| SIGNIFICANT ACCOUNTING POLICIES | NOTE 3 — SIGNIFICANT ACCOUNTING POLICIES: (a) Principles of Consolidation: The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany transactions and balances are eliminated in consolidation. Certain amounts from prior years have been reclassified to conform to the 2018 presentation. (b) Use of Estimates: The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make assumptions and estimates that affect the amounts reported in the consolidated financial statements and accompanying notes. Judgments and estimates of uncertainties are required in applying the Company’s accounting policies in certain areas. Generally, matters subject to estimation and judgment include accounts receivable realization, inventory obsolescence, asset impairments, recognition of revenue persuant to milestones, useful lives of intangible and fixed assets, stock-based compensation, and deferred tax asset valuation allowances. Due to the inherent uncertainty involved in making estimates, actual results reported in future periods may be based upon amounts that differ from those estimates. (c) 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. Included in cash and cash equivalents is $4.7 million and $2.1 million as of December 31, 2018 and 2017, respectively, of money market funds that are Level 1 fair value measurements under the hierarchy. The fair value of the Company's notes payable approximates the recorded value as the rate is based upon the current rates offered to the Company for similar financial instruments. Fair value measurements of all financial assets and liabilities that are being measured and reported on a fair value basis are required to be classified and disclosed in one of the following three categories: Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities; Level 2: Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability; and Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity). (d) Cash and Cash Equivalents: Cash and cash equivalents are defined as short-term, highly liquid investments with original maturities of three months or less. (e) Concentrations of Credit Risk: Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of temporary cash investments and trade receivables. The Company places its temporary cash instruments with well-known financial institutions and, at times, may maintain balances in excess of the FDIC insurance limit. The Company monitors the credit ratings of the financial institutions to mitigate this risk. Concentration of credit risk with respect to trade receivables is principally mitigated by the Company’s ability to obtain letters of credit from certain foreign customers and its diverse customer base, both in number of customers and geographic locations. (f) Inventories: Inventories, consisting of material, labor and manufacturing overhead, are stated at the lower of cost and net realizable value. Cost is determined on the first-in, first-out method. The Company’s policy is to periodically evaluate the market value of the inventory and the stage of product life cycle, and record a write-down for any inventory considered slow moving or obsolete. (g) Fixed Assets: Fixed assets are stated at cost, less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the respective assets, which range from three to seven years. Leasehold improvements are amortized over the useful life of the asset or the lease term, whichever is shorter. Deposits paid for fixed assets are capitalized and not depreciated until the related asset is placed in service. (h) License Agreements: The Company records up-front payments related to sublicense agreements as prepaids and amortizes them over their respective economic life. As of December 31, 2018 and 2017, total prepaids were $100,000 and $100,000, respectively. Amortization expenses for the licenses above for the years ended December 31, 2018, and 2017 were $0, and $137,500, respectively. (i) Valuation of Long-Lived Assets and Intangible Assets: Long-lived assets to be held and used are analyzed for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable. The Company evaluates at each balance sheet date whether events and circumstances have occurred that indicate possible impairment. If there are indications of impairment, the Company uses future undiscounted cash flows of the related asset or asset grouping over the remaining life in measuring whether the assets are recoverable. In the event such cash flows are not expected to be sufficient to recover the recorded asset values, the assets are written down to their estimated fair value. No impairment of long-lived tangible and intangible assets was recorded for the years ended December 31, 2018 and 2017. (j) Revenue Recognition: In May 2014, the Financial Accounting Standards Board (“FASB”) issued converged guidance on recognizing revenue in contracts with customers, Accounting Standards Update (“ASU”) 2014-09, Revenue from 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 the Company’s revenue recognition as its revenues continue to be recognized when the customer takes control of its product. As the Company did not identify any material accounting changes that impacted the amount of reported revenues with respect to its product revenue, license and royalty revenue, and R&D, milestone and grant revenues, no adjustment to retained earnings was required upon adoption. The Company adopted the standards to contracts that were not completed at the date of initial application (January 1, 2018). Under the new revenue standards, the Company recognizes revenues when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the Company expects to receive in exchange for those goods or services. The Company recognizes 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) the Company satisfies the performance obligation. Product Revenues Revenues from product sales are recognized and commissions are accrued when the customer obtains control of the Company’s product, which occurs at a point in time, typically upon tendering to the customer. The Company expenses incremental costs of obtaining a contract as and when incurred because the expected amortization period of the asset that it 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. The Company’s payment terms vary by the type and location of the Company’s customer and products or services offered. Payment terms differ by jurisdiction and customer but payment is generally required in a term ranging from 30 to 60 days from date of shipment or satisfaction of the performance obligation. 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 the Company’s customers. The Company’s process for estimating reserves established for these variable consideration components does not differ materially from its 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 the Company’s estimates. If actual results vary, the Company adjusts these estimates, which could have an effect on earnings in the period of adjustment. Royalty Revenues The Company receives royalty revenues on sales by its licensees of products covered under patents that it owns. The Company does not have future performance obligations under these license arrangements. The Company records 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 the Company, 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 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 in accordance with ASC 958. Such contracts are further described under Disaggregation of Revenue Disaggregation of Revenue The following tables disaggregate Total Revenues for the year ended December 31, 2018: Exchange Transactions Non-Exchange Transactions Total Net product sales $ 26,741,020 $ - $ 26,741,020 License and royalty revenue 948,773 - 948,773 R&D, milestone and grant revenue 2,687,210 3,032,248 5,719,458 $ 30,377,003 $ 3,032,248 $ 33,409,251 Exchange transactions are recognized in accordance with ASC 606, while non-exchange transactions are recognized in accordance with ASC 985. Total Africa $ 8,605,306 Asia 1,389,120 Europe & Middle East 4,726,691 Latin America 11,722,224 United States 6,965,910 $ 33,409,251 Contract Liabilities Deferred revenue relates to payments received in advance of performance under the contract. Deferred revenue is recognized as revenue as (or when) the Company performs under the contract. At December 31, 2017, the Company reported $50,000 in deferred revenue of which $50,000 was earned and recognized as R&D, milestone and grant revenue during the year ended December 31, 2018. At December 31, 2018, the Company reported $422,905 in deferred revenue which is expected to be recognized during the first quarter of 2019. In April 2017, the Company entered into a $1.0 million agreement with FIND to develop a simple, point-of-care fever panel assay that can identify multiple life-threatening acute febrile illnesses common in the Asia Pacific region. The Company earned $0.1 million and $0.9 million for the year ended December 31, 2018, and from inception through December 31, 2018, respectively as R&D, milestone and grant revenue in the Company’s Consolidated Statements of Operations. 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 $2.6 million and $5.3 million for the year ended December 31, 2018 and from inception through December 31, 2018, respectively, as R&D, milestone and grant revenue in the Company’s Consolidated Statements of Operations. In September 2016, the Company was awarded a $0.7 million contract from the USDA to develop a Bovid TB assay. The Company earned $0.2 million and $0.5 million for the year ended December 31, 2018 and from inception through December 31, 2018, respectively, as R&D, milestone and grant revenue in the Company’s Consolidated Statements of Operations. (k) Research and Development: Research and development (R&D) costs are expensed as incurred. Advance payments for goods and services that will be used in future research and development activities are expensed when the activity has been performed or when the goods have been received rather than when the payment is made. (l) Stock-Based Compensation: The fair value of restricted stock and restricted stock unit awards are their fair value on the date of grant. Stock-based compensation expense for stock options is calculated using the Black-Scholes valuation model based on awards ultimately expected to vest together with the fair value of restricted stock and restricted stock unit awards, are, reduced for actual forfeitures, and, expensed on a straight-line basis over the requisite service period of the grant. During 2017, the Company adopted ASU 2016-09, "Improvements to Employee Share-Based Payment Accounting". (m) I ncome Taxes: The Company accounts for income taxes under an asset and liability approach that recognizes deferred tax assets and liabilities based on the difference between the financial statement carrying amounts and the tax bases of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. The Company follows a more-likely-than-not threshold for financial statement recognition and measurement of a tax position taken, or expected to be taken, in a tax return. The guidance relates to, among other things, classification, accounting for interest and penalties associated with tax positions, and disclosure requirements. Any interest and penalties accrued related to uncertain tax positions are recorded in tax expense. The Company assesses the realizability of its net deferred tax assets on an annual basis. If, after considering all relevant positive and negative evidence, it is more likely than not that some portion or all of the net deferred tax assets will not be realized, the Company will reduce the net deferred tax assets by a valuation allowance. The realization of net deferred tax assets is dependent on several factors, including the generation of sufficient taxable income prior to the expiration of net operating loss carryforwards. (n) 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 including outstanding restricted stock that by its terms is includible in the calculation. Diluted loss per share for the years ended December 31, 2018, and 2017 reflects the potential dilution from the exercise or conversion of other securities into common stock, if dilutive. There were 711,968, and 810,670 options outstanding as of December 31, 2018 and 2017, respectively, which were not included in the calculation of diluted income per share for the years ended because their effect would have been anti-dilutive. (o) Goodwill and Intangible Assets: Goodwill represents the excess of the purchase price the Company paid over the fair value of the net tangible and identifiable intangible assets acquired in the Company’s acquisition of opTricon in November 2018 and CDM in January 2017. Goodwill is not amortized but rather is tested annually as of the first day of the fiscal fourth quarter, or sooner if the Company believes that indicators of impairment exist. The Company makes a qualitative evaluation about the likelihood of goodwill impairment, which is based on a number of applicable factors. If the Company concludes that it is more likely than not that the carrying value of the applicable reporting unit is greater than its fair value, then it 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. For the year ended December 31, 2018 and 2017, there was no impairment of goodwill and other intangible assets. Following is a table that reflects changes in Goodwill: Beginning balance 1/1/18 $ 1,666,610 Acquisition of opTricon 3,337,000 Changes in foreign currency exchange rate (20,483 ) Balance at December 31, 2018 $ 4,983,127 Intangible assets consist of the following at: Weighted Average Remaining Life December 31, 2018 December 31, 2017 Cost Accumulated Amortization Net Book Value Cost Accumulated Amortization Net Book Value Intellectual property 10 $ 1,089,688 $ 173,633 $ 916,055 $ 886,872 $ 88,687 $ 798,185 Developed technology 7 1,910,315 - 1,910,315 - - - Customer contracts/relationships 8 1,121,600 151,929 969,671 776,013 77,601 698,412 Order backlog - 217,187 217,187 - 221,867 221,867 - Trade names 9 108,521 19,731 88,790 110,859 10,079 100,780 $ 4,447,311 $ 562,480 $ 3,884,831 $ 1,995,611 $ 398,234 $ 1,597,377 Amortization expense for the year ended December 31, 2018 and 2017 was $233,734 and $398,234, respectively, and is recorded within Selling, General and Administrative expenses. Amortization expense, subject to changes in currency exchange rates, is expected to be $496,512 per year from 2019 through 2023, and total $1,402,271 for all of the years thereafter. (p) Allowance for Doubtful Accounts: The Company records allowances for doubtful accounts for the estimated probable losses on uncollectible accounts receivable. The allowance is based upon the credit worthiness of the Company’s customers, the Company’s historical experience, the age of the receivable and current market and economic conditions. Receivables are written off against these allowances in the period they are determined to be uncollectible. (q) Acquisition Costs: Acquisition costs include period expenses, primarily professional services, related to acquisition activities. (r) Foreign Currency Translation: The functional currency of a foreign subsidiary is the local currency. Assets and liabilities of foreign subsidiaries that use a currency other than U.S. dollars as their functional currency are translated to U.S. dollars at end of period currency exchange rates. The consolidated statements of operations of foreign subsidiaries are translated to U.S. dollars at average period currency exchange rates. The effect of translation for foreign subsidiaries is generally reported in Other comprehensive income. Foreign transaction gains are immaterial. (s) 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, Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers The Company has completed its evaluation of the new standard and assessed the impact of adoption on its consolidated financial statements. The Company reviewed significant open contracts with customers for each revenue stream, and based on its evaluation, revenue recognition under the new standard did not have a material impact on the Company’s consolidated financial statements because: i) product sales revenue is recognized when control of the goods is transferred to the customer (i.e., the date of shipment, which is consistent under ASC 605), and ii) R&D and grant revenue historically did not constitute exchange transactions and therefore the new standard did not apply to such revenue upon adoption. 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 permitted two adoption methods under ASU 2014-09. The guidance could 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, the Company applied the rules to all contracts existing as of January 1, 2018. The cumulative effect was not material. In November 2015, the FASB issued ASU 2015-17, Income Taxes (Topic 740) Balance Sheet Classification of Deferred Assets In Leases Codification Improvements to Topic 842, Leases Leases (Topic 842) Targeted Improvements The Company will adopt Topic 842 on January 1, 2019 under the optional transition method and elect the short-term lease exception and available practical expedients. Under the transition method, the Company will not adjust its comparative period financial information or make the new required lease disclosures for periods before the effective date. Upon adoption, the Company expects the consolidated balance sheet to include a right of use asset and liability related to substantially all of the Company’s lease arrangements. While the Company continues to evaluate the effects of adopting the provisions of Topic 842, including the impact that this new guidance will have on its processes and controls, the Company expects most existing operating lease commitments will be recognized as operating lease liabilities and right-of-use assets upon adoption. The adoption is not expected to be material to the consolidated financial statements, and based on the Company’s ongoing assessment, is expected to increase total assets and total liabilities by no more than approximately $1.5 million, on a discounted basis. Please In March 2016, the FASB issued authoritative guidance under ASU 2016-09, Compensation-Stock Compensation (Topic 718) Improvements to Employee Share-Based Payment Accounting In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments The Company adopted ASU 2016-15 in the first quarter of 2018. In January 2017, the FASB issued ASU 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment In May 2017, the FASB issued ASU No. 2017-09, Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting The Company adopted ASU 2017-09 in the first quarter of 2018. In July 2018, the FASB issued ASU 2018-08 N ot-for-Profit Entities (Topic 958): Clarifying the Scope and the Accounting Guidance for Contributions Received and Contributions Made to clarify the accounting guidance related to contributions made or received. This guidance primarily affects not-for-profit entities, although it also applies to businesses to the extent that they make or receive contributions, including grants. ASU 2018-08 clarifies and improves the scope and accounting guidance for both contributions received and made in order to assist entities in evaluating if those transactions should be accounted for as contributions under the scope of Topic 958, or as an exchange transaction subject to other guidance. Public entities are required to apply the amendments on contributions received and contributions made to annual periods beginning after June 15, 2018, and December 15, 2018, respectively, each including interim periods within those annual periods. Early adoption is permitted, and the Company adopted ASU 2018-08 effective as of January 1, 2018. The impact of adoption was immaterial. |
