SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) | 12 Months Ended |
Dec. 31, 2013 |
Accounting Policies [Abstract] | ' |
Consolidation, Policy [Policy Text Block] | ' |
Principles of Consolidation |
The accompanying consolidated financial statements are presented in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”) and include the accounts of ERBA Diagnostics, Inc. and its wholly-owned subsidiaries Diamedix Corporation (“Diamedix”), ImmunoVision, Inc. (“ImmunoVision”) and Delta Biologicals, S.r.l. (“Delta Biologicals”) and, from and after the acquisition date of October 3, 2012, Drew Scientific, Inc. and its subsidiaries (“Drew Scientific”) (as more fully described in Note 3, Acquisition of Drew Scientific, Inc.). All significant intra-entity balances and transactions have been eliminated in consolidation. |
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Reclassification, Policy [Policy Text Block] | ' |
Reclassifications |
Certain amounts in the prior year’s consolidated financial statements have been reclassified to conform to the current year’s presentation. |
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Use of Estimates, Policy [Policy Text Block] | ' |
Use of Estimates |
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities, at the date of and for the period of the consolidated financial statements. The Company’s actual results in subsequent periods may differ from the estimates and judgments used in the preparation of the accompanying consolidated financial statements. Significant estimates include the allowance for doubtful accounts, inventories, intangible assets, income and other tax accruals, stock based compensation, the computation of fair-value measurements related to the acquisition of Drew Scientific, the realization of long-lived assets and contingencies and litigation. |
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Cash and Cash Equivalents, Policy [Policy Text Block] | ' |
Cash and Cash Equivalents |
The Company considers certain short-term investments in money market accounts with original maturities of three months or less to be cash equivalents. |
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Accounts Receivable And Allowance For Doubtful Accounts [Policy Text Block] | ' |
Accounts Receivable and Allowance for Doubtful Accounts |
The Company grants credit without collateral to its customers based on the Company’s evaluation of a particular customer’s credit worthiness. In addition, allowances for doubtful accounts are maintained, particularly in Italy where payment cycles are longer than in the United States and in some instances may take in excess of a year to collect, for potential credit losses based on the age of the accounts receivable and the results of the Company’s periodic credit evaluations of its customers’ financial condition. Accounts receivable are written off after collection efforts have been followed in accordance with the Company’s policies. Accounts written off as uncollectible are deducted from the allowance for doubtful accounts, while subsequent recoveries are netted against provision for doubtful accounts expense. The Company generally does not charge interest on accounts receivable. |
The Company periodically receives payments based upon negotiated agreements with governmental regions in Italy, acting on behalf of hospitals located in the region, in satisfaction of previously outstanding accounts receivable balances. The Company may have anticipated collection of these amounts through a payment as described above and, therefore, not provided an allowance for doubtful accounts for these amounts. Future payments by governmental regions in Italy are possible and, as a result, the Company may consider the potential receipt of those payments in determining its allowance for doubtful accounts. If contemplated payments are not received when expected or at all, or if negotiated agreements are not complied with in a timely manner or cancelled, then the Company may provide additional allowances for doubtful accounts. |
The allowance for doubtful accounts was $1,064,739 and $995,662 as of December 31, 2013 and 2012, respectively, and activity for the years then ended was as follows: |
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| | 2013 | | 2012 | | | | | | | | | | | | | | | | | | | | |
Balance as of January 1 | | $ | 995,662 | | | $ | 716,599 | | | | | | | | | | | | | | | | | | | | | |
Provision | | | 39,559 | | | | 625,935 | | | | | | | | | | | | | | | | | | | | | |
Write-offs | | | — | | | | (361,229 | ) | | | | | | | | | | | | | | | | | | | | |
Effects of changes in foreign exchange rates | | | 29,518 | | | | 14,357 | | | | | | | | | | | | | | | | | | | | | |
Balance as of December 31 | | $ | 1,064,739 | | | $ | 995,662 | | | | | | | | | | | | | | | | | | | | | |
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Inventory, Policy [Policy Text Block] | ' |
Inventories |
Inventories are stated at the lower of cost (first-in, first-out) or market. Components of inventory cost include materials, labor and manufacturing overhead. In evaluating whether inventory is stated at the lower of cost or market, management considers such factors as the amount of inventory on hand, estimated time required to sell such inventory, remaining shelf life and current market conditions. Inventory costs associated with marketed products are capitalized, as are certain unapproved products prior to regulatory approval and product launch, based on management’s judgment of probable future economic benefit which includes an assessment of probability of future commercial use and net realizable value. With respect to instrumentation products, the Company purchases instrument parts and, in some cases, manufactures instrument components in preparation for the commercial launch of the instrument in amounts sufficient to support forecasted initial market demand. Inventory is not capitalized unless the product or instrument is considered to have a high probability of receiving regulatory approval. The Company may make this determination prior to its submission to the United States Food and Drug Administration (“FDA”) of a 510(k) application or other required regulatory submission. In determining probability, if the Company is aware of any specific risks or contingencies that are likely to adversely impact the expected regulatory approval process, then it would not capitalize the related inventory but would instead expense it as incurred. Additionally, the Company’s estimates of future instrumentation and diagnostic kit product demand, or judgment of probable future economic benefit, may prove to be inaccurate, in which case any resulting adjustments to the value of inventory would be recognized at the time of such determination. Reserves are provided as appropriate to reduce excess or obsolete inventories to the lower of cost or market. Inventories, net consist of the following as of December 31, 2013 and 2012: |
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| | 2013 | | 2012 | | | | | | | | | | | | | | | | | | | | |
Raw materials | | $ | 3,123,380 | | | $ | 1,712,199 | | | | | | | | | | | | | | | | | | | | | |
Work-in-process | | | 624,454 | | | | 664,880 | | | | | | | | | | | | | | | | | | | | | |
Finished goods | | | 2,746,339 | | | | 3,461,071 | | | | | | | | | | | | | | | | | | | | | |
Total inventories, net | | $ | 6,494,173 | | | $ | 5,838,150 | | | | | | | | | | | | | | | | | | | | | |
The Company regularly reviews inventory quantities on hand, which include components for current or future versions of products and instrumentation. If necessary, the Company records a provision for excess and obsolete inventory based primarily on its estimates of component obsolescence, product demand and production requirements, as well as based upon the status of a product within the regulatory approval process. In accordance with the Company’s inventory accounting policy, the Company’s inventory balance at times includes components for current or future versions of products and instrumentation. Inventory reserves were approximately $1,129,000 and $816,000 as of December 31, 2013 and December 31, 2012, respectively. |
Our inventory balance as of December 31, 2012 included approximately $100,000 of inventory relating to our hepatitis product, substantially all of which has a shelf life exceeding five years, for which we obtained “CE Marking” approval in the European Union during 2011 and for which we have begun selling in certain markets. As a result of sales in 2013, the inventory balance has been depleted as of December 31, 2013. |
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Property, Plant and Equipment, Policy [Policy Text Block] | ' |
Property, Plant and Equipment |
Property, plant and equipment are carried at cost, less accumulated depreciation. Depreciation is computed on the straight-line basis over the estimated useful lives of the assets as follows: |
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| | Years | | | | | | | | | | | | | | | | | | | | | | | | |
Buildings and improvements | | | 5 – 20 | | | | | | | | | | | | | | | | | | | | | | | | | |
Machinery and equipment | | | 3 – 10 | | | | | | | | | | | | | | | | | | | | | | | | | |
Furniture and fixtures | | | 3 – 10 | | | | | | | | | | | | | | | | | | | | | | | | | |
Costs of major additions and improvements are capitalized and expenditures for maintenance and repairs which do not extend the life of the assets are expensed. Upon sale or disposition of property, plant and equipment, the cost and related accumulated depreciation is eliminated from the accounts and any resulting gain or loss is credited or charged to operations. |
Depreciation expense was $393,462 and $326,917 during the years ended December 31, 2013 and 2012, respectively. |
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Lease, Policy [Policy Text Block] | ' |
Equipment on Lease, Net |
The cost of the Company’s owned instruments, which are placed under reagent rental programs at customer facilities for testing and usage of the Company’s products (see Note 2, Summary of Significant Accounting Policies, below under the heading Revenue Recognition), less accumulated amortization, consists of the following as of December 31, 2013 and 2012: |
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| | 2013 | | 2012 | | | | | | | | | | | | | | | | | | | | |
Equipment on lease, at cost | | $ | 6,773,917 | | | $ | 6,666,122 | | | | | | | | | | | | | | | | | | | | | |
Less accumulated amortization | | | 6,187,132 | | | | 6,080,801 | | | | | | | | | | | | | | | | | | | | | |
| | $ | 586,785 | | | $ | 585,321 | | | | | | | | | | | | | | | | | | | | | |
Equipment on lease is typically amortized over three or five years. Amortization expense was $214,237 and $172,175 for the years ended December 31, 2013 and 2012, respectively. |
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Goodwill and Intangible Assets, Policy [Policy Text Block] | ' |
Intangible Assets |
Intangible assets relate to the acquisition of Drew Scientific (as more fully described in Note 3, Acquisition of Drew Scientific, Inc.) and consist of the following as of December 31, 2013 and 2012: |
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| | Estimated Useful Life (Years) | | As of December 31, 2013 | | As of December 31, 2012 |
| | Gross | | Accumulated Amortization | | Net | | Gross | | Accumulated Amortization | | Net |
Amount | Amount | Amount | Amount |
Customer relationships | | | 4.8 | | | $ | 1,026,532 | | | $ | 266,957 | | | $ | 759,575 | | | $ | 1,026,532 | | | $ | 53,096 | | | $ | 973,436 | |
Trademarks/ tradenames | | | 10 | | | | 512,701 | | | | 64,087 | | | | 448,614 | | | | 512,701 | | | | 12,817 | | | | 499,884 | |
Patents | | | 7 | | | | 309,057 | | | | 53,168 | | | | 255,889 | | | | 309,057 | | | | 9,972 | | | | 299,085 | |
Lease rights | | | 2 | | | | 47,140 | | | | 31,067 | | | | 16,073 | | | | 47,140 | | | | 7,497 | | | | 39,643 | |
| | | | | | $ | 1,895,430 | | | $ | 415,279 | | | $ | 1,480,151 | | | $ | 1,895,430 | | | $ | 83,382 | | | $ | 1,812,048 | |
Amortization expense is computed principally on a straight-line basis and for the next five years approximates: |
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Years Ending December 31, | | | | | | | | | | | | | | | | | | | | | | | | | | |
2014 | | $ | 324,000 | | | | | | | | | | | | | | | | | | | | | | | | | |
2015 | | | 306,000 | | | | | | | | | | | | | | | | | | | | | | | | | |
2016 | | | 306,000 | | | | | | | | | | | | | | | | | | | | | | | | | |
2017 | | | 216,000 | | | | | | | | | | | | | | | | | | | | | | | | | |
2018 | | | 94,000 | | | | | | | | | | | | | | | | | | | | | | | | | |
| | $ | 1,228,000 | | | | | | | | | | | | | | | | | | | | | | | | | |
Amortization expense related to the acquired intangible assets for the years ended December 31, 2013 and 2012 amounted to $331,897 and $83,382, respectively. |
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Long Lived Assets Including Goodwill [Policy Text Block] | ' |
Long Lived Assets, Including Goodwill |
Goodwill is attributed to the acquisitions of ImmunoVision and Drew Scientific and represents the excess of the cost over the fair value of nets assets acquired. The Company tests goodwill for possible impairment on an annual basis and at any other time events occur or circumstances indicate that the carrying amount of goodwill may be impaired. The first step required in the impairment analysis consists of a comparison of the fair value of the reporting unit with its carrying amount, including the goodwill. |
For the annual test of its remaining goodwill at ImmunoVision, the Company determined fair value primarily based upon the income approach, which estimates the fair value based on the future discounted cash flows, rather than the market approach, which estimates the fair value based on market prices of comparable companies. The Company believes the income approach is more appropriate to determine the fair value at ImmunoVision and should therefore be more heavily weighted due to the fact that similar public companies comparable to ImmunoVision are difficult to identify and current market conditions are in a period of volatility with wide ranging multiples. Based upon this methodology, and utilizing significant assumptions in the income approach that included a forecasted cash flow period of five years, long-term annual growth rates of 3% for both years and a discount rate of 19% and 20% for 2013 and 2102, respectively, no impairment was recorded for the years ended December 31, 2013 or 2012. |
The goodwill of Drew Scientific was also subjected to the annual testing for impairment and its value was determined by the Company with similar significant reliance on the income approach. This approach utilized significant assumptions including a forecasted cash flow period of five years, a long-term annual growth rate 3% and a discount rate of 19%. The market approach was not considered to be as reliable as the income approach due to the difficulty of identifying similar publicly traded companies comparable to Drew Scientific and the stock price volatility in the industry. The Company determined that the income approach is more appropriate, and, based upon the results of the Company’s analysis, no impairment was recorded during the year ended December 31, 2013. |
The Company reviews its long-lived assets for impairment, including intangible assets and fixed assets that are held and used in its operations, whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. If such an event or change in circumstances occurs, then the Company will estimate the undiscounted future net cash flows expected to result from the use of the asset and its eventual disposition. If the sum of the undiscounted future cash flows is less than the carrying amount of the related assets, then the Company will recognize an impairment loss. Assets to be disposed of are reclassified as assets held for sale at the lower of their carrying amount or fair value less costs to sell. Write-downs to fair value less disposal costs are reported as a part of loss from operations. |
The Company does not believe that there were any events or changes in circumstances which indicate that the carrying amounts of its long-lived assets may not be recoverable as of December 31, 2013 and 2012, respectively. |
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Cash and Cash Equivalents, Restricted Cash and Cash Equivalents, Policy [Policy Text Block] | ' |
Restricted Deposits |
Long-term restricted deposits of $204,686 and $148,040 as of December 31, 2013 and 2012, respectively, consist primarily of cash deposits required as part of the sales tender process with governmental customers in Italy and cash deposits made in connection with capital and operating leases. |
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Foreign Currency Translations [Policy Text Block] | ' |
Foreign Currency Translation |
The Company has operations that are located in Italy and is working to increase its presence in other international markets. Assets and liabilities as stated in the local reporting and functional currency are translated at the rate of exchange prevailing at the balance sheet date. Amounts in the consolidated statements of operations and comprehensive loss are translated at the average exchange rates for the period. The gains or losses that result from this process are shown in the “Accumulated Other Comprehensive Loss” in the consolidated statements of operations and comprehensive loss and consolidated statements of shareholders’ equity. |
The Company does not use financial derivatives to hedge exchange rate fluctuations. |
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Fair Value of Financial Instruments, Policy [Policy Text Block] | ' |
Financial Instruments |
The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and capital lease obligations approximate fair value due to the short-term maturity of the instruments. The Company does not speculate in the foreign exchange market. |
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Revenue Recognition, Policy [Policy Text Block] | ' |
Revenue Recognition |
Revenue and the related cost of sales on sales of test kits and instruments are recognized when risk of loss and title passes, which is generally at the time of shipment. Net revenue is comprised of gross revenue less provisions for expected product returns, allowances, discounts and warranty claims. Provisions and discounts for the years ended December 31, 2013 and 2012 were not significant. |
The Company recognizes milestone payments when earned, as evidenced by written acknowledgement from the collaborator, provided that the milestone event is substantive and its achievability was not reasonably assured at the inception of the agreement, the milestone represents the culmination of an earnings process, the milestone payment is non-refundable and the Company’s past research and development services, as well as the Company’s ongoing commitment to provide research and development services under the collaboration, are charged at fees that are comparable to the fees that the Company customarily charges for similar research and development services. |
The Company also owns instruments that it places, under “reagent rental” programs common to the industry, for periods of time at customer facilities for usage with the Company’s products (“Equipment on Lease”). The instrument system, which remains the property of the Company, is utilized by customers to expedite the performance of certain tests and its use, including any required instrument service, is paid for by the customer through reagent kit purchases over the agreed upon contract period, typically three to five years. Upon completion of the contract period, the instrument is returned to the Company. |
Shipping and handling fees billed to customers are recognized in net revenue. Shipping and handling costs are included in cost of sales. |
The taxes that the Company has collected from its customers and remitted to governmental authorities are presented in the Company’s consolidated statements of operations and comprehensive loss on a net basis. Many of the Company’s customers are tax exempt organizations. |
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Research and Development Expense, Policy [Policy Text Block] | ' |
Research and Development Costs |
Research and development costs related to future products are expensed as incurred. As described in Note 13, Related Party Transactions, the Company entered into a contract research and development agreement with ERBA Mannheim during 2011. Expenses incurred pursuant to that contract are included in cost of sales as the related revenues are recorded from the achievement of milestones. |
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Foreign Currency Transactions [Policy Text Block] | ' |
Foreign Currency Transactions |
The Company has assets and liabilities held in foreign currency which are translated at period-end exchange rates, and revenues and expenses are translated at average rates prevailing during the period. Certain accounts receivable from customers are collected and certain accounts payable to vendors are payable in currencies other than the functional currencies of the Company. These amounts are adjusted to reflect period-end exchange rates. The Company recognized an unrealized gain on foreign currency transactions of $187,252 during the year ended December 31, 2013. The Company recognized an unrealized loss on foreign currency transactions of $55,793 during the year ended December 31, 2012. |
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Share-based Compensation, Option and Incentive Plans Policy [Policy Text Block] | ' |
Stock-Based Compensation Plans |
Stock-based compensation expense for all share-based payment awards granted after January 1, 2006 is based on the grant-date fair value estimates. Compensation costs are recognized on a straight line basis over the requisite service period of the award, which is generally the option vesting term or immediately for options vested at the date of grant. Valuations are based on highly subjective assumptions about the future, including stock price volatility and exercise patterns. The fair value of share-based payment awards was estimated using the Black-Scholes option pricing model. Expected volatilities are based on the historical volatility of the Company’s stock. The Company uses historical data to estimate option exercise and employee terminations. The expected term of options granted represents the period of time that options granted are expected to be outstanding. The risk-free rate for periods within the expected life of the option is based on the United States Treasury yield curve in effect at the time of the grant. The Company estimates forfeitures for employee stock options and recognizes the compensation costs for only those options expected to vest. Forfeiture rates are determined for two groups, for directors and senior management and for all other employees, based upon historical experience. Estimated forfeitures are adjusted to actual forfeiture experience as needed. The cumulative effect of the change in forfeiture rates was immaterial for the years ended December 31, 2013 and 2012. |
As of December 31, 2013, the Company had stock-based employee compensation plans as described in Note 10, Shareholders’ Equity. The Company recorded total compensation expense of $134,000 for the year ended December 31, 2013 and $55,000 for the year ended December 31, 2012. |
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Earnings Per Share, Policy [Policy Text Block] | ' |
Income (Loss) per Share |
Basic income (loss) per share excludes any dilution. It is based upon the weighted average number of shares of common stock outstanding during the period. Diluted loss per share reflects the potential dilution that would occur if securities or other contracts to issue common stock were exercised or converted into common stock. As of December 31, 2013 and 2012, 450,000 and 15,854,204 shares of common stock, respectively, underlying stock options and warrants were not included in computing diluted income per share because their effects would be anti-dilutive. |
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Fair Value Measurement, Policy [Policy Text Block] | ' |
Fair Value Measurement |
The Financial Accounting Standards Board’s (the “FASB”) Accounting Standards Codification Topic 820 (“ASC 820”) defines fair value as the price that would be received to sell an asset or paid to transfer a liability in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability, in an orderly transaction between market participants at the measurement date. |
FASB ASC framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). |
The three levels of the fair value hierarchy under FASB ASC 820 are described below: |
| Level 1 | Quoted market prices in active markets for identical assets or liabilities; | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Level 2 | Inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted market prices in markets that are not active or other inputs that are either directly or indirectly observable; and | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Level 3 | Unobservable inputs using estimates and assumptions developed by the Company, which reflect those that a market participant would use. | | | | | | | | | | | | | | | | | | | | | | | | | | |
The asset or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of the observable inputs and minimize the use of unobservable inputs. |
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New Accounting Pronouncements, Policy [Policy Text Block] | ' |
Recently Issued Accounting Standards |
In July 2012, the FASB issued ASU 2012-02 “Intangibles-Goodwill and Other.” This guidance relates to testing indefinite-lived assets for impairment and will give entities an option not to calculate annually the fair value of an indefinite-lived intangible asset if the entity determines that it is not more likely than not that the asset is impaired. This type of assessment based on qualitative factors is similar to the goodwill impairment testing in ASU 2011-08. The amendments are effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. These new requirements are not expected to have a material impact on the Company’s consolidated financial statements. |
In February 2013, the FASB issued ASU 2013-02 “Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income.” This guidance requires an entity to report the effect of significant reclassifications out of accumulated other comprehensive income (loss) on the respective line items in net income (loss) if the amount being reclassified is required under US GAAP. For other amounts that are not required under US GAAP to be reclassified, in their entirety to net income in the same reporting period, an entity is required to cross-reference other disclosures required under US GAAP that provide additional detail about those amounts. The amendments are effective prospectively for reporting periods beginning after December 15, 2012. These new disclosure requirements are not expected to have a material impact on the Company’s consolidated financial statements. |
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