NOTE

- SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of ADM Tronics Unlimited, Inc. and its wholly owned subsidiary Sonotron (the “Company”). All significant intercompany balances and transactions have been eliminated in consolidation.

USE OF ESTIMATES

These consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and, accordingly, require management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. Significant estimates made by management include expected economic life and value of our deferred tax assets and related valuation allowance, write down of inventory, impairment of long-lived assets, allowance for doubtful accounts, and warranty reserves. Actual amounts could differ from those estimates.

FAIR VALUE OF FINANCIAL INSTRUMENTS

For certain of our financial instruments, including accounts receivable, accounts payable, and accrued expenses, the carrying amounts approximate fair value due to their relatively short maturities.

CASH AND CASH EQUIVALENTS

Cash equivalents are comprised of certain highly liquid investments with original maturities of

three

months or less when purchased. We maintain our cash in bank deposit accounts, which at times,

may

exceed federally insured limits. We have

not

experienced any losses to date as a result of this policy. Cash and cash equivalents held in these accounts are currently insured by the Federal Deposit Insurance Corporation (“FDIC”) up to a maximum of

$250,000

per institution. At

March 31, 2020,

approximately

$1,293,000

exceeded the FDIC limit.

ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS

Accounts receivable are stated at the amount management expects to collect from outstanding balances. The carrying amounts of accounts receivable is reduced by a valuation allowance that reflects management's best estimate of the amounts that will

not

be collected. Management individually reviews all accounts receivable balances that exceed the due date and estimates the portion, if any, of the balance that will

not

be collected. Management provides for probable uncollectible amounts through a charge to expenses and a credit to a valuation allowance, based on its assessment of the current status of individual accounts. Balances that are still outstanding after management has used reasonable collection efforts are written off through a charge to the valuation allowance and a credit to accounts receivable. Allowance for doubtful accounts was increased for the fiscal year ended

March 31, 2020

$225,000,

compared to

$160,000

March 31, 2019.

REVENUE RECOGNITION

ELECTRONICS:

We recognize revenue from the sale of our electronic products when they are shipped to the purchaser. We offer a limited

-day warranty on our electronics products and contract manufacturing and a limited

-year warranty on our electronic controllers for spas and hot tubs. Historically, the amount of warranty revenue included in sales of our electronic products have been de minimus. We have

other post shipment obligations. Based on prior experience,

amounts have been accrued for potential warranty costs and actual costs were less than

$2,000

for each of the fiscal years ended

March 31, 2020

and

2019.

For contract manufacturing, revenues are recognized after shipment of the completed products.

Amounts received from customers in advance of our satisfaction of applicable performance obligations are recorded as customer deposits. Such amounts are recognized as revenues when the related performance obligations are satisfied. Customer deposits of approximately

$216,000

as of

March 31, 2019

were recognized as revenues during the year ended

March 31, 2020.

CHEMICAL PRODUCTS:

Revenues are recognized when products are shipped to end users. Shipments to distributors are recognized as revenue when

right of return exists.

ENGINEERING SERVICES

We provide certain engineering services, including research, development, quality control and quality assurance services along with regulatory compliance services. We recognize revenue from engineering services on a monthly basis over time as the applicable performance obligations are satisfied.

All revenue is recognized net of discounts.

WARRANTY LIABILITIES

The Company’s provision for estimated future warranty costs is based upon historical relationship of warranty claims to sales. Based upon historical experience, the Company has concluded that

warranty liability is required as of the consolidated balance sheet dates. However, the Company periodically reviews the adequacy of its product warranties and will record an accrued warranty reserve if necessary.

INVENTORIES

Inventories are stated at the lower of cost (

first

-in,

first

-out method) and net realizable value. Inventories that are expected to be sold within

one

operating cycle (

year) are classified as a current asset. Inventories that are

not

expected to be sold within

year, based on historical trends, are classified as Inventories - long term portion. Obsolete inventory is written off annually based on prior and expected future usage.

PROPERTY AND EQUIPMENT

We record our property and equipment at historical cost. We expense maintenance and repairs as incurred. Depreciation is provided for by the straight-line method over

five

seven

years, the estimated useful lives of the property and equipment.

INTANGIBLE ASSETS

Intangible assets are reviewed for impairment annually whenever changes in circumstances indicate that the carrying amount

may

not

be recoverable. In reviewing for impairment, the Company compares the carrying value of the relevant asset to the estimated undiscounted future cash flows expected from the use of the assets and their eventual disposition. When the estimated undiscounted future cash flows are less than their carrying amount, an impairment loss is recognized equal to the difference between the assets’ fair value and its carrying value.

ADVERTISING COSTS

Advertising costs are expensed as incurred and amounted to

$41,353

and

$59,877

for the fiscal years ended

March 31, 2020

and

2019,

respectively.

SHIPPING AND HANDLING COSTS

Shipping and handling costs incurred for the years ended

March 31, 2020

and

2019

were approximately

$3,153

and

$3,754,

respectively. Such costs are included in selling, general, and administrative expenses in the accompanying consolidated statements of operations.

INCOME TAXES

We report the results of our operations as part of a consolidated Federal tax return with our subsidiary. Deferred income taxes result primarily from temporary differences between financial and tax reporting. Deferred tax assets and liabilities are determined based on the difference between the financial statement basis and tax basis of assets and liabilities using enacted tax rates. A valuation allowance is recorded to reduce a deferred tax asset to that portion that is expected to more likely than

not

be realized.

The Company has adopted the authoritative accounting guidance with respect to accounting for uncertainty in income taxes, which clarified the accounting and disclosures for uncertain tax positions related to income taxes recognized in the consolidated financial statements and addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the consolidated financial statements. The Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than

not

sustain the position following an audit. For tax positions meeting the more-likely-than-

not

threshold, the amount recognized in the consolidated financial statements is the largest benefit that has a greater than

percent likelihood of being realized upon ultimate settlement with the relevant tax authority.

The Company files income tax returns in several jurisdictions. The Company’s tax returns remain subject to examination, by major jurisdiction, for the years ended

March 31,

as follows:

Jurisdiction	Fiscal Year
Federal	2015 and beyond
New Jersey	2014 and beyond

There are currently

tax years under examination by any major tax jurisdictions.

The Company will recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. As of

March 31, 2020,

and

2019,

the Company has

accrued interest or penalties related to uncertain tax positions.

NET EARNINGS PER SHARE

We compute basic earnings per share by dividing net income/loss by the weighted average number of common shares outstanding. Diluted earnings per share is computed similar to basic earnings per share, except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential shares had been issued and if the additional shares were dilutive. Common equivalent shares are excluded from the computation of net earnings per share if their effect is anti-dilutive.

Per share basic and diluted (loss) amounted to (

$0.00

) and $(

0.01

) for the fiscal years ended

March 31, 2020

and

2019,

respectively.

RECLASSIFICATION

Certain items in the prior financial statements have been reclassified to conform to the current year presentation.

RECENT ACCOUNTING PRONOUNCEMENTS

Lease Accounting

. In

February 2016,

the Financial Accounting Standards Board (“FASB”) issued authoritative guidance which changes financial reporting as it relates to leasing transactions. Under the new guidance, lessees are required to recognize a lease liability, measured on a discounted basis; and a right-of-use asset, for the lease term. The Company adopted this guidance as of

April 1, 2019,

using the modified retrospective approach which allowed it to initially apply the guidance as of the adoption date. The Company elected the package of practical expedients available under the new standard, which allowed the Company to forgo a reassessment of (

) whether any expired or existing contracts are or contain leases, (

) the lease classification for any expired or existing leases, and (

) the initial direct costs for any existing leases.

The Company made a policy election to recognize short-term lease payments as an expense on a straight-line basis over the lease term. The Company defines a short-term lease as a lease that, at the commencement date, has a lease term of

twelve

months or less and does

not

contain an option to purchase the underlying asset that the lease is reasonably certain to exercise. Related variable lease payments are recognized in the period in which the obligation is incurred.

The Company's lease agreement contains related non-lease components (e.g. taxes, etc.). The Company separates lease components and non-lease components for all underlying asset classes.

The adoption of this guidance had a material impact on the Company's Condensed Consolidated Balance Sheet beginning

April 1, 2019

when the Company recognized (a) a lease liability of

$771,098,

which represents the present value of the remaining lease payments of

$967,344,

discounted using the Company's incremental borrowing rate of

and (b) the related right-of-use asset of

$771,098

which represents the lease liability. Prior periods were

not

restated. Adoption of this standard had

change on financing leases previously subject to capital lease treatment under ASC Topic

840,

Leases. See Note

for further discussion of leases.

June 2016,

the FASB issued ASU-

2016

“Financial Instruments – Credit Losses”. This guidance affects organizations that hold financial assets and net investments in leases that are

not

accounted for at fair value with changes in fair value reported in net income. The guidance requires organizations to measure all expected credit losses for financial instruments at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts. It is effective for fiscal years beginning after

December 15, 2019.

The Company is evaluating the potential impact on the Company’s consolidated financial statements.

Management does

not

believe that any other recently issued, but

not

yet effective accounting pronouncement, if adopted, would have a material effect on the accompanying consolidated financial statements.