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Basis of Presentation and Significant Accounting Policies | 9 Months Ended
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Sep. 30, 2015
Accounting Policies [Abstract] |
Basis of Presentation and Significant Accounting Policies | Note 2 - Basis of Presentation and Significant Accounting Policies
| (a) | Basis of Presentation
The condensed consolidated financial statements of the Company are prepared in U.S. Dollars and in accordance with 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.
| (b) | Use of Estimates
The preparation of financial statements in conformity with 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.
| (c) | Reclassifications
Trade receivables – related parties in the condensed consolidated balance sheet as of December 31, 2014 and Product revenue – related parties in the condensed consolidated statement of operations for the nine months ended September 30, 2014 were reclassified to conform with the classification in 2015.
| (d) | Foreign Currency
These condensed 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 condensed consolidated statement of operations.
| (e) | 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.
| (f) | 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 condensed consolidated balance sheet.
| (g) | Fair Value of Financial Instruments
The Company’s financial instruments consist of cash and cash equivalents, marketable securities, receivables and trade and other payables. The carrying value of cash and cash equivalents, receivables and trade and other payables approximate their fair value because of their short maturities. The Company believes the carrying amount of its note receivable approximates its fair value based on rates and other terms. The fair value of marketable securities is described in Note 2(g).
| (h) | Fair Value Measurement – Marketable Securities
The framework for measuring fair value 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) and the lowest priority to unobservable inputs (level 3). The three levels of the fair value hierarchy under FASB ASC 820 are described as follows:
| Level 1 | Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the Company has the ability to access.
| Level 2 | Inputs to the valuation methodology include
| ● | quoted prices for similar assets or liabilities in active markets;
| ● | quoted prices for identical or similar assets or liabilities in inactive markets;
| ● | inputs other than quoted prices that are observable for the asset or liability;
| ● | inputs that are derived principally from or corroborated by observable market data by correlation or other means.
If the asset or liability has a specified (contractual) term, the level 2 input must be observable for substantially the full term of the asset or liability.
| Level 3 | Inputs to the valuation methodology are unobservable and significant to the fair value measurement.
The asset or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. Valuation techniques maximize the use of relevant observable inputs and minimize the use of unobservable inputs.
| (i) | 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, 2015 and December 31, 2014, allowances for doubtful accounts were $864,000 (Note 4) and $-. Allowances charged for doubtful accounts amounted to $- and $864,000 for the three and nine months ended September 30, 2015 and $- for the three and nine months ended September 30, 2014.
| (j) | 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 is 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 $361,800 and $399,417 with Fulton Bank of New Jersey, $27,532 and $52,384 with Bank of America and $4,040 with PayPal as of September 30, 2015 and December 31, 2014. Concentration of credit risk with respect to trade receivables exists as approximately 72% of its revenue was generated by two customers for the nine months ended September 30, 2015. These customers accounted for 20% of gross trade receivables (including related parties) as of September 30, 2015. In order to limit such risks, the Company performs ongoing credit evaluations of its customers’ financial condition. Included in accounts receivable as of September 30, 2015 and December 31, 2014 is a receivable of $500,000 and $1,000,000 due to be paid in two installments of $500,000, the first on April 30, 2015 and the second on July 30, 2015. The April 2015 payment of $500,000 was received on August 11, 2015.
| (k) | 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.
| (l) | 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 condensed consolidated statement of operations. Depreciation is recognized in the condensed consolidated 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:
|  | Useful Life
|  | (in years)
Plant and equipment |  | 5-12
Furniture and fixtures |  | 5-10
Computer equipment & software |  | 3-5
Depreciation methods, useful lives and residual values are reviewed at each reporting date.
| (m) | Intangible Assets
| (i) | Patents and Trade Secrets
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, 2015, the Company has nine 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; 8,871,521; 5,827,749 and 8,808,639). 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.
| (ii) | Patent Costs
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 the statement of operations the year the patent is rejected. In addition, patents may be purchased from third parties. The costs of acquiring the patent are capitalized as patent costs if it represents a future economic benefit to the Company. Once a patent is acquired it is amortized over its remaining useful life.
| (iii) | Other Intangible Assets
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.
| (iv) | Amortization
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:
|  | Useful Life
|  | (in years)
Patents and trademarks |  | 12-17
Customer lists |  | 5
| (n) | 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. As a result of this evaluation, the Company determined that the carrying amounts of the two patents and a trademark are not recoverable and therefore recorded an impairment charge. During the three and nine months ended September 30, 2015 $466,476 (2014 $-) was recorded as impairment expense on the condensed consolidated statements of operations. 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.
| (o) | Investments
In accordance with FASB ASC 323, the Company recognizes investments in joint ventures based upon the Company’s ability to significantly influence the operational or financial policies of the joint venture. An objective judgment of the level of influence is made at the time of the investment based upon several factors including, but not limited to the following:
| a) | Representation on the Board of Directors
| b) | Participation in policy-making processes
| c) | Material intra-entity transactions
| d) | Interchange of management personnel
| e) | Technological dependencies
| f) | Extent of ownership and the ability to influence decision making based upon the makeup of other owners when the shareholder group is small.
The Company follows the equity method for valuating investments in joint ventures when the existence of significant influence over operational and financial policy has been established, as determined by management; otherwise, the Company will valuate these investments using the cost method. Investments recorded using the cost method will be assessed for any decrease in value that has occurred that is other than temporary and the other than temporary decrease in value shall be recognized. As and when circumstances and facts change, the Company will evaluate the Company’s ability to significantly influence operational and financial policy to establish a basis for converting the investment accounted for using the cost method to the equity method of valuation. On March 9, 2015, the Company contributed capital of $64,675 in Hainan Savy Akers Biosciences, Ltd., a company incorporated in the People’s Republic of China, resulting in a 19.9% ownership interest. The contribution was adjusted downward to $64,091 on April 8, 2015; the net effect of the currency conversion when the contribution was processed in Hainan. This is included in other assets in the condensed consolidated balance sheet as of September 30, 2015 and is accounted for using the cost method.
| (p) | 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 are necessary as of September 30, 2015 and December 31, 2014. The Company instituted a significant price increase for certain PIFA products effective May 1, 2015. In an effort to phase in the increase for existing customers, the Company is providing a rebate to its distributors for the price increase through December 31, 2015 for their existing customer base as of April 30, 2015. The Company has established an accrual of $70,282 and $362,150, which is a reduction of revenue, for the three and nine months ended September 30, 2015 for this program. Accounts receivable will be reduced when the rebates are applied by the customer. 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.
| (q) | 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.
| (r) | Shipping and Handling Fees and Costs
The Company charges actual shipping plus a handling fee to customers, which amounted to $10,998 and $43,776 for the three and nine months ended September 30, 2015 and $8,440 and $25,677 for the three and nine months ended September 30, 2014. These fees are classified as part of product revenue in the condensed consolidated statements 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 $15,590 and $82,997 for the three and nine months ended September 30, 2015 and $18,031 and $47,238 for the three and nine months ended September 30, 2014.
| (s) | Research and Development Costs
In accordance with FASB ASC 730, research and development costs are expensed when incurred.
| (t) | Stock-based Payments
The Company accounts for stock-based compensation under the provisions of FASB ASC 718, “Compensation—Stock 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 to non-employees 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. At the end of each financial reporting period, prior to vesting or prior to the completion of services, the fair value of equity based payments will be re-measured and the non-cash expense recognized during the period will be adjusted accordingly. Since the fair value of equity based payments granted to non-employees is subject to change in the future, the amount of the future expense will include fair value re-measurements until the equity based payments are fully vested or the service is completed.
| (u) | 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 the basic and diluted loss per share for the three months ended September 30, 2015 and 2014 was based on a loss attributable to common stockholders of $2,326,893 and $1,124,320. The calculation of basic and diluted loss per share for the nine months ended September 30, 2015 and 2014 was based on a loss of $5,734,921 and $2,230,708 attributable to common stockholders. 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, 2015 and 2014 since the effect of options and warrants would be anti-dilutive due to the net loss attributable to the common stockholders for the periods. Instruments excluded from dilutive earnings per share, because their inclusion would be anti-dilutive, were 175,000 units of options for the three and nine months ended September 30, 2015 and 1,989 units of warrants and 175,000 units of options for the three and nine months ended September 30, 2014.
| (v) | Recently Adopted Accounting Pronouncements
As of September 30, 2015 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.
| (w) | Recently Issued Accounting Pronouncements not Yet Adopted
As of September 30, 2015, there are no recently issued accounting standards not yet adopted which would have a material effect on the Company’s financial statements through 2017.

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