UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For
the quarterly period ended
For the transition period from ______ to _______
Commission
File Number
(Exact name of registrant as specified in its charter)
| (State of incorporation) | (I.R.S. Employer Identification No.) |
(Address of principal executive offices)
(Registrant’s telephone number)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| N/A | N/A | N/A |
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
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).
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 | ☐ |
| ☒ | Smaller Reporting Company | ||
| Emerging Growth Company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐
As of November 14, 2023, there were shares of the registrant’s $0.001 par value common stock issued, issuable, and outstanding.
ADM ENDEAVORS, INC.
| TABLE OF CONTENTS | Page | ||
| PART I. FINANCIAL INFORMATION | 3 | ||
| ITEM 1. | CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) | 4 | |
| ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 17 | |
| ITEM 3. | QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK | 19 | |
| ITEM 4. | CONTROLS AND PROCEDURES | 19 | |
| PART II. OTHER INFORMATION | 20 | ||
| ITEM 1. | LEGAL PROCEEDINGS | 20 | |
| ITEM 1A. | RISK FACTORS | 20 | |
| ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS | 20 | |
| ITEM 3. | DEFAULTS UPON SENIOR SECURITIES | 20 | |
| ITEM 4. | MINE SAFETY DISCLOSURES | 20 | |
| ITEM 5. | OTHER INFORMATION | 20 | |
| ITEM 6. | EXHIBITS | 21 | |
| 2 |
PART I – FINANCIAL INFORMATION
TABLE OF CONTENTS
| 3 |
ITEM 1. FINANCIAL STATEMENTS
ADM Endeavors, Inc. and Subsidiaries
Consolidated Balance Sheets
(Unaudited)
| September 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Other receivable, related party | ||||||||
| Inventory | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Noncurrent assets | ||||||||
| Property and equipment, net | ||||||||
| Right of use asset - operating lease | ||||||||
| Goodwill | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities | ||||||||
| Accounts payable | $ | $ | ||||||
| Accounts payable - related party | ||||||||
| Accrued expenses | ||||||||
| Income tax payable | ||||||||
| Current portion of notes payable - secured | ||||||||
| Current portion of right of use liability - operating lease | ||||||||
| Convertible notes payable | ||||||||
| Derivative liabilities | ||||||||
| Total current liabilities | ||||||||
| Noncurrent liabilities | ||||||||
| Right of use liability - operating lease, net current portion | ||||||||
| Deferred tax liability | ||||||||
| Notes payable - secured, net of discount | ||||||||
| Total noncurrent liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies | ||||||||
| Stockholders’ equity | ||||||||
| Preferred stock, $ par value, shares authorized, shares outstanding as of September 30, 2023 and December 31, 2022 | ||||||||
| Common stock, $ par value, shares authorized, and shares issued and outstanding at September 30, 2023 and December 31, 2022 | ||||||||
| Additional paid-in capital | ||||||||
| Retained earnings | ||||||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
See accompanying notes to unaudited consolidated financial statements.
| 4 |
ADM Endeavors, Inc. and Subsidiaries
Consolidated Statements of Operations
For the Three and Nine Months Ended September 30, 2023 and 2022
(Unaudited)
For the three months ended September 30, | For the nine months ended September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Revenue | ||||||||||||||||
| School uniform sales | $ | $ | $ | $ | ||||||||||||
| Promotional sales | ||||||||||||||||
| Total revenue | ||||||||||||||||
| Operating expenses | ||||||||||||||||
| Direct costs of revenue | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Marketing and selling | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Operating income | ||||||||||||||||
| Other income (expense) | ||||||||||||||||
| Gain (loss) on change in fair value of derivative liabilities | ( | ) | ( | ) | ( | ) | ||||||||||
| Gain on sale of fixed assets | ||||||||||||||||
| Other income | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total other income (expense) | ( | ) | ( | ) | ||||||||||||
| Income before tax provision | ||||||||||||||||
| Provision for income taxes | ||||||||||||||||
| Net income | $ | $ | $ | $ | ||||||||||||
| Net income per share - basic | $ | $ | $ | $ | ||||||||||||
| Net income per share - diluted | $ | $ | $ | $ | ||||||||||||
| Weighted average number of shares outstanding | ||||||||||||||||
| basic | ||||||||||||||||
| diluted | ||||||||||||||||
See accompanying notes to unaudited consolidated financial statements.
| 5 |
ADM Endeavors, Inc. and Subsidiaries
Consolidated Statements of Shareholders’ Equity
For the Nine Months Ended September 30, 2023 and 2022
(Unaudited)
| Additional | ||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Paid In | Retained | |||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Earnings | Total | ||||||||||||||||||||||
| Balance at December 31, 2022 | $ | $ | $ | $ | $ | |||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance at March 31, 2023 | ||||||||||||||||||||||||||||
| Stock-based compensation | - | |||||||||||||||||||||||||||
| Net income | - | - | ||||||||||||||||||||||||||
| Balance at June 30, 2023 | ||||||||||||||||||||||||||||
| Net income | - | - | ||||||||||||||||||||||||||
| Balance at September 30, 2023 | $ | $ | $ | $ | $ | |||||||||||||||||||||||
| Balance at December 31, 2021 | $ | $ | $ | $ | $ | |||||||||||||||||||||||
| Net income | - | - | ||||||||||||||||||||||||||
| Balance at March 31, 2022 | ||||||||||||||||||||||||||||
| Net income | - | - | ||||||||||||||||||||||||||
| Balance at June 30, 2022 | ||||||||||||||||||||||||||||
| Net income | - | - | ||||||||||||||||||||||||||
| Balance at September 30, 2022 | $ | $ | $ | $ | $ | |||||||||||||||||||||||
See accompanying notes to unaudited consolidated financial statements.
| 6 |
ADM Endeavors, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 2023 and 2022
(Unaudited)
| 2023 | 2022 | |||||||
| Cash flows from operating activities: | ||||||||
| Net income | $ | $ | ||||||
| Adjustments to reconcile net income to net cash provided by continuing operations: | ||||||||
| Stock-based compensation | ||||||||
| Depreciation and amortization | ||||||||
| Bad debt expense | ||||||||
| Amortization of debt discount | ||||||||
| Amortization of right of use asset - operating lease | ||||||||
| Change in derivative liability | ( | ) | ||||||
| Gain on fixed assets | ( | ) | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ||||||||
| Other receivable, related party | ||||||||
| Inventory | ( | ) | ||||||
| Prepaid expenses and other assets | ||||||||
| Accounts payable | ( | ) | ||||||
| Accounts payable - related party | ||||||||
| Accrued expenses | ||||||||
| Income tax payable | ||||||||
| Right of use operating lease liability | ( | ) | ||||||
| Deferred tax liability | ||||||||
| Net cash provided by operating activities | ||||||||
| Cash flows used in investing activities | ||||||||
| Purchase of property and equipment | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash flows used in financing activities: | ||||||||
| Repayments on note payable | ( | ) | ( | ) | ||||
| Proceeds from note payable | ||||||||
| Net cash provided by (used in) financing activities | ( | ) | ||||||
| Net change in cash | ||||||||
| Cash at beginning of period | ||||||||
| Cash at end of period | $ | $ | ||||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Cash paid for taxes | $ | $ | ||||||
| Non-cash investing and financing activities: | ||||||||
| Capitalized loan costs | $ | $ | ||||||
| Acquisition of Innovative Impression, Inc. | $ | $ | ||||||
| Non-cash addition to note payable | $ | $ | ||||||
See accompanying notes to unaudited consolidated financial statements.
| 7 |
ADM ENDEAVORS, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
September 30, 2023
(Unaudited)
NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS
On January 4, 2001, we were incorporated in North Dakota as ADM Enterprises, Inc. On May 9, 2006, the Company changed its name to ADM Endeavors, Inc. (“ADM Endeavors,” or the “Company,” “we,” “us,” or “our”) and its domicile to the state of Nevada. On July 1, 2008, the Company acquired all of the assets of ADM Enterprises, LLC (“ADM Enterprises”), a sole proprietorship owned by Ardell and Tammera Mees, in exchange for newly issued shares of our common stock. As a result, ADM Enterprises became a wholly owned subsidiary of the Company. ADM then provided installation services to grocery décor and design companies primarily in North Dakota.
On
April 19, 2018, the Company acquired Just Right Products, Inc. (“JRP”), a Texas corporation. JRP was incorporated on January
17, 2010. The acquisition of
On April 27, 2023, the Company entered into an Asset Purchase Agreement with Innovative Impressions, Inc., a Texas corporation (the “Seller”), pursuant to which the Company acquired (the “Acquisition”) embroidery equipment, inventory, and related assets from the Seller.
JRP is focused on being an added value reseller with concentration in embroidery, screen printing, importing and uniforms for businesses, schools and individuals in the State of Texas.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The Company follows the accrual basis of accounting in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) and has a year-end of December 31.
Management further acknowledges that it is solely responsible for adopting sound accounting practices, establishing and maintaining a system of internal accounting control and preventing and detecting fraud. The Company’s system of internal accounting control is designed to assure, among other items, that 1) recorded transactions are valid; 2) valid transactions are recorded; and 3) transactions are recorded in the proper period in a timely manner to produce financial statements which present fairly the financial condition, results of operations and cash flows of the Company for the respective periods being presented.
The unaudited consolidated financial statements of the Company for the three and nine month periods ended September 30, 2023 and 2022 have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and pursuant to the requirements for reporting on Form 10-Q and Regulation S-K. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. However, such information reflects all adjustments (consisting solely of normal recurring adjustments), which are, in the opinion of management, necessary for the fair presentation of the financial position and the results of operations. Results shown for interim periods are not necessarily indicative of the results to be obtained for a full fiscal year. The balance sheet information as of December 31, 2022, was derived from the audited financial statements included in the Company’s financial statements as of and for the year ended December 31, 2022 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on March 29, 2023. These financial statements should be read in conjunction with that report.
| 8 |
Principles of Consolidation
The accompanying unaudited consolidated financial statements include all of the accounts of the Company and its wholly owned subsidiary, JRP, at September 30, 2023. All significant intercompany balances and transactions have been eliminated.
Use of Estimates
The preparation of the Consolidated Financial Statements in accordance with U.S. GAAP requires management to make use of certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the Consolidated Financial Statements and the reported amounts of revenue and expenses during the reported periods. The Company bases its estimates on historical experience and on various other assumptions that management believes are reasonable under the circumstances, the results of which form the basis for making judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates. Significant estimates are related to allowance for doubtful accounts, goodwill, derivative liability, stock-based compensation and deferred tax valuations.
Stock-based compensation expense is recorded in accordance with FASB ASC Topic 718, Compensation – Stock Compensation, for stock and stock options awarded in return for services rendered. The expense is measured at the grant-date fair value of the award and recognized as compensation expense on a straight-line basis over the service period, which is the vesting period. The Company estimates forfeitures that it expects will occur and records expense based upon the number of awards expected to vest.
Cash Equivalents
The
Company considers all highly liquid investments with an original maturity of nine months or less when purchased to be cash equivalents.
At September 30, 2023, and December 31, 2022, the Company had
Allowance for Doubtful Accounts
The
Company establishes an allowance for doubtful accounts to ensure trade and notes receivable are not overstated due to non-collectability.
The Company’s allowance is based on a variety of factors, including age of the receivable, significant one-time events, historical
experience, and other risk considerations. The Company had
Inventory
Inventory
is valued at the lower of cost or net realizable value. Cost is determined using a weighted-average cost method. The Company decreases
the value of inventory for estimated obsolescence equal to the difference between the cost of inventory and the estimated market value,
based upon an aging analysis of the inventory on hand, specifically known inventory-related risks, and assumptions about future demand
and market conditions. The Company has inventory of $
Four
vendors accounted for approximately
| 9 |
Derivative Instruments
Derivatives are measured at their fair value on the balance sheet. In determining the appropriate fair value, the Company uses the Black-Scholes-Merton option pricing model. Changes in fair value are recorded in Other Income (Expense) of the consolidated statements of operations.
Fair Value of Financial Instruments
The Company measures its financial assets and liabilities in accordance with U.S. GAAP. For certain of our financial instruments, including cash, accounts payable, accrued expenses, and short-term loans the carrying amounts approximate fair value due to their short maturities.
We follow accounting guidance for financial and non-financial assets and liabilities. This standard defines fair value, provides guidance for measuring fair value and requires certain disclosures. This standard does not require any new fair value measurements, but rather applies to all other accounting pronouncements that require or permit fair value measurements. This guidance does not apply to measurements related to share-based payments. This guidance discusses valuation techniques, such as the market approach (comparable market prices), the income approach (present value of future income or cash flow), and the cost approach (cost to replace the service capacity of an asset or replacement cost). The guidance utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those three levels:
| Level 1: | Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities. | |
| Level 2: | Inputs other than quoted prices that are observable, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active. | |
| Level 3: | Unobservable inputs in which little or no market data exists, therefore developed using estimates and assumptions developed by us, which reflect those that a market participant would use. |
The Company adopted the provisions of FASB ASC 820 (the Fair Value Topic) which defines fair value, establishes a framework for measuring fair value under U.S. GAAP, and expands disclosures about fair value measurements.
The
Company had
Fixed Assets
Fixed assets are recorded at cost. Expenditures for major additions and betterments are capitalized. Maintenance and repairs are charged to operations as incurred. Depreciation is computed by the straight-line method over the assets estimated useful life. Upon the sale or retirement of property and equipment, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in consolidated statements of operations.
| Classification | Estimated Useful Lives | |
| Equipment | ||
| Leasehold improvements | ||
| Furniture and fixtures | ||
| Websites |
Goodwill
Goodwill represents the excess of purchase price and related costs over the value assigned to the net tangible assets of businesses acquired. Goodwill is not amortized, but instead assessed for impairment. We perform our annual impairment review of goodwill in our fiscal fourth quarter or when a triggering event occurs between annual impairment tests. No impairment was recorded in fiscal 2023 or 2022 as a result of our qualitative assessments over our single reporting segment.
| 10 |
The Company performs a qualitative assessment for each of its reporting units to determine if the two-step process for impairment testing is required. If the Company determines that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the Company would then evaluate the recoverability of goodwill using a two-step impairment test approach at the reporting unit level. In the first step, the fair value for the reporting unit is compared to its book value including goodwill. In the case that the fair value of the reporting unit is less than book value, a second step is performed which compares the implied fair value of the reporting unit’s goodwill to the book value of the goodwill. The fair value for the goodwill is determined based on the difference between the fair values of the reporting unit and the net fair values of the identifiable assets and liabilities of such reporting unit. If the implied fair value of the goodwill is less than the book value, the difference is recognized as impairment.
Impairment of Long-lived Assets
The Company follows paragraph 360-10-05-4 of the FASB Accounting Standards Codification for its long-lived assets. The Company’s long-lived assets, such as intellectual property, are required to be reviewed for impairment annually, or whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable.
The Company assesses the recoverability of its long-lived assets by comparing the projected undiscounted net cash flows associated with the related long-lived asset or group of long-lived assets over their remaining estimated useful lives against their respective carrying amounts. Impairment, if any, is based on the excess of the carrying amount over the fair value of those assets. Fair value is generally determined using the asset’s expected future discounted cash flows or market value, if readily determinable. If long-lived assets are determined to be recoverable, but the newly determined remaining estimated useful lives are shorter than originally estimated, the net book values of the long-lived assets are depreciated over the newly determined remaining estimated useful lives.
The
Company determined that there were
Revenue Recognition
We recognize revenue for merchandise sales, net of expected returns and sales tax, at the time of in-store purchase or delivery of the product to our customer. When merchandise is shipped to our guests, we estimate receipt based on historical experience. Revenue is deferred and a liability is established for sales returns based on historical return rates and sales for the return period. We recognize an asset and corresponding adjustment to cost of sales for our right to recover returned merchandise. At each financial reporting date, we assess our estimates of expected returns, refund liabilities and return assets. For merchandise sold in our stores and online, tender is accepted at the point of sale. When we receive payment before the guest has taken possession of the merchandise, the amount received is recorded as deferred revenue until the transaction is complete. Our performance obligations for unfulfilled merchandise orders are typically satisfied within one week. Shipping and handling fees charged to guests relate to fulfilment activities and are included in net sales with the corresponding costs recorded in cost of sales.
Cost of Sales
Cost of sales includes the actual cost of merchandise sold and services performed; the cost of transportation of merchandise from vendors to our distribution network, stores, or customers; shipping and handling costs from our stores or distribution network to customers; and the operating cost and depreciation of our sourcing and distribution network and online fulfilment centers.
| 11 |
The Company computes basic and diluted income per share amounts pursuant to section 260-10-45 of the FASB Accounting Standards Codification. Basic income per share is computed by dividing net income available to common shareholders, by the weighted average number of shares of common stock outstanding during the period, excluding the effects of any potentially dilutive securities. Diluted income per share is computed by dividing net income available to common shareholders by the diluted weighted average number of shares of common stock during the period. The diluted weighted average number of common shares outstanding is the basic weighted number of shares adjusted as of the first day of the year for any potentially diluted debt or equity.
The dilutive effect of outstanding convertible securities and preferred stock is reflected in diluted earnings per share by application of the if-converted method.
During the three and nine months ended September 30, 2023 and 2022, and shares issuable upon the conversion of convertible note, respectively, shares issuable upon the conversion of preferred shares, were considered for their dilutive effects but were determined to be anti-dilutive.
Income Taxes
The Company accounts for income taxes in accordance with FASB ASC 740, “Income Taxes.” Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statements carrying amounts of existing assets and liabilities and loss carryforwards and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income (loss) in the years in which those temporary differences are expected to be recovered or settled.
The effect of a change in tax rules on deferred tax assets and liabilities is recognized in operations in the year of change. A valuation allowance is recorded when it is “more likely-than-not” that a deferred tax asset will not be realized.
Tax
benefits of uncertain tax positions are recognized only if it is more likely than not that the Company will be able to sustain a position
taken on an income tax return. The Company has
Segment Information
In
accordance with the provisions of ASC 280-10, “Disclosures about Segments of an Enterprise and Related Information,” the
Company is required to report financial and descriptive information about its reportable operating segments. The Company has
Effect of Recent Accounting Pronouncements
Recently Issued Accounting Standards Not Yet Adopted
The Company has reviewed all recently issued, but not yet adopted, accounting standards, in order to determine their effects, if any, on its results of operations, financial position or cash flows. Based on that review, the Company believes that no other pronouncements will have a significant effect on its financial statements.
NOTE 3 – COMMITMENTS AND CONTINGENCIES
Legal Matters
From time to time, we may be involved in litigation relating to claims arising out of our operations in the normal course of business. As of November 14, 2023, there were no pending or threatened lawsuits.
| 12 |
Franchise Agreement
The
Company has a franchise agreement effective February 19, 2014, expiring in
During
the nine months ended September 30, 2023, and 2022, the Company paid $
NOTE 4 – FIXED ASSETS
Fixed assets and finance lease right of use assets, stated at cost, less accumulated depreciation at September 30, 2023, and December 31, 2022, consisted of the following:
| September 30, 2023 | December 31, 2022 | |||||||
| Land | $ | $ | ||||||
| Equipment | ||||||||
| Autos and trucks | ||||||||
| Construction in process | ||||||||
| Land and building – rental property | ||||||||
| Less: accumulated depreciation | ( | ) | ( | ) | ||||
| Property and equipment, net | $ | $ | ||||||
Depreciation
expense for the nine months ended September 30, 2023, and 2022, was $
NOTE 5 – CONVERTIBLE NOTE PAYABLE AND NOTES PAYABLE
Convertible Notes Payable
On
April 1, 2018, the Company assumed a convertible promissory note in connection with the reverse acquisition. The Company received total
funding of $
The
note is convertible into common stock at a price of
The
note balance was $
Derivative liabilities
The conversion features embedded in the convertible notes were evaluated to determine if such conversion feature should be bifurcated from its host instrument and accounted for as a freestanding derivative. In the convertible notes with variable conversion terms, the conversion feature was accounted for as a derivative liability. The derivatives associated with the term convertible notes were recognized as a discount to the debt instrument and the discount is amortized over the expected life of the notes with any excess of the derivative value over the note payable value recognized as additional interest expense at the issuance date.
The following table presents information about the Company’s liabilities measured at fair value on a recurring basis and the Company’s estimated level within the fair value hierarchy of those assets and liabilities as of September 30, 2023, and December 31, 2022:
| Fair value at | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | September 30, 2023 | |||||||||||||
| Liabilities: | ||||||||||||||||
| Derivative liabilities | $ | $ | $ | $ | ||||||||||||
| 13 |
| Fair value at | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | December 31, 2022 | |||||||||||||
| Liabilities: | ||||||||||||||||
| Derivative liabilities | $ | $ | $ | $ | ||||||||||||
As
of September 30, 2023, and December 31, 2022, the derivative liability was calculated using the Black-Scholes method over the expected
terms of the convertible debt and the following assumptions: volatility of
| Fair value at December 31, 2022 | $ | |||
| Gain on change in fair value of derivative liabilities | ( | ) | ||
| Fair value at September 30, 2023 | $ |
Notes Payable
On
October 25, 2022, the Company entered into a secured promissory note in the amount up of $
On
April 27, 2023, the Acquisition (as defined in Note 11 below) closed, and the Company issued the Note (as defined in Note 11 below)
to the Seller’s principal, Robert Breese. The Company entered into a Pledge and Security Agreement with Mr. Breese (the
“Security Agreement”), and the parties agreed that the Acquisition would be considered effective as of May 1, 2023. The
Note does not bear interest except upon default, and it is payable in 24 equal consecutive monthly installments of $
As
of September 30, 2023, the secured notes payable balance was $
| 14 |
NOTE 6 – ACCRUED EXPENSES
The
Company had total accrued expenses of $
| September 30, 2023 | December 31, 2022 | |||||||
| Credit cards payable | $ | $ | ||||||
| Accrued interest | ||||||||
| Other accrued expenses | ||||||||
| Total accrued expenses | $ | $ | ||||||
NOTE 7 – RELATED PARTY TRANSACTIONS
The
majority shareholder, director and officer, is the owner of M & M Real Estate, Inc. (“M & M”). M & M leases the
Haltom City, Texas facility to the Company. The monthly lease payment, under a month-to-month lease, is currently $
NOTE 8 – STOCKHOLDERS’ EQUITY
Our Articles of Incorporation authorize the issuance of shares of common stock and shares of preferred stock, $ par value per share. There were and outstanding shares of common stock at September 30, 2023, and December 31, 2022, respectively. There were outstanding shares of preferred stock as of September 30, 2023, and December 31, 2022, respectively. Each share of preferred stock has 100 votes per share and is convertible into 10 shares of common stock. The preferred stock pays dividends equal with common stock and has preferential liquidation rights to common stockholders.
On
April 1, 2023, the Company entered into an investor relations agreement and issued shares of common stock for services from April
1, 2023, through September 30, 2023. The Company recognized $
On
April 27, 2023, the Company also entered into an Independent Consulting Agreement with Mr. Breese, pursuant to which (i) Mr. Breese would
provide embroidery industry consulting and sales services to the company for an initial term of two years, and (ii) Mr. Breese would be
paid
NOTE 9 – CONCENTRATION OF CUSTOMERS
Concentration of Revenue
For
the nine months ended September 30, 2023, no customer made up over
Concentration of accounts receivable
Two
customers accounted for
| 15 |
NOTE 10 – LEASE LIABILITY
Operating Leases
The Company leases office space. Leases with an initial term of 12 months or less are not recorded on the balance sheet. Leases with initial terms in excess of 12 months are recorded as operating or financing leases in our consolidated balance sheet. Lease expense is recognized on a straight-line basis over the term of the lease. For leases beginning in 2018 and later, the Company accounts for lease components separately from the non-lease components. Most leases include one or more options to renew. The exercise of the lease renewal options is at the sole discretion of the Company. The depreciable life of the assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise.
The
Company leases approximately
On
October 28, 2022, the Company entered into an operating lease that expires
The following table provides the maturities of lease liabilities at September 30, 2023:
| Operating | ||||
| Lease | ||||
| Maturity of Lease Liability at September 30, 2023 | ||||
| 2023 (three months remaining) | $ | |||
| 2024 | ||||
| Total future undiscounted lease payments | $ | |||
| Less: Amounts representing interest | ( | ) | ||
| Present value of lease liabilities | $ | |||
NOTE 11 – ASSET ACQUISITION
On
April 27, 2023, the Company entered into an Asset Purchase Agreement (the “Purchase Agreement”) with Innovative
Impressions, Inc., a Texas corporation (the “Seller”), pursuant to which the Company acquired (the
“Acquisition”) embroidery equipment, inventory, and related assets (the “Assets”), from the Seller for a
$
| Average | ||||||
| Fair Value | Estimated Life | |||||
| Purchase Price: | ||||||
| Notes payable, net of discount | $ | |||||
| Total purchase consideration | $ | |||||
| Purchase Allocation: | ||||||
| Inventory | $ | |||||
| Fixed assets | ||||||
| Total purchase price allocation | $ | |||||
Pro-Forma Financial Information
The following unaudited pro-forma data summarizes the result of the operations for the three and nine ended September 30, 2023, and 2022, as if the acquisition from Innovative Impressions, Inc. (“Innovative Impressions”) had been completed on January 1, 2022. The pro-forma financial information is presented for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition had taken place on January 1, 2023, or of results that may occur in the future.
| For the three months ended September 30, | For the nine months ended September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Pro Forma | Pro Forma | Pro Forma | Pro Forma | |||||||||||||
| Revenue | $ | $ | $ | $ | ||||||||||||
| Operating income | ||||||||||||||||
| Net income | ||||||||||||||||
| Net income per share | $ | $ | $ | $ | ||||||||||||
NOTE 12 – SUBSEQUENT EVENTS
The Company has evaluated subsequent events through the filing date of this Form 10-Q and determined that no subsequent events have occurred that would require recognition in the consolidated financial statements or disclosures in the notes thereto.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OR PLAN OF OPERATION
SPECIAL NOTE CONCERNING FORWARD-LOOKING STATEMENTS
We believe that it is important to communicate our future expectations to our security holders and to the public. This report, therefore, contains statements about future events and expectations which are “forward-looking statements” within the meaning of Sections 27A of the Securities Act of 1933 and 21E of the Securities Exchange Act of 1934, including the statements about our plans, objectives, expectations and prospects under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” You can expect to identify these statements by forward-looking words such as “may,” “might,” “could,” “would,” “will,” “anticipate,” “believe,” “plan,” “estimate,” “project,” “expect,” “intend,” “seek” and other similar expressions. Any statement contained in this report that is not a statement of historical fact may be deemed to be a forward-looking statement. Although we believe that the plans, objectives, expectations and prospects reflected in or suggested by our forward-looking statements are reasonable, those statements involve risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements, and we can give no assurance that our plans, objectives, expectations and prospects will be achieved.
Important factors that might cause our actual results to differ materially from the results contemplated by the forward-looking statements are contained in the “Risk Factors” section of and elsewhere in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, and in our subsequent filings with the Securities and Exchange Commission. The following discussion of our results of operations should be read together with our financial statements and related notes included elsewhere in this report.
Company Overview
On January 4, 2001, ADM Endeavors, Inc. (“ADM Endeavors,” or the “Company,” “we,” “us,” or “our”) was incorporated in North Dakota as “ADM Enterprises, Inc.” On May 9, 2006, the Company changed its name to “ADM Endeavors, Inc.” and its domicile to the State of Nevada. On July 1, 2008, the Company acquired all of the assets of ADM Enterprises, LLC (“ADM Enterprises”) in exchange for 10,000,000 newly issued shares of Company common stock. As a result, ADM Enterprises became a wholly owned subsidiary of the Company. ADM then provided installation services to grocery décor and design companies primarily in North Dakota.
On April 19, 2018, the Company acquired Just Right Products, Inc. (“Just Right Products”), a Texas corporation, from its sole shareholder, Marc Johnson, through a share exchange transaction whereby the Company acquired 100% of Just Right Products and issued 2,000,000 shares of Series A Convertible Preferred stock (“Series A Preferred Stock”) to the shareholder of Just Rights Products. Each share of the Series A Preferred Stock is convertible into 10 shares of Company common stock and each share has 100 votes on a fully diluted basis. The preferred shares represented 61% of the Company’s voting shares and constituted a change of voting control of the Company, with the transaction accounted for as a reverse acquisition. As a result of the transaction, Just Right Products became a wholly owned subsidiary of the Company.
On January 1, 2020, the Company determined that it would discontinue its business operations in North Dakota, specifically, ADM Enterprises LLC (the “Disposed Company”). The Company transferred the Disposed Company to Ardell Mees in exchange for Mr. Mees’ assumption of the liabilities of the Disposed Company. As part of the transaction, Mr. Mees resigned from all positions with the Company and, in a private transaction, sold a significant portion of his ownership in the Company to Marc Johnson. The Company and Mr. Mees entered into an indemnification agreement pursuant to which Mr. Mees indemnified the Company for the liabilities of the Disposed Company.
Since that time, the Company has exclusively focused on its Just Right Productions operations, which includes a diverse vertical integrated business consisting of a retail sales division, screen print promotions, embroidery production, digital production, import wholesale sourcing, and uniforms.
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On April 27, 2023, the Company entered into an Asset Purchase Agreement with Innovative Impressions, Inc., a Texas corporation (the “Seller” or “Innovative Impressions”), pursuant to which the Company acquired embroidery equipment, inventory, and related assets from the Seller, which was paid by the issuance by the Company of a $200,000 secured promissory note (with a fair value of $143,637) to the Seller’s principal.
For the Three Months Ended September 30, 2023, and 2022
Revenues
Our revenue was $1,984,193 for the three months ended September 30, 2023, compared to $2,322,579 for the three months ended September 30, 2022, resulting in a decrease of $338,386, or 15%. The decrease in revenue is primarily due to a first and second quarter reduction in spending from social media influencer merchandise sales.
Operating Expenses
Direct costs of revenues were $1,389,608 and $1,550,069 for the three months ended September 30, 2023, and 2022, respectively, resulting in a decrease of $160,461, or 10%. The decrease in direct costs was a direct result of the decreased sales due to the reduction in spending from social media influencers merchandise sales. The gross margin decreased from 33% during the three months ended September 30, 2022, to 30% during the three months ended September 30, 2023.
General and administrative expenses were $400,658 for the three months ended September 30, 2023, compared to $287,801 for the same period in 2022. The increase in 2023 general and administrative expenses of approximately 39% was primarily due to additional expenses related to the second quarter acquisition from Innovative Impressions.
Marketing and selling expenses were $7,793 for the three months ended September 30, 2023, compared to $14,201 for the same period in 2022. The decrease in 2023 marketing and selling expenses of approximately 45% was primarily due to the utilization of more cost-effective marketing techniques.
Net income was $155,609 for the three months ended September 30, 2023, compared to $329,683 for the three months ended September 30, 2022, for the reasons stated above.
For the Nine Months Ended September 30, 2023 and 2022
Revenues
Our revenue was $3,915,887 for the nine months ended September 30, 2023, compared to $4,678,635 for the nine months ended September 30, 2022, resulting in a decrease of $762,748, or 16%. The decrease in revenue is primarily due to a first quarter reduction in spending from social media influencer merchandise sales.
Operating Expenses
Direct costs of revenues were $2,703,206 and $3,033,065 for the nine months ended September 30, 2023, and 2022, respectively, resulting in a decrease of $329,859, or 11%. This decrease in operating costs was a direct result of decreased sales. The gross margin decreased from 35% during the nine months ended September 30, 2022, to 31% during the nine months ended September 30, 2023. The decrease in margin is primarily due to an increase of new government customers with lower margins as compared to non-government customers.
General and administrative expenses were $1,065,307 for the nine months ended September 30, 2023, compared to $1,036,045 for the same period in 2022.
Marketing and selling expenses were $28,300 for the nine months ended September 30, 2023, compared to $47,182 for the same period in 2022. The decrease in 2023 marketing and selling expenses of approximately 40% was primarily due to utilizing more cost-efficient marketing platforms.
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Net income was $162,560 for the nine months ended September 30, 2023, compared to net income of $415,980 for the nine months ended September 30, 2022, for the reasons stated above.
Liquidity and Capital Resources
Liquidity and Capital Resources during the nine months ended September 30, 2023, compared to the three months ended September 30, 2022
We had cash provided by operations of $350,520 for the nine months ended September 30, 2023, compared to cash provided by operations of $776,802 for the nine months ended September 30, 2022. The decrease in positive cash flow from operating activities for the nine months ended September 30, 2023, was primarily attributable to a decrease in net income and changes in inventory.
We had cash used in investing activities of $230,570 for the nine months ended September 30, 2023, and $275,424 for the nine months ended September 30, 2022. The change in cash flow from investing activities for the nine months ended September 30, 2023, was attributable to a decrease in the purchase of property and equipment in 2023.
We had cash provided by financing activities of $144,153 for the nine months ended September 30, 2023, compared to cash used in financing activities of $212,963 for the same period in 2022. Cash provided by financing activities consisted primarily of proceeds from note payable offset with repayments on notes payable.
We will likely have to raise funds to pay for growth and acquisitions. We may have to borrow money from shareholders or issue debt or equity or enter into a strategic arrangement with a third party. There can be no assurance that additional capital will be available to us. We currently have no arrangements or understandings with any person to obtain funds through bank loans, lines of credit or any other sources.
Critical Accounting Policies
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make a number of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Such estimates and assumptions affect the reported amounts of revenues and expenses during the reporting period. We base our estimates on historical experiences and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ materially from these estimates under different assumptions and conditions. We continue to monitor significant estimates made during the preparation of our financial statements. On an ongoing basis, we evaluate estimates and assumptions based upon historical experience and various other factors and circumstances. We believe our estimates and assumptions are reasonable in the circumstances; however, actual results may differ from these estimates under different future conditions.
See Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 1, “Summary of Significant Accounting Policies” in our audited financial statements for the year ended December 31, 2022, included in our Annual Report on Form 10-K as filed on March 29, 2023, for a discussion of our critical accounting policies and estimates.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
A smaller reporting company, as defined by Item 10 of Regulation S-K, is not required to provide the information required by this item.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
The Company does not currently maintain controls and procedures that are designed to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act are recorded, processed, summarized, and reported within the time periods specified by the Commission’s rules and forms.
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Disclosure controls and procedures would include, without limitation, controls and procedures designed to provide reasonable assurance that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Under the supervision and with the participation of management, including the Company’s Chief Executive Officer, the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of September 30, 2023, have been evaluated, and, based upon this evaluation, the Company’s Chief Executive Officer has concluded that these controls and procedures are not effective in providing reasonable assurance of compliance.
Changes in Internal Control over Financial Reporting
Management will continue to monitor and evaluate the effectiveness of the Company’s internal controls and procedures and the Company’s internal controls over financial reporting on an ongoing basis and are committed to taking further action and implementing additional enhancements or improvements, as necessary and as funds allow. There were no changes in Internal Control Over Financial Reporting during the quarter ended September 30, 2023.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
There are no pending legal proceedings in which we are a party or in which any of our directors, officers or affiliates, any owner of record or beneficiary of more than 5% of any class of our voting securities is a party adverse to us or has a material interest adverse to us. Our property is not the subject of any pending legal proceedings.
ITEM 1A. RISK FACTORS.
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. MINE SAFETY DISCLOSURES.
Not Applicable.
ITEM 5. OTHER INFORMATION.
None.
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ITEM 6. EXHIBITS
(1) Filed herewith.
(2) XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.
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SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| ADM ENDEAVORS, INC. | ||
| Dated: November 14, 2023 | /s/ Marc Johnson | |
| By: | Marc Johnson | |
| Its: | Chief Executive Officer and Interim Chief Financial Officer | |
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