| Summary of Significant Accounting Policies | Use
of Estimates The preparation
of condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States
of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent liabilities at the dates of the condensed consolidated financial statements and the reported amounts
of revenues and expenses during the reporting periods. Actual results could differ from these estimates. Significant estimates
and assumptions include reserves and write-downs related to receivables and inventories, the recoverability of long-lived assets,
the valuation allowance relating to the Company’s deferred tax assets, valuation of equity and derivative instruments, debt
discounts, valuation of investments, determination of the relative selling prices of the components sold to Invekra, and the estimated
amortization periods of upfront product licensing fees received from customers. Periodically, the Company evaluates and adjusts
estimates accordingly. The allowance for doubtful accounts represents probable credit losses of $13,000 and $14,000 at December
31, 2017 and March 31, 2017, respectively. Additionally, at December 31, 2017 and March 31, 2017 the Company has allowances of
$1,423,000 and $672,000, respectively, related to potential discounts, returns, distributor fees and rebates. The allowances are
included in Accounts Receivable, net in the accompanying condensed consolidated balance sheets. Basic and Diluted Net Income
(Loss) per common share Basic earnings
and loss per share for both continuing and discontinued operations are computed by dividing the net income or loss available to
common stockholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share
is computed using the weighted average number of common shares and, if dilutive, potential common shares outstanding during the
period. Potential common shares consist of the incremental common shares issuable upon the exercise of stock options (using the
treasury stock method) and warrants (using the if-converted method). Diluted loss per share excludes the shares issuable upon
the exercise of stock options and warrants from the calculation of net loss per share as their effect would be anti-dilutive.
Three Months Ended Nine Months Ended
December
31, December
31,
2017 2016 2017 2016
Numerator:
Net (loss) income
from continuing operations $ (3,187,000 ) $ 763,000 $ (9,565,000 ) $ (5,740,000 )
Net income from discontinued operations (net
of tax) – 15,465,000 – 17,450,000
Net
(loss) income $ (3,187,000 ) $ 16,228,000 $ (9,565,000 ) $ 11,710,000
Denominator:
Weighted-average number
of common shares outstanding - basic 4,392,000 4,225,000 4,333,000 4,209,000
Options
to purchase common stock – 3,000 – –
Weighted-average
number of common shares outstanding - diluted 4,392,000 4,228,000 4,333,000 4,209,000
Basic – net (loss)
income from continuing operations $ (0.73 ) $ 0.18 $ (2.21 ) $ (1.36 )
Basic
– net income from discontinued operations (net of tax) – 3.66 – 4.15
$ (0.73 ) $ 3.84 $ (2.21 ) $ 2.79
Diluted – net loss
income from continuing operations $ (0.73 ) $ 0.18 $ (2.21 ) $ (1.36 )
Diluted
– net income from discontinued operations (net of tax) – 3.66 – 4.15
$ (0.73 ) $ 3.84 $ (2.21 ) $ 2.79 The following
securities were excluded from the weighted average dilutive common shares outstanding because their inclusion would have been
antidilutive.
Three Months Ended Nine Months Ended
December
31, December
31,
2017 2016 2017 2016
Restricted stock
units 33,000 – 33,000 –
Options to purchase common
stock 1,385,000 848,000 1,385,000 851,000
Warrants
to purchase common stock 1,333,000 1,365,000 1,333,000 1,365,000
2,751,000 2,213,000 2,751,000 2,216,000 Revenue
Recognition and Accounts Receivable The Company
generates revenue from sales of its products to a customer base including hospitals, medical centers, doctors, pharmacies, distributors
and wholesalers. The Company sells products directly to end users and to distributors. The Company also has entered into agreements
to license its technology and products. The Company
also provides regulatory compliance testing and quality assurance services to medical device and pharmaceutical companies. The Company
records revenue when (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred, (iii) the fee
is fixed or determinable, and (iv) collectability of the sale is reasonably assured. The Company
requires all product sales to be supported by evidence of a sale transaction that clearly indicates the selling price to the customer,
shipping terms and payment terms. Evidence of an arrangement generally consists of a contract or purchase order approved by the
customer. The Company has ongoing relationships with certain customers from which it customarily accepts orders by telephone in
lieu of purchase orders. The Company
recognizes revenue at the time it receives confirmation that the goods were either tendered at their destination, when shipped
“FOB destination,” or transferred to a shipping agent, when shipped “FOB shipping point.” Delivery to
the customer is deemed to have occurred when the customer takes title to the product. Generally, title passes to the customer
upon shipment, but could occur when the customer receives the product based on the terms of the agreement with the customer. The selling
prices of all goods are fixed, and agreed to with the customer, prior to shipment. Selling prices are generally based on established
list prices. The right to return product is customarily based on the terms of the agreement with the customer. The Company estimates
and accrues for potential returns and records this as a reduction of revenue in the same period the related revenue is recognized.
Additionally, distribution fees are paid to certain wholesale distributors based on contractually determined rates. The Company
estimates and accrues the fee on shipment to the respective wholesale distributors and recognizes the fee as a reduction of revenue
in the same period the related revenue is recognized. The Company also offers cash discounts to certain customers, generally 2%
of the sales price, as an incentive for prompt payment. The Company accounts for cash discounts by reducing accounts receivable
by the prompt pay discount amount and recognizes the discount as a reduction of revenue in the same period the related revenue
is recognized. Additionally, the Company participates in certain rebate programs which provide discounted prescriptions to qualified
patients. The Company contracts with a third-party to administer the program. The Company estimates and accrues for future rebates
based on historical data for rebate redemption rates and the historical value of redemptions. Rebates are recognized as a reduction
of revenue in the same period the related revenue is recognized. The Company
evaluates the creditworthiness of new customers and monitors the creditworthiness of its existing customers to determine whether
an event or changes in their financial circumstances would raise doubt as to the collectability of a sale at the time in which
a sale is made. Payment terms on sales made in the United States are generally 30 to 60 days and are extended up to 90 days
for initial product launches, payment terms internationally generally range from prepaid prior to shipment to 90 days. In the event
a sale is made to a customer under circumstances in which collectability is not reasonably assured, the Company either requires
the customer to remit payment prior to shipment or defers recognition of the revenue until payment is received. The Company maintains
a reserve for amounts which may not be collectible due to risk of credit losses. In the event
a sale is made to a customer under circumstances in which returns cannot be estimated, the Company defers recognition of the revenue
until sell-through is confirmed. Product license
revenue is generated through agreements with strategic partners for the commercialization of Microcyn® products. The terms
of the agreements sometimes include non-refundable upfront fees. The Company analyzes multiple element arrangements to determine
whether the elements can be separated. Analysis is performed at the inception of the arrangement and as each product is delivered.
If a product or service is not separable, the combined deliverables are accounted for as a single unit of accounting and recognized
over the performance obligation period. When appropriate,
the Company defers recognition of non-refundable upfront fees. If the Company has continuing performance obligations then such
up-front fees are deferred and recognized over the period of continuing involvement. The Company
recognizes royalty revenues from licensed products upon the sale of the related products. Revenue from
consulting contracts is recognized as services are provided. Revenue from testing contracts is recognized as tests are completed
and a final report is sent to the customer. Inventories Inventories
are stated at the lower of cost, cost being determined on a standard cost basis (which approximates actual cost on a first-in,
first-out basis), or net realizable value. Due to changing
market conditions, estimated future requirements, age of the inventories on hand and production of new products, the Company regularly
reviews inventory quantities on hand and records a provision to write down excess and obsolete inventory to its estimated net
realizable value. The Company recorded reserves to reduce the carrying amounts of inventories to their net realizable value in
the amounts of $201,000 and $61,000 at December 31, 2017 and March 31, 2017, respectively. Reclassifications Certain
prior period amounts have been reclassified for comparative purposes to conform to the fiscal 2018 presentation. These reclassifications
have no impact on the Company’s previously reported condensed consolidated net loss. Subsequent
Events The
Company evaluates events that have occurred after the balance sheet date but before the financial statements are issued. Based
upon the evaluation, the Company did not identify any recognized or non-recognized subsequent events that would have required
adjustment or disclosure in the condensed consolidated financial statements (Note 11). Adoption
of Recent Accounting Standards In March
2016 the FASB issued ASU No. 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based
Payment Accounting On
April 1, 2017, the Company adopted ASU No. 2016-09. As a result of adopting ASU No. 2016-09, the Company has made an
accounting policy election to account for forfeitures as they occur. This change has been applied on a modified retrospective
basis, with no material impacts on the Company’s financial statements. The adoption of ASU No. 2016-09 also requires
excess tax benefits and tax deficiencies be recorded in the income statement as opposed to additional paid-in capital when the
awards vest or are settled and recognize all previously unrecognized excess tax benefits and tax deficiencies upon adoption as
a cumulative-effect adjustment to retained earnings. As of April 1, 2017, the Company recognized excess tax benefit of approximately
$533,000 as an increase to deferred tax assets. However, the entire amount was offset by a full valuation allowance. Accordingly,
no cumulative-effect adjustment to retained earnings was recorded as of December 31, 2017. Additionally,
the adoption of ASU No. 2016-09 related to the accounting for minimum statutory withholding tax requirements and cash paid
by an employer when directly withholding shares for tax-withholding purposes had no impact on the Company's current consolidated
financial statements or on any prior period financial statements presented. Recent
Accounting Standards Leases In February
2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.
2016-02, Leases (Topic 842) Leases (Topic 840) Amendments to SEC Paragraphs Pursuant to the Staff
Announcement at the July 20, 2017 EITF Meeting and Rescission of Prior SEC Staff Announcements and Observer Comments Revenue In May 2014,
the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers Principal versus Agent Considerations (Reporting Revenue
Gross versus Net) Identifying Performance Obligations and Licensing Narrow-Scope Improvements and Practical
Expedients Technical Corrections and Improvements
to Topic 606, Revenue from Contracts with Customers Revenue Recognition (Topic 605), Revenue from Contracts with Customers (Topic 606), Leases (Topic 840), and Leases
(Topic 842), Business
Combinations In January
2017, the FASB issued an ASU 2017-01, Business Combinations (Topic 805) Clarifying the Definition of a Business Stock
Compensation In
May 2017, the FASB issued ASU No. 2017-09, Compensation–Stock Compensation Scope of Modification
Accounting Accounting
standards that have been issued or proposed by the FASB, the SEC or other standard setting bodies that do not require adoption
until a future date are not expected to have a material impact on the consolidated financial statements upon adoption. |
