| SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | NOTE 3 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: a) Basis of Presentation: The preceding (a) condensed consolidated balance sheet as of December 31, 2017, which has been derived from audited financial statements, and (b) the unaudited interim condensed consolidated financial statements as of June 30, 2018 and for the three and six-month periods ended June 30, 2018 and 2017, respectively, have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures, which are normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America, have been condensed or omitted pursuant to such rules and regulations, although we believe that the disclosures made are adequate to provide for fair presentation. The interim financial information should be read in conjunction with the Financial Statements and the notes thereto, included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017, previously filed with the SEC on March 8, 2018. In the opinion of management, all adjustments (which include normal recurring adjustments) necessary to present a fair statement of the Company’s condensed consolidated financial position as of June 30, 2018, its condensed consolidated results of operations for the three and six-month periods ended June 30, 2018 and 2017, respectively, and its condensed consolidated cash flows for the six-month periods ended June 30, 2018 and 2017, as applicable, have been made. The interim results of operations are not necessarily indicative of the operating results for the full fiscal year or any future periods. b) Revenue Recognition: In May 2014, the Financial Accounting Standards Board (“FASB”) issued converged guidance on recognizing revenue in contracts with customers, ASU 2014-09, Revenue from Contracts with Customers. The intent of the new standard is to improve financial reporting and comparability of revenue globally. The core principle of the standard is for a company to recognize revenue in a manner that depicts the transfer of goods or services to customers in an amount that reflects the consideration which the company expects to receive in exchange for those goods or services. The guidance provides a five-step analysis of transactions to determine when and how revenue is recognized. Other major provisions include capitalization of certain contract costs, consideration of the time value of money in the transaction price, and in certain circumstances, allowing estimates of variable consideration to be recognized before contingencies are resolved. The guidance also requires enhanced disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity’s contracts with customers. The new revenue standards became effective for the Company on January 1, 2018 and were adopted using the modified retrospective method. The adoption of the new revenue standards as of January 1, 2018 did not change our revenue recognition as our revenues continue to be recognized when the customer takes control of our product. As we did not identify any material accounting changes that impacted the amount of reported revenues with respect to our product revenue, license and royalty revenue, and R&D, milestone and grant revenues, no adjustment to retained earnings was required upon adoption. We adopted the standards to contracts that were not completed at the date of initial application (January 1, 2018). Under the new revenue standards, we recognize revenues when our customer obtains control of promised goods or services, in an amount that reflects the consideration which we expect to receive in exchange for those goods or services. We recognize revenues following the five-step model prescribed under ASU No. 2014-09: (i) identify contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenues when (or as) we satisfy the performance obligation. Product Revenues Revenues from product sales are recognized when the customer obtains control of our product, which occurs at a point in time, typically upon tendering to the customer. We expense incremental costs of obtaining a contract as and when incurred because the expected amortization period of the asset that we would have recognized is one year or less or the amount is immaterial. Freight and distribution activities on products are performed after the customer obtains control of the goods. The Company has made an accounting policy election to account for shipping and handling activities that occur either when or after goods are tendered to the customer as a fulfillment activity, and therefore recognizes freight and distribution expenses in Cost of Product Sales. Reserves for Discounts and Allowances Revenues from product sales are recorded net of reserves established for applicable discounts and allowances that are offered within contracts with our customers. Our process for estimating reserves established for these variable consideration components does not differ materially from our historical practices. Product revenue reserves, which are classified as a reduction in product revenues, are generally related to discounts. Estimates of variable consideration and the determination of whether to include estimated amounts in the transaction price are based on all information (historical, current and forecasted) that is reasonably available to the company, taking into consideration the type of customer, the type of transaction and the specific facts and circumstances of each arrangement. The transaction price, which includes variable consideration reflecting the impact of discounts and allowances, may be subject to constraint and is included in the net sales price only to the extent that it is probable that a significant reversal of the amount of the cumulative revenues recognized will not occur in a future period. Actual amounts may ultimately differ from our estimates. If actual results vary, we adjust these estimates, which could have an effect on earnings in the period of adjustment. Royalty Revenues We receive royalty revenues on sales by our licensees of products covered under patents that we own. We do not have future performance obligations under these license arrangements. We record these revenues based on estimates of the sales that occurred during the relevant period as a component of license and royalty revenues. The relevant period estimates of sales are based on interim data provided by licensees and analysis of historical royalties that have been paid to us, adjusted for any changes in facts and circumstances, as appropriate. Differences between actual and estimated royalty revenues are adjusted for in the period in which they become known, typically the following quarter. Historically, adjustments have not been material when compared to actual amounts paid by licensees. R&D, milestone and grant revenue All such contracts are evaluated under the five-step model described above. For certain contracts that represent grants where the funder does not meet the definition of a customer, the Company recognizes revenue when earned. Such contracts are further described under Disaggregation of Revenue The Company follows the recognition of revenue under the milestone method for certain collaborative research projects defining milestones at the inception of the agreement. Disaggregation of Revenue In August 2016, the Company was awarded a grant of $5.9 million from BARDA, which is part of the U.S. Department of Health and Human Resources to develop a rapid Zika virus assay. The Company earned $0.8 million In September 2016, the Company was awarded a $0.7 million contract from the USDA to develop a Bovid TB assay. The Company earned $ 0.1 0.1 The following table disaggregates Total Revenues for the three and six-months ended June 30, 2018: For the three months ended For the six months ended Exchange Transactions Non-Exchange Transactions Total Exchange Transactions Non-Exchange Transactions Total Net product sales $ 6,857,861 $ - $ 6,857,861 $ 13,256,088 $ - $ 13,256,088 License and royalty revenue 276,526 - 276,526 478,457 - 478,457 R&D, milestone and grant revenue 755,570 830,369 1,585,939 1,367,375 1,335,538 2,702,913 $ 7,888,957 $ 830,369 $ 8,720,326 $ 15,101,920 $ 1,335,538 $ 16,437,458 Contract Liabilities Deferred revenue relates to payments received in advance of performance under the contract. Deferred revenue is recognized as revenue as (or when) we perform under the contract. At December 31, 2017, we reported $50,000 in deferred revenue of which $ 50,000 c) Inventories Inventories June 30, 2018 December 31, 2017 Raw materials $ 3,019,464 $ 1,767,684 Work in process 566,286 286,413 Finished goods 2,763,890 2,369,521 $ 6,349,640 $ 4,423,618 Inventories are stated at the lower of cost and net realizable value. There were reserves against inventory of approximately $130,000 and $195,000 as of June 30, 2018 and December 31, 2017, respectively. d) Loss Per Share: Basic loss per share is computed by dividing net loss attributable to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted loss per share for the three and six-month periods ended June 30, 2018 and 2017 reflects the potential dilution from the exercise or conversion of other securities into common stock, if dilutive. There were 683,829 707,880 e) Stock Incentive Plan: Effective June 3, 2008, the Company’s stockholders voted to approve the 2008 Stock Incentive Plan (“SIP”), with 625,000 shares of Common Stock available to be issued. At the Annual Stockholder meeting on September 22, 2011, the Company’s stockholders voted to approve an increase to the shares of Common Stock issuable under the SIP by 125,000 to 750,000. Under the terms of the SIP, the Compensation Committee of the Company’s Board has the discretion to select the persons to whom awards are to be granted. Awards can be stock options, restricted stock and/or restricted stock units ("Equity Award Units"). The awards vest at such times and under such conditions as determined by the Compensation Committee. As of June 30, 2018, there were 510,631 94,132 145,237 Effective June 19, 2014, the Company’s stockholders voted to approve the 2014 Stock Incentive Plan (“SIP14”), with 800,000 shares of Common Stock available to be issued. Under the terms of the SIP14, the Compensation Committee of the Company’s Board has the discretion to select the persons to whom awards are to be granted. Awards can be in the form of Equity Award Units. The awards vest at such times and under such conditions as determined by the Compensation Committee. As of June 30, 2018, there were 60,066 364,093 375,841 S For the three months ended For the six months ended June 30, 2018 June 30, 2017 June 30, 2018 June 30, 2017 Cost of product sales $ 5,800 $ 12,800 $ 14,000 $ 21,400 Research and development expenses 3,600 12,100 15,500 65,200 Selling, general and administrative expenses 117,700 48,800 194,800 123,000 $ 127,100 $ 73,700 $ 224,300 $ 209,600 Stock option compensation expense in each of the periods presented represents the estimated fair value of options outstanding, amortized on a straight-line basis over the requisite vesting period of the entire award. The fair value of options at the date of grant was estimated using the Black-Scholes option pricing model. The expected volatility is based upon historical volatility of our stock and other contributing factors. The expected term is based on the Company’s historical experience with similar type options. The weighted-average assumptions made in calculating the fair values of options are as follows: For the three months ended For the six months ended June 30, 2018 June 30, 2017 June 30, 2018 June 30, 2017 Expected term (in years) 5.4 n/a 5.4 5.0 Expected volatility 40.12 % n/a 40.12 % 44.18 % Expected dividend yield 0 % n/a 0 % 0 % Risk-free interest rate 2.70 % n/a 2.70 % 1.58 % The following table provides stock option activity for the six months ended June 30, 2018: Stock Options Number of Shares Weighted Average Exercise Price per Share Weighted Average Remaining Contractual Term Aggregate Intrinsic Value Outstanding at December 31, 2017 810,670 $ 5.18 3.69 years $ 2,477,853 Granted 46,875 8.15 - Exercised 144,947 4.83 $ 523,327 Forfeited/expired/cancelled 47,505 8.82 - Outstanding at June 30, 2018 665,093 $ 5.21 3.74 years $ 3,919,140 Exercisable at June 30, 2018 324,363 $ 4.07 2.66 years $ 2,279,731 The following table summarizes information about stock options outstanding at June 30, 2018: Stock Options Outstanding Stock Options Exercisable Range of Exercise Prices Shares Average Remaining Contract Life (Year) Weighted Average Exercise Price Aggregate Intrinsic Value Shares Weighted Average Exercise Price Aggregate Intrinsic Value 1 to 2.79999 - - $ - $ - - $ - $ - 2.8 to 4.59999 304,343 2.41 3.45 2,328,522 254,343 3.46 1,944,337 4.6 to 6.39999 152,875 3.94 5.85 802,387 48,645 5.75 260,338 6.4 to 8.19999 207,875 5.56 7.31 788,231 21,375 7.59 75,056 8.2 to 10 - - - - - - - Total 665,093 3.74 $ 5.21 $ 3,919,140 324,363 $ 4.07 $ 2,279,731 As of June 30, 2018, there was $678,237 of net unrecognized compensation cost related to stock options that are not vested, which is expected to be recognized over a weighted average period of approximately 2.55 years. The total fair value of shares vested during the six-month periods ended June 30, 2018 and 2017 was $319,549 and $302,712, respectively. f) Geographic Information and Economic Dependency The Company produces only one group of similar products known collectively as “rapid medical tests” and it operates in a single business segment. Net product sales by geographic area are as follows: For the three months ended For the six months ended June 30, 2018 June 30, 2017 June 30, 2018 June 30, 2017 Africa $ 2,226,540 $ 493,852 $ 3,865,070 $ 862,679 Asia 22,348 92,596 989,922 1,513,018 Europe & Middle East 635,579 599,435 1,027,649 1,040,160 Latin America 3,266,290 672,765 5,956,183 1,760,104 United States 707,104 1,034,294 1,417,264 3,144,353 $ 6,857,861 $ 2,892,942 $ 13,256,088 $ 8,320,314 g) Fair Value of Financial Instruments: The carrying value for cash and cash equivalents, accounts receivable, and accounts payable, approximate fair value due to the immediate or short-term maturity of these financial instruments. The fair value of the Company’s note payable approximates the recorded value as the rate is based upon the current rates offered to the Company for similar financial instruments. h) Accounts Payable and Accrued Liabilities: Accounts payable and accrued liabilities consist of: June 30, 2018 December 31, 2017 Accounts payable – suppliers $ 3,558,450 $ 1,494,759 Accrued commissions 291,127 126,827 Accrued royalties / license fees 511,292 429,297 Accrued payroll 352,257 187,305 Accrued vacation 356,686 309,767 Accrued bonuses 428,665 282,500 Accrued expenses – other 511,977 215,848 TOTAL $ 6,010,454 $ 3,046,303 i) Goodwill and Intangible Assets: Goodwill represents the excess of the purchase price we paid over the fair value of the net tangible and identifiable intangible assets acquired in our acquisition of CDM in January 2017. Goodwill is not amortized but rather is tested annually as of the first day of the fiscal fourth quarter for impairment or more frequently if we believe that indicators of impairment exist. We make a qualitative evaluation about the likelihood of goodwill impairment, which is based on a number of applicable factors. If we conclude that it is more likely than not that the carrying value of the applicable reporting unit is greater than its fair value, then we would recognize an impairment charge for the amount by which the carrying value exceeds the reporting unit’s fair value, provided the impairment charge does not exceed the total amount of goodwill allocated to the reporting unit. There was no impairment recorded for the six months ended June 30, 2018. Following is a table that reflects changes in Goodwill: Beginning balance December 31, 2017 $ 1,666,610 Change in foreign currency exchange rate 6,534 Balance at June 30, 2018 $ 1,673,144 In addition, the Company recorded certain intangible assets as part of the CDM acquisition as follows: June 30, 2018 December 31, 2017 Cost Accumulated Amortization Net Book Value Cost Accumulated Amortization Net Book Value Intellectual property $ 890,349 $ 133,553 $ 756,796 $ 886,872 $ 88,687 $ 798,185 Customer contracts/relationships 779,056 116,858 662,198 776,013 77,601 698,412 Order backlog 222,736 222,736 - 221,867 221,867 - Trade names 111,294 15,176 96,118 110,859 10,079 100,780 $ 2,003,435 $ 488,323 $ 1,515,112 $ 1,995,611 $ 398,234 $ 1,597,377 Amortization expense for the three months ended June 30, 2018 and 2017 was approximately $45 ,000 90,000 j) Taxes: The Tax Cuts and Jobs Act (the “Act”) was enacted on December 22, 2017. The Act reduces the U.S. federal corporate income tax rate from 35% to 21%, requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries previously deferred from tax, generally eliminates U.S federal income taxes on dividends from foreign subsidiaries, and creates a new provision designed to tax global intangible low-taxed income (“GILTI”). Also on December 22, 2017, the U.S. Securities and Exchange Commission issued Staff Accounting Bulletin No. 118 (“SAB 118”) which provides for a measurement period of up to one year from the enactment for companies to complete their accounting for the Act. The Company is applying the guidance in SAB 118 in its accounting for the enactment-date effects of the Act. As of June 30, 2018, the Company has not completed its accounting for the tax effects of the Act, but has made reasonable estimates of the effects on the re-measurement of its deferred tax assets and liabilities, as well as its transition tax liability. During the three and six-month periods ended June 30, 2018, the Company made no adjustments to the provisional amounts recorded at December 31, 2017. Additionally, the Company has not yet collected and analyzed all necessary tax and earnings data of its foreign operations; therefore, the Company has also not yet completed its accounting for the income tax effects of the transition tax. The Company will continue to make and refine its calculations as additional analysis is completed. The Act also subjects a U.S. shareholder to tax on GILTI earned by certain foreign subsidiaries. Under U.S. GAAP, the Company is permitted to make an accounting policy election to either recognize deferred taxes for temporary basis differences expected to reverse as GILTI in future years or provide for the tax expense related to GILTI in the year the tax is incurred as a period expense only. Given the complexity of the GILTI provisions, the Company is still evaluating the effects of the GILTI provisions and has not yet made its accounting policy election. k) Recent Accounting Pronouncements Affecting the Company: In May 2014, the Financial Accounting Standards Board (“FASB”) issued converged guidance on recognizing revenue in contracts with customers, ASU 2014-09, Revenue from Contracts with Customers . The intent of the new standard is to improve financial reporting and comparability of revenue globally. The core principle of the standard is for a company to recognize revenue in a manner that depicts the transfer of goods or services to customers in an amount that reflects the consideration which the company expects to receive in exchange for those goods or services. The guidance provides a five-step analysis of transactions to determine when and how revenue is recognized. Other major provisions include capitalization of certain contract costs, consideration of the time value of money in the transaction price, and in certain circumstances, allowing estimates of variable consideration to be recognized before contingencies are resolved. The guidance also requires enhanced disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity’s contracts with customers. The standard was effective January 1, 2018. In addition to expanding disclosures in these interim financial statements, we completed our evaluation of the new standard and assessed the impact of adoption on our consolidated financial statements. We reviewed significant open contracts with customers for each revenue stream, and based on our evaluation, revenue recognition under the new standard did not have a material impact on the Company’s consolidated financial statements. The Company also assessed its control framework as a result of adopting the new standard and noted minimal, insignificant changes to its systems and other controls processes. The new standard permits two adoption methods under ASU 2014-09. The guidance may be adopted through either retrospective application to all periods presented in the consolidated financial statements (full retrospective) or through a cumulative effect adjustment to retained earnings at the effective date (modified retrospective). The Company adopted the new standard effective January 1, 2018 using the modified retrospective transition method. Under that method, we applied the rules to all contracts existing as of January 1, 2018. The cumulative effect was immaterial, and therefore no adjustment to the opening balance of retained earnings was required. The disclosures in our notes to the consolidated financial statements related to revenue recognition are expanded under the new standard, specifically around the quantitative and qualitative information about performance obligations, changes in contract assets and liabilities, and disaggregation of revenue. In November 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2015-17, Income Taxes (Topic 740) Balance Sheet Classification of Deferred Assets. This ASU is intended to simplify the presentation of deferred taxes on the balance sheet and will require an entity to present all deferred tax assets and deferred tax liabilities as non-current on the balance sheet. Under the current guidance, entities are required to separately present deferred taxes as current or non-current. Netting deferred tax assets and deferred tax liabilities by tax jurisdiction will still be required under the new guidance. This ASU was adopted January 1, 2018. In February 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-02, which amends the ASC and creates Topic 842, Leases. Topic 842 will require lessees to recognize lease assets and lease liabilities for those leases classified as operating leases under previous US GAAP on the balance sheet. This guidance is effective for annual periods beginning after December 15, 2018 and early adoption is permitted. We are in the initial stages of evaluating the effect of the standard on our financial statements and will continue to evaluate. While not yet in a position to assess the full impact of the application of the new standard, the Company expects that the impact of recording the lease liabilities and the corresponding right-to-use assets will have a significant impact on its total assets and liabilities with a minimal impact on equity. In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments , which provides guidance related to cash flows presentation and is effective for annual reporting periods beginning after December 15, 2017. The guidance in ASU 2016-15 is generally consistent with our current cash flow classifications, and it was adopted effective January 1, 2018, without any material impact on our consolidated financial statements. In May 2017, the FASB issued ASU No. 2017-09, Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting , to provide clarity to which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. This update was adopted effective January 1, 2018, without any material effect on our consolidated financial statements. |
