NOTES
TO FINANCIAL STATEMENTS
June
30, 2022
(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 provided 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 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. On October 12, 2021, we entered into a Stock Purchase Agreement (the “SPA”) with Reddington
Partners LLC, a California limited liability company (“Reddington”) providing for the purchase of a total of 5,114,475 of
our common stock, on a post-split basis, or approximately 90% of our total shares of common stock outstanding for total cash consideration
of $400,000. Reddington purchased in two tranches on October 12, 2021 and March 15, 2022.
Pursuant
to the SPA, the Company effectuated a 1-for 50 reverse stock split on March 11, 2022 (the “Reverse Split”). Accordingly,
on a post-split basis, the shares purchased in connection with the First Closing resulted in Reddington owning 422,725 shares of our
common stock. As set forth in the SPA, Reddington then purchased from us on March 15, 2022 an additional 4,691,750 shares of our common
stock, on a post-split basis (the “Second Closing”). After the issuance thereof Reddington owned 5,114,475 shares of our
common stock, or approximately 90% of our total shares of common stock outstanding.
Management
continues to seek to identify an operating company for the purposes of engaging 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 own or lease any property and maintain a corporate address at 3651 Lindell Road, Las Vegas, Nevada.
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. During the three months ended June 30, 2022 and 2021, we reported a net loss of approximately
$5,035,000 and $47,000, respectively. Cash flows of approximately $60,000 and $79,000 were used in operations for the three months ended
June 30, 2022 and 2021, respectively. 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.
On
October 12, 2021, we entered into a Stock Purchase Agreement (the “SPA”) with Reddington Partners LLC, a California limited
liability company (“Reddington”) providing for the purchase of a total of 5,114,475 of our common stock, on a post-split
basis, or approximately 90% of our total shares of common stock outstanding for total cash consideration of $400,000. Reddington purchased
in two tranches on October 12, 2021 and March 15, 2022.
On
April 11, 2022, effective April 1, 2022, we issued to GK Partners ApS (“GK Partners”), a private investor located in Denmark,
for financial services, a warrant to purchase 6,000,000 shares of our common stock at an exercise price of $1.00 per share which expires
on December 31, 2023. There can be no assurances that GK Partners will exercise all or a portion of the warrant during the term of the
warrant.
EKIMAS
CORPORATION
NOTES
TO FINANCIAL STATEMENTS
June
30, 2022
(UNAUDITED)
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.
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 three months
ended June 30, 2022 and cash flows for the three months ended June 30, 2022 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, 2022 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, 2022 which are included in
our Annual Report on Form 10-K as filed with the SEC on June 28, 2022.
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
June
30, 2022
(UNAUDITED)
5.
Related Party Transactions
Mr.
Michael Adams, our former chief executive officer, was a non-employee consultant and holder of less than 1.0% of our outstanding common
stock as of June 30, 2022. During the three months ended June 30, 2022 and 2021, Mr. Adams earned approximately $0 and $25,000, respectively,
in consulting fees and was reimbursed $0 and approximately $6,000, respectively, for office expenses and car allowance. As of June 30,
2022 and March 31, 2022, there were no amounts due to Mr. Adams in consideration of his consulting services and reimbursable expenses
and allowances. In connection with the First Closing of the Stock Purchase Agreement which we entered into with Reddington Partners LLC
on October 12, 2021, Mr. Adams resigned as our chief executive officer and sole director, and Mr. Bennett J. Yankowitz was appointed
as our chief executive officer and sole director.
During
the three months ended June 30, 2022, Mr. Yankowitz, our chief executive officer and sole director, was affiliated with legal counsel
who provided us with general legal services (the “Affiliate”). During the three months ended June 30, 2022, we recorded legal
fees for services incurred of approximately $6,000. These fees were offset by a $6,000 credit resulting from an immaterial error in the
recording of two invoices during a previous period. As of June 30, 2022 and March 31, 2022 we had approximately $11,000 and $12,000 payable
to the Affiliate. Mr. Yankowitz does not receive cash compensation for acting as our chief executive officer and sole director.
6.
Transaction Fee
On
May 20, 2021, we received a $22,000 cash deposit (the “Deposit”) in connection with a non-binding arrangement entered into
with a private company having an interest in a potential business combination with us. On August 12, 2021, we were notified by the private
company of their intent to terminate the arrangement. The arrangement provided that the Deposit was refundable, net of all reasonable
legal, advisory and regulatory fees incurred by us. Our legal, advisory and regulatory fees exceeded the amount of the Deposit, accordingly,
there was no refund due to the private company.
7.
Loss Per Share
Basic
loss per common share is computed by dividing net loss by the weighted-average number of common shares outstanding during the
period. Diluted loss 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 loss that would result from the
assumed conversion of potential shares. During the three months ended June 30, 2022, the 6,000,000 shares underlying the warrant
issued to GK Partners AsP, which are common stock equivalents, would be considered anti-dilutive. There were no
potentially dilutive shares for the three months ended June 30, 2021.
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.
EKIMAS
CORPORATION
NOTES
TO FINANCIAL STATEMENTS
June
30, 2022
(UNAUDITED)
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 months ended June 30, 2022 and 2021. The effective tax rates during each of the three months
ended June 30, 2022 and 2021 was 27.0%. 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
June 30, 2022 and March 31, 2022, there was no Junior Preferred Stock issued or outstanding.
Common
Stock
On
October 12, 2021, we entered into a Stock Purchase Agreement (the “SPA”) with Reddington Partners LLC, a California limited
liability company (“Reddington”) providing for the purchase of a total of 5,114,475 of our common stock, on a post-split
basis, for total cash consideration of $400,000. Reddington purchased in two tranches on October 12, 2021 and March 15, 2022. Pursuant
to the SPA, each of four stockholders (the “Principal Stockholders”) entered into a Voting Agreement with Reddington (the
“Voting Agreements”).
The
sale of the first tranche of 21,136,250 shares of our common stock, on a pre-split basis, was consummated on October 12, 2021 (the “First
Closing”). At the First Closing, the Principal Stockholders entered into the Voting Agreements with Reddington, covering an aggregate
of 4,434,240 shares of our common stock, on a pre-split basis. As a result of these transactions, Reddington obtained ownership or voting
power over a total of 25,570,490 shares of our common stock, on a pre-split basis, constituting approximately 51.8% of our total outstanding
shares. Accordingly, Reddington became the majority stockholder of the Company.
Pursuant
to the SPA, the Company effectuated a 1-for 50 reverse stock split on March 11, 2022 (the “Reverse Split”). Accordingly,
on a post-split basis, the shares purchased in connection with the First Closing resulted in Reddington owning 422,725 shares of our
common stock. As set forth in the SPA, Reddington then purchased from us on March 15, 2022 an additional 4,691,750 shares of our common
stock, on a post-split basis (the “Second Closing”). After the issuance thereof Reddington owned 5,114,475 shares of our
common stock, or approximately 90% of our total shares of common stock outstanding. As of the Second Closing, the Voting Agreements terminated.
EKIMAS
CORPORATION
NOTES
TO FINANCIAL STATEMENTS
June
30, 2022
(UNAUDITED)
The
cumulative purchase price for both tranches of shares of our common stock was $400,000. At the First Closing, Reddington paid the Company
$200,000, $100,000 of which was required to be applied to the payment of our accrued and unpaid liabilities as of the First Closing date,
and $100,000 of which was for working capital purposes. The remaining $200,000 was deposited to an escrow account with an independent
escrow agent (the “Escrow Account”). At the Second Closing, if the $100,000 designated to pay for accrued and unpaid liabilities
was not sufficient, funds from the Escrow Account were to be used to pay the remainder of such liabilities. At the Second Closing, Reddington
paid us an additional $200,000. Pursuant to the SPA, any funds remaining after the payment of the accrued and unpaid liabilities, if
any, and all funds in the Escrow Account, were to be combined and used solely for a special one-time cash distribution (the “Special
Distribution”) by us, through a paying agent reasonably satisfactory to Reddington, to only our stockholders of record as of October
11, 2021, net of any costs associated with making the Special Distribution. Reddington and its Affiliates expressly waived any right
to participate in the Special Distribution.
The
shares of common stock sold to Reddington were and will be sold in reliance upon the exemption from securities registration afforded
by Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”), and Rule 506(b) of Regulation D under
the Securities Act, based in part on the representations of Reddington. There were no sales commissions paid pursuant to this transaction.
Warrant
On
April 11, 2022, effective April 1, 2022, we issued to GK Partners ApS, a private investor located in Denmark, for financial
services, a warrant to immediately purchase up to 6,000,000
shares of our common stock at an exercise price of $1.00
per share which expires on December 31, 2023 (the “Warrant”). As of June 30, 2022 there were no exercises pursuant to
the terms of the Warrant and the Warrant remained outstanding. We did not issue any warrants during the three months ended June 30, 2021.
In determining the fair value
of the Warrant, we used the Black-Scholes pricing model having the following assumptions: (i) stock option exercise price of $1.00; (ii)
fair market value of our common stock of $1.22 as quoted on the OTC Markets on the date of issuance of the Warrant; (iii) expected term
of option of 0.83 years utilizing the “simplified” method to develop an estimate of the expected term of “plain vanilla”
warrant grants; (iv) expected volatility of our common stock of approximately 203%; (v) expected dividend rate of 0.0%; and (vi) risk-free
interest rate of approximately 2.44%. As a result, we recorded stock-based compensation of approximately $5,010,000 for the three months
ended June 30, 2022.
The aggregate intrinsic value totalled $1,500,000, for total outstanding and exercisable warrants and was based on
the estimated fair value of our common stock of $1.25 as of June 30, 2022, which is the aggregate fair value of the common stock that
would have been received by the warrant holder had the warrant holder exercised the Warrant as of that date, net of the aggregate exercise
price.
Treasury
Stock and Other Transactions
In
June 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 June 2004, the Board of Directors authorized the purchase of an additional 500,000 shares of common stock. Since June 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 months ended June 30, 2022 and 2021. 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.
EKIMAS
CORPORATION
NOTES
TO FINANCIAL STATEMENTS
June
30, 2022
(UNAUDITED)
10.
Stock Options
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. During December 2019,
all stock options granted pursuant to the 2017 Plan were exercised through both cash payment and cashless exercise as provided in the
2017 Plan. There were no stock options outstanding pursuant to the 2017 Plan as of June 30, 2022 and March 31, 2022. As of March 31,
2022 and 2021, there were 9,000 shares of our common stock, on a post-split basis, available to grant pursuant to the 2017 Plan and no
options outstanding or exercisable.
11.
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.
12.
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.