merger or business combination, we expect our funds will not be sufficient to meet our needs for more than twelve months from the date of issuance of these financial statements. Accordingly, management believes there is substantial doubt about our ability to continue as a going concern.
3. Interim Financial Statements and Basis of Presentation
The accompanying unaudited financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information with the instructions to Form 10-Q and Rule 8-03 of Regulation S-X. Accordingly, these unaudited financial statements do not include all of the information and disclosures required by U.S. GAAP for complete financial statements. In the opinion of management, the accompanying unaudited financial statements include all adjustments (consisting only of normal recurring adjustments), which we consider necessary, for a fair presentation of those financial statements. The results of operations and cash flows for the three and six months ended September 30, 2020 may not necessarily be indicative of results that may be expected for any succeeding quarter or for the entire fiscal year. The information contained in this quarterly report on Form 10-Q should be read in conjunction with our audited financial statements included in our annual report on Form 10-K, as of and for the fiscal year ended March 31, 2020 as filed with the Securities and Exchange Commission (the “SEC”).
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and judgments, which are evaluated on an ongoing basis, and that affect the amounts reported in our unaudited financial statements and accompanying notes. Management bases its estimates on historical experience and on various other assumptions that it believes are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the amounts of expenses that are not readily apparent from other sources. Actual results could differ from those estimates and judgments.
Our significant accounting policies are described in Note 3 to the audited financial statements as of March 31, 2020 which are included in our Annual Report on Form 10-K as filed with the SEC on July 16, 2021.
Reclassifications
Certain amounts in the prior period financial statements have been reclassified to conform to the presentation of the current period financial statements. these reclassifications had no effect on the previously reported financial position or results of operations.
4. Recent Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board or other standard setting bodies that may have an impact on our accounting and reporting. We believe that such recently issued accounting pronouncements and other authoritative guidance for which the effective date is in the future either will not have an impact on our accounting or reporting or that such impact will not be material to our financial position, results of operations and cash flows when implemented.
EKIMAS CORPORATION
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2020
(UNAUDITED)
5. Asset Sale and Discontinued Operations
On November 25, 2019, we entered into an Asset Purchase Agreement (the “Purchase Agreement”) with Mitsubishi Chemical Performance Polymers, Inc., a Delaware corporation (“MCPP”), pursuant to which we agreed to sell substantially all of our assets to MCPP on the terms and subject to the conditions set forth in the Purchase Agreement (the “Asset Sale”). As consideration for the Asset Sale, MCPP agreed to pay us $7,250,000. The Purchase Agreement and the consummation of the transactions contemplated thereby required us to receive the requisite approval from our stockholders. On January 21, 2020, we held a special meeting of stockholders at which time the stockholders authorized and approved the Purchase Agreement. On January 31, 2020 (the “Closing Date”), we completed the Asset Sale. In connection with the closing of the Asset Sale, MCPP paid us a cash payment of $7,250,000 of which approximately $1,150,000 was immediately disbursed to satisfy approximately $567,000 of transaction and legal costs; approximately $483,000 of facility related obligations; and $100,000 for agreed upon contingent facility maintenance costs. We received approximately $6,100,000 in net proceeds which were used to pay additional transaction costs, trade accounts payable and other obligations not assumed by MCPP, and working capital for the ongoing maintenance of the public shell that survived the Asset Sale. Total transaction costs incurred in connection with the Asset Sale were approximately $1,634,000.
Pursuant to the Purchase Agreement, we sold all of our inventory; property, plant and equipment; and intangible assets, including but not limited to all intellectual property, business know-how, customer lists and related contracts, and all other assets necessary to operate our advanced polymer business. Total assets sold in connection with the Asset Sale were approximately (i) $271,000 of inventories, net; and (ii) $1,749,000 of property, plant and equipment, net.
Assignment of Facility Lease
On December 22, 2011, we entered into an agreement (the “Facility Lease”) with an independent third-party under which we sold and leased back our land and building generating gross proceeds of $2,000,000. For accounting purposes, this sale-leaseback transaction was accounted for under the financing method, rather than as a completed sale. Under the financing method, we included the sales proceeds received as a financing obligation. In connection with the Asset Sale, we assigned the Facility Lease to MCPP and the financing obligation and accrued interest on financing obligation of $1,986,000 and $155,000 as of January 31, 2020, the Asset Sale closing date, was eliminated. Subsequent to the January 31, 2020, we had no further obligations with respect to the lease agreement.
Discontinued Operations
As a result of the Asset Sale, we discontinued operating as a developer, manufacturer, marketer and seller of advanced polymers on the Closing Date. Subsequent to the Closing Date, we became engaged in efforts to identify an operating company to acquire or merge with through an equity-based exchange transaction that would likely result in a change in control.
EKIMAS CORPORATION
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2020
(UNAUDITED)
The results of our operations are reported as discontinued operations for the three and six months ended September 30, 2019 are presented below.
| Results of Discontinued Operations | | For the Three Months Ended September 30, 2019 | | | For the Six Months Ended September 30, 2019 | |
| (in thousands) | | | | | | |
| Revenues: | | | | | | | | |
| Product sales | | $ | 514 | | | $ | 1,175 | |
| License and royalty fees | | | 249 | | | | 452 | |
| Total revenues | | | 763 | | | | 1,627 | |
| Cost of sales | | | 191 | | | | 447 | |
| Gross profit | | | 572 | | | | 1,180 | |
| Operating expenses: | | | | | | | | |
| Research, development and regulatory | | | 80 | | | | 177 | |
| Selling, general and administrative | | | 286 | | | | 571 | |
| Total operating expenses | | | 366 | | | | 748 | |
| Income from discontinued operations | | | 206 | | | | 432 | |
| Interest expense from discontinued operations | | | (140 | ) | | | (234 | ) |
| Income from discontinued operations before provision for income taxes | | | 66 | | | | 198 | |
| Provision for income taxes | | | - | | | | - | |
| Net income from discontinued operations | | $ | 66 | | | $ | 198 | |
| | | | | | | | | |
| Net income from discontinued operations per common share: | | | | | | | | |
| Basic | | $ | 0.00 | | | $ | 0.00 | |
| Diluted | | $ | 0.00 | | | $ | 0.00 | |
| | | | | | | | | |
| Shares used in computing net income from discontinued operations per common share: | | | | | | | | |
| Basic | | | 21,491 | | | | 21,491 | |
| Diluted | | | 25,824 | | | | 25,630 | |
Continuing Operations
During the three months ended September 30, 2020 and 2019 our loss from continuing operations was approximately $70,000 and $54,000, respectively. During the six months ended September 30, 2020 and 2019 our loss from continuing operations was approximately $173,000 and $103,000, respectively. Our loss from continuing operations represents those costs necessary to operate a public company and are primarily composed of management consulting fees, accounting fees, professional fees, regulatory fees, board of directors’ fees, and director and officer liability insurance premiums.
6. Related Party Transactions
Mr. Michael Adams, our chief executive officer, is a non-employee consultant and holder of approximately 11.5% of our outstanding common stock. During the three and six months ended September 30, 2020, Mr. Adams earned approximately $19,000 and $35,000, respectively. As of September 30, 2020, there was $12,000 payable to Mr. Adams in consideration of his consulting services.
EKIMAS CORPORATION
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2020
(UNAUDITED)
7. Income Per Share
Basic income per common share is computed by dividing net income by the weighted-average number of common shares outstanding during the period. Diluted income per common share is based upon the weighted-average common shares outstanding during the period plus additional weighted-average common equivalent shares outstanding during the period. Common equivalent shares result from the assumed exercise of outstanding stock options and warrants, the proceeds of which are then assumed to have been used to repurchase outstanding common stock using the treasury stock method. In addition, the numerator is adjusted for any changes in income that would result from the assumed conversion of potential shares. There were no potentially dilutive shares for the three and six months ended September 30, 2020. Potentially dilutive shares, which were included in the diluted income per share calculations for the three and six months ended September 30, 2019 were 4,333,209 shares and 4,139,568 shares, respectively.
8. Income Taxes
We are required to file federal and state income tax returns in the United States. The preparation of these tax returns requires us to interpret the applicable tax laws and regulations in effect in such jurisdictions, which could affect the amount of tax paid by us. In consultation with our tax advisors, we base our tax returns on interpretations that are believed to be reasonable under the circumstances. The tax returns, however, are subject to routine reviews by the various federal and state taxing authorities in the jurisdictions in which we file tax returns. As part of these reviews, a taxing authority may disagree with respect to the income tax positions taken by us (“uncertain tax positions”) and, therefore, may require us to pay additional taxes. As required under applicable accounting rules, we accrue an amount for our estimate of additional income tax liability, including interest and penalties, which we could incur as a result of the ultimate or effective resolution of the uncertain tax positions. We account for income taxes using the asset and liability method. Under the asset and liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributed to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences and carry-forwards are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is established when necessary to reduce deferred tax assets to amounts expected to be realized.
In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment.
We had no income tax credits for the three and six months ended September 30, 2020 and 2019. The effective tax rates during each of the three and six months ended September 30, 2020 and 2019 was 21.0%. We have estimated our provision for income taxes in accordance with the Tax Act and guidance available as of the date of this filing but have kept the full valuation allowance.
9. Stockholders’ Equity
Preferred Stock
We have authorized 5,000,000 shares, $0.001 par value, Preferred Stock (the Preferred Stock”) of which 500,000 shares have been issued and redeemed, therefore are not considered outstanding. In addition, 500,000 shares of Preferred Stock have been designated as Series A Junior Participating Preferred Stock (the “Junior Preferred Stock”) with the designations and the powers, preferences and rights, and the qualifications, limitations and restrictions specified in the Certificate of Designation of the Junior Preferred Stock filed with the Delaware Department of State on January 28, 2008. Such number of shares may be increased or decreased by resolution of the Board of Directors; provided, that no decrease shall reduce the number of shares of Junior Preferred Stock to a number less than the number of shares then outstanding plus the number of shares reserved for issuance upon the exercise of outstanding options, rights or warrants or upon the conversion of any outstanding securities issued by us that is convertible into Junior Preferred Stock. As of September 30, 2020, there was no Junior Preferred Stock issued or outstanding.
Common Stock
We have 50,000,000 shares of our common stock authorized. As of September 30, 2020 and March 31, 2020, we have 28,339,063 shares of our common stock issued and 28,262,371 shares of our common stock outstanding.
EKIMAS CORPORATION
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2020
(UNAUDITED)
Treasury Stock and Other Transactions
In September 2001, the Board of Directors adopted a share repurchase program authorizing the repurchase of up to 250,000 of our shares of common stock. In September 2004, the Board of Directors authorized the purchase of an additional 500,000 shares of common stock. Since September 2001, we have repurchased a total of 251,379 shares under the share repurchase program, leaving 498,621 shares remaining to purchase under the share repurchase program. No repurchases were made during the three and six months ended September 30, 2020 and 2019. The share repurchase program authorizes repurchases from time to time in open market transactions, through privately negotiated transactions, block transactions or otherwise, at times and prices deemed appropriate by management, and is not subject to an expiration date.
Stockholder Rights Plan
Our Board of Directors approved the adoption of a stockholder rights plan (the “Rights Plan”) under which all stockholders of record as of February 8, 2008 will receive rights to purchase shares of the Junior Preferred Stock (the “Rights”). The Rights will be distributed as a dividend. Initially, the Rights will attach to, and trade with, our common stock. Subject to the terms, conditions and limitations of the Rights Plan, the Rights will become exercisable if (among other things) a person or group acquires 15% or more of our common stock. Upon such an event, and payment of the purchase price, each Right (except those held by the acquiring person or group) will entitle the holder to acquire shares of our common stock (or the economic equivalent thereof) having a value equal to twice the purchase price. Our Board of Directors may redeem the Rights prior to the time they are triggered. In the event of an unsolicited attempt to acquire us, the Rights Plan is intended to facilitate the full realization of our stockholder value and the fair and equal treatment of all of our stockholders. The Rights Plan does not prevent a takeover attempt.
10. Stock-Based Compensation
As of March 31, 2020, there were options outstanding and fully vested pursuant to the AdvanSource 2003 Stock Option Plan (the “2003 Plan”) exercisable into 160,000 shares of our common stock at a weighted average exercise price of $0.25 per share. As a result of the termination of employees in connection with the Asset Sale, effective January 31, 2020, the options for 160,000 shares of our common stock were forfeited effective April 30, 2020. As of September 30, 2020, there were no options outstanding or available for grant pursuant to the 2003 Plan.
On August 14, 2017, our board of directors approved and adopted the 2017 Non-Qualified Equity Incentive Plan (the “2017 Plan”), which authorized the grant of non-qualified stock options exercisable into a maximum of 7,000,000 shares of our common stock. From August 17, 2017 through December 13, 2018, the board of directors approved the grant of stock options to certain directors, employees and a consultant which were immediately vested and exercisable into a total of 6,550,000 shares of our common stock. There were no additional stock options granted pursuant to the 2017 Plan for the period subsequent to December 31, 2018. As of September 30, 2020, there were 450,000 shares available to grant pursuant to the 2017 Plan and no options outstanding or exercisable.
On August 17, 2017, Michael Adams, our chief executive officer, was granted an option to purchase 2,500,000 shares of our common stock (the “Adams Option”) at an exercise price of $0.06 per share pursuant to the 2017 Plan. On December 5, 2019, Mr. Adams effected a partial exercise of the Adams Option and purchased 2,083,333 shares of our common stock for cash consideration. Additionally, on December 5, 2019, Mr. Adams exercised the remaining 416,667 shares exercisable pursuant to the Adams Option, by means of a cashless exercise. As a result of the cashless exercise, Mr. Adams was issued 291,667 shares of our common stock. We received no cash proceeds in connection with this cashless exercise.
On various dates from August 17, 2017 through December 13, 2018, our directors, certain employees and one consultant (the “Grantees”) were granted options to purchase 4,050,000 shares of our common stock at exercise prices ranging from $0.04 per share to $0.06 per share pursuant to the 2017 Plan. On December 5, 2019, the Grantees exercised their options to purchase 4,050,000 shares of our common stock, by means of a cashless exercise. As a result of the cashless exercise, the Grantees were issued 2,910,000 shares of our common stock. We received no cash proceeds in connection with this cashless exercise.
11. Concentrations of Credit Risk and Major Customers
For the three and six months ended September 30, 2020 and 2019, we had no revenues from continuing operations.
As of September 30, 2020, we had no accounts receivable. As of March 31, 2020, we had accounts receivable of approximately $44,000, or 70%, due from four customers, resulting from accounts receivable retained by us in connection with the Asset Sale.
We maintain cash that at times exceed federally insured limits. We believe we are not exposed to any significant credit risk on our cash balances and have not experienced any losses in such accounts. At September 30, 2020, we had cash balances in excess of FDIC limits of approximately $150,000.
12. Legal Proceedings
We are not the subject of any pending legal proceedings; and to the knowledge of management, no proceedings are presently contemplated against us by any federal, state or local governmental agency. Further, to the knowledge of management, no director or executive officer is party to any action in which any has an interest adverse to us.
13. Subsequent Events
We evaluated all events or transactions that occurred after the balance sheet date through the date when we filed these financial statements and we determined that we did not have any other material recognizable subsequent events.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Cautionary Note Regarding Forward-Looking Statements
This Report on Form 10-Q contains certain statements that are “forward-looking” within the meaning of the Private Securities Litigation Reform Act of 1995 (the “Litigation Reform Act”). These forward looking statements and other information are based on our beliefs as well as assumptions made by us using information currently available.
The words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “will,” “should” and similar expressions, as they relate to us, are intended to identify forward-looking statements. Such statements reflect our current views with respect to future events and are subject to certain risks, uncertainties and assumptions. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described herein as anticipated, believed, estimated, expected, intended or using other similar expressions.
In accordance with the provisions of the Litigation Reform Act, we are making investors aware that such forward-looking statements, because they relate to future events, are by their very nature subject to many important factors that could cause actual results to differ materially from those contemplated by the forward-looking statements contained in this Report on Form 10-Q. For example, given the cessation of our operations as a developer, manufacturer, marketer and seller of advanced polymers on January 31, 2020, resulting from the sale of substantially all of our assets to an independent third party, we became engaged in efforts to identify either an (i) operating company to acquire or merge with through an equity-based exchange transaction or (ii) investor interested in purchasing a majority interest in our common stock, whereby either transaction would likely result in a change in control. If we are unable to effect a transaction with an operating company or investor, we may be required to cease all operations, including liquidation through bankruptcy proceedings. Accordingly, the reader is cautioned not to place undue reliance on forward-looking statements contained herein, which speak only as of the date hereof. You are encouraged to review our filings with the Securities and Exchange Commission and to read and carefully consider the additional information included in our Annual Report on Form 10K for the fiscal year ended March 31, 2020, including but not limited to the Risk Factors discussed in Part I, Item 1A. We assume no responsibility to update any forward-looking statements as a result of new information, future events, or otherwise except as required by law.
Business
On January 31, 2020 (the “Closing Date”), we completed the sale of substantially all of our assets (the “Asset Sale”) for a total purchase price of $7,250,000 pursuant to an Asset Purchase Agreement entered into between us and Mitsubishi Chemical Performance Polymers, Inc., a Delaware corporation (“MCPP”). Prior to the Closing Date, we developed and manufactured advanced polymer materials which provide critical characteristics in the design and development of medical devices. Our biomaterials were marketed and sold to medical device manufacturers who used our advanced polymers in devices designed for treating a broad range of anatomical sites and disease states.
As a result of the Asset Sale, we ceased operating as a developer, manufacturer, marketer and seller of advanced polymers. Subsequent to the Closing Date, we became engaged in efforts to identify an operating company to acquire or merge with through an equity-based exchange transaction that would likely result in a change in control. As our efforts in engaging with an operating company subsequent to the Closing Date has not yet commenced, our activities are subject to significant risks and uncertainties, including the need to raise additional capital if we are unable to identify an operating company desiring to acquire or merge with us.
Management is seeking to identify an operating company and engage in a merger or business combination of some kind, or acquire assets or shares of an entity actively engaged in a business that generates sustained revenues. Although we have investigated certain opportunities to determine whether they would have the potential to add value to us for the benefit of our stockholders, we have not yet entered into any binding arrangements.
We do not intend to restrict our consideration to any particular business or industry segment. Because we have limited resources, the scope and number of suitable candidates to merge with is relatively limited. Because we may participate in a business opportunity with a newly formed firm, a firm that is in the development stage, or a firm that is entering a new phase of growth, we may incur further risk due to the inability of the target’s management to have proven its abilities or effectiveness, or the lack of an established market for the target’s products or services, or the inability to reach profitability in the next few years.
Any business combination or transaction will likely result in a significant issuance of shares and substantial dilution to our present stockholders. As it is expected that the closing of such a transaction will result in a change in control, such transaction is expected to be accounted for as a reverse merger, with the operating company being considered the legal acquiree and accounting acquirer, and we would be considered the legal acquirer and the accounting acquiree. As a result, at and subsequent to closing of any such transaction, the financial statements of the operating company would become our financial statements for all periods presented.
Critical Accounting Policies
Our critical accounting policies are summarized in Note 3 to our financial statements included in Item 8 of our annual report on Form 10-K for the fiscal year ended March 31, 2020. However, certain of our accounting policies require the application of significant judgment by our management, and such judgments are reflected in the amounts reported in our financial statements. In applying these policies, our management uses its judgment to determine the appropriate assumptions to be used in the determination of estimates. Those estimates are based on our historical experience, terms of existing contracts, our observance of market trends, information provided by our strategic partners and information available from other outside sources, as appropriate. Actual results may differ significantly from the estimates contained in our unaudited financial statements. There have been no changes to our critical accounting policies during the fiscal quarter ended September 30, 2020.
Results of Operations
As a result of the Asset Sale described above, which closed on January 31, 2020, our sole business operations of developing, manufacturing, marketing and selling of advanced polymers ceased. Accordingly, we have recorded all operations for the three and six months ended September 30, 2019 as discontinued operations. We did not have discontinued operations for the three and six months ended September 30, 2020 The following separately presents our results of continuing operations for the three and six months ended September 30, 2020 as compared to the three and six months ended September 30, 2019, which are composed of costs necessary to operate as a public company. Since we did not have discontinued operations for the three and six months ended September 30, 2020, there is no basis for comparison to discontinued operations for the three and six months ended September 30, 2019, which discontinued operations were composed of revenues and costs in the operation of the former advanced polymer business.
Results of Continuing Operations
During the three months ended September 30, 2020 and 2019, our operating expenses were approximately $70,000 and $54,000, respectively, an increase of $16,000, or 29.6%. During the six months ended September 30, 2020 and 2019, our operating expenses were approximately $173,000 and $103,000, respectively, an increase of $70,000, or 68.0%. Our operating expenses and loss from continuing operations represents those costs necessary to operate a public company, which are primarily composed of management consultant fees, accounting fees, professional fees, regulatory fees, and director and officer liability insurance premiums.
Liquidity and Capital Resources
As of September 30, 2020, we had cash of approximately $399,000 as compared to a cash balance of approximately $5,538,000 as of March 31, 2020.
During the six months ended September 30, 2020, we had net cash of approximately $52,000 used in operating activities of continuing operations as compared with net cash of approximately $101,000 provided by operating activities of continuing operations for the prior year period. For the six months ended September 30, 2020, our cash flows used in operating activities of continuing operations was primarily due to our loss from continuing operations of approximately $173,000; and offset by (i) collections of accounts receivable-trade of approximately $63,000; and (ii) increases in aggregate accounts payable and accrued expenses of approximately $55,000. During the six months ended September 30, 2019, our cash flows provided by operating activities of continuing operations was primarily due to aggregate collections of accounts receivable-trade and accounts receivable-other of approximately $240,000; and offset by (i) our loss from continuing operations of approximately $103,000; (ii) increases in prepaid expenses and other current assets of approximately $52,000; and (iii) decreases in aggregate accounts payable and accrued expenses of approximately $16,000. Our income from discontinued operations also provided net cash of approximately $198,000 to operating activities for the six months ended September 30, 2019.
During the six months ended September 30, 2020 we had net cash of approximately $5,087,000 used in financing activities as a result of the cash distribution of approximately $5,087,000 on April 23, 2020 to our stockholders of record as of April 16, 2020. During the six months ended September 30, 2019 we had net cash of approximately $15,000 used in financing activities as a result of the repayment of a note payable to a former executive officer.
On January 31, 2020 (the “Closing Date”), we completed the sale of substantially all of our assets (the “Asset Sale”) for a total gross purchase price of $7,250,000 pursuant to an Asset Purchase Agreement entered into between us and Mitsubishi Chemical Performance Polymers, Inc., a Delaware corporation (“MCPP”). Prior to the Closing Date, we developed and manufactured advanced polymer materials which provide critical characteristics in the design and development of medical devices. As a result of the Asset Sale, we ceased operating as a developer, manufacturer, marketer and seller of advanced polymers. Subsequent to the Closing Date, we became engaged in efforts to identify potential operating companies interested in merging into us through an equity-based exchange transaction that would likely result in a change in control. As our efforts in engaging with an operating company subsequent to the Closing Date has not resulted in the execution of a definitive agreement to consummate such a transaction, our activities are subject to significant risks and uncertainties, including the need to raise additional capital if we are unable to identify an operating company desiring to acquire or merge with us.
Our financial statements have been presented on the basis that we are a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. At March 31, 2020, we recorded our normal business operations as discontinued operations as a result of the previously described Asset Sale. On the Closing Date we received net proceeds from the Asset Sale of approximately $6,100,000. After giving effect to (i) collection of accounts receivable retained as of January 31, 2020, (ii) payment of accounts payable assumed as of January 31, 2020; and (iii) retention of a reasonable amount of cash for anticipated future obligations and operations, our Board of Directors approved a special cash distribution of $0.18 per share. The cash distribution of approximately $5,087,000 was paid on April 23, 2020 to stockholders of record as of April 16, 2020. As a result, we expect our funds will not be sufficient to meet our needs for more than twelve months from the date of issuance of these financial statements. Accordingly, management believes there is substantial doubt about our ability to continue as a going concern.
Management is seeking to identify an operating company for the purpose of effecting a merger or business combination, or to acquire assets or shares of an entity actively engaged in a business that generates sustained revenues. Although we have investigated certain opportunities to determine whether they would have the potential to add value to us for the benefit of our stockholders, we have not yet entered into any binding arrangements.
We do not intend to restrict our consideration to any particular business or industry segment. Because we have limited resources, the scope and number of suitable candidates to merge with is relatively limited. Because we may participate in a business opportunity with a newly formed firm, a firm that is in the development stage, or a firm that is entering a new phase of growth, we may incur further risk due to the inability of the target’s management to have proven its abilities or effectiveness, or the lack of an established market for the target’s products or services, or the inability to reach profitability in the next few years.
Any business combination or transaction will likely result in a significant issuance of shares and substantial dilution to our present stockholders. As it is expected that the closing of such a transaction will result in a change in control, such transaction is expected to be accounted for as a reverse merger, with the operating company being considered the legal acquiree and accounting acquirer, and we would be considered the legal acquirer and the accounting acquiree. As a result, at and subsequent to closing of any such transaction, the financial statements of the operating company would become our financial statements for all periods presented.
Commitments
We do not have any long-term commitments as of September 30, 2020.
Off-Balance Sheet Arrangements
As of September 30, 2020, we did not have any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on our financial condition, results of operations, liquidity, capital expenditures or capital resources.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Item 4. Controls and Procedures
The certificates of our principal executive officer and principal financial and accounting officer attached as Exhibits 31.1 and 31.2 to this Quarterly Report on Form 10-Q include, in paragraph 4 of such certifications, information concerning our disclosure controls and procedures, and internal control over financial reporting. Such certifications should be read in conjunction with the information contained in this Item 4 for a more complete understanding of the matters covered by such certifications.
Disclosure Controls and Procedures
Our management, with the participation of our chief executive officer, evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2020. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its chief executive officer and chief financial officer, as appropriate, to allow timely decisions to be made regarding required disclosure. It should be noted that any system of controls and procedures, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system are met and that management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on this evaluation, our chief executive officer concluded that our disclosure controls and procedures as of September 30, 2020 were not effective at the reasonable assurance level due to limited resources in the finance and accounting functions. We intend to take appropriate and reasonable steps to make improvements to remediate these deficiencies.
Changes in Internal Control Over Financial Reporting
During the fourth quarter ended March 31, 2020, we sold all of our assets and terminated our employees. As a result, the limited resources rendered our internal control over financial reporting to be ineffective. If successful in effecting a transaction with an operating company, we intend to take appropriate and reasonable steps to make improvements to remediate these deficiencies.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
We are not the subject of any pending legal proceedings; and to the knowledge of management, no proceedings are presently contemplated against us by any federal, state or local governmental agency. Further, to the knowledge of management, no director or executive officer is party to any action in which any has an interest adverse to us.
Item 1A. Risk Factors
Not applicable.
Item 2. Unregistered Sales of Equity Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
Item 6. Exhibits
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | EKIMAS CORPORATION |
| | | |
| | By: | /s/ Michael F. Adams |
| | | Michael F. Adams |
| | | Chief Executive Officer |
| | | (Principal Executive, Financial and Accounting Officer) |
| | | |
| Dated: September 10, 2021 | | |
