Note 4 – Inventories

Inventories are measured at the lower of cost or net realizable value. 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 overhead based on normal operating capacity.

Inventories consist of the following:

Obsolete inventory charged to cost of goods during the years ended December 31, 2018 and 2017 totaled $453,761 and $1,208,522, respectively.

For the year ended December 31, 2018, the Company reserved $279,031 of inventory, principally in connection with the removal of OxiChek from the market, which is included in cost of goods sold and wrote-off, against the reserve, $187,399 of inventory, principally the expired BreathScan Alcohol products, resulting in a net increase of $91,632 in the reserve for obsolescence as of December 31, 2018 compared to that as of December 31, 2017.

The Company has been actively marketing, on a global basis, the BreathScan Breath Alcohol products that were produced for and/or acquired as part of the ChubeWorkx settlement agreement in August 2016. Unfortunately, the Company has not been successful in securing buyers in sufficient volumes. 

An extensive analysis of the market opportunity has been performed and it was determined that the on-hand quantity of this group of products exceeded the expected near term demand for the product prior to its expiration. As such, the Company’s management elected to establish a reserve of $1,182,400 for the year ended December 31, 2017.