NOTE

- SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of ADM Tronics Unlimited, Inc. and its subsidiary Sonotron. 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 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, valuation allowance, impairment of long lived assets, fair value of equity instruments for services, 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, accrued expenses, and notes payable – bank, 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 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.

March 31, 2017,

approximately

1,659,000

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.

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 a limited

-year warranty on our electronic controllers for spas and hot tubs. 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, 2017

and

2016.

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

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 as the services are provided.

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.

RESTRICTED CASH

Restricted cash represents funds on deposit with a financial institution that secures the bank note payable. The bank note payable was paid-off in

2017

and accordingly, there is

restricted cash.

INVENTORIES

Inventories are stated at the lower of cost (

first

-in,

first

-out method) or market. 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.

PROPERTY & 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 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

$46,129

and

$32,124

for the fiscal years ended

March 31, 2017

and

2016,

respectively.

SHIPPING AND HANDLING COSTS

Shipping and handling costs incurred for the years ended

March 31, 2017

and

2016

were approximately

$6,092

and

$11,831,

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

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 bases and tax bases 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	2013 and beyond
New Jersey	2012 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, 2017

and

2016,

the Company has

accrued interest or penalties related to uncertain tax positions.

NET INCOME/LOSS PER SHARE

We compute basic income/loss per share by dividing net income/loss by the weighted average number of common shares outstanding. Diluted income/loss per share is computed similar to basic income/loss 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 income/loss per share if their effect is anti-dilutive.

Per share basic and diluted net income amounted to

$0.02

and

$0.02

for the fiscal years ended

March 31, 2017

and

2016,

respectively.

RECLASSIFICATION

Certain items in the

2016

consolidated financial statements have been reclassified to conform to the current year presentation.

RECENT ACCOUNTING PRONOUNCEMENTS

March 2016,

the FSAB issued ASU

2016

09,

“Improvement to Employee Share-Based Payment Accounting.” The new guidance will require entities to recognize all income tax effects of awards in the income statement when the awards vest or are settled. It also will allow an employer to repurchase more of an employee’s shares than it can today for tax withholding purposes without triggering liability accounting and to make a policy election to account for forfeitures as they occur. For public business entities, the guidance is effective for fiscal years beginning after

December 15, 2016

and interim periods within those years. For all other entities, it is effective for fiscal years beginning

December 15, 2017,

and interim periods within fiscal years beginning after

December 15, 2018.

Early adoption is permitted, but all of the guidance must be adopted in the same period. The Company is still evaluating the potential impact on the Company’s financial statements.

February 25, 2016,

the Financial Accounting Standards Board (FASB) issued ASU

2016

“Leases” (Topic

842

), which is intended to improve financial reporting for lease transactions. This ASU will require organizations that lease assets, such as real estate and manufacturing equipment, to recognize on assets and liabilities on their balance sheet for the rights to use those assets for the lease term and obligations to make lease payments created by those leases that have terms of greater than

months. The recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification as finance or operating lease. This ASU will also require disclosures to help investors and other financial statement users better understand the amount and timing of cash flows arising from leases. These disclosures will include qualitative and quantitative requirements, providing additional information about the amounts recorded in the financial statements. This ASU will be effective for public entities beginning the

first

quarter

2019.

We do

not

believe that this ASU will have a material impact on our financial statements.

November 2015,

the FASB issued ASU

2015

17,

“Income Taxes, Balance Sheet Classifications of Deferred Taxes.” This amendment simplifies the presentation of deferred taxes by requiring that all deferred tax liabilities and assets now be recorded as noncurrent. This amendment is effective for interim and annual reporting periods beginning after

December 15, 2016

with early adoption permissible. The Company adopted this amendment in

March

2017,

which did

not

have any material impact on the Company’s results of operation.

July 2015,

the FASB issued ASU

2015

11,

“Inventory. Simplifying the Measurement of Inventory.” This amendment only applies to entities that use the

first

-in,

first

-out (FIFO) or average cost methods of valuing inventory. Entities should now measure inventory at the lower of cost and net realizable value. This amendment aligns measurement of inventory in GAAP with the International Financial Reporting Standards (IFRS). This amendment is effective for annual periods beginning after

December 15, 2016

with early adoption permitted. The Company will adopt this amendment in

April

2017.

The Company does

not

believe that this amendment will have a material impact on their results of operation.

May 14, 2014,

FASB issued ASU

2015

14,

“Revenue from Contracts with Customers,” which supersedes nearly all U.S. GAAP guidance on revenue recognition. The core principal of the standard is that revenue recognition should depict the transfer of goods and services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. The new standard is effective for the Company for the fiscal year beginning

April 1, 2018

and the effects of the standard on the Company’s consolidated financial statements are

not

known at this time.

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.