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Basis of Presentation and Significant Accounting Policies (Policies)
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9 Months Ended | |||||||||||||||||||||||||||||||
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Sep. 30, 2014
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| Accounting Policies [Abstract] | ||||||||||||||||||||||||||||||||
| Basis of Presentation |
The consolidated financial statements of the Company are prepared in U.S. Dollars and in accordance with accounting principles generally accepted in the United States of America (US GAAP). The Company is an emerging growth company as the term is used in The Jumpstart Our Business Startups Act enacted on April 5, 2012 and has elected to comply with certain reduced public company reporting requirements. |
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| Use of Estimates |
The preparation of financial statements in conformity with US GAAP requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected. In particular, information about significant areas of estimation, uncertainty and critical judgments in applying accounting policies that have the most significant effect on the amounts recognized in the financial statements is included in the following notes for revenue recognition, allowances for doubtful accounts, inventory write-downs, impairment of intangible assets and valuation of share based payments. |
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| Foreign Currency |
These consolidated financial statements are presented in U.S. Dollars, which is the Company’s functional currency. All financial information presented in U.S. Dollars has been rounded to the nearest dollar. Foreign Currency Transaction Gains or Losses, resulting from loans and cash balances denominated in Foreign Currencies, are recorded in the statement of operations. |
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| Comprehensive Income/(Loss) |
The Company follows Financial Accounting Standards Board Accounting Standards Codification (FASB ASC) 220 in reporting comprehensive income (loss). Comprehensive income is a more inclusive financial reporting methodology that includes disclosure of certain financial information that historically has not been recognized in the calculation of net income. |
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| Cash and Cash Equivalents |
Cash and cash equivalents comprise cash balances. The Company considers all highly liquid investments, which include short-term bank deposits (up to 3 months from date of deposit) that are not restricted as to withdrawal date or use, to be cash equivalents. Bank overdrafts are shown as part of trade and other payables in the balance sheet. |
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| Fair Value of Financial Instruments |
The Company’s financial instruments consist of cash, receivables and trade and other payables. The carrying value of cash, trade receivables and trade and other payables approximate their fair value because of their short maturities. |
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| Fair Value Measurement |
The Company applies fair value accounting for all financial assets and liabilities and non-financial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis. The Company defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the FASB has established three levels of inputs that may be used to measure fair value: Level 1 Quoted prices in active markets for identical assets or liabilities. Level 2 Observable inputs other Level 1 inputs in active markets that are observable either directly or indirectly. Level 3 Inputs that are generally unobservable and typically reflect management’s estimate of assumptions that market participants would use in pricing the asset or liability. The Company’s valuation techniques used to measure the fair value of money market funds and certain marketable equity securities were derived from quoted prices in active markets for identical assets or liabilities. In accordance with the fair value accounting requirements, companies may choose to measure eligible financial instruments and certain other items at fair value. The Company has not elected the fair value option for any eligible financial instruments. |
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| Trade Receivables, Trade Receivables - Related Party and Allowance for Doubtful Accounts |
The carrying amounts of current trade receivables is stated at cost, net of allowance for doubtful accounts and approximate their fair value given their short term nature. The normal credit terms extended to customers ranges between 30 and 90 days. The Company reviews all receivables that exceed terms and establishes an allowance for doubtful accounts based on management’s assessment of the collectability of trade and other receivables. A considerable amount of judgment is required in assessing the amount of allowance. The Company considers the historical level of credit losses, makes judgments about the credit worthiness of each customer based on ongoing credit evaluations and monitors current economic trends that might impact the level of credit losses in the future. As of September 30, 2014 and December 31, 2013, allowances for doubtful accounts were $- and $-. Allowances charged for doubtful accounts amounted to $- for the three and nine months ended September 30, 2014 and 2013. |
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| Concentration of Credit Risk |
The Company is exposed to credit risk in the normal course of business primarily related to trade receivables and cash and cash equivalents. Substantially all of the Company’s cash are maintained with Fulton Bank of New Jersey and Bank of America. The funds are insured by the Federal Deposit Insurance Corporation up to a maximum of $250,000 per account or instrument, but are otherwise unprotected. The Company placed $606,988 with Fulton Bank of New Jersey, $31,487 with Bank of America and $4,040 PayPal as of September 30, 2014. The Company placed $855 with Fulton Bank of New Jersey, $98,563 with Bank of America and $4,216 with PayPal as of December 31, 2013. Concentration of credit risk with respect to trade receivables exists as approximately 82% of its revenue was generated by three customers for the nine months ended September 30, 2014. These customers accounted for 96% of trade receivables as of September 30, 2014. Concentration of credit risk with respect to trade receivables exists as approximately 85% of its revenue was generated by three customers for the year ended December 31, 2013, respectively. These customers accounted for 97% of trade receivables as of December 31, 2013. In order to limit such risks, the Company performs ongoing credit evaluations of its customers’ financial condition. |
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| Inventories |
Inventories are measured at the lower of cost or market. The cost of inventories is based on the weighted-average principle, and includes expenditures incurred in acquiring the inventories, production or conversion costs and other costs incurred in bringing them to their existing location and condition. In the case of manufactured inventories and work in progress, costs include an appropriate share of production overheads based on normal operating capacity. |
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| Property, Plant and Equipment |
Items of property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses. Costs include expenditures that are directly attributable to the acquisition of the asset. Gains and losses on disposal of an item of property, plant and equipment are determined by comparing the proceeds from disposal with the carrying amount of property, plant and equipment and are recognized within “other income” in the statement of operations. Depreciation is recognized in the statement of operations on the accelerated basis over the estimated useful lives of the property, plant and equipment. Leased assets are depreciated over the shorter of the lease term or their useful lives. The estimated useful lives for the current and comparative periods are as follows:
Depreciation methods, useful lives and residual values are reviewed at each reporting date. |
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| Intangible Assets |
The Company has developed or acquired several diagnostic tests that can detect the presence of various substances in a person’s breath, blood, urine and saliva. Propriety protection for the Company’s products, technology and process is important to its competitive position. As of September 30, 2014, the Company has eleven patents from the United States Patent Office in effect (7,896,167, 8,097,171, 7,285,246, 7,837,936, 8,003,061, 8,425,859, 5,565,366, 5,827,749, D691,056, D691,057 and D691,058). Other patents are in effect in Australia through the Design Registry (348,310, 348,311 and 348,312), the Community Trade Mark in the European Union ((OHIM) 002216895-0001, 002216895-0002 and 002216895-0003) and in Japan (4,885,134 and 4,931,821). Patents are in the national phase of prosecution in many Patent Cooperation Treaty participating countries. Additional proprietary technology consists of numerous different inventions. The Company intends to file additional patent applications, where appropriate, relating to new products, technologies and their use in the U.S., European and Asian markets. Management intends to protect all other intellectual property (e.g. copyrights, trademarks and trade secrets) using all legal remedies available to the Company.
Costs associated with applying for patents are capitalized as patent costs. Once the patents are approved, the respective costs are amortized over their estimated useful lives (maximum of 17 years) on a straight-line basis. Patent pending costs for patents that are not approved are charged to operations the year the patent is rejected.
Other intangible assets that are acquired by the Company, which have definite useful lives, are measured at cost less accumulated amortization and accumulated impairment losses.
Amortization is recognized on a straight-line basis over the estimated useful lives of intangible assets, other than goodwill, from the date that they are available for use. The estimated useful lives for the current and comparative periods are as follows:
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| Recoverability of Long-lived Assets |
In accordance with FASB ASC 360-10-35 “Impairment or Disposal of Long-lived Assets”, long-lived assets to be held and used are analyzed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable or that the useful lives of those assets are no longer appropriate. The Company evaluates at each balance sheet date whether events and circumstances have occurred that indicate possible impairment. No such events and circumstances have occurred during the nine months ended September 30, 2014 and 2013. The Company determines the existence of such impairment by measuring the expected future cash flows (undiscounted and without interest charges) and comparing such amount to the carrying amount of the assets. An impairment loss, if one exists, is then measured as the amount by which the carrying amount of the asset exceeds the discounted estimated future cash flows. Assets to be disposed of are reported at the lower of the carrying amount or fair value of such assets less costs to sell. Asset impairment charges are recorded to reduce the carrying amount of the long-lived asset that will be sold or disposed of to their estimated fair values. Charges for the asset impairment reduce the carrying amount of the long-lived assets to their estimated salvage value in connection with the decision to dispose of such assets. |
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| Revenue Recognition |
In accordance with FASB ASC 605, the Company recognizes revenue when (i) persuasive evidence of a customer or distributor arrangement exists, (ii) a retailer, distributor or wholesaler receives the goods and acceptance occurs, (iii) the price is fixed or determinable, and (iv) the collectability of the revenue is reasonably assured. Subject to these criteria, the Company recognizes revenue from product sales when title passes to the customer based on shipping terms. The Company typically does not accept returns nor offer charge backs or rebates except for certain distributors. Revenue recorded is net of any discount, rebate or sales return. No accrual for estimated sales returns and rebate incentives are necessary as of September 30, 2014 and December 31, 2013. The Company’s new distributor in Australia, Singapore, Oman and the United Arab Emirates, Thirty Six Strategies General Trading LLC (“36S”), placed their first order for one of the Company’s REA based products during the three months ended June 30, 2014. The Company with the assistance of 36S, has submitted the product to Australia’s Therapeutic Goods Administration (“TGA”) and is awaiting final government approval for 36S to begin marketing the product. Although 36S has the right to return this product should the TGA deny government approval, the Company believes the likelihood of rejection is minimal and therefore recognized the entire sales transaction of $864,000 in revenue during the three months ended June 30, 2014. The product carries a United States Food and Drug Administration (“FDA”) Over-the-Counter approval (FDA K880723), three Conformité Européenne (“CE”) Marks (DE/CA09/0170/IVD/1428; DE/CA09/0170/IVD/1429; DE/CA09/0170/IVD/1430) for the European Economic Area and a Health Canada approval (73007) for Canada. The Company has never been denied a foreign government approval for any of its products that carries an FDA approval. The sole condition under which the product can be returned is the failure of the Company to attain TGA approval for the test. Given the existing approvals attained by the Company for the product and the Company’s history with attaining foreign government approvals, the Company has determined that the risk of a product return is insignificant. The Company granted 36S extended terms for this specific sale, as allowed in the distribution agreement, to allow Australia’s Therapeutic Goods Administration time to issue the government approval required for them to begin actively marketing the product. The Company believes that the receivable is fully collectable and therefore no allowance for doubtful accounts is deemed necessary. Based on the above, the Company determined that the revenue recognition for this transaction is in accordance with the FASB ASC 605-15-25-1 and 605-15-25-3. License fee revenue is recognized on a straight-line basis over the term of the license agreement. When the Company enters into arrangements that contain more than one deliverable, the Company allocates revenue to the separate elements under the arrangement based on their relative selling prices in accordance with FASB ASC 605-25. |
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| Income Taxes |
The Company follows FASB ASC 740 when accounting for income taxes, which requires an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are computed annually for temporary differences between the financial statements and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense or benefit is the tax payable or refundable for the period plus or minus the change during the period in deferred tax assets and liabilities. |
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| Shipping and Handling Fees and Costs |
The Company charges actual shipping plus a handling fee to customers, which amounted to $8,440 and $ $25,677 for the three and nine months ended September 30, 2014 and $9,574 and $32,158 for the three and nine months ended September 30, 2013. These fees are classified as part of product revenue in the statement of operations. Shipping and other related delivery costs, including those for incoming raw materials are classified as part of the cost of net revenue, which amounted to $18,031 and $47,238 for the three and nine months ended September 30, 2014 and $16,615 and $75,337 for the three and nine months ended September 30, 2013. |
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| Research and Development Costs |
In accordance with FASB ASC 730, research and development costs are expensed when incurred. |
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| Stock-based Payments |
The Company accounts for stock-based compensation under the provisions of FASB ASC 718, CompensationStock Compensation, which requires the measurement and recognition of compensation expense for all stock-based awards made to employees and directors based on estimated fair values on the grant date. The Company estimates the fair value of stock-based awards on the date of grant using the Black-Scholes model. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the shorter of the period over which services are to be received or the vesting period. The Company accounts for stock-based compensation awards to non-employees in accordance with FASB ASC 505-50, Equity-Based Payments to Non-Employees. Under FASB ASC 505-50, the Company determines the fair value of the stock-based compensation awards granted as either the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. The Company estimates the fair value of stock-based awards on the date of grant using the Black-Scholes model. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the period which services are to be received. |
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| Basic and Diluted Earnings per Share of Common Stock |
Basic earnings per common share are based on the weighted average number of shares outstanding during the periods presented. Diluted earnings per share are computed using the weighted average number of common shares plus dilutive common share equivalents outstanding during the period. The calculation of basic and diluted loss per share for the nine months ended September 30, 2014 and 2013 was based on a loss of $2,230,708 and $745,215 attributable to common shareholders and for the three months ended September 30, 2014 and 2013 was based on a loss of $1,124,320 and $544,370 attributable to commons stockholders, respectively. Potential common shares consist of options and warrants. Diluted net loss per common share was the same as basic loss per common share for the three and nine months ended September 30, 2014 and 2013 since the effect of options and warrants would be anti-dilutive due to the net loss attributable to the common shareholders for the periods. Instruments excluded from dilutive earnings per share, because their inclusion would be anti-dilutive, were 175,000 units of options and 1,989 units of warrants.
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| Recently Adopted Accounting Pronouncements |
As of September 30, 2014 and for the nine months then ended, there were no recently adopted accounting pronouncements that had a material effect on the Company’s financial statements. |
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| Recently Issued Accounting Pronouncements not Yet Adopted |
As of September 30, 2014, there are no recently issued standards not yet adopted which would have a material effect on the Company’s financial statements. |