10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2014

or

o

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from

 to

Commission File Number: 0-28034

AdvanSource Biomaterials Corporation

(Exact name of registrant as specified in its charter)

Delaware (State or other jurisdiction of incorporation or organization)	04-3186647 (I.R.S. Employer Identification No.)
229 Andover Street, Wilmington, Massachusetts (Address of principal executive offices)	01887 (Zip Code)

(978) 657-0075

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x  No q

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes  x  No  q

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and smaller reporting company” in Rule 12b-2 of the Exchange Act.  (Check one):

q  Large Accelerated Filer

q  Accelerated Filer

q  Non-accelerated Filer

x  Smaller reporting company

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes q  No x

As of February 17, 2015, there were 21,490,621 shares of the registrant’s Common Stock outstanding.

ADVANSOURCE BIOMATERIALS CORPORATION

TABLE OF CONTENTS

		Page
PART I	FINANCIAL INFORMATION
Item 1	Financial Statements
	Condensed Balance Sheets at December 31, 2014 (unaudited) and March 31, 2014	3
	Condensed Statements of Operations for the three and nine months ended December 31, 2014 and 2013 (unaudited)	4
	Condensed Statements of Cash Flows for the three and nine months ended December 31, 2014 and 2013 (unaudited)	5
	Notes to Condensed Financial Statements (unaudited)	6
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13
Item 3	Quantitative and Qualitative Disclosures About Market Risk	19
Item 4	Controls and Procedures	19
PART II	OTHER INFORMATION
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	20
	Signatures	21

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PART I.

FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

AdvanSource Biomaterials Corporation
Condensed Balance Sheets
(In thousands, except share and per share amounts)
	December 31, 2014 (Unaudited)	March 31, 2014
ASSETS
Current assets:
Cash	$11	$268
Accounts receivable-trade, net of allowance of $5 as of December 31, 2014 and March 31, 2014	257	122
Accounts receivable-other	77	73
Inventories, net	272	181
Prepaid expenses and other current assets	3	3
Total current assets	620	647
Property, plant and equipment, net	2,018	2,110
Deferred financing costs, net	81	86
Other assets	47	47
Total assets	$2,766	$2,890
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable	$298	$231
Accrued expenses	478	243
Customer advance	77	-
Notes payable	50	50
Capital lease obligation	13	-
Deferred revenue	65	105
Total current liabilities	981	629
Long-term liabilities:
Long-term financing obligation	1,986	1,986
Accrued interest on financing obligation	144	136
Total long-term liabilities	2,130	2,122
Total liabilities	3,111	2,751
Commitments and contingencies
Stockholders' equity (deficit):
Preferred stock; $.001 par value; 5,000,000 shares authorized; no shares issued and outstanding as of December 31, 2014 and March 31, 2014	-	-
Common stock; $.001 par value; 50,000,000 shares authorized; 21,567,313 shares issued; and 21,490,621 shares outstanding as of December 31, 2014 and March 31, 2014	21	21
Additional paid-in capital	38,059	38,050
Accumulated deficit	(38,395)	(37,902)
	(315)	169
Less: treasury stock, 76,692 shares at cost as of December 31, 2014 and March 31, 2014	(30)	(30)
Total stockholders' equity (deficit)	(345)	139
Total liabilities and stockholders' equity (deficit)	$2,766	$2,890

The accompanying notes are an integral part of these unaudited condensed financial statements.

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AdvanSource Biomaterials Corporation
Condensed Statements of Operations
(Unaudited - in thousands, except per share amounts)
	Three Months Ended December 31,				Nine Months Ended December 31,
	2014		2013		2014		2013
Revenues:
Product sales	$	355	$	425	$	1,020	$	1,145
License, royalty and development fees		142		260		652		603
		497		685		1,672		1,748
Cost of sales		182		168		620		551
Gross profit		315		517		1,052		1,197
Operating expenses:
Research, development and regulatory		84		90		277		298
Selling, general and administrative		325		342		981		1,080
		409		432		1,258		1,378
Income (loss) from operations		(94)		85		(206)		(181)
Other expense, net:
Interest expense		(91)		(88)		(287)		(271)
Other income		-		44		-		45
		(91)		(44)		(287)		(226)
Net income (loss)	$	(185)	$	41	$	(493)	$	(407)
Net income (loss) per common share, basic and diluted	$	(0.01)	$	0.00	$	(0.02)	$	(0.02)
Shares used in computing net income (loss) per common share, basic and diluted		21,491		21,491		21,491		21,491

The accompanying notes are an integral part of these unaudited condensed financial statements.

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AdvanSource Biomaterials Corporation
Condensed Statements of Cash Flows
(Unaudited - In thousands)
	Nine Months Ended December 31,
	2014	2013
Cash flows from operating activities:
Net loss	$(493)	$(407)
Adjustments to reconcile net loss to net cash flows (used in) operating activities:
Depreciation	105	137
Amortization of deferred financing costs	5	5
Stock-based compensation	9	35
Provision for inventory reserve	25	-
Gain on sale of equipment	-	(36)
Changes in assets and liabilities:
Accounts receivable-trade	(135)	(16)
Accounts receivable-other	(4)	126
Inventories	(116)	(120)
Prepaid expenses and other current assets	-	(10)
Accounts payable	67	(28)
Accrued expenses	243	76
Customer advance	77	-
Deferred revenue	(40)	138
Net cash flows used in operating activities	(257)	(100)
Cash flows from investing activities:
Sale of equipment	-	45
(Increase) in other assets	-	(10)
Net cash flows provided by investing activities	-	35
Cash flows from financing activities:
Issuance of promissory notes	-	100
Repayment of related party payable	-	(30)
Net cash flows provided by financing activities	-	70
Net change in cash	(257)	5
Cash at beginning of period	268	103
Cash at end of period	$11	$108
Supplemental disclosure of cash flow information
Income taxes paid	$-	$-
Interest paid	$196	$210
Purchase of equipment on capital lease	$13	$-

The accompanying notes are an integral part of these unaudited condensed financial statements.

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ADVANSOURCE BIOMATERIALS CORPORATION

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

1.

Description of Business

AdvanSource Biomaterials Corporation develops advanced polymer materials which provide critical characteristics in the design and development of medical devices. Our biomaterials are used in devices that are designed for treating a broad range of anatomical sites and disease states. Our business model leverages our proprietary materials science technology and manufacturing expertise in order to expand product sales and royalty and license fee income.

Our technology, notably products such as ChronoFlex®, HydroMed™, and HydroThane™, which have been developed to overcome a wide range of design and functional challenges, such as the need for dimensional stability, ease of manufacture and demanding physical properties to overcoming environmental stress cracking and providing heightened lubricity for ease of insertion. Our new product extensions customize proprietary polymers for specific customer applications in a wide range of device categories.

Our corporate, development and manufacturing operations are located in our leased facility in Wilmington, Massachusetts.

2.

Interim Financial Statements and Basis of Presentation

The accompanying unaudited condensed 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 condensed 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 condensed 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 nine months ended December 31, 2014 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 year ended March 31, 2014 as filed with the Securities and Exchange Commission (the “SEC”).

Our significant accounting policies are described in Note B to the consolidated financial statements included in Item 8 of our annual report on Form 10-K as of March 31, 2014.

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 condensed 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 revenues and expenses that are not readily apparent from other sources. Actual results could differ from those estimates and judgments. In particular, significant estimates and judgments include those related to revenue recognition, allowance for doubtful accounts, inventory reserves, useful lives and valuation of property and equipment.

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ADVANSOURCE BIOMATERIALS CORPORATION

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

3.

New Accounting Pronouncement

We have evaluated all issued but not effective accounting pronouncements and determined that, other than the following,  they are either immaterial or not relevant to us.

In June 2014, the Financial Accounting Standards Board (“FASB”) and the International Accounting Standards Board jointly issued an exposure draft (“ED”), Revenue from Contracts with Customers. The ED was released by the FASB as a proposed Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers”. The update gives entities a single comprehensive model to use in reporting information about the amount and timing of revenue resulting from contracts to provide goods or services to customers. The proposed ASU, which would apply to any entity that enters into contracts to provide goods or services, would supersede the revenue recognition requirements in Topic 605, Revenue Recognition, and most industry-specific guidance throughout the Industry Topics of the Codification. Additionally, the update would supersede some cost guidance included in Subtopic 605-35, Revenue Recognition – Construction-Type and Production-Type Contracts. The update removes inconsistencies and weaknesses in revenue requirements and provides a more robust framework for addressing revenue issues and more useful information to users of financial statements through improved disclosure requirements. In addition, the update improves comparability of revenue recognition practices across entities, industries, jurisdictions, and capital markets and simplifies the preparation of financial statements by reducing the number of requirements to which an entity must refer. The update is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. It is not anticipated that this updated guidance will have a material impact on our results of operations, cash flows or financial condition.

In August 2014, the FASB issued Accounting Standards Update “ASU” 2014-15 on “Presentation of Financial Statements Going Concern (Subtopic 205-40) – Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern”. Currently, there is no guidance in U.S. GAAP about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern or to provide related footnote disclosures. The amendments in this Update provide that guidance. In doing so, the amendments are intended to reduce diversity in the timing and content of footnote disclosures. The amendments require management to assess an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards. Specifically, the amendments (1) provide a definition of the term substantial doubt, (2) require an evaluation every reporting period including interim periods, (3) provide principles for considering the mitigating effect of management’s plans, (4) require certain disclosures when substantial doubt is alleviated as a result of consideration of management’s plans, (5) require an express statement and other disclosures when substantial doubt is not alleviated, and (6) require an assessment for a period of one year after the date that the financial statements are issued (or available to be issued). The amendments in this Update are effective for public and nonpublic entities for annual periods ending after December 15, 2016. Early adoption is permitted. It is not anticipated that this guidance will have a material impact on our results of operations, cash flows or financial condition.

4.

Related Party Transactions

On August 22, 2013, Mr. Adams, our Chief Executive Officer, and David Volpe, our former Chief Financial Officer, participated along with three independent investors (collectively, the “Investors”) in an aggregate financing resulting in the issuance of $100,000 in promissory notes (see Note 11).  Messrs. Adams and Volpe each contributed approximately $13,000 in cash. In addition to the promissory notes, Messrs. Adams and Volpe also received warrants entitling them to exercise said warrants in 54,375 shares of our common stock at an exercise price of $0.075 per share (see Note 9). As of December 31, 2014 and March 31, 2014, the principle balance of the promissory notes was $50,000 in the aggregate, of which $12,500 in the aggregate was due to Messrs. Adams and Volpe.  All warrants issued in connection with this transaction expired on August 21, 2014.

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ADVANSOURCE BIOMATERIALS CORPORATION

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

5.

Equity-Based Compensation

Our 1996 Employee, Director and Consultants Stock Option Plan (the “1996 Plan”) was approved by the Board of Directors and Stockholders in March 1996. A total of 7,000,000 shares were reserved for issuance under the 1996 Plan. Under the terms of the 1996 Plan, the exercise price of Incentive Stock Options issued under the 1996 Plan must be equal to the fair market value of the common stock at the date of grant. In the event that Non Qualified Options are granted under the 1996 Plan, the exercise price may be less than the fair market value of the common stock at the time of the grant (but not less than par value). In October 2003, our shareholders approved the 2003 Stock Option Plan (the “2003 Plan”), which authorizes the issuance of 3,000,000 shares of common stock with terms similar to the 1996 Plan. In January 2006, we filed Form S-8 with the SEC registering an additional 489,920 total shares of common stock in the 1996 Plan and 2003 Plan. Total shares of common stock registered under the 1996 Plan and 2003 Plan (collectively, the “Plans”) are 10,489,920. Substantially all of the stock options granted pursuant to the 1996 Plan provide for the acceleration of vesting of the shares of common stock subject to such options in connection with certain changes in our control. A similar provision is not included in the 2003 Plan. Options granted expire ten years from the grant date. As of September 30, 2013, all Plans and shares not granted expired. As of December 31, 2014, there are no other equity incentive plans in place for the future issuance of our common stock.

Activity under the Plans for the nine months ended December 31, 2014 is as follows:

	Options Outstanding	Weighted-Average Exercise Price per Share	Weighted-Average Remaining Contractual Term in Years	Aggregate Intrinsic Value (in thousands)
Options outstanding as of April 1, 2014	2,615,750	$0.66
Granted	-	-
Exercised	-	-
Cancelled or forfeited	(150,000)	1.74
Options outstanding as of December 31, 2014 (unaudited)	2,465,750	0.60	4.46	$-
Options exercisable as of December 31, 2014 (unaudited)	2,127,625	0.68	3.79	$-
Options vested or expected to vest as of December 31, 2014 (unaudited)	2,465,750	0.609	4.46	$-

Our unaudited condensed statements of operations include equity-based compensation expense related to our stock option plans for employee and non-employee director awards in the amount of $2,000 and $4,000 for the three months ended December 31, 2014 and 2013, respectively; and $9,000 and $25,000 for the nine months ended December 31, 2014 and 2013, respectively. There was no income tax benefit related to these costs. As of December 31, 2014, the total amount of unrecognized equity-based compensation expense was approximately $17,000 which will be recognized over a weighted average period of 1.67 years.

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ADVANSOURCE BIOMATERIALS CORPORATION

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

6.

Inventories

Inventories, net, are stated at the lower of cost (first in, first out) or market and consist of the following:

(in thousands)	December 31, 2014 (unaudited)	March 31, 2014
Raw materials	$113	$120
Work in progress	50	52
Finished goods	332	243
	495	415
Less: allowance for obsolete and excess inventory	(223)	(234)
Total inventories, net	$272	$181

During the three months ended December 31, 2014, we allowed a significant customer to return certain polymer products which were sold and shipped in a prior year (the “Returned Goods”) and paid for by the significant customer in a prior year. As a result, the significant customer was issued a credit in the amount of the selling price of the polymer products, which was approximately $127,000. Accordingly, we recorded a current liability in the approximate amount of $127,000, as an effective sales/credit discount to the future sales to this significant customer. Such sales credit is included in accrued expenses in our condensed balance sheet as of December 31, 2014. We also recorded a sales allowance of $127,000 with respect to the Returned Goods, which is recorded in product sales in our statement of operations for the three and nine months ended December 31, 2014. It is exepected that we will ship products to eliminate the sales discount to this significant customer before our fiscal year ending March 31, 2015.

The inventory cost of the Returned Goods was approximately $25,000 and was recorded as an increase to our finished goods inventory as of December 31, 2014. Based on managements’ review of the Returned Goods, we concluded the likelihood of selling a large amount of the Returned Goods within the near-term was not determinable. Accordingly, an additional allowance for the excess inventory of approximately $25,000 was recorded as of December 31, 2014.

We have no history of having allowed for a product return prior to this date and we have not changed our policy for future returns by customers once the customer has accepted delivery of the products.

7.

Property, Plant and Equipment

Property, plant and equipment consists of the following:

(in thousands)	December 31, 2014 (unaudited)	March 31, 2014
Land	$500	$500
Building	2,705	2,705
Machinery, equipment and tooling	1,214	1,214
Furniture, fixtures and office equipment	285	285
Office equipment under capital lease	13	-
	4,717	4,704
Less:  accumulated depreciation	(2,699)	(2,594)
	$2,018	$2,110

For the three months ended December 31, 2014 and 2013, depreciation expense was $22,000 and $446,000, respectively. For the nine months ended December 31, 2014 and 2013, depreciation expense was $105,000 and $137,000, respectively.

8.

Income (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 are 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. At December 31, 2014 and 2013, potentially dilutive shares of 2,685,048

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ADVANSOURCE BIOMATERIALS CORPORATION

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

and 3,270,048, respectively, were excluded from the diluted loss per share calculations because their effect would be antidilutive or the options exercise prices were greater than the average market price of the common shares. Shares deemed to be antidilutive include stock options and warrants issuable upon exercise.

9.

Stockholders’ Equity

Common Stock and Warrants

On March 31, 2008, we issued warrants to purchase 219,298 shares of our common stock in connection with the disposition of one of our subsidiaries. These warrants are exercisable at a price of $0.874 per share and expire on March 31, 2015. At December 31, 2014 and March 31, 2014, all of these warrants were outstanding.

On August 22, 2013, we entered into Promissory Notes in the aggregate principal amount of $100,000 (the “Notes”) with three shareholders and our chief executive officer and chief financial officer (the “Investors”). The Notes have a six-month term, bear interest at the rate of 1.75% per month and all principal and accrued interest, if any, is due and payable on or before February 21, 2014. In lieu of cash payment of interest, the Investors chose to receive Warrants exercisable into an aggregate 435,000 shares of our common stock. The Warrants have a one-year term and are exercisable at a 150% premium over the closing price of our common stock as of August 21, 2013, or $0.075 per share. The Notes are secured by accounts receivable from certain customers. These warrants expired on August 21, 2014 and there were no warrants outstanding in connection with this transaction as of December 31, 2014.

Employee Stock Purchase Plan

There were no shares of our common stock issued pursuant to the Employee Stock Purchase Plan (the “ESP Plan”) as of December 31, 2014 as all 500,000 shares authorized under the ESP Plan have been issued.

10.

Income Taxes

The provision for income taxes includes federal, state, local and foreign taxes. Income taxes are accounted for under the liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences of temporary differences between the financial statement carrying amounts and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the year in which the temporary differences are expected to be recovered or settled. We evaluate the realizability of our deferred tax assets and establishes a valuation allowance when it is more likely than not that all or a portion of deferred tax assets will not be realized. A valuation allowance has been recorded to offset all deferred tax assets due to uncertainty of realizing the tax benefits of the underlying operating loss and tax credit carry forwards over their carry forward periods. We have no significant deferred tax liabilities as of December 31, 2014 and March 31, 2014.

We account for uncertain tax positions using a “more-likely-than-not” threshold for recognizing and resolving uncertain tax positions. The evaluation of uncertain tax positions is based on factors including, but not limited to, changes in tax law, the measurement of tax positions taken or expected to be taken in tax returns, the effective settlement of matters subject to audit, new audit activity and changes in facts or circumstances related to a tax position. We evaluate this tax position on a quarterly basis. We also accrue for potential interest and penalties, if applicable, related to unrecognized tax benefits in income tax expense. As of December 31, 2014 and March 31, 2014, we had no material unrecognized tax benefits and no adjustments to liabilities or operations were required.

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ADVANSOURCE BIOMATERIALS CORPORATION

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

11.

Notes Payable

On August 22, 2013, we entered into Promissory Notes in the aggregate principal amount of $100,000 (the “Notes”) with three shareholders and our chief executive officer and chief financial officer (the “Investors”). The Notes have a six-month term, bear interest at the rate of 1.75% per month and all principal and accrued interest, if any, is due and payable on or before February 21, 2014. In lieu of cash payment of interest, the Investors chose to receive Warrants exercisable into an aggregate 435,000 shares of our common stock. The Warrants have a one-year term and are exercisable at a 150% premium over the closing price of our common stock as of August 21, 2013, or $0.075 per share (see Note 9). The Notes are secured by accounts receivable from certain customers.

As of December 31, 2014, the principle balance of $50,000 remained outstanding and the Investors waived any event of default with respect to repayment of the Notes through July 2, 2015. In addition, the Promissory Notes provided for the accrual of additional interest at the rate of 2.0% per month. During the three and nine months ended December 31, 2014, we recorded interest expense of approximately $3,000 and $9,000, respectively, with respect to the Notes. As of December 31, 2014, accrued interest of approximately $11,000 was recorded and is included in accrued expenses in the condensed balance sheet.

These warrants expired on August 21, 2014 and there were no warrants outstanding in connection with this transaction as of December 31, 2014.

12.

Long-Term Financing Obligation

On December 22, 2011, we entered into an agreement with an independent third-party under which we sold and leased back our land and building generating gross proceeds of $2,000,000. Pursuant to a lease agreement, the initial minimum lease term is 15 years. At the end of the initial minimum lease term, we have the option to renew the lease for three periods of five years each. In addition, we provided, as collateral, a security interest in all furnishings, fixtures and equipment owned and used by us, having a net book value of approximately $28,000 as of December 31, 2014. For accounting purposes, the provision of such collateral constitutes continuing involvement with the associated property. Due to this continuing involvement, this sale-leaseback transaction is accounted for under the financing method, rather than as a completed sale. Under the financing method, we include the sales proceeds received as a financing obligation. As of December 31, 2014 and March 31, 2014, the total financing obligation was $1,986,000, respectively, and accrued interest on financing obligation was $144,000 and $136,000, respectively.Through December 2018, interest on the financing obligation exceeds the minimum lease payments, accordingly the principal remains constant through that date. After December 2018, the minimum lease payment will exceed interest and principal will be reduced by the excess of minimum lease payment over interest. The building, building improvements and land remain on the condensed balance sheet and the building and building improvements will continue to be depreciated over their remaining useful lives. Payments made under the lease are applied as payments of imputed interest and deemed principal on the underlying financing obligation.

13.

Contingencies

We are not a party to any legal proceedings, other than ordinary routine litigation incidental to our business, which we believe will not have a material affect on our financial position or results of operations.

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ADVANSOURCE BIOMATERIALS CORPORATION

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

14.

Concentrations of Credit Risk and Major Customers

For the three months ended December 31, 2014, three customers represented 64% of our total revenues. For the three months ended December 31, 2013, three customers represented 72% of our total revenues.

For the nine months ended December 31, 2014, three customers represented 54% of our total revenues. For the nine months ended December 31, 2013, three customers represented 71% of our total revenues.

As of December 31, 2014, we had accounts receivable-trade, net, of $216,000, or 84%, due from two customers. As of March 31, 2014, we had accounts receivable-trade, net, of $72,000, or 59%, due from three customers.

As of December 31, 2014, we had $77,000 due from two customers related to receivables on royalties, license and annual usage fees. As of March 31, 2014, we had $73,000 due from two customers related to receivables on royalties, license and annual usage fees. These amounts are classified as accounts receivable-other in the accompanying condensed balance sheets.

During the three and nine months ended December 31, 2014, we received approximately $78,000 from one major customer as a deposit on product to be shipped subsequent to December 31, 2014. The deposit was recorded as customer advance in the condensed balance sheet.

15.

Subsequent Events

We evaluated all events or transactions that occurred after the balance sheet date through the date when we issued these unaudited condensed financial statements. During this period, we did not have any material recognizable subsequent events.

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Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Cautionary Note Regarding Forward-Looking Statements

This quarterly 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 quarterly report on Form 10-Q. For example, we may encounter competitive, technological, financial and business challenges making it more difficult than expected to continue to develop and market our products; the market may not accept our existing and future products; we may not be able to retain our customers; we may be unable to retain existing key management personnel; and there may be other material adverse changes in our operations or business. Certain important factors affecting the forward-looking statements made herein also include, but are not limited to (i) continued downward pricing pressures in our targeted markets, (ii) the continued acquisition of our customers by certain of our competitors, and (iii) continued periods of net losses, which could require us to find additional sources of financing to fund operations, implement our financial and business strategies, meet anticipated capital expenditures and fund research and development costs. In addition, assumptions relating to budgeting, marketing, product development and other management decisions are subjective in many respects and thus susceptible to interpretations and periodic revisions based on actual experience and business developments, the impact of which may cause us to alter our marketing, capital expenditure or other budgets, which may in turn affect our financial position and results of operations. For all of these reasons, the reader is cautioned not to place undue reliance on forward-looking statements contained herein, which speak only as of the date hereof. 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. For further information, you are encouraged to review our filings with the Securities and Exchange Commission, including our Annual Report on Form 10-K for the fiscal year ended March 31, 2014 and the risk factors discussed therein under Part I. Item 1A.

Overview

We develop advanced polymer materials which provide critical characteristics in the design and development of medical devices. Our biomaterials are used in devices that are designed for treating a broad range of anatomical sites and disease states. Our business model leverages our proprietary materials science technology and manufacturing expertise in order to expand our product sales and royalty and license fee income.

Our leading edge technology, notably products such as ChronoFlex®, HydroMed™, and HydroThane™, has been developed to overcome a wide range of design and functional challenges, from the need for dimensional stability, ease of manufacturability and demanding physical properties to overcoming environmental stress cracking and providing heightened lubricity for ease of insertion. Our polymer product lines are compliant with measures applying to the processing of certain animal waste to protect against transmissible spongiform encephalopathies as set forth in European Council Decision 1999/534/EC. Our new product extensions allow us to customize our proprietary polymers for specific customer applications in a wide range of device categories.

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Technology and Intellectual Property

Our unique materials science strengths are embodied in our family of proprietary polymers. We manufacture and sell our custom polymers under the trade names ChronoFilm, ChronoFlex, ChronoThane, ChronoPrene, ChronoSil, HydroThane, and PolyBlend. The ChronoFlex family of polymers has the potential to be marketed beyond our existing customer base. Our goal is to fulfill the market’s need for advanced materials science capabilities, thereby enabling customers to improve devices that utilize polymers. Our chemists continue to develop the ChronoFlex family of medical-grade polymers. Conventional polymers are susceptible to degradation resulting in catastrophic failure of long-term implantable devices such as pacemaker leads. ChronoFlex and ChronoThane polymers are designed to overcome such degradation and reduce the incidents of infections associated with invasive devices.

Key characteristics of our polymers are i) optional use as lubricious coatings for smooth insertion of a device into the body, ii) antimicrobial properties that are part of the polymer itself, and iii) mechanical properties, such as hardness and elasticity sufficient to meet engineering requirements. We believe our technology has wide application in increasing biocompatibility, drug delivery, infection control and expanding the utility of complex devices in the hospital and clinical environment.

We manufacture and sell our proprietary HydroThane polymers to medical device manufacturers that are evaluating HydroThane for use in their products. HydroThane is a thermoplastic, water-absorbing, polyurethane elastomer possessing properties which we believe make it well suited for the complex requirements of a variety of catheters. In addition to its physical properties, we believe HydroThane exhibits an inherent degree of bacterial resistance, clot resistance and biocompatibility. When hydrated, HydroThane has elastic properties similar to living tissue.

We also manufacture specialty hydrophilic polyurethanes that are primarily sold to customers as part of exclusive arrangements. Specifically, one customer is supplied tailored, patented hydrophilic polyurethanes in exchange for a multi-year, royalty-bearing exclusive supply contract which generates royalty income for the Company.

ChronoFilm is a registered trademark of PolyMedica.  ChronoFlex is our registered trademark. ChronoThane, ChronoPrene, ChronoSil, HydroThane, and PolyBlend are our tradenames.  CardioPass is our trademark.

We own or license four patents relating to our vascular graft manufacturing and polymer technology and products. While we believe our patents secure our exclusivity with respect to certain of our technologies, there can be no assurance that any patents issued would not afford us adequate protection against competitors which sell similar inventions or devices, nor can there be any assurance that our patents will not be infringed upon or designed around by others. However, we intend to vigorously enforce all patents issued to us.

In October 2009, we filed for a U.S. patent on ChronoSil, our silicone-urethane copolymer product, and methods for making ChronoSil.  ChronoSil can have many physical properties which are usually associated with polyurethanes, but also the feel and characteristics of silicones.

In August 2010, the U.S. Patent and Trademark Office issued us a U.S. patent on our proprietary antimicrobial formulation for ChronoFlex. Current technology in the marketplace uses antibiotic drugs. The antimicrobial component of our polymers has been designed to be non-leaching as a result of the polymerization process.

In addition, PolyMedica has granted us an exclusive, perpetual, worldwide, royalty-free license for the use of one polyurethane patent and related technology in the field consisting of the development, manufacture and sale of implantable medical devices and biodurable polymer material to third parties for the use in medical applications (the “Implantable Device and Materials Field”). PolyMedica also owns, jointly with Thermedics, Inc., an unrelated company that manufactures medical grade polyurethane, the ChronoFlex polyurethane patents relating to the ChronoFlex technology. PolyMedica has granted us a non-exclusive, perpetual, worldwide, royalty-free sublicense of these patents for use in the Implantable Devices and Materials Field.

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Critical Accounting Policies

Our critical accounting policies are summarized in Note B to our consolidated financial statements included in Item 8 of our annual report on Form 10-K for the fiscal year ended March 31, 2014. 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 condensed financial statements. There have been no changes to our critical accounting policies during the fiscal quarter ended December 31, 2014.

Results of Operations

Three Months Ended December 31, 2014 vs. December 31, 2013

Revenues

Total revenues for the three months ended December 31, 2014 were $497,000 as compared with $685,000 for the prior year period, a decrease of $188,000, or 27.4%.

Product sales of our biomaterials for the three months ended December 31, 2014 were $355,000 as compared with $425,000 for the prior year period, a decrease of $70,000, or 16.5%. The decrease is due to (i) delays in the shipment of product to a significant customer during the three month period ended December 31, 2014, which was shipped subsequent to December 31 ,2014; and (ii) the return of goods during the current quarter which were sold to a significant customer in a prior fiscal year.

During the three months ended December 31, 2014, we allowed a significant customer to return certain polymer products which were sold and shipped in a prior year (the “Returned Goods”) and paid for by the significant customer in a prior year. As a result, the significant customer was issued a sales credit/discount in the amount of the selling price of the polymer products, which was approximately $127,000. We also recorded a sales allowance of approximately $127,000 with respect to the Returned Goods. As a result, the product sales were reduced in our statement of operations for the three months ended December 31, 2014. It is expected that we will ship products to eliminate the sales discounts to this significant customer before the end of our fiscal year ending March 31, 2015.

Net of the effect of the Returned Goods, our total revenues for the three months ended December 31, 2014 would have been $624,000 as compared with $685,000 for the prior year period, a decrease of $61,000, or 8.9%. This decrease is a result of the decrease in license, royalty and development fees, primarily as a result of the completion of a non-exclusive license and consulting agreements, as amended, with an international developer and manufacturer of medical devices; which was offset by increased sales of product to existing and new customers.

Net of the effect of the Returned Goods, our product sales for the three months ended December 31, 2014 would have been $482,000 as compared with $425,000 for the prior year period, an increase of $57,000, or 13.4%. This increase in product sales is a result of continued growth in the sales of product to new and existing customers.

License, royalty and development fees for the three months ended December 31, 2014 were $142,000 as compared with $260,000 for the prior year period, a decrease of $118,000 or 45.4%. We have agreements to license our proprietary biomaterial technology to medical device manufacturers and develop biomaterials for incorporation into medical devices under development by our customers. Royalties are earned when these manufacturers sell medical devices which use our biomaterials.

The decrease in license, royalty and development fees is due primarily to the completion of an amendment to the non-exclusive license and consulting services agreements (the “Amended Agreements”) with a major international developer and manufacturer of medical devices (the “International Customer”) which previously resulted in quarterly fees of approximately $96,000. As of September 30, 2014, the International Customer met all of their obligations with respect to the Amended Agreements and there are no further payments due to us. There can be no assurances that we will receive any additional fees from the International Customer subsequent to September 30, 2014, nor can there be any assurances that these fees can be replaced through royalty and/or licensing arrangements with any other existing or prospective customers.

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Gross Profit

Gross profit on total revenues for the three months ended December 31, 2014 was $315,000, or 63.4% of total revenues, compared with $517,000, or 75.6% of total revenues, for the prior year period. Gross profit on product sales for the three months ended December 31, 2014 was $173,000, or 48.7% of product sales, compared with $257,000, or 60.1% of product sales, for the prior year period.

The inventory cost of the Returned Goods was approximately $25,000, which we recorded as an increase to our finished goods inventory as of December 31, 2014. Based on managements’ review of the Returned Goods, we concluded the likelihood of selling the Returned Goods to the significant customer, or any other customer, and the time frame within which said Returned Goods might be sold, were not determinable. Accordingly, an additional allowance for obsolete and excess inventory of approximately $25,000 was recorded for the three months ended December 31, 2014.

Net of the effect of the allowance for obsolete and excess inventory, which was provided for the Returned Goods, gross profit on total revenues for the three months ended December 31, 2014 would have been $467,000, or 74.8% of total revenues, compared with $517,000, or 75.6% of total revenues, for the prior year period. The decrease in gross profit dollars and gross profit as a percentage of total revenues is primarily due to the completion of certain non-exclusive license and consulting agreements, as amended, with an international developer and manufacturer of medical devices; which was offset by improved gross profit from the increased sales of product to existing and new customers.

Net of the effect of the allowance for obsolete and excess inventory, which was provided for the Returned Goods, gross profit on product sales for the three months ended December 31, 2014 would have been $325,000, or 67.4% of product sales, compared with $257,000, or 60.1% of product sales, for the prior year period. The increase in gross profit dollars and gross profit as a percentage of product sales is primarily due to the positive impact of increased absorption of fixed overhead costs resulting from the increase in product sales volume.

Research, Development and Regulatory Expenses

Research and development expenses for the three months ended December 31, 2014 were $84,000 as compared with $90,000 for the prior year period, a decrease of $6,000 or 6.7%. Our research and development efforts are focused on developing new applications for our biomaterials. Research and development expenditures consist primarily of the salaries of full time employees and related expenses, and are expensed as incurred. Research and development expenses have remained stable from quarter-to-quarter. Management believes its current research and development resources meet the needs of our customers and internal development needs.

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the three months ended December 31, 2014 were $325,000 as compared with $342,000 for the prior year period, a decrease of $17,000, or 5.0%. Selling, general and administrative expenses have remained stable from quarter-to-quarter. Management continues to evaluate costs to ensure both constraints and any other areas of improvement to our cost structure.

Other Expense, Net

Interest expense for the three months ended December 31, 2014 was $91,000 as compared to $88,000 for the comparable prior year period. During each of the three months ended December 31, 2014 and 2013, interest expense is composed primarily of $86,000 of interest accrued in connection with the financing obligation. During the three months ended December 31, 2014 and 2013, we also recorded interest expense of approximately $3,000 and $0, respectively, in connection with the August 22, 2013 Note and Warrant financing transaction. During the three months ended December 31, 2013, we recorded other income of $44,000 on i) the gain on sale of equipment of approximately $36,000, and ii) other income of approximately $9,000 from the favorable settlement of an obligation to one vendor.

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Nine Months Ended December 31, 2014 vs. December 31, 2013

Revenues

Total revenues for the nine months ended December 31, 2014 were $1,672,000 as compared with $1,748,000 for the prior year period, a decrease of $76,000, or 4.4%.

Product sales of our biomaterials for the nine months ended December 31, 2014 were $1,020,000 as compared with $1,145,000 for the prior year period, a decrease of $125,000, or 10.9%. The decrease is due to (i) delays in the shipment of product to a significant customer during the three month period ended December 31, 2014, which was shipped subsequent to December 31 ,2014; and (ii) the return of goods during the current quarter which were sold to a significant customer in a prior fiscal year.

During the nine months ended December 31, 2014, we allowed a significant customer to return certain polymer products which were sold and shipped in a prior year (the “Returned Goods”) and paid for by the significant customer in a prior year. As a result, the significant customer was issued a sales credit/discount in the amount of the selling price of the polymer products, which was approximately $127,000. We also recorded a sales allowance of approximately $127,000 with respect to the Returned Goods. As a result, the product sales were reduced in our statment of operations for the nine months ended December 31, 2014. It is expected that we will ship products to eliminate the sales discounts to this significant customer before the end of our fiscal year ending March 31, 2015.

License, royalty and development fees for the nine months ended December 31, 2014 were $652,000 as compared with $603,000 for the prior year period, an increase of $49,000 or 8.1%. We have agreements to license our proprietary biomaterial technology to medical device manufacturers and develop biomaterials for incorporation into medical devices under development by our customers. Royalties are earned when these manufacturers sell medical devices which use our biomaterials.

The increase in license, royalty and development fees is due primarily to increased fees from two of our customers.

Gross Profit

Gross profit on total revenues for the nine months ended December 31, 2014 was $1,052,000, or 62.9% of total revenues, compared with $1,197,000, or 68.5% of total revenues, for the prior year period. Gross profit on product sales for the nine months ended December 31, 2014 was $400,000, or 39.2% of product sales, compared with $594,000, or 51.9% of product sales, for the prior year period. The decrease in gross profit dollars and gross profit as a percentage of total revenues and product sales is primarily due to the impact of decreased absorption of fixed overhead costs resulting from the decrease in product sales volume.

Research, Development and Regulatory Expenses

Research and development expenses for the nine months ended December 31, 2014 were $277,000 as compared with $298,000 for the prior year period, a decrease of $21,000 or 7.1%. Our research and development efforts are focused on developing new applications for our biomaterials. Research and development expenditures consist primarily of the salaries of full time employees and related expenses, and are expensed as incurred. Research and development expenses have remained stable from quarter-to-quarter. Management believes its current research and development resources meet the needs of our customers and internal development needs.

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the nine months ended December 31, 2014 were $981,000 as compared with $1,080,000 for the prior year period, a decrease of $99,000, or 9.2%. The decrease is primarily due to reduction in administrative consulting costs, professional fees and board of director fees.

Other Expense, Net

Interest expense for the nine months ended December 31, 2014 was $287,000 as compared to $271,000 for the comparable prior year period. During the nine months ended December 31, 2014, interest expense is composed primarily of $259,000 of interest accrued in connection with the financing obligation as compared with $256,000 for the comparable prior year period. During the nine months ended December 31, 2014 and 2013, we also recorded accrued interest expense of approximately $11,000 and $0, respectively, in connection with the August 22, 2013 Note and Warrant financing transaction; and $12,000 and $10,000, respectively, in connection with the financing of certain facility lease obligations. During the nine months ended December 31, 2013, we recorded other income of $45,000 on i) the gain on sale of equipment of approximately $36,00, and ii) other income of approximately $8,000 from the favorable settlement of an obligation to one vendor.

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Liquidity and Capital Resources

As of December 31, 2014, we had cash of $11,000. This represents a decrease of $140,000, or 92.7%, as compared to a cash balance of $151,000 as of September 30, 2014; and a decrease of $257,000, or 95.9%, as compared to a cash balance of $268,000 as of March 31, 2014.

During the nine months ended December 31, 2014, we had net cash outflows of $257,000 from operating activities as compared with net cash outflows of $100,000 for the prior year period. Our uses of cash for operating activities have primarily consisted of salaries and wages for our employees, facility and facility-related costs, material and overhead costs used in production, laboratory supplies and materials, and professional fees. The sources of our cash flow from operating activities have consisted primarily of payments received from customers on the sale of polymer products and fees earned on license, royalty and development agreements. We used an additional $157,000 of net cash from operating activities as compared to the prior year period, primarily due to (i) the net loss incurred during the period; (ii) increased receivables from our customers; (iii) increased inventories, primarily representing production for shipments to be made in the fourth fiscal 2015 quarter; and iv) reduction of deferred revenues. These cash outflows were offset by (i) increases in accounts payable; (ii) increases in accrued expenses primarily related to period end payroll-related accruals and credit to a significant customer for returned polymer material; (iii) customer advance on future product shipments; and (iv) the effect of non-cash depreciation charges.

During the nine months ended December 31, 2014, we had no cash flows from investing activities. During the nine months ended December 31, 2013, we had cash inflow of $10,000 in connection with deposits on the building lease, and cash outflows of $45,000 in connection with the sale of non-essential equipment.

During the nine months ended December 31, 2014, we had no cash flows from financing activities. During the nine months ended December 31, 2013, we had cash inflows of $100,000 from the issuance of promissory notes, and cash outflows of $30,000 from the repayment of a related party payable.

There were no options or warrants exercised during the nine months ended December 31, 2014 and 2013, respectively. The ability to attract additional capital investments in the future will depend on many factors, including the availability of credit, rate of revenue growth, the expansion of selling and marketing and research and development activities, and the timing of new product introductions and enhancements to existing products. We believe that as of December 31, 2014 our cash position and cash flows from our fiscal 2015 operations will be sufficient to fund our working capital and research and development activities for at least the next twelve months.

Any potential future sale of equity or debt securities may result in dilution to our stockholders, and we cannot be certain that additional public or private financing will be available in amounts or on terms acceptable to us, or at all. If we are required to raise additional financing, but are unable to obtain such financing, we may be required to delay, reduce the scope of, or eliminate one or more aspects of our operations or business development activities.

Off-Balance Sheet Arrangements

As of December 31, 2014, 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.

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Item 3.

Quantitative and Qualitative Disclosures About Market Risk.

Not required pursuant to Item 305(e) of Regulation S-K.

Item 4.

Controls and Procedures

The certificates of the Company’s 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 the Company’s 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

The Company’s management, with the participation of the Company’s chief executive officer, evaluated the effectiveness of the Company’s disclosure controls and procedures as of December 31, 2014. 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 the Company in the reports that it files or submits 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 the evaluation of the Company’s disclosure controls and procedures as of December 31, 2014, the Company’s chief executive officer concluded that, as of such date, the Company’s disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control Over Financial Reporting

There were no changes to the Company’s internal control over financial reporting during the quarter ended December 31, 2014 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II.

OTHER INFORMATION

Item 1.

Legal Proceedings

We are not a party to any other legal proceedings, other than ordinary routine litigation incidental to our business, which we believe will not have a material affect on our financial position or results of operations.

Item 1A.

Risk Factors

There have not been any material changes from the risk factors previously disclosed under Item 1A of our Annual Report on Form 10-K for the year ended March 31, 2014.

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.

Item 6.

Exhibits

Exhibit No.	Description
31.1*	Certification of Principal Executive, Financial and Accounting Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*	Certification of Principal Executive, Financial and Accounting Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS**	XBRL Instance Document.
101.SCH**	XBRL Taxonomy Extension Schema Document.
101.CAL**	XBRL Taxonomy Extension Calculation Linkbase Document.
101.LAB**	XBRL Taxonomy Extension Label Linkbase Document.
101.PRE**	XBRL Taxonomy Extension Presentation Linkbase Document.
101.DEF**	XBRL Taxonomy Extension Definition Linkbase Document.

*

Included herewith.

**

Filed with this report in accordance with Rule 406T of Regulation S-T, the information in these exhibits shall not be deemed to be “filed” for purposes of Section 18 of the Exchange Act or otherwise subjected to liability under that section, and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act of 1933, as amended, except as expressly set forth by specific reference in such filing.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

AdvanSource Biomaterials Corporation
By:	/s/ Michael F. Adams
	Michael F. Adams President and Chief Executive Officer (Principal Executive, Financial and Accounting Officer)

Dated:  February 17, 2015

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EX-31.1

Exhibit 31.1

CERTIFICATION

I, Michael F. Adams, hereby certify that:

1.

I have reviewed this Quarterly Report on Form 10-Q of AdvanSource Biomaterials Corporation (the “Company”);

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.

Based on my knowledge, the condensed consolidated financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report;

4.

The Company's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have:

a.

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c.

Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d.

Disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the Company’s fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting; and

5.

The Company's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of the Company’s board of directors (or persons performing the equivalent functions):

a.

All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and

b.

Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.

Date: February 17, 2015

/s/ Michael F. Adams

Michael F. Adams

Chairman, Chief Executive Officer

(Principal Executive Officer)

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Michael F. Adams, hereby certify that:

1.

I have reviewed this Quarterly Report on Form 10-Q of AdvanSource Biomaterials Corporation (the “Company”);

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.

Based on my knowledge, the condensed consolidated financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report;

4.

The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have:

a.

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c.

Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d.

Disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the Company’s fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting; and

5.

The Company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of the Company’s board of directors (or persons performing the equivalent functions):

a.

All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and

b.

Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.

Date: February 17, 2015

/s/ Michael F. Adams

Michael F. Adams

Chairman, Chief Executive Officer

(Principal Financial and Accounting Officer)

EX-32.1

Exhibit 32.1

XML

Inventories (Details) (USD $)	Dec. 31, 2014
Details
Inventory, Raw Materials, Net of Reserves	$ 120
Inventory, Work in Process, Net of Reserves	52
Inventory, Finished Goods, Net of Reserves	243
Inventory Valuation Reserves	$ (234)

XML

Stock-Based Compensation

9 Months Ended

Dec. 31, 2014

Notes

Stock-Based Compensation

5.Equity-Based Compensation

Our 1996 Employee, Director and Consultants Stock Option Plan (the “1996 Plan”) was approved by the Board of Directors and Stockholders in March 1996. A total of 7,000,000 shares were reserved for issuance under the 1996 Plan. Under the terms of the 1996 Plan, the exercise price of Incentive Stock Options issued under the 1996 Plan must be equal to the fair market value of the common stock at the date of grant. In the event that Non Qualified Options are granted under the 1996 Plan, the exercise price may be less than the fair market value of the common stock at the time of the grant (but not less than par value). In October 2003, our shareholders approved the 2003 Stock Option Plan (the “2003 Plan”), which authorizes the issuance of 3,000,000 shares of common stock with terms similar to the 1996 Plan. In January 2006, we filed Form S-8 with the SEC registering an additional 489,920 total shares of common stock in the 1996 Plan and 2003 Plan. Total shares of common stock registered under the 1996 Plan and 2003 Plan (collectively, the “Plans”) are 10,489,920. Substantially all of the stock options granted pursuant to the 1996 Plan provide for the acceleration of vesting of the shares of common stock subject to such options in connection with certain changes in our control. A similar provision is not included in the 2003 Plan. Options granted expire ten years from the grant date. As of September 30, 2013, all Plans and shares not granted expired. As of 12/31/2014, there are no other equity incentive plans in place for the future issuance of our common stock.

Activity under the Plans for the nine months ended 12/31/2014 is as follows:

	Options Outstanding	Weighted-Average Exercise Price per Share	Weighted-Average Remaining Contractual Term in Years	Aggregate Intrinsic Value (in thousands)
Options outstanding as of 4/1/ 2014	2,615,750	$0.66
Granted	-	-
Exercised	-	-
Cancelled or forfeited	(150,000)	1.74
Options outstanding as of 12/31/2014 (unaudited)	2,465,750	0.60	4.46	$-
Options exercisable as of 12/31/2014 (unaudited)	2,127,625	0.68	3.79	$-
Options vested or expected to vest as of 12/31/2014 (unaudited)	2,465,750	0.609	4.46	$-

Our unaudited condensed statements of operations include equity-based compensation expense related to our stock option plans for employee and non-employee director awards in the amount of $2,000 and $4,000 for the three months ended 12/31/2014 and 12/31/2013, respectively; and $9,000 and $25,000 for the nine months ended 12/31/2014 and 12/31/2013, respectively. There was no income tax benefit related to these costs. As of 12/31/2014, the total amount of unrecognized equity-based compensation expense was approximately $17,000 which will be recognized over a weighted average period of 1.67 years.

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Long-term Financing Obligation (Details) (USD $)	0 Months Ended
	Dec. 22, 2011	Dec. 31, 2014	Mar. 31, 2014	Dec. 22, 2011
Details
Sale Leaseback Transaction, Date	12/22/2011
Long Lived Assets Held-for-sale, Proceeds from Sale				$ 2,000,000
Interest Portion of Minimum Lease Payments, Sale Leaseback Transactions		$ 144,000	$ 136,000

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Notes Payable (Details) (Loans Payable, USD $)	0 Months Ended
	Feb. 21, 2014	Dec. 31, 2014	Aug. 22, 2013
Loans Payable
Loans Payable		$ 50,000	$ 100,000
Debt Instrument, Interest Rate at Period End		1.75%	1.75%
Debt Instrument, Maturity Date	Feb. 21, 2014

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Concentrations of Credit Risk and Major Customers (Details) (USD $)	3 Months Ended		9 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2014	Dec. 31, 2013	Mar. 31, 2014
Details
Concentration Risk, Percentage	64.00%	72.00%	54.00%	71.00%
Fair Value, Concentration of Risk, Accounts Receivable	$ 216,000		$ 216,000		$ 72,000
Accrued Fees and Other Revenue Receivable	$ 77,000		$ 77,000		$ 73,000

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Related Party Transactions

9 Months Ended

Dec. 31, 2014

Notes

Related Party Transactions

4.Related Party Transactions

On 8/22/2013, Mr. Adams, our Chief Executive Officer, and David Volpe, our former Chief Financial Officer, participated along with three independent investors (collectively, the “Investors”) in an aggregate financing resulting in the issuance of $100,000 in promissory notes (see Note 11).  Messrs. Adams and Volpe each contributed approximately $13,000 in cash. In addition to the promissory notes, Messrs. Adams and Volpe also received warrants entitling them to exercise said warrants in 54,375 shares of our common stock at an exercise price of $0.075 per share (see Note 9). As of 12/31/2014 and 3/31/2014, the principle balance of the promissory notes was $50,000 in the aggregate, of which $12,500 in the aggregate was due to Messrs. Adams and Volpe.  All warrants issued in connection with this transaction expired on 8/21 2014.

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Condensed Balance Sheets (USD $) In Thousands, unless otherwise specified	Dec. 31, 2014		Mar. 31, 2014
Current assets
Cash	$ 11		$ 268
Accounts receivable-trade, net	257	[1]	122	[2]
Accounts receivable-other	77		73
Inventories, net	272		181
Prepaid expenses and other current assets	3		3
Total current assets	620		647
Property, plant and equipment, net	2,018		2,110
Deferred financing costs, net	81		86
Other assets	47		47
Total assets	2,766		2,890
Current liabilities
Accounts payable	298		231
Accrued expenses	478		243
Customer advance	77
Notes payable	50		50
Capital lease obligation	13
Deferred revenue	65		105
Total current liabilities	981		629
Long-term liabilities
Long-term financing obligation	1,986		1,986
Accrued interest on financing obligation	144		136
Total long-term liabilities	2,130		2,122
Total liabilities	3,111		2,751
Commitments and contingencies
Stockholders' equity
Preferred stock		[3]		[4]
Common stock	21	[5]	21	[6]
Additional paid-in capital	38,059		38,050
Accumulated deficit	(38,395)		(37,902)
Treasury stock	(30)	[7]	(30)	[8]
Total stockholders' equity	(345)		139
Total liabilities and stockholders' equity	$ 2,766		$ 2,890

[1] Net of allowance of $5 as of 12/31/2014.

[2] Net of allowance of $5 as 3/31/2014.

[3] $.001 par value, 5,000,000 shares authorized; no shares issued and outstanding as of 12/31/2014.

[4] $.001 par value, 5,000,000 shares authorized; no shares issued and outstanding as of 3/31/2014.

[5] $.001 par value, 50,000,000 shares authorized; 21,567,313 shares issued and 21,490,621 shares outstanding as of 12/31/2014.

[6] $.001 par value, 50,000,000 shares authorized; 21,567,313 shares issued and 21,490,621 shares outstanding as of 3/31/2014.

[7] 76,692 shares at cost at 12/31/2014.

[8] 76,692 shares at cost at 3/31/2014.

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Interim Financial Statements and Basis of Presentation

9 Months Ended

Dec. 31, 2014

Notes

Interim Financial Statements and Basis of Presentation

2.Interim Financial Statements and Basis of Presentation

The accompanying unaudited condensed 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 condensed 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 condensed 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 nine months ended 12/31/2014 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 year ended 3/31/2014 as filed with the Securities and Exchange Commission (the “SEC”).

Our significant accounting policies are described in Note B to the consolidated financial statements included in Item 8 of our annual report on Form 10-K as of 3/31/2014.

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 condensed 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 revenues and expenses that are not readily apparent from other sources. Actual results could differ from those estimates and judgments. In particular, significant estimates and judgments include those related to revenue recognition, allowance for doubtful accounts, inventory reserves, useful lives and valuation of property and equipment.

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Property, Plant and Equipment: Property, Plant and Equipment (Tables)

9 Months Ended

Dec. 31, 2014

Tables/Schedules

Property, Plant and Equipment

(in thousands)	12/31/2014 (unaudited)	3/31/2014
Land	$500	$500
Building	2,705	2,705
Machinery, equipment and tooling	1,214	1,214
Furniture, fixtures and office equipment	285	285
Office equipment under capital lease	13	-
	4,717	4,704
Less:  accumulated depreciation	(2,699)	(2,594)
	$2,018	$2,110

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Stock-Based Compensation (Details) (USD $)	3 Months Ended		9 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2014	Dec. 31, 2013
Details
Share-based Compensation	$ 2,000	$ 4,000	$ 9,000	$ 25,000

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New Accounting Pronouncements

9 Months Ended

Dec. 31, 2014

Notes

New Accounting Pronouncements

3.New Accounting Pronouncement

We have evaluated all issued but not effective accounting pronouncements and determined that, other than the following,  they are either immaterial or not relevant to us.

In June 2014, the Financial Accounting Standards Board (“FASB”) and the International Accounting Standards Board jointly issued an exposure draft (“ED”), Revenue from Contracts with Customers. The ED was released by the FASB as a proposed Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers”. The update gives entities a single comprehensive model to use in reporting information about the amount and timing of revenue resulting from contracts to provide goods or services to customers. The proposed ASU, which would apply to any entity that enters into contracts to provide goods or services, would supersede the revenue recognition requirements in Topic 605, Revenue Recognition, and most industry-specific guidance throughout the Industry Topics of the Codification. Additionally, the update would supersede some cost guidance included in Subtopic 605-35, Revenue Recognition – Construction-Type and Production-Type Contracts. The update removes inconsistencies and weaknesses in revenue requirements and provides a more robust framework for addressing revenue issues and more useful information to users of financial statements through improved disclosure requirements. In addition, the update improves comparability of revenue recognition practices across entities, industries, jurisdictions, and capital markets and simplifies the preparation of financial statements by reducing the number of requirements to which an entity must refer. The update is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. It is not anticipated that this updated guidance will have a material impact on our results of operations, cash flows or financial condition.

In August 2014, the FASB issued Accounting Standards Update “ASU” 2014-15 on “Presentation of Financial Statements Going Concern (Subtopic 205-40) – Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern”. Currently, there is no guidance in U.S. GAAP about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern or to provide related footnote disclosures. The amendments in this Update provide that guidance. In doing so, the amendments are intended to reduce diversity in the timing and content of footnote disclosures. The amendments require management to assess an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards. Specifically, the amendments (1) provide a definition of the term substantial doubt, (2) require an evaluation every reporting period including interim periods, (3) provide principles for considering the mitigating effect of management’s plans, (4) require certain disclosures when substantial doubt is alleviated as a result of consideration of management’s plans, (5) require an express statement and other disclosures when substantial doubt is not alleviated, and (6) require an assessment for a period of one year after the date that the financial statements are issued (or available to be issued). The amendments in this Update are effective for public and nonpublic entities for annual periods ending after December 15, 2016. Early adoption is permitted. It is not anticipated that this guidance will have a material impact on our results of operations, cash flows or financial condition.

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Condensed Statements of Operations (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2014	Dec. 31, 2013
Revenues
Product sales	$ 355	$ 425	$ 1,020	$ 1,145
License, royalty and development fees	142	260	652	603
Total revenues	497	685	1,672	1,748
Cost of sales	182	168	620	551
Gross profit	315	517	1,052	1,197
Operating expenses
Research, development and regulatory	84	90	277	298
Selling, general and administrative	325	342	981	1,080
Total operating expenses	409	432	1,258	1,378
Income (loss) from operations	(94)	85	(206)	(181)
Interest and other expenses
Interest expense	91	88	287	271
Other income		(44)		(45)
Total interest and other expense	91	44	287	226
Net income (loss)	$ (185)	$ 41	$ (493)	$ (407)
Net income (loss) per common share, basic and diluted	$ (0.01)	$ 0.00	$ (0.02)	$ (0.02)
Shares used in computing net income (loss) per common share, basic	21,491	21,491	21,491	21,491
Shares used in computing net income (loss) per common share, diluted	21,491	21,491	21,491	21,491

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Contingencies

9 Months Ended

Dec. 31, 2014

Notes

Contingencies

13.Contingencies

We are not a party to any legal proceedings, other than ordinary routine litigation incidental to our business, which we believe will not have a material affect on our financial position or results of operations.

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Document and Entity Information (USD $)	9 Months Ended
	Dec. 31, 2014	Feb. 17, 2015	Sep. 30, 2014
Document and Entity Information:
Entity Registrant Name	Advansource Biomaterials Corp
Document Type	10-Q
Document Period End Date	Dec. 31, 2014
Amendment Flag	false
Entity Central Index Key	0001011060
Current Fiscal Year End Date	--03-31
Entity Common Stock, Shares Outstanding		21,490,621
Entity Public Float			$ 852,417
Entity Filer Category	Smaller Reporting Company
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Well-known Seasoned Issuer	No
Document Fiscal Year Focus	2015
Document Fiscal Period Focus	Q3

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Concentrations of Credit Risk and Major Customers

9 Months Ended

Dec. 31, 2014

Notes

Concentrations of Credit Risk and Major Customers

14.Concentrations of Credit Risk and Major Customers

For the three months ended 12/31/2014, three customers represented 64% of our total revenues. For the three months ended 12/31/2013, three customers represented 72% of our total revenues.

For the nine months ended 12/31/2014, three customers represented 54% of our total revenues. For the nine months ended 12/31/2013, three customers represented 71% of our total revenues.

As of 12/31/2014, we had accounts receivable-trade, net, of $216,000, or 84%, due from two customers. As of 3/31/2014, we had accounts receivable-trade, net, of $72,000, or 59%, due from three customers.

As of 12/31/2014, we had $77,000 due from two customers related to receivables on royalties, license and annual usage fees. As of 3/31/2014, we had $73,000 due from two customers related to receivables on royalties, license and annual usage fees. These amounts are classified as accounts receivable-other in the accompanying condensed balance sheets.

During the three and nine months ended 12/31/2014 and 12/31/2013, we received approximately $78,000 from one major customer as a deposit on product to be shipped subsequent to 12/31/2014. The deposit was recorded as customer advance in the condensed balance sheet.

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Condensed Statements of Cash Flows (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Dec. 31, 2014	Dec. 31, 2013
Cash flows from operating activities
Net income (loss)	$ (493)	$ (407)
Adjustments to reconcile net loss to net cash flows used in operating activities:
Depreciation	105	137
Amoritization of deferred financing costs	5	5
Provision for inventory reserve	25
Stock-based compensation	9	35
Gain on sale of equipment		(36)
Changes in assets and liabilities:
(Increase) decrease in accounts receivable-trade	(135)	(16)
(Increase) decrease in accounts receivable-other	(4)	126
(Increase) decrease in inventories	(116)	(120)
(Increase) decrease in prepaid expenses and other current assets		(10)
Increase (decrease) in accounts payable	67	(28)
Increase (decrease) in accrued expenses	243	76
Increase (decrease) in customer advance	77
Increase (decrease) in deferred revenue	(40)	138
Net cash flows provided by (used in) operating activities	(257)	(100)
Cash flows from investing activities
Sale of equipment		45
Increase in other assets		(10)
Net cash flows provided by (used in) investing activities		35
Cash flows from financing activities
Proceeds from issuance of promissory note		100
Repayment of related party payable		(30)
Net cash flows provided by (used in) financing activities		70
Net change in cash	(257)	5
Cash at beginning of period	268	103
Cash at end of period	11	108
Supplemental disclosures of cash flow information
Interest paid	196	210
Purchase of equipment on capital lease	$ 13

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Loss Per Share

9 Months Ended

Dec. 31, 2014

Notes

Loss Per Share

8.Income (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 are 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. At 12/31/2014 and 12/31/2013, potentially dilutive shares of 2,685,048 and 3,270,048 , respectively, were excluded from the diluted loss per share calculations because their effect would be antidilutive or the options exercise prices were greater than the average market price of the common shares. Shares deemed to be antidilutive include stock options and warrants issuable upon exercise.

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Property, Plant and Equipment

9 Months Ended

Dec. 31, 2014

Notes

Property, Plant and Equipment

7.      Property, Plant and Equipment

Property, plant and equipment consists of the following:

(in thousands)	12/31/2014 (unaudited)	3/31/2014
Land	$500	$500
Building	2,705	2,705
Machinery, equipment and tooling	1,214	1,214
Furniture, fixtures and office equipment	285	285
Office equipment under capital lease	13	-
	4,717	4,704
Less:  accumulated depreciation	(2,699)	(2,594)
	$2,018	$2,110

For the three months ended 12/31/2014 and 12/31/2013, depreciation expense was $22,000 and $446,000, respectively. For the nine months ended 12/31/2014 and 12/31/2013, depreciation expense was $105,000 and $137,000, respectively.

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Stock-Based Compensation: Schedule of Share-Based Compensation Activity (Details) (Employee Stock Option, USD $)	9 Months Ended
	Dec. 31, 2014
Employee Stock Option
Disclosure of Share-based Compensation Arrangements by Share-based Payment Award	1.74
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number, Beginning Balance	2,615,750
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Exercise Price, Beginning Balance	$ 0.66
Share-based Compensation Arrangement by Share-based Payment Award, Options, Expirations in Period	(150,000)
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number, Ending Balance	2,465,750
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Exercise Price, Ending Balance	$ 0.60
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Intrinsic Value	$ 4.46
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercisable, Number	2,127,625
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercisable, Weighted Average Exercise Price	$ 0.68
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercisable, Intrinsic Value	3.79
Share-based Compensation Arrangement by Share-based Payment Award, Options, Vested and Expected to Vest, Outstanding, Number	2,465,750
Share-based Compensation Arrangement by Share-based Payment Award, Options, Vested and Expected to Vest, Outstanding, Weighted Average Exercise Price	$ 0.609
Share-based Compensation Arrangement by Share-based Payment Award, Options, Vested and Expected to Vest, Outstanding, Aggregate Intrinsic Value	$ 4.46

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Subsequent Events

9 Months Ended

Dec. 31, 2014

Notes

Subsequent Events

15.Subsequent Events

We evaluated all events or transactions that occurred after the balance sheet date through the date when we issued these unaudited condensed financial statements. During this period, we did not have any material recognizable subsequent events.

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Notes Payable

9 Months Ended

Dec. 31, 2014

Notes

Notes Payable

11.Notes Payable

On 8/22/2013, we entered into Promissory Notes in the aggregate principal amount of $100,000 (the “Notes”) with three shareholders and our chief executive officer and chief financial officer (the “Investors”). The Notes have a six-month term, bear interest at the rate of 1.75% per month and all principal and accrued interest, if any, is due and payable on or before 2/21/2014. In lieu of cash payment of interest, the Investors chose to receive Warrants exercisable into an aggregate 435,000 shares of our common stock. The Warrants have a one-year term and are exercisable at a 150% premium over the closing price of our common stock as of 8/21/2013, or $0.075 per share (see Note 9). The Notes are secured by accounts receivable from certain customers.

As of 12/31/2014, the principle balance of $50,000 remained outstanding and the Investors waived any event of default with respect to repayment of the Notes through 7/2/2015. In addition, the Promissory Notes provided for the accrual of additional interest at the rate of 2.0% per month. During the three and nine months ended 12/31/2014, we recorded interest expense of approximately $3,000 and $9,000, respectively, with respect to the Notes. As of 12/31/2014, accrued interest of approximately $11,000 was recorded and is included in accrued expenses in the condensed balance sheet.

These warrants expired on 8/21/2014 and there were no warrants outstanding in connection with this transaction as of 12/31/2014.

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Stockholders' Equity

9 Months Ended

Dec. 31, 2014

Notes

Stockholders' Equity

9.Stockholders’ Equity

Common Stock and Warrants

On 3/31/2008, we issued warrants to purchase 219,298 shares of our common stock in connection with the disposition of one of our subsidiaries. These warrants are exercisable at a price of $0.874 per share and expire on March 31, 2015. At 12/31/2014 and 3/31/2014, all of these warrants were outstanding.

On 8/22/ 2013, we entered into Promissory Notes in the aggregate principal amount of $100,000 (the “Notes”) with three shareholders and our chief executive officer and chief financial officer (the “Investors”). The Notes have a six-month term, bear interest at the rate of 1.75% per month and all principal and accrued interest, if any, is due and payable on or before 2/21/2014. In lieu of cash payment of interest, the Investors chose to receive Warrants exercisable into an aggregate 435,000 shares of our common stock. The Warrants have a one-year term and are exercisable at a 150% premium over the closing price of our common stock as of 8/21/2013, or $0.075 per share. The Notes are secured by accounts receivable from certain customers. These warrants expired on 8/21/2014 and there were no warrants outstanding in connection with this transaction as of 12/31/2014.

Employee Stock Purchase Plan

There were no shares of our common stock issued pursuant to the Employee Stock Purchase Plan (the “ESP Plan”) as of 12/31/2014 as all 500,000 shares authorized under the ESP Plan have been issued.

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Income Taxes

9 Months Ended

Dec. 31, 2014

Notes

Income Taxes

10.Income Taxes

The provision for income taxes includes federal, state, local and foreign taxes. Income taxes are accounted for under the liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences of temporary differences between the financial statement carrying amounts and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the year in which the temporary differences are expected to be recovered or settled. We evaluate the realizability of our deferred tax assets and establishes a valuation allowance when it is more likely than not that all or a portion of deferred tax assets will not be realized. A valuation allowance has been recorded to offset all deferred tax assets due to uncertainty of realizing the tax benefits of the underlying operating loss and tax credit carry forwards over their carry forward periods. We have no significant deferred tax liabilities as of 12/31/2014 and 3/31/2014.

We account for uncertain tax positions using a “more-likely-than-not” threshold for recognizing and resolving uncertain tax positions. The evaluation of uncertain tax positions is based on factors including, but not limited to, changes in tax law, the measurement of tax positions taken or expected to be taken in tax returns, the effective settlement of matters subject to audit, new audit activity and changes in facts or circumstances related to a tax position. We evaluate this tax position on a quarterly basis. We also accrue for potential interest and penalties, if applicable, related to unrecognized tax benefits in income tax expense. As of 12/31/2014 and 3/31/2014, we had no material unrecognized tax benefits and no adjustments to liabilities or operations were required.

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Long-term Financing Obligation

9 Months Ended

Dec. 31, 2014

Notes

Long-term Financing Obligation

12.   Long-Term Financing Obligation

On 12/22/2011, we entered into an agreement with an independent third-party under which we sold and leased back our land and building generating gross proceeds of $2,000,000. Pursuant to a lease agreement, the initial minimum lease term is 15 years. At the end of the initial minimum lease term, we have the option to renew the lease for three periods of five years each. In addition, we provided, as collateral, a security interest in all furnishings, fixtures and equipment owned and used by us, having a net book value of approximately $28,000 as of 12/31/2014. For accounting purposes, the provision of such collateral constitutes continuing involvement with the associated property. Due to this continuing involvement, this sale-leaseback transaction is accounted for under the financing method, rather than as a completed sale. Under the financing method, we include the sales proceeds received as a financing obligation. As of 12/31/2014 and 3/31/2014, the total financing obligation was $1,986,000, respectively, and accrued interest on financing obligation was $144,000 and $136,000, respectively. Through December 2018, interest on the financing obligation exceeds the minimum lease payments, accordingly the principal remains constant through that date. After December 2018, the minimum lease payment will exceed interest and principal will be reduced by the excess of minimum lease payment over interest. The building, building improvements and land remain on the condensed balance sheet and the building and building improvements will continue to be depreciated over their remaining useful lives. Payments made under the lease are applied as payments of imputed interest and deemed principal on the underlying financing obligation.

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Stock-Based Compensation: Schedule of Share-Based Compensation Activity (Tables)

9 Months Ended

Dec. 31, 2014

Tables/Schedules

Schedule of Share-Based Compensation Activity

	Options Outstanding	Weighted-Average Exercise Price per Share	Weighted-Average Remaining Contractual Term in Years	Aggregate Intrinsic Value (in thousands)
Options outstanding as of 4/1/ 2014	2,615,750	$0.66
Granted	-	-
Exercised	-	-
Cancelled or forfeited	(150,000)	1.74
Options outstanding as of 12/31/2014 (unaudited)	2,465,750	0.60	4.46	$-
Options exercisable as of 12/31/2014 (unaudited)	2,127,625	0.68	3.79	$-
Options vested or expected to vest as of 12/31/2014 (unaudited)	2,465,750	0.609	4.46	$-

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Property, Plant and Equipment: Property, Plant and Equipment (Details) (USD $)	Dec. 31, 2014	Mar. 31, 2014
Details
Land	$ 500	$ 500
Buildings and Improvements, Gross	2,705	2,705
Machinery and Equipment, Gross	1,214	1,214
Furniture and Fixtures, Gross	285	285
Debt and Capital Lease Obligations	13
Accumulated Depreciation, Depletion and Amortization, Property, Plant, and Equipment	(2,699)	(2,594)
Property, plant and equipment, net	$ 2,018,000	$ 2,110,000

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Description of Business

9 Months Ended

Dec. 31, 2014

Notes

Description of Business

1.      Description of Business

AdvanSource Biomaterials Corporation develops advanced polymer materials which provide critical characteristics in the design and development of medical devices. Our biomaterials are used in devices that are designed for treating a broad range of anatomical sites and disease states. Our business model leverages our proprietary materials science technology and manufacturing expertise in order to expand product sales and royalty and license fee income.

Our technology, notably products such as ChronoFlex®, HydroMed , and HydroThane , which have been developed to overcome a wide range of design and functional challenges, such as the need for dimensional stability, ease of manufacture and demanding physical properties to overcoming environmental stress cracking and providing heightened lubricity for ease of insertion. Our new product extensions customize proprietary polymers for specific customer applications in a wide range of device categories.

Our corporate, development and manufacturing operations are located in our leased facility in Wilmington, Massachusetts.

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Inventories

9 Months Ended

Dec. 31, 2014

Notes

Inventories

6.Inventories

Inventories, net, are stated at the lower of cost (first in, first out) or market and consist of the following:

(in thousands)	12/31/2014 (unaudited)	3/31/2014
Raw materials	$113	$120
Work in progress	50	52
Finished goods	332	243
	495	415
Less: allowance for obsolete and excess inventory	(223)	(234)
Total inventories, net	$272	$181

During the three months ended December 31, 2014, we allowed a significant customer to return certain polymer products which were sold and shipped in a prior year (the “Returned Goods”) and paid for by the significant customer in a prior year. As a result, the significant customer was issued a credit in the amount of the selling price of the polymer products, which was approximately $127,000. Accordingly, we recorded a current liability in the approximate amount of $127,000, as an effective sales/credit discount to the future sales to this significant customer. Such sales credit is included in accrued expenses in our condensed balance sheet as of December 31, 2014. We also recorded a sales allowance of $127,000 with respect to the Returned Goods, which is recorded in product sales in our statement of operations for the three and nine months ended December 31, 2014. It is expected that we will ship products to eliminate the sales discount to this significant customer before our fiscal year ending March 31, 2015.

The inventory cost of the Returned Goods was approximately $25,000 and was recorded as an increase to our finished goods inventory as of December 31, 2014. Based on managements’ review of the Returned Goods, we concluded the likelihood of selling a large amount of the Returned Goods within the near term was not determinable. Accordingly, an additional allowance for the excess inventory of approximately $25,000 was recorded as of December 31, 2014.

We have no history of having allowed for a product return prior to this date and we have not changed our policy for future returns by customers once the customer has accepted delivery of the product..

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Stockholders' Equity (Details)	Dec. 31, 2014	Mar. 31, 2014
Details
Class of Warrant or Right, Number of Securities Called by Warrants or Rights	219,298	219,298

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Interim Financial Statements and Basis of Presentation: Significant Accounting Policies (Policies)

9 Months Ended

Dec. 31, 2014

Policies

Significant Accounting Policies

Our significant accounting policies are described in Note B to the consolidated financial statements included in Item 8 of our annual report on Form 10-K as of 3/31/2014.