Item
1. Financial Statements.
AKERS
BIOSCIENCES, INC. AND SUBSIDIARIES
Condensed
Consolidated Balance Sheets
June
30, 2016 and December 31, 2015
|
|
2016
|
|
|
2015
|
|
|
|
(unaudited)
|
|
|
(audited)
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
379,531
|
|
|
$
|
402,059
|
|
Marketable Securities
|
|
|
1,548,029
|
|
|
|
4,025,104
|
|
Trade Receivables, net
|
|
|
542,525
|
|
|
|
609,195
|
|
Trade Receivables - Related Party, net
|
|
|
31,892
|
|
|
|
31,512
|
|
Deposits and other receivables
|
|
|
64,381
|
|
|
|
95,577
|
|
Inventories, net
|
|
|
1,217,242
|
|
|
|
1,131,654
|
|
Prepaid expenses
|
|
|
142,034
|
|
|
|
185,967
|
|
|
|
|
|
|
|
|
|
|
Total Current Assets
|
|
|
3,925,634
|
|
|
|
6,481,068
|
|
|
|
|
|
|
|
|
|
|
Non-Current Assets
|
|
|
|
|
|
|
|
|
Property, Plant and Equipment, net
|
|
|
304,255
|
|
|
|
251,145
|
|
Intangible Assets, net
|
|
|
1,387,329
|
|
|
|
1,472,883
|
|
Other Assets
|
|
|
66,813
|
|
|
|
66,813
|
|
|
|
|
|
|
|
|
|
|
Total Non-Current Assets
|
|
|
1,758,397
|
|
|
|
1,790,841
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
5,684,031
|
|
|
$
|
8,271,909
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
Trade and Other Payables
|
|
$
|
1,565,702
|
|
|
$
|
1,668,731
|
|
|
|
|
|
|
|
|
|
|
Total Current Liabilities
|
|
|
1,565,702
|
|
|
|
1,668,731
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
1,565,702
|
|
|
|
1,668,731
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
Convertible Preferred Stock, No par value, 50,000,000 shares authorized,
no shares issued and outstanding as of June 30, 2016 and December 31, 2015
|
|
|
-
|
|
|
|
-
|
|
Common Stock, No par value, 500,000,000 shares authorized,
5,452,545 and 5,425,045 issued and outstanding as of June 30, 2016 and December 31, 2015
|
|
|
100,848,374
|
|
|
|
100,785,408
|
|
Deferred Compensation
|
|
|
(36,482
|
)
|
|
|
-
|
|
Accumulated Deficit
|
|
|
(96,693,860
|
)
|
|
|
(94,175,999
|
)
|
Accumulated Other Comprehensive Income/(Loss)
|
|
|
297
|
|
|
|
(6,231
|
)
|
|
|
|
|
|
|
|
|
|
Total Stockholders’ Equity
|
|
|
4,118,329
|
|
|
|
6,603,178
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders’ Equity
|
|
$
|
5,684,031
|
|
|
$
|
8,271,909
|
|
See
accompanying notes to these condensed consolidated financial statements.
AKERS
BIOSCIENCES, INC. AND SUBSIDIARIES
Condensed
Consolidated Statements of Operations and Comprehensive Income
(unaudited)
|
|
Three months
ended
|
|
|
Six months ended
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product Revenue
|
|
$
|
956,486
|
|
|
$
|
744,700
|
|
|
$
|
1,694,510
|
|
|
$
|
1,142,071
|
|
Product Revenue - Related party
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
14,343
|
|
License Revenue
|
|
|
-
|
|
|
|
10,000
|
|
|
|
-
|
|
|
|
15,000
|
|
License Revenue - Related party
|
|
|
-
|
|
|
|
212,222
|
|
|
|
-
|
|
|
|
305,556
|
|
Total Revenues
|
|
|
956,486
|
|
|
|
966,922
|
|
|
|
1,694,510
|
|
|
|
1,476,970
|
|
Cost of Sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product Cost of Sales
|
|
|
(276,848
|
)
|
|
|
(341,025
|
)
|
|
|
(476,876
|
)
|
|
|
(567,367
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit
|
|
|
679,638
|
|
|
|
625,897
|
|
|
|
1,217,634
|
|
|
|
909,603
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Administrative Expenses
|
|
|
816,244
|
|
|
|
882,531
|
|
|
|
1,739,806
|
|
|
|
1,580,964
|
|
Administrative Expenses - Related parties
|
|
|
-
|
|
|
|
864,000
|
|
|
|
-
|
|
|
|
864,000
|
|
Sales and Marketing Expenses
|
|
|
513,430
|
|
|
|
553,539
|
|
|
|
1,238,754
|
|
|
|
1,128,792
|
|
Research and Development Expenses
|
|
|
321,989
|
|
|
|
378,225
|
|
|
|
685,280
|
|
|
|
683,799
|
|
Amortization of Non-Current Assets
|
|
|
42,777
|
|
|
|
64,643
|
|
|
|
85,554
|
|
|
|
129,286
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from Operations
|
|
|
(1,014,802
|
)
|
|
|
(2,117,041
|
)
|
|
|
(2,531,760
|
)
|
|
|
(3,477,238
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (Income)/Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Currency Transaction Loss
|
|
|
2,562
|
|
|
|
6,965
|
|
|
|
4,817
|
|
|
|
5,969
|
|
Interest and Dividend Income
|
|
|
(8,432
|
)
|
|
|
(37,122
|
)
|
|
|
(18,716
|
)
|
|
|
(69,169
|
)
|
Other Income
|
|
|
-
|
|
|
|
(655
|
)
|
|
|
-
|
|
|
|
(6,010
|
)
|
Total Other Income
|
|
|
(5,870
|
)
|
|
|
(30,812
|
)
|
|
|
(13,899
|
)
|
|
|
(69,210
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss Before Income Taxes
|
|
|
(1,008,932
|
)
|
|
|
(2,086,229
|
)
|
|
|
(2,517,861
|
)
|
|
|
(3,408,028
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Tax Benefit
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss Attributable to Common Stockholders
|
|
|
(1,008,932
|
)
|
|
|
(2,086,229
|
)
|
|
|
(2,517,861
|
)
|
|
|
(3,408,028
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Comprehensive Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Unrealized (Losses)/Gains on Marketable
Securities
|
|
|
(2,006
|
)
|
|
|
(3,559
|
)
|
|
|
6,528
|
|
|
|
23,155
|
|
Total Other Comprehensive (Loss)/Income
|
|
|
(2,006
|
)
|
|
|
(3,559
|
)
|
|
|
6,528
|
|
|
|
23,155
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Loss
|
|
$
|
(1,010,938
|
)
|
|
$
|
(2,089,788
|
)
|
|
$
|
(2,511,333
|
)
|
|
$
|
(3,384,873
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic & diluted loss per common share
|
|
$
|
(0.19
|
)
|
|
$
|
(0.41
|
)
|
|
$
|
(0.46
|
)
|
|
$
|
(0.66
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average basic & diluted common shares outstanding
|
|
|
5,427,261
|
|
|
|
5,144,837
|
|
|
|
5,426,153
|
|
|
|
5,135,389
|
|
See
accompanying notes to these condensed consolidated financial statements.
AKERS
BIOSCIENCES, INC. AND SUBSIDIARIES
Condensed
Consolidated Statement of Changes in Stockholder’s Equity
For
six months ended June 30, 2016
|
|
Common
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
Shares
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
Issued and
|
|
|
Common
|
|
|
Deferred
|
|
|
Accumulated
|
|
|
Comprehensive
|
|
|
Total
|
|
|
|
Outstanding
|
|
|
Stock
|
|
|
Compensation
|
|
|
Deficit
|
|
|
Income/(Loss)
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2015 (audited)
|
|
|
5,425,045
|
|
|
$
|
100,785,408
|
|
|
$
|
-
|
|
|
$
|
(94,175,999
|
)
|
|
$
|
(6,231
|
)
|
|
$
|
6,603,178
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss for the period
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,517,861
|
)
|
|
|
-
|
|
|
|
(2,517,861
|
)
|
Issuance of Restricted Stock to Officers
|
|
|
27,500
|
|
|
|
54,725
|
|
|
|
(54,725
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Amortization of deferred compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
18,243
|
|
|
|
-
|
|
|
|
-
|
|
|
|
18,243
|
|
Options issued for services
|
|
|
-
|
|
|
|
8,241
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
8,241
|
|
Net unrealized gain on marketable securities
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6,528
|
|
|
|
6,528
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2016 (unaudited)
|
|
|
5,452,545
|
|
|
$
|
100,848,374
|
|
|
$
|
(36,482
|
)
|
|
$
|
(96,693,860
|
)
|
|
$
|
297
|
|
|
$
|
4,118,329
|
|
See
accompanying notes to these condensed consolidated financial statements.
AKERS
BIOSCIENCES, INC. AND SUBSIDIARIES
Condensed
Consolidated Statements of Cash Flows
For
six months ended June 30, 2016 and 2015
(unaudited)
|
|
2016
|
|
|
2015
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
Net loss for the period
|
|
$
|
(2,517,861
|
)
|
|
$
|
(3,408,028
|
)
|
Adjustments to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
Accrued income on marketable securities
|
|
|
8,927
|
|
|
|
223
|
|
Depreciation and amortization
|
|
|
113,906
|
|
|
|
160,931
|
|
Allowance for doubtful accounts
|
|
|
146,196
|
|
|
|
864,000
|
|
Gain from other non-operating activities
|
|
|
-
|
|
|
|
(6,010
|
)
|
Non-cash share based compensation – restricted stock
|
|
|
18,243
|
|
|
|
-
|
|
Non-cash share based payments for services - options
|
|
|
8,241
|
|
|
|
-
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
Increase in trade receivables
|
|
|
(79,906
|
)
|
|
|
(747,629
|
)
|
Decrease in notes receivables - related party
|
|
|
-
|
|
|
|
131,566
|
|
Decrease in deposits and other receivables
|
|
|
31,196
|
|
|
|
7,578
|
|
Decrease/(increase) in inventories
|
|
|
(85,588
|
)
|
|
|
83,128
|
|
Decrease/(increase) in prepaid expenses
|
|
|
43,933
|
|
|
|
(67,836
|
)
|
Increase/(decrease) in trade and other payables
|
|
|
(103,029
|
)
|
|
|
323,849
|
|
Decrease in deferred revenue - related
party
|
|
|
-
|
|
|
|
(305,556
|
)
|
Net cash used in operating activities
|
|
|
(2,415,742
|
)
|
|
|
(2,963,784
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
Purchases of property, plant and equipment
|
|
|
(81,462
|
)
|
|
|
(44,509
|
)
|
Purchases of marketable securities
|
|
|
(27,643
|
)
|
|
|
(34,555
|
)
|
Investment in Hainan Savy Akers Biosciences, Ltd. joint venture
|
|
|
-
|
|
|
|
(64,091
|
)
|
Proceeds from other non-operating activities
|
|
|
-
|
|
|
|
6,010
|
|
Proceeds from sale of marketable securities
|
|
|
2,502,319
|
|
|
|
2,906,322
|
|
Net cash provided by investing activities
|
|
|
2,393,214
|
|
|
|
2,769,177
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash
|
|
|
(22,528
|
)
|
|
|
(194,607
|
)
|
Cash at beginning of period
|
|
|
402,059
|
|
|
|
455,841
|
|
Cash at end of period
|
|
$
|
379,531
|
|
|
$
|
261,234
|
|
|
|
|
|
|
|
|
|
|
Supplemental Schedule of Non-Cash Financing and Investing Activities
|
|
|
|
|
|
|
|
|
Issuance of a restricted common stock
grant to an officer
|
|
$
|
54,725
|
|
|
$
|
-
|
|
Net unrealized gains on marketable securities
|
|
$
|
6,528
|
|
|
$
|
23,155
|
|
Issuance of restricted common share grants
to directors and officers accrued in 2014
|
|
$
|
-
|
|
|
$
|
697,300
|
|
See
accompanying notes to these condensed consolidated financial statements.
AKERS
BIOSCIENCES, INC. AND SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements
(unaudited)
Note
1 –
Nature of Business
The
accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles
generally accepted in the United States (“GAAP”) for interim financial information. Accordingly, they do not include
all the information and disclosures required by GAAP for complete financial statements. Operating results for the three and six
months ended June 30, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31,
2016. In the opinion of management, the unaudited condensed consolidated financial statements include all adjustments, consisting
of normal recurring adjustments, considered necessary for a fair presentation. These unaudited condensed consolidated financial
statements and related notes should be read in conjunction with the consolidated financial statements and notes for the year ended
December 31, 2015 included in Form 10-K of Akers Biosciences, Inc. and Subsidiaries (“the Company”).
The
condensed consolidated financial statements include two dormant subsidiaries, Akers Acquisition Sub, Inc. and Bout Time Marketing
Corporation. All material intercompany balances have been eliminated upon consolidation.
The
Company commenced research and development operations in September 1989, and until 2005 had devoted substantially all its efforts
to establishing the new business.
The
Company’s primary focus is the development and sale of disposable diagnostic testing devices that can be performed in minutes,
to facilitate time sensitive therapeutic decisions. The Company’s main products are a disposable breathalyzer test that
measures the blood alcohol content of the user, a rapid test detecting the antibody causing an allergic reaction to Heparin and
a disposable breathalyzer test that measures Free Radical activity in the human body.
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.
AKERS
BIOSCIENCES, INC. AND SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements
(unaudited)
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)
|
Functional
and Presentation 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.
|
(d)
|
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.
|
(e)
|
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.
AKERS
BIOSCIENCES, INC. AND SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements
(unaudited)
|
(f)
|
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 fair value of marketable securities is described in Note 2(g).
|
(g)
|
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.
|
(h)
|
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.
AKERS
BIOSCIENCES, INC. AND SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements
(unaudited)
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 June 30, 2016 and December 31, 2015, allowances for doubtful accounts were $1,010,196 and $864,000. Allowances charged for
doubtful accounts amounted to $- for the three and six months ended June 30, 2016 and June 30, 2015.
|
(i)
|
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 $360,856 and $369,525 with Fulton Bank of New Jersey, $14,635 and $28,494 with Bank of America and $4,040 with
PayPal as of June 30, 2016 and December 31, 2015.
Concentration
of credit risk with respect to trade receivables exists as approximately 82% of its revenue was generated by three customers for
the six months ended June 30, 2016. These customers accounted for 31% of gross trade receivables (including related parties) as
of June 30, 2016. In order to limit such risks, the Company performs ongoing credit evaluations of its customers’ financial
condition.
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.
AKERS
BIOSCIENCES, INC. AND SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements
(unaudited)
|
(k)
|
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.
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
|
|
|
Shorter
of the
|
Leasehold Improvements
|
|
remaining
lease or
|
|
|
estimated
useful life
|
Depreciation
methods, useful lives and residual values are reviewed at each reporting date.
|
(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 June 30, 2016, the Company has eleven patents from the United States Patent Office in effect (7,896,167;
8,097,171; 8,003,061; 8,425,859; 8,871,521; 8,808,639; 7,285,246; 7,837,936; 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 (1,515,170; 4,885,134; 4,931,821 and 5,775,790). 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.
AKERS
BIOSCIENCES, INC. AND SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements
(unaudited)
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.
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
|
|
(m)
|
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.
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.
AKERS
BIOSCIENCES, INC. AND SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements
(unaudited)
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 June 30, 2016 and is accounted for using the cost method.
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 June 30, 2016 and December 31, 2015.
AKERS
BIOSCIENCES, INC. AND SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements
(unaudited)
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 April 30,
2016 for their existing customer base as of April 30, 2015. The Company has recorded rebates of $115,685 and $215,653, which is
a reduction of revenue, for the three and six months ended June 30, 2016 and $291,868 for the three and six months ended June
30, 2015 for this program. Accounts receivable will be reduced when the rebates are applied by the customer.
Effective May 1, 2016,
the Company completed the implementation of pricing based upon a standardized adjusted dealer cost model. The program allows for
pre-existing end-user customers to negotiate pricing contracts directly with the Company or through the distributor network. Rebates
are available to the distributors to mitigate the effect of any discounts on these contracts. As of June 30, 2016 and December
31, 2015, accrued rebates amounted to $204,637 and $223,542.
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.
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.
|
(q)
|
Shipping
and Handling Fees and Costs
|
The
Company charges actual shipping plus a handling fee to customers, which amounted to $14,387 and $30,432 for the three and six
months ended June 30, 2016 and $13,836 and $32,778 for the three and six months ended June 30, 2015. 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 $47,018 and $68,732
for the three and six months ended June 30, 2016 and $22,716 and $67,406 for the three and six months ended June 30, 2015.
AKERS
BIOSCIENCES, INC. AND SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements
(unaudited)
|
(r)
|
Research
and Development Costs
|
In
accordance with FASB ASC 730, research and development costs are expensed when incurred.
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 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.
|
(t)
|
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 June 30, 2016 and 2015 was based on a loss attributable
to common stockholders of $1,008,932 and $2,086,229.
The
calculation of the basic and diluted loss per share for the six months ended June 30, 2016 and 2015 was based on a loss attributable
to common stockholders of $2,517,861 and $3,408,028.
AKERS
BIOSCIENCES, INC. AND SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements
(unaudited)
Potential common shares consist of
restricted shares of common stock, options and warrants. Diluted net loss per common share was the same as basic loss per common
share for the three and six months ended June 30, 2016 and 2015 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 220,500 units of options and 18,333 units of unvested restricted shares of
common stock recorded in the condensed consolidated statement of changes in stockholders’ equity as deferred compensation
for the three and six months ended June 30, 2016 and 175,000 units of options for the three and six months ended June 30, 2015.
|
(u)
|
Recently
Adopted Accounting Pronouncements
|
As
of June 30, 2016 and for the period then ended, there were no recently adopted accounting pronouncements that had a material effect
on the Company’s financial statements.
|
(v)
|
Recently
Issued Accounting Pronouncements not Yet Adopted
|
As
of June 30, 2016, there are no recently issued accounting standards not yet adopted which would have a material effect on the
Company’s financial statements through 2017.
Note
3 – Marketable Securities
Following
is a description of the valuation methodologies used for assets measured at fair value as of June 30, 2016 and December 31, 2015.
Money
market funds, U.S. Agency Securities, Corporate and Municipal Securities and Certificates of Deposits:
Valued using pricing
models maximizing the use of observable inputs for similar securities. This includes basing value on yields currently available
on comparable securities of issuers with similar credit ratings.
|
|
As of June 30, 2016
|
|
|
|
|
|
Accrued
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Income
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
Level 2:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
4,119
|
|
|
$
|
1
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
4,120
|
|
US agency securities
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Certificates of deposits
|
|
|
290,000
|
|
|
|
1,177
|
|
|
|
969
|
|
|
|
-
|
|
|
|
292,146
|
|
Corporate securities
|
|
|
928,308
|
|
|
|
3,586
|
|
|
|
-
|
|
|
|
(1,090
|
)
|
|
|
930,804
|
|
Municipal securities
|
|
|
319,958
|
|
|
|
583
|
|
|
|
418
|
|
|
|
-
|
|
|
|
320,959
|
|
Total Level 2:
|
|
|
1,542,385
|
|
|
|
5,347
|
|
|
|
1,387
|
|
|
|
(1,090
|
)
|
|
|
1,548,029
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total:
|
|
$
|
1,542,385
|
|
|
$
|
5,347
|
|
|
$
|
1,387
|
|
|
$
|
(1,090
|
)
|
|
$
|
1,548,029
|
|
The above securities
are classified as available for sale. The securities are valued at fair market value. Maturities of the securities range from
one to two years. Unrealized gains and losses relating to the available for sale investment securities were recorded in the condensed
consolidated statement of changes in stockholders’ equity as comprehensive income. The net unrealized loss of $2,006 and
a net unrealized gain of $6,528 for the three and six months ended June 30, 2016 and a net unrealized loss of $3,559 and a net
unrealized gain of $23,155 for the three and six months ended June 30, 2015 were recorded in the condensed consolidated statement
of changes in stockholders’ equity as comprehensive income.
AKERS
BIOSCIENCES, INC. AND SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements
(unaudited)
As
of June 30, 2016, investments in money market funds, certificates of deposit, corporate securities and municipal securities classified
as available for sale mature as follows:
Within
|
|
|
|
|
|
|
|
|
After
|
|
1 Year
|
|
|
1 - 5 Years
|
|
|
5 - 10 Years
|
|
|
10 Years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
977,460
|
|
|
$
|
570,569
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Proceeds
from the sale of marketable securities for the three and six months ended June 30, 2016 were $900,863 and $2,502,319 and were
$1,652,866 and $2,906,322 for the three and six months ended June 30, 2015. As a result of these sales, a gross gain of $1,844
and $2,152 was recorded for the three and six months ended June 30, 2016 and a gross loss of $2,436 and $1,988 was recorded for
the three and six months ended June 30, 2015.
Note
4 - Trade Receivables – Related Party
Trade receivables – related
party are made up of amounts due from Hainan Savy Akers Biosciences, a joint venture partner located in the Peoples Republic of
China. The amount due is non-interest bearing, unsecured and generally has a term of 30 to 90 days.
Note
5 - Inventories
Inventories
at June 30, 2016 and December 31, 2015 consists of the following categories:
|
|
2016
|
|
|
2015
|
|
Raw Materials
|
|
$
|
424,231
|
|
|
$
|
348,216
|
|
Sub-Assemblies
|
|
|
803,236
|
|
|
|
786,656
|
|
Finished Goods
|
|
|
18,714
|
|
|
|
25,721
|
|
Reserve for Obsolescence
|
|
|
(28,939
|
)
|
|
|
(28,939
|
)
|
|
|
$
|
1,217,242
|
|
|
$
|
1,131,654
|
|
For
the three and six months ended June 30, 2016, $- and $2,968 were expensed to cost of goods sold for obsolete inventory. No charges
were made to cost of goods sold for obsolete inventory for the three and six months ended June 30, 2015.
AKERS
BIOSCIENCES, INC. AND SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements
(unaudited)
Note
6 - Property, Plant and Equipment
Property,
plant and equipment as of June 30, 2016 and December 31, 2015 are as follows:
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Computer Equipment
|
|
$
|
108,210
|
|
|
$
|
100,405
|
|
Computer Software
|
|
|
40,681
|
|
|
|
40,681
|
|
Office Equipment
|
|
|
39,959
|
|
|
|
50,049
|
|
Furniture & Fixtures
|
|
|
29,939
|
|
|
|
29,939
|
|
Machinery & Equipment
|
|
|
1,126,134
|
|
|
|
1,112,060
|
|
Molds & Dies
|
|
|
799,202
|
|
|
|
756,279
|
|
Leasehold Improvements
|
|
|
222,593
|
|
|
|
222,593
|
|
|
|
|
2,366,718
|
|
|
|
2,312,006
|
|
Less
|
|
|
|
|
|
|
|
|
Accumulated Depreciation
|
|
|
2,062,463
|
|
|
|
2,060,861
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
304,255
|
|
|
$
|
251,145
|
|
Depreciation
expense was $14,650 and $28,352 for the three and six months ended June 30, 2016 and $15,938 and $31,645 for the three and six
months ended June 30, 2015.
The
Company disposed of a fully depreciated telephone system with no salvage value during the six months ended June 30, 2016.
N
ote
7 - Intangible Assets
Intangible
assets as of June 30, 2016 and December 31, 2015 and the movements for the three months then ended are as follows:
|
|
|
|
|
Distributor &
|
|
|
|
|
|
|
Patents &
|
|
|
Customer
|
|
|
|
|
|
|
Trademarks
|
|
|
Relationships
|
|
|
Totals
|
|
Cost or Deemed Cost
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2015
|
|
$
|
2,626,996
|
|
|
$
|
1,270,639
|
|
|
$
|
3,897,635
|
|
Additions
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Disposals
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
At June 30, 2016
|
|
$
|
2,626,996
|
|
|
$
|
1,270,639
|
|
|
$
|
3,897,635
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2015
|
|
$
|
1,154,113
|
|
|
$
|
1,270,639
|
|
|
$
|
2,424,752
|
|
Amortization Charge
|
|
|
85,554
|
|
|
|
-
|
|
|
|
85,554
|
|
Disposals
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
At June 30, 2016
|
|
$
|
1,239,667
|
|
|
$
|
1,270,639
|
|
|
$
|
2,510,306
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Book Value
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2015
|
|
$
|
1,472,883
|
|
|
$
|
-
|
|
|
$
|
1,472,883
|
|
At June 30, 2016
|
|
$
|
1,387,329
|
|
|
$
|
-
|
|
|
$
|
1,387,329
|
|
Amortization
expense was $42,777 and $85,554 for the three and six months ended June 30, 2016 and $64,643 and $129,286 for the three and six
months ended June 30, 2015.
AKERS
BIOSCIENCES, INC. AND SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements
(unaudited)
Note
8 - Trade and Other Payables
Trade
and other payables as of June 30, 2016 and December 31, 2015 are as follows:
|
|
2016
|
|
|
2015
|
|
Trade Payables
|
|
$
|
835,055
|
|
|
$
|
538,449
|
|
Accrued Expenses
|
|
|
650,897
|
|
|
|
1,020,532
|
|
Legal Settlements Payable
|
|
|
20,000
|
|
|
|
50,000
|
|
Deferred Compensation
|
|
|
59,750
|
|
|
|
59,750
|
|
|
|
$
|
1,565,702
|
|
|
$
|
1,668,731
|
|
Trade
and other payables are non-interest bearing and are normally settled on 30 day terms.
Note
9 - Share-based Payments
On
January 23, 2014, upon effectiveness of the registration statement filed with the SEC, the Company adopted the 2013 Stock Incentive
Plan (the “Plan”) which will provide for the issuance of up to 400,000 shares. The purpose of the Plan is to provide
additional incentive to those officers, employees, consultants and non-employee directors of the Company and its parents, subsidiaries
and affiliates whose contributions are essential to the growth and success of the Company’s business.
On
January 9, 2015, the Board of Directors of the Company approved, upon recommendation from the Compensation Committee of the Board,
by unanimous written consent the Amended and Restated 2013 Incentive Stock and Award Plan (the “Plan”), which increases
the number of authorized shares of common stock subject to the Plan to 800,000 shares.
The 2013 Plan may be administered
by the board or a board-appointed committee. Eligible recipients of option awards are employees, officers, consultants or directors
(including non-employee directors) of the Company or of any parent, subsidiary or affiliate of the Company. The board has the
authority to grant to any eligible recipient any options, restricted stock or other awards valued in whole or in part by reference
to, or otherwise based on, the Company’s common stock.
AKERS
BIOSCIENCES, INC. AND SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements
(unaudited)
Qualified
option holders may exercise their options at their discretion. Each option granted may be exchanged for a prescribed number of
shares of common stock. The following table summarizes the option activities for the six months ended June 30, 2016:
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
Number of
|
|
|
Average
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
Shares
|
|
|
Exercise Price
|
|
|
Term (years)
|
|
|
Value
|
|
Balance at December 31, 2015
|
|
|
220,500
|
|
|
$
|
4.38
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Canceled/Expired
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2016
|
|
|
220,500
|
|
|
$
|
4.38
|
|
|
|
|
|
|
|
|
|
Exercisable as of June 30, 2016
|
|
|
220,500
|
|
|
$
|
4.38
|
|
|
|
3.31
|
|
|
$
|
59,700
|
|
The
aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the closing
stock price of $3.22 for the Company’s common shares on June 30, 2016. The above intrinsic value represents that of awards
with an exercise price below $3.22.
The
total grant date fair value of stock options vested for the three and six months ended June 30, 2016 and 2015 was $-.
As
of June 30, 2016, there was $- of unrecognized compensation cost related to outstanding employee stock options.
Note
10 - Equity
The
holders of common shares are entitled to one vote per share at meetings of the Company. Holders of Series A convertible preferred
shares are entitled to five votes per share at meetings of the Company.
A restricted stock
award is an award of common shares that are subject to certain restrictions during a specified period. Restricted stock awards
are independent of option grants and are generally subject to forfeiture if employment terminates prior to the release of the
restrictions. The grantee cannot transfer the shares before the restricted shares vest. Shares on non-vested restricted stock
have the same voting rights as common stock, are entitled to receive dividends and other distributions thereon and are considered
to be currently issued and outstanding. The Company’s restricted stock awards vest of a period of one to three years. The
Company expenses the cost of the restricted stock awards, which is determined to be the fair market value of the shares at the
date of grant, straight-line over the period during which the restrictions lapse. For these purposes, the fair market value of
the restricted stock is determined based on the closing price of the Company’s common stock on the grant date.
AKERS
BIOSCIENCES, INC. AND SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements
(unaudited)
On June 8, 2016, the Company issued
27,500 common shares to an officer in connection with his employment agreement. These shares vest 1/3 immediately on the date
of the grant and the remaining 2/3 vests equally on March 1, 2017 and March 1, 2018. The fair value of these shares was $54,725
and was based on the share price on the date of the grant. $18,243 was recorded during the three months ended June 30, 2016 as
administrative expense on the condensed consolidated statement of operations and comprehensive income and the remaining $36,482
was recorded as deferred compensation, a contra equity account, on the condensed consolidated balance sheet as of June 30, 2016.
As
of June 30, 2016 and December 31, 2015 the Company has 220,500 reserved shares of its common stock for outstanding options.
Note
11 - Income Tax Expense
There
is no income tax benefit for the losses for the three and six months ended June 30, 2016 and 2015 since management has determined
that the realization of the net deferred tax asset is not assured and has created a valuation allowance for the entire amount
of such benefits.
The
Company’s policy is to record interest and penalties associated with unrecognized tax benefits as additional income taxes
in the statement of operations. As of January 1, 2016, the Company had no unrecognized tax benefits, or any tax related interest
or penalties. There were no changes in the Company’s unrecognized tax benefits during the three and six months ended June
30, 2016 related to unrecognized tax benefits. With few exceptions, the U.S. and state income tax returns filed for the tax years
ending on December 31, 2012 and thereafter are subject to examination by the relevant taxing authorities.
Note
12 - Related Party Transactions
On
June 19, 2012, the Company entered into a 3 year exclusive License & Supply Agreement with Chubeworkx Guernsey Limited (as
successor to SONO International Limited) (“Chubeworkx”) for the purchase and distribution of ABI’s proprietary
breathalyzers outside North America. Chubeworkx paid a licensing fee of $1,000,000 which was recognized over the term of the agreement
through June 30, 2015.
On
June 13, 2013, the Company announced an expansion of the License and Supply Agreement with Chubeworkx to include worldwide marketing
and distribution of the “Be CHUBE” program using the Company’s breathalyzer.
On February 12, 2016, the Company
purchased several manufacturing molds through Hainan Savy – Akers Biosciences, Ltd., the Company’s joint venture partner
in the Peoples Republic of China. The total cost of the molds was $41,073 and is included in property, plant and equipment in
the condensed consolidated balance sheet.
On May 25, 2016, the Company ordered
additional product molds through Hainan Savy – Akers Biosciences, Ltd. The total cost of the molds was $27,988 of which
$13,944 was recorded as deposits and other receivables in the condensed consolidated balance sheet.
AKERS
BIOSCIENCES, INC. AND SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements
(unaudited)
The
Company has begun purchasing plastic and electronic components through Hainan Savy – Akers Biosciences, Ltd for use in the
production of finished goods. These purchases are recorded as inventory in the condensed consolidated balance sheet. For the three
and six months ended June 30, 2016, these purchases totaled $29,811 and $32,895 respectively.
Trade receivables – related
party as of June 30, 2016 and December 31, 2015 are $31,892 and $31,512. The amounts due are non-interest bearing, unsecured and
generally have a term of 30 to 90 (Note 4). This receivable is past due and management deemed it fully collectable.
Product
revenue – related party for the three and six months ended June 30, 2016 were $- and were $- and $14,343 for the three and
six months ended June 30, 2015. The revenue was the result of sales to Hainan Savy – Akers Biosciences, Ltd , a joint venture
partner.
Note
13 - Commitments
The
Company leases its facility in West Deptford, New Jersey under an operating lease with annual rentals of $130,200 plus common
area maintenance (CAM) charges. The lease, which took effect on January 1, 2008, reduced the CAM charges allowing the Company
to reach their own agreements with utilities and other maintenance providers.
On
January 7, 2013, the Company extended its lease agreement for a term of 7 years, expiring December 31, 2019. Under the terms of
the lease, The Company will pay $132,000 per year.
Rent
expense, including related CAM charges, was $40,290 and $80,580 for the three and six months ended June 30, 2016 and 2015.
The
Company entered into a 60 month operating lease for equipment with annual rentals of $6,156 on September 29, 2014. The lease commenced
on October 21, 2014 upon the delivery of the equipment.
The
schedule of lease commitments is as follows:
|
|
Building
|
|
|
Equipment
|
|
|
|
|
|
|
Lease
|
|
|
Lease
|
|
|
Total
|
|
Next 12 Months
|
|
$
|
132,000
|
|
|
$
|
6,156
|
|
|
$
|
138,156
|
|
Next 13-24 Months
|
|
|
132,000
|
|
|
|
6,156
|
|
|
|
138,156
|
|
Next 25-36 Months
|
|
|
132,000
|
|
|
|
6,156
|
|
|
|
138,156
|
|
Next 37-43 Months
|
|
|
66,000
|
|
|
|
2,052
|
|
|
|
68,052
|
|
Note
14 – Major Customers
For
the three months ended June 30, 2016, two customers each generated more than 10% of the Company’s product revenue. In aggregate,
sales to these customers accounted for 79% of the Company’s product revenue. As of June 30, 2016, the amount due from these
two customers was $96,390.
AKERS
BIOSCIENCES, INC. AND SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements
(unaudited)
For
the six months ended June 30, 2016, three customers each generated more than 10% of the Company’s product revenue. In aggregate,
sales to these customers accounted for 82% of the Company’s product revenue. As of June 30, 2016, the amount due from these
three customers was $488,456. This concentration makes the Company vulnerable to a near-term severe impact should the relationships
be terminated.
For
the three months ended June 30, 2015, three customers each generated more than 10% of the Company’s product revenue. In
aggregate, sales to these customers accounted for 86% of the Company’s product revenue.
For
the six months ended June 30, 2015, three customers each generated more than 10% of the Company’s product revenue. In aggregate,
sales to these customers accounted for 79% of the Company’s product revenue. As of June 30, 2015, the amount due from these
three customers was $839,674.
Note
15 – Major Suppliers
For the three months ended June 30,
2016, two suppliers each accounted for more than 10% of the Company’s purchases. In aggregate, these suppliers accounted
for 32% of the Company’s total purchases. As of June 30, 2016, the amount due to the suppliers was $20,445.
For the six months ended June 30,
2016, no suppliers accounted for more than 10% of the Company’s purchases.
For
the three months ended June 30, 2015, two suppliers each accounted for more than 10% of the Company’s purchases. In aggregate,
these suppliers accounted for 49% of the Company’s total purchases. As of June 30, 2015, the amount due to the suppliers
was $93,116.
For
the six months ended June 30, 2015, two suppliers each accounted for more than 10% of the Company’s purchases. In aggregate,
these suppliers accounted for 47% of the Company’s total purchases.
AKERS
BIOSCIENCES, INC. AND SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements
(unaudited)
Note
16 – Contingencies
On
April 23, 2015, a complaint was filed by the Company in federal district court (District of New Jersey) against ChubeWorkx Guernsey
Limited (“ChubeWorkx”) for breach of contract (the “Breach of Contract Claim”) for failure of timely interest
payments by ChubeWorkx under a promissory note (the “Chube Note”) entered into by the Company and ChubeWorkx in December
2014. As part of this action, the Company also filed a preliminary injunction which sought to bar ChubeWorkx from disposing of
the Company’s common stock owned by ChubeWorkx for which the Company retained a right of sale in the event of a default
by ChubeWorkx under the Chube Note. A consent decree has been finalized and entered by the court to resolve the issues of the
preliminary injunction which requires ChubeWorkx to escrow a certain of number of shares of the Company’s common stock currently
held by ChubeWorkx until the Breach of Contract Claim has been fully adjudicated. The Breach of Contract Claim is currently in
the discovery phase and while the parties have communicated in good faith to resolve this dispute all discussions to date have
not yielded any results. This case was closed by the court pursuant to an order entered on December 22, 2015 as requested by Akers
in light of near final settlement discussions with Chubeworks regarding the settlement and release of all claims between the parties.
On
August 21, 2015, Chubeworkx filed a lawsuit against the Company in The High Court of Justice, Queen’s Bench Division Commercial
Court, Royal Courts of Justice, United Kingdom, alleging a breach of contract under the exclusive license agreement entered into
by Chubeworkx with Company in June 2012 and damages resulting from said alleged breach. The lawsuit is in the preliminary stage
and was suspended by mutual agreement of the parties pursuant to ongoing global settlement discussions which were focused on settling
all outstanding claims between the parties.
The Company and ChubeWorkx have agreed
in principal to all of the material terms of a global settlement for all existing claims and pending law suits between them. The
parties are working with their counsel to finalize and execute the settlement agreements. No accrual for losses was necessary
as of June 30, 2016 and no loss is expected as a result of the settlement.
Legal fees were expensed in the period
in which they were incurred.
Item
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
This
quarterly report on Form 10-Q and other reports filed by Akers Biosciences, Inc. (“Akers”, “Akers Bio”,
“we” or the “Company”) from time to time with the SEC (collectively, the “Filings”) contain
or may contain forward-looking statements and information that are based upon beliefs of, and information currently available
to, the Company’s management as well as estimates and assumptions made by Company’s management. Readers are cautioned
not to place undue reliance on these forward-looking statements, which are only predictions and speak only as of the date hereof.
When used in the Filings, the words “anticipate,” “believe,” “estimate,” “expect,”
“future,” “intend,” “plan,” or the negative of these terms and similar expressions as they
relate to the Company or the Company’s management identify forward-looking statements. Such statements reflect the current
view of the Company with respect to future events and are subject to risks, uncertainties, assumptions, and other factors, including
the risks relating to the Company’s business, industry, and the Company’s operations and results of operations. Should
one or more of these risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results
may differ significantly from those anticipated, believed, estimated, expected, intended, or planned.
Although
the Company believes that the expectations reflected in the forward-looking statements are reasonable, the Company cannot guarantee
future results, levels of activity, performance, or achievements. Except as required by applicable law, including the securities
laws of the United States, the Company does not intend to update any of the forward-looking statements to conform these statements
to actual results.
Our
financial statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”).
These accounting principles require us to make certain estimates, judgments and assumptions. We believe that the estimates, judgments
and assumptions upon which we rely are reasonable based upon information available to us at the time that these estimates, judgments
and assumptions are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities
as of the date of the financial statements as well as the reported amounts of revenues and expenses during the periods presented.
Our financial statements would be affected to the extent there are material differences between these estimates and actual results.
In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP and does not require management’s
judgment in its application. There are also areas in which management’s judgment in selecting any available alternative
would not produce a materially different result. The following discussion should be read in conjunction with our financial statements
and notes thereto appearing elsewhere in this report.
Overview
Akers
Bio develops, manufactures and supplies rapid, point-of-care screening and testing products designed to bring health-related information
directly to the patient or clinician in a time and cost-efficient manner. Akers believes it has advanced the science of diagnostics
through the development of several innovative proprietary platform technologies that provide product development flexibility.
All
of Akers’ rapid, single-use tests are performed
in vitro
(outside the body) and are designed to enhance patient well-being
and reduce the cost of healthcare. The Company’s current product offerings and pipeline products focus on delivering diagnostic
assistance in a wide variety of healthcare fields/specialties, including cardiology/emergency medicine, metabolism/nutrition,
diabetes, oncology and infectious disease detection, as well as for on and off-the-job alcohol safety initiatives.
Akers believes that low-cost, single-use testing
not only saves time and money, but allows for more frequent, near-patient testing which may save lives. The Company believes that
its FDA-cleared rapid diagnostic tests help facilitate targeted diagnoses and real-time treatment. The Company also believes that
its rapid diagnostic tests surpass most other current diagnostic products with their flexibility, speed, ease-of-use, readability,
low cost and accuracy. In minutes, detection of disease states and medical conditions can be performed on single-patient specimens,
without sacrificing accuracy.
The Company believes the use of rapid tests,
which can be performed at the point-of-care when and where the patient is being consulted, can result in immediate diagnostic
decisions and subsequent treatment regimens and is an important development in the practice of medicine. Point-of-care testing
addresses today’s challenges in the healthcare industry, such as:
|
●
|
cost
pressures/efficiency of healthcare delivery;
|
|
|
|
|
●
|
need
for easy to use, accurate at-home tests for individuals to monitor their personal health and wellness;
|
|
|
|
|
●
|
need
for affordable mass screening tests for key infectious diseases, cardiac conditions, and metabolic markers; and
|
|
|
|
|
●
|
public
health needs in developing countries lacking basic health infrastructure.
|
Recently,
the Company has developed tests for non-medical use within the health and wellness industry. These tests will monitor general
markers of health and wellness as they relate to diet, nutrition, and exercise programs.
Management’s
Plans and Basis of Presentation
To
date, the Company has in large part relied on equity financing to fund its operations, raising $13,101,336, net of expenses, in
an initial public offering on the NASDAQ Capital Market in 2014. The Company has experienced recurring losses and negative cash
flows from operations. Management’s strategic plans include the following:
|
●
|
continuing
to advance the development and commercialization of the Company’s products, especially those that utilize MPC Biosensor,
PIFA and seraSTAT technologies;
|
|
|
|
|
●
|
continuing
to strengthen and forge domestic and international relationships with well-established sales organizations with strong distribution
channels in specific target markets for both our currently marketed and emerging products;
|
|
|
|
|
●
|
establishing
clinical protocols that support regulatory submissions and publication of data within peer-reviewed journals; and
|
|
|
|
|
●
|
continuing
to monitor and implement cost control initiatives to conserve cash.
|
Despite
our plans, the Company expects to continue to incur losses from operations for the near-term and these losses could be significant
for the following reasons:
|
●
|
some
of Akers’ distribution partnerships have been recently established or are in the process of being initiated and, therefore,
consistent and historical ordering patterns have not been instituted;
|
|
|
|
|
●
|
the
Company continues to incur expenses related to the initial commercialization and marketing activities for its wellness products
and product development (research, clinical trials, regulatory tasks) costs for its emerging products including Breath PulmoHealth,
BreathScan® DKA and PIFA PLUSS® Infectious Disease point-of-care tests; and
|
|
|
|
|
●
|
to
expand the use of its clinical laboratory products, the Company may need to invest in additional marketing support programs
to increase brand awareness.
|
At June 30, 2016, Akers had cash and marketable
securities totaling $1,927,560, working capital of $2,359,932, common stock of $100,848,374 and an accumulated deficit of $96,693,860.
The Company believes that its current working capital position will be sufficient to meet its estimated cash needs for at least
the next twelve months. The Company closely monitors its cash balances, cash needs and expense levels.
Summary
of Statements of Operations for the Three Months Ended June 30, 2016 and 2015
Revenue
Akers’ revenue for the three months
ended June 30, 2016 totaled $956,486, a 1% decrease from the three months ended June 30, 2015. Product revenue increased by 28%,
primarily a result of sales of our PIFA Heparin/PF4 Rapid Assay products. The total revenue decline was the result of the elimination
of license fee revenue following the cancellation of the License and Supply Agreement with ChubeWorkx Guernsey Limited (“ChubeWorkx”)
in May, 2015 in respect to BreathScan Alcohol Breathalyzer products.
The
table below summarizes our revenue by product line for the three months ended June 30, 2016 and 2015 as well as the percentage
of change year-over-year:
Product Lines
|
|
3 Months
Ended
June 30, 2016
|
|
|
3 Months
Ended
June 30, 2015
|
|
|
Percent Change
|
|
Particle ImmunoFiltration Assay (“PIFA”)
|
|
$
|
879,081
|
|
|
$
|
560,598
|
|
|
|
57
|
%
|
MicroParticle Catalyzed Biosensor (“MPC”)
|
|
|
44,918
|
|
|
|
168,444
|
|
|
|
(73
|
)%
|
Other
|
|
|
32,487
|
|
|
|
15,658
|
|
|
|
107
|
%
|
Product Revenue Total
|
|
$
|
956,486
|
|
|
$
|
744,700
|
|
|
|
28
|
%
|
License Fees
|
|
|
-
|
|
|
|
222,222
|
|
|
|
(100
|
)%
|
Total Revenue
|
|
$
|
956,486
|
|
|
$
|
966,922
|
|
|
|
(1
|
)%
|
Revenue from the Company’s PIFA Heparin/PF4
Rapid Assay products increased 57% during the three months ended June 30, 2016 over the same period of 2015, reflecting the partial
fulfillment of the $2.5 million order from Novotek, our exclusive distributor in the Peoples Republic of China.
The Company received a $2.5 million order
for our PIFA Heparin/PF4 Rapid Assay products from Novotek on February 29, 2016. The Company received an initial payment of $250,000
on April 29, 2016 and a second payment of $250,000 on June 28, 2016 for scheduled product shipments, per the terms of sale. The
remaining products will be scheduled to ship at various points throughout the current fiscal year with revenue being recognized
when the criteria for the recognition of revenue is met. The Company recognized $473,853 for PIFA Heparin/PF4 products from Novotek
during the three months ended June 30, 2016.
The Company’s MPC product sales declined
73% during the three months ended June 30, 2016 over the same period of 2015. A distributor’s initial stocking order of
approximately $146,000 for the Company’s BreathScan Alcohol Breathalyzer products in Great Britain was included for the
three months ended June 30, 2015. Net of this significant order, MPC product sales increased 100% for the three months ended June
30, 2016.
While most of the MPC product sales in the
three months ended June 30, 2016 came from BreathScan Alcohol Breathalyzers, we have begun generating sales of other MPC products
within our health and wellness line, primarily the Company’s BreathScan OxiChek™ disposable breath test for oxidative
stress.
Other operating revenue increased due to a
rise in miscellaneous component sales and shipping and handling fees.
The Company’s gross margin improved
significantly, rising to 71% (2015: 65%) for the three months ended June 30, 2016. The improvement is attributed to improved margins
for the PIFA Heparin PF/4 products resulting from the increase in average selling price of these products.
Cost of sales for the three months ended June
30, 2016 decreased by 19% to $276,848 (2015: $341,025). Direct cost of sales decreased to 14% of product revenue while other cost
of sales decreased to 15% for the three months ended June 30, 2016 as compared to 25% and 21% respectively for the same period
in 2015.
Direct cost of sales for the three month period
ended June 30, 2016 were $135,298 (2015: $185,760). The improvement is due to the offset of manufacturing costs to inventory.
Other cost of sales for the three months ended
June 30, 2016 were $141,550 (2015: $155,265). The decrease is attributed to the reductions in quality control testing and inventory
shrinkage costs and is offset by increases in freight and shipping expenses, manufacturing consumable supplies and repairs and
maintenance expenses.
General
and Administrative Expenses
General
and administrative expenses for the three months ended June 30, 2016, totaled $816,244, which was a 53% decrease as compared to
$1,746,532 for the three months ended June 30, 2015.
The
table below summarizes our general and administrative expenses for the three months ended June 30, 2016 and 2015 as well as the
percentage of change year-over-year:
Description
|
|
3 Months Ended
June 30, 2016
|
|
|
3 Months
Ended
June 30, 2015
|
|
|
Percent Change
|
|
Personnel Costs
|
|
$
|
165,021
|
|
|
$
|
195,939
|
|
|
|
(16
|
)%
|
Professional Service Costs
|
|
|
227,246
|
|
|
|
331,753
|
|
|
|
(32
|
)%
|
Stock Market & Investor Relations Costs
|
|
|
116,962
|
|
|
|
142,488
|
|
|
|
(18
|
)%
|
Other General and Administrative Costs
|
|
|
307,015
|
|
|
|
1,076,351
|
|
|
|
(71
|
)%
|
Total General and Administrative Expense
|
|
$
|
816,244
|
|
|
$
|
1,746,531
|
|
|
|
(53
|
)%
|
The
decrease in personnel costs for the three months ended June 30, 2016 is the result of the transfer of Dr. Akers to the Research
and Development Department effective April 25, 2016 but was mitigated by increases in costs associated with employee benefits
and the addition of a staff accountant in June 2015 and the Company’s new Chief Executive Officer in November 2015.
Professional
service costs decreased 32% for the three months ended June 30, 2016 as compared to the same period of 2015. Significant decreases
in legal fees ($196,327 (2015: $255,201)) and in personnel recruiting and general consulting fees ($822 (2015: $40,669)) were
the major contributors.
A significant decline in investor relations
and transfer agent fees ($77,930 (2015: $112,490)) during the three months ended June 30, 2016 was partially offset by increases
in general consulting ($23,653 (2015: $14,670)) resulting in an overall reduction in stock market and investor relations costs.
A significant decrease in bad debts expense
($146,196 (2015: $864,000)) accounts for the majority of the 71% decrease in other general and administrative costs for the three
months ended June 30, 2016.
Sales
and Marketing Expenses
Sales
and marketing expenses for the three months ended June 30, 2016 totaled $513,430, which was a 7% decrease as compared to $553,539
for the three months ended June 30, 2015.
The
table below summarizes our sales and marketing expenses for the three months ended June 30, 2016 and 2015 as well as the percentage
of change year-over-year:
Description
|
|
3 Months
Ended
June 30, 2016
|
|
|
3 Months
Ended
June 30, 2015
|
|
|
Percent Change
|
|
Personnel Costs
|
|
$
|
295,108
|
|
|
$
|
293,398
|
|
|
|
1
|
%
|
Professional Service Costs
|
|
|
113,916
|
|
|
|
162,206
|
|
|
|
(30
|
)%
|
Royalties and Outside Commission Costs
|
|
|
30,302
|
|
|
|
20,815
|
|
|
|
46
|
%
|
Other Sales and Marketing Costs
|
|
|
74,104
|
|
|
|
77,120
|
|
|
|
(4
|
)%
|
Total Sales and Marketing Expenses
|
|
$
|
513,430
|
|
|
$
|
553,539
|
|
|
|
(7
|
)%
|
Personnel costs remained steady in the three
months ended June 30, 2016 as compared to the same period of 2015. The Company has reduced the number of sales and marketing staff
from 14 as of June 30, 2015 to 6 as of June 30, 2016. This temporary reduction in the department’s headcount is a result
of the transition in the sales and marketing strategy for the PIFA Heparin PF/4 products to focus less on individual hospitals
and more on integrated delivery networks which require fewer but more senior level staff. The Company’s replacement of the
sales and marketing senior management team resulted in increased costs associated with severance programs that continued into
the three months ended June 30, 2016. Improvements to the sales and marketing strategy and the implementation of the new pricing
protocol contributed to an increase in sales commissions to staff ($35,107 (2015: $25,510)) which was partially offset by a decrease
in base salaries ($220,485 (2015: $226,385)).
The
decrease in the use of contracted marketing services firms ($107 (2015: $32,179)) and general sales consultants ($104,958 (2015:
$130,027)) resulted in a 30% decrease in professional service costs. The Company terminated contracts with two firms, resulting
in cost savings of $28,500 per month.
Outside sales commissions increased in the
three months ended June 30, 2016 ($30,302 (2015: $9,460)) as a result of the increased sales of the PIFA products, both domestically
and internationally. The Company’s royalty expenses for the three months ended June 30, 2016 were $- (2015: $11,355)) as
the royalty program terminated as of December 31, 2015.
Other sales and marketing costs decreased
primarily due to a reduction in advertising, technology and trade show expenses ($3,823 (2015: 39,184)) and was offset by increased
travel by the sales and marketing staff in support of our customer and distributor base and costs associated with the hosting
and maintenance of the Company’s world-wide web presence ($56,685 (2015: $27,709)).
Research
and Development
Research
and development expenses for the three months ended June 30, 2016 totaled $321,989, which was a 15% decrease as compared to $378,224
for the three months ended June 30, 2015.
The
table below summarizes our research and development expenses for the three months ended June 30, 2016 and 2015 as well as the
percentage of change year-over-year:
Description
|
|
3 Months
Ended
June 30, 2016
|
|
|
3 Months
Ended
June 30, 2015
|
|
|
Percent Change
|
|
Personnel Costs
|
|
$
|
219,530
|
|
|
$
|
165,576
|
|
|
|
33
|
%
|
Clinical Trial Costs
|
|
|
44,265
|
|
|
|
13,937
|
|
|
|
218
|
%
|
Professional Service Costs
|
|
|
18,579
|
|
|
|
154,941
|
|
|
|
(88
|
)%
|
Other Research and Development Costs
|
|
|
39,615
|
|
|
|
43,771
|
|
|
|
(9
|
)%
|
Total Research and Development Expenses
|
|
$
|
321,989
|
|
|
$
|
378,225
|
|
|
|
(15
|
)%
|
Personnel
costs increased 33% during the three months ended June 30, 2016 as compared to the same period of 2015 as a result of increased
base salaries from the transfer of Dr. Akers from the General and Administrative Department effective April 25, 2016 and the employment
of a new Director of Quality Assurance.
The
Company had two clinical trials in-process during the three months ended June 30, 2016 resulting in a significant increase in
costs associated with these programs. The on-going trials are collecting data to support submissions to the U.S. Food and Drug
Administration for approvals and to support the clinical effectiveness of the products.
Professional service costs declined 88% during
the three months ended June 30, 2016. During the three months ended June 30, 2015, the Company was expending funds for the engineering
and design of the BreathScan Lync™ reader and cartridge being used with the new MPC products. These design projects are
now complete.
A reduction in the utilization of inventory
resources for development and testing ($853 (2015: $20,326)) was offset by an increase in travel expense ($10,763 (2015: $32))
and resulted in a small decrease of 9% for other research and development costs during the three months ended June 30, 2016.
The
following table illustrates research and development costs by project for the three months ended June 30, 2016 and 2015, respectively:
Project
|
|
2016
|
|
|
2015
|
|
Asthma/pH
|
|
$
|
-
|
|
|
$
|
4,917
|
|
Breath Alcohol
|
|
|
-
|
|
|
|
36,726
|
|
Chlamydia Trachomatis
|
|
|
5,345
|
|
|
|
23,299
|
|
Heparin/PF4
|
|
|
16,228
|
|
|
|
-
|
|
HIV
|
|
|
-
|
|
|
|
49,245
|
|
Ketone
|
|
|
708
|
|
|
|
33,057
|
|
KetoChek / OxiChek
|
|
|
181,281
|
|
|
|
-
|
|
Lithium
|
|
|
-
|
|
|
|
11,914
|
|
METRON
|
|
|
-
|
|
|
|
59,344
|
|
Other Projects
|
|
|
33,358
|
|
|
|
5,333
|
|
Pulmo Health
|
|
|
3,220
|
|
|
|
-
|
|
Troponin (heart attacks)
|
|
|
-
|
|
|
|
49,283
|
|
Tri-Cholesterol
|
|
|
76,633
|
|
|
|
61,649
|
|
VIVO
|
|
|
5,216
|
|
|
|
43,458
|
|
Total R&D Expenses:
|
|
$
|
321,989
|
|
|
$
|
378,225
|
|
Other
Income and Expense
Other income, net of expense for the three
months ended June 30, 2016 totaled $5,870, which was a 81% decrease as compared to $30,811 for the three months ended June 30,
2015.
The
table below summarizes our other income and expenses for the three months ended June 30, 2016 and 2015 as well as the percentage
of change year-over-year:
Description
|
|
3 Months
Ended
June 30, 2016
|
|
|
3 Months
Ended
June 30, 2015
|
|
|
Percent Change
|
|
Currency Translation Loss
|
|
$
|
(2,562
|
)
|
|
$
|
(6,965
|
)
|
|
|
(63
|
)%
|
Realized Gains/(Losses) on Investments
|
|
|
6,587
|
|
|
|
(2,435
|
)
|
|
|
(370
|
)%
|
Interest and Dividends
|
|
|
1,845
|
|
|
|
39,557
|
|
|
|
(95
|
)%
|
Other Income
|
|
|
-
|
|
|
|
655
|
|
|
|
(100
|
)%
|
Total Other Income, Net of Expenses
|
|
$
|
5,870
|
|
|
$
|
30,812
|
|
|
|
(81
|
)%
|
Losses
associated with foreign currency transactions improved by 63% during the three months ended June 30, 2016 as compared to the same
period of 2015, primarily a result of improved exchange rates between the US Dollar, the Euro and the British Pound.
Other income and expenses primarily consist
of realized gains on investments totaling $6,587 (2015: loss of $2,435) and interest and dividend earnings on the marketable securities
and the note receivable totaling $1,845 (2015: $39,557).
Income
Taxes
As
of June 30, 2016, the Company does not believe any uncertain tax positions exist that would result in the Company having a liability
to the taxing authorities. The Company’s policy is to classify interest and penalties related to unrecognized tax benefits,
if and when required, as part of interest expense and general and administrative expense, respectively in the consolidated statement
of operations.
Summary
of Statements of Operations for the Six Months Ended June 30, 2016 and 2015
Revenue
Akers’ revenue for the six months ended
June 30, 2016 totaled $1,694,510, a 15% increase from the six months ended June 30, 2015. Product revenue increased by 47%, primarily
a result of sales of our PIFA Heparin/PF4 Rapid Assay products. Total revenue was impacted by the elimination of license fee revenue
following the cancellation of the License and Supply Agreement with ChubeWorkx Guernsey Limited (“ChubeWorkx”) in
May, 2015 in respect to BreathScan Alcohol Breathalyzer products.
The
table below summarizes our revenue by product line for the six months ended June 30, 2016 and 2015 as well as the percentage of
change year-over-year:
Product Lines
|
|
6 Months
Ended
June 30, 2016
|
|
|
6 Months
Ended
June 30, 2015
|
|
|
Percent Change
|
|
Particle ImmunoFiltration Assay (“PIFA”)
|
|
$
|
1,514,255
|
|
|
$
|
898,959
|
|
|
|
68
|
%
|
MicroParticle Catalyzed Biosensor (“MPC”)
|
|
|
109,703
|
|
|
|
209,805
|
|
|
|
(48
|
)%
|
Other
|
|
|
70,552
|
|
|
|
47,650
|
|
|
|
48
|
%
|
Product Revenue Total
|
|
$
|
1,694,510
|
|
|
$
|
1,156,414
|
|
|
|
47
|
%
|
License Fees
|
|
|
-
|
|
|
|
320,556
|
|
|
|
(100
|
)%
|
Total Revenue
|
|
$
|
1,694,510
|
|
|
$
|
1,476,970
|
|
|
|
15
|
%
|
Revenue from the Company’s PIFA Heparin/PF4
Rapid Assay products increased 68% during the six months ended June 30, 2016 over the same period of 2015, reflecting the partial
fulfillment of the $2.5 million order from Novotek, our exclusive distributor in the Peoples Republic of China.
The Company received a $2.5 million order
for our PIFA Heparin/PF4 Rapid Assay products from Novotek on February 29, 2016. The Company received an initial payment of $250,000
on April 29, 2016 and a second payment of $250,000 on June 28, 2016 for scheduled product shipments, per the terms of sale. The
remaining products will be scheduled to ship at various points throughout the current fiscal year with revenue being recognized
when the criteria for the recognition of revenue is met. The Company recognized $505,380 for PIFA Heparin/PF4 products from Novotek
during the six months ended June 30, 2016.
The
Company’s MPC product sales declined 48% during the six months ended June 30, 2016 over the same period of 2015. A distributor’s
initial stocking order of approximately $146,000 for the Company’s BreathScan Alcohol Breathalyzer products in Great Britain
was included for the six months ended June 30, 2015. Net of this significant order, MPC product sales increased 72% for the six
months ended June 30, 2016.
While most of the MPC product sales in the
six months ended June 30, 2016 came from BreathScan Alcohol Breathalyzers, we have begun generating sales of other MPC products
within our health and wellness line, primarily the Company’s BreathScan OxiChek™ disposable breath test for oxidative
stress.
Other
operating revenue increased due to a rise in miscellaneous component sales and shipping and handling fees.
The Company’s gross margin improved
significantly, rising to 72% (2015: 62%) for the six months ended June 30, 2016. The improvement is attributed to improved margins
for the PIFA Heparin PF/4 products resulting from the increase in average selling price of these products.
Cost of sales for the six months ended June
30, 2016 decreased by 16% to $476,876 (2015: $567,367). Direct cost of sales decreased to 13% of product revenue while other cost
of sales decreased to 15% for the six months ended June 30, 2016 as compared to 24% and 25% respectively for the same period in
2015.
Direct cost of sales for the six month period
ended June 30, 2016 were $216,087 (2015: $281,937). The decrease is attributed to the offset of manufacturing costs to inventory.
Other cost of sales for the six months ended
June 30, 2016 were $260,789 (2015: $285,430). The decrease is attributed to reductions in quality control testing and inventory
shrinkage costs and is offset by increases in manufacturing consumable supplies and repairs and maintenance expenses.
General
and Administrative Expenses
General
and administrative expenses for the six months ended June 30, 2016, totaled $1,739,806, which was a 29% decrease as compared to
$2,444,964 for the six months ended June 30, 2015.
The
table below summarizes our general and administrative expenses for the six months ended June 30, 2016 and 2015 as well as the
percentage of change year-over-year:
Description
|
|
6 Months Ended
June 30, 2016
|
|
|
6 Months
Ended
June 30, 2015
|
|
|
Percent Change
|
|
Personnel Costs
|
|
$
|
543,770
|
|
|
$
|
417,101
|
|
|
|
30
|
%
|
Professional Service Costs
|
|
|
477,094
|
|
|
|
498,470
|
|
|
|
(4
|
)%
|
Stock Market & Investor Relations Costs
|
|
|
234,003
|
|
|
|
272,007
|
|
|
|
(14
|
)%
|
Other General and Administrative Costs
|
|
|
484,939
|
|
|
|
1,257,386
|
|
|
|
(61
|
)%
|
Total General and Administrative Expense
|
|
$
|
1,739,806
|
|
|
$
|
2,444,964
|
|
|
|
(29
|
)%
|
The
increase in personnel costs for the six months ended June 30, 2016 is the result of increases in costs associated with employee
benefits and the addition of a staff accountant in June 2015 and the Company’s new Chief Executive Officer in November 2015.
These increases were offset by the transfer of Dr. Akers to the Research and Development Department effective April 25, 2016.
Professional service costs decreased 4% for
the six months ended June 30, 2016 as compared to the same period of 2015. Decreases in personnel recruiting and general consulting
fees ($3,797 (2015: $101,819)) was offset by increases in accounting and legal fees ($447,042 (2015: $346,975)).
A decline in investor relations fees ($130,436
(2015: $195,835)) during the six months ended June 30, 2016 was partially offset by increases in general consulting ($61,127 (2015:
$36,947)) resulting in an overall reduction in stock market and investor relations costs.
A significant decrease in bad debts expense
($146,196 (2015: $864,000)) and travel expenses ($96,219 (2015: $143,396)) accounts contributed to the 61% decrease in other general
and administrative costs for the six months ended June 30, 2016.
Sales
and Marketing Expenses
Sales
and marketing expenses for the six months ended June 30, 2016 totaled $1,238,754, which was a 10% increase as compared to $1,128,792
for the six months ended June 30, 2015.
The
table below summarizes our sales and marketing expenses for the six months ended June 30, 2016 and 2015 as well as the percentage
of change year-over-year:
Description
|
|
6 Months
Ended
June 30, 2016
|
|
|
6 Months
Ended
June 30, 2015
|
|
|
Percent Change
|
|
Personnel Costs
|
|
$
|
714,796
|
|
|
$
|
616,607
|
|
|
|
16
|
%
|
Professional Service Costs
|
|
|
307,020
|
|
|
|
366,781
|
|
|
|
(16
|
)%
|
Royalties and Outside Commission Costs
|
|
|
50,045
|
|
|
|
27,454
|
|
|
|
82
|
%
|
Other Sales and Marketing Costs
|
|
|
166,893
|
|
|
|
117,950
|
|
|
|
41
|
%
|
Total Sales and Marketing Expenses
|
|
$
|
1,238,754
|
|
|
$
|
1,128,792
|
|
|
|
10
|
%
|
Personnel costs increased by 16% during the
six months ended June 30, 2016 as compared to the same period of 2015. The Company has reduced the number of sales and marketing
staff from 14 on June 30, 2015 to 6 as of June 30, 2016. This temporary reduction in the department’s headcount is a result
of the transition in the sales and marketing strategy for the PIFA Heparin PF/4 products to focus less on individual hospitals
and more on integrated delivery networks which require fewer but more senior level staff. The Company replaced the sales and marketing
senior management team during the first half of 2016 resulting in increased costs associated with severance programs.
The
decrease in the use of contracted marketing services firms ($51,246 (2015: $120,547)) and general sales consultants ($220,289
(2015: $246,234)) resulted in a 16% decrease in professional service costs. The Company terminated contracts with two firms, resulting
in cost savings of $28,500 per month.
Outside sales commissions increased in the
six months ended June 30, 2016 ($50,045 (2015: $16,832)) as a result of the increased sales of the PIFA products, both domestically
and internationally. The Company’s royalty expenses for the six months ended June 30, 2016 were $- (2015: $10,622)) as the
royalty program terminated as of December 31, 2015.
Other
sales and marketing costs increased primarily due to the increased travel by the sales and marketing staff in support of our customer
and distributor base, expenses related to the participation in trade shows and costs associated with the hosting and maintenance
of the Company’s world-wide web presence.
Research
and Development
Research
and development expenses for the six months ended June 30, 2016 totaled $685,280 as compared to $683,799 for the six months ended
June 30, 2015.
The
table below summarizes our research and development expenses for the six months ended June 30, 2016 and 2015 as well as the percentage
of change year-over-year:
Description
|
|
6 Months
Ended
June 30, 2016
|
|
|
6 Months
Ended
June 30, 2015
|
|
|
Percent Change
|
|
Personnel Costs
|
|
$
|
378,553
|
|
|
$
|
331,691
|
|
|
|
14
|
%
|
Clinical Trial Costs
|
|
|
141,342
|
|
|
|
23,613
|
|
|
|
499
|
%
|
Professional Service Costs
|
|
|
57,147
|
|
|
|
246,127
|
|
|
|
(77
|
)%
|
Other Research and Development Costs
|
|
|
108,238
|
|
|
|
82,368
|
|
|
|
31
|
%
|
Total Research and Development Expenses
|
|
$
|
685,280
|
|
|
$
|
683,799
|
|
|
|
-
|
%
|
Personnel
costs increased 14% during the six months ended June 30, 2016 as compared to the same period of 2015 as a result of increased
base salaries from the transfer of Dr. Akers from the General and Administrative Department effective April 25, 2016 and the employment
of a new Director of Quality Assurance.
The
Company had two clinical trials in-process during the six months ended June 30, 2016 resulting in a significant increase in costs
associated with these programs. The on-going trials are collecting data to support submissions to the U.S. Food and Drug Administration
for approvals and to support the clinical effectiveness of the products.
Professional service costs declined 77% during
the six months ended June 30, 2016. During the six months ended June 30, 2015, the Company was expending funds for the engineering
and design of the BreathScan Lync™ reader and cartridge being used with the new MPC products. These design projects are
now complete.
Significant
increase in supplies ($39,237 (2015: $27,831)), travel expense ($11,047 (2015: $32)) and seminars and professional development
($22,160 (2015: $-)) was offset by a reduction in the utilization of inventory resources for development and testing ($2,937 (2015:
$25,537)) that resulted in an increase of 31% for other research and development costs during the six months ended June 30, 2016.
The
following table illustrates research and development costs by project for the six months ended June 30, 2016 and 2015, respectively:
Project
|
|
2016
|
|
|
2015
|
|
Asthma/pH
|
|
$
|
-
|
|
|
$
|
4,917
|
|
Breath Alcohol
|
|
|
1,381
|
|
|
|
46,626
|
|
Chlamydia Trachomatis
|
|
|
10,685
|
|
|
|
79,860
|
|
CHUBE
|
|
|
-
|
|
|
|
397
|
|
Heparin/PF4
|
|
|
72,575
|
|
|
|
43,514
|
|
HIV
|
|
|
-
|
|
|
|
58,718
|
|
Ketone
|
|
|
2,125
|
|
|
|
45,922
|
|
KetoChek / OxiChek
|
|
|
365,178
|
|
|
|
-
|
|
Lithium
|
|
|
-
|
|
|
|
40,638
|
|
METRON
|
|
|
2,507
|
|
|
|
61,299
|
|
Other Projects
|
|
|
101,584
|
|
|
|
74,301
|
|
Pulmo Health
|
|
|
6,126
|
|
|
|
-
|
|
Sonicator OQ
|
|
|
-
|
|
|
|
886
|
|
Troponin (heart attacks)
|
|
|
-
|
|
|
|
104,592
|
|
Tri-Cholesterol
|
|
|
117,903
|
|
|
|
64,890
|
|
VIVO
|
|
|
5,216
|
|
|
|
57,239
|
|
Total R&D Expenses:
|
|
$
|
685,280
|
|
|
$
|
683,799
|
|
Other
Income and Expense
Other income, net of expenses for the six
months ended June 30, 2016 totaled $13,899, which was an 80% decrease as compared to $69,209 for the six months ended June 30,
2015.
The
table below summarizes our other income and expenses for the six months ended June 30, 2016 and 2015 as well as the percentage
of change year-over-year:
Description
|
|
6 Months
Ended
June 30, 2016
|
|
|
6 Months
Ended
June 30, 2015
|
|
|
Percent Change
|
|
Currency Translation Loss
|
|
$
|
(4,817
|
)
|
|
$
|
(5,969
|
)
|
|
|
(19
|
)%
|
Realized Gains/(Losses) on Investments
|
|
|
2,152
|
|
|
|
(1,988
|
)
|
|
|
(208
|
)%
|
Interest and Dividends
|
|
|
16,564
|
|
|
|
71,157
|
|
|
|
(77
|
)%
|
Other Income
|
|
|
-
|
|
|
|
6,010
|
|
|
|
(100
|
)%
|
Total Other Income, Net of Expenses
|
|
$
|
13,899
|
|
|
$
|
69,210
|
|
|
|
(80
|
)%
|
Losses
associated with foreign currency transactions improved by 19% during the six months ended June 30, 2016 as compared to the same
period of 2015, primarily a result of improved exchange rates between the US Dollar, the Euro and the British Pound.
Other
income and expenses primarily consist of realized gains on investments totaling $2,152 (2015: loss of $1,988) and interest and
dividend earnings on the marketable securities and the note receivable totaling $16,564 (2015: $71,157).
Income
Taxes
As
of June 30, 2016, the Company does not believe any uncertain tax positions exist that would result in the Company having a liability
to the taxing authorities. The Company’s policy is to classify interest and penalties related to unrecognized tax benefits,
if and when required, as part of interest expense and general and administrative expense, respectively in the consolidated statement
of operations.
Liquidity
and Capital Resources
For
the six months ended June 30, 2016 and 2015, the Company generated a net loss attributable to shareholders of $2,517,861 and $3,408,028,
respectively. As of June 30, 2016 and December 31, 2015, the Company has an accumulated deficit of $96,693,860 and $94,175,999
and had cash and marketable securities totaling $1,927,560 and $4,427,163, respectively.
Currently, our primary focus is to expand
the domestic and international distribution of our PIFA Heparin/PF4 rapid assays. The Company’s secondary focus is fully
commercializing the health and wellness product line linked to smartphones and tablets. The Company continues commercialization
tasks for METRON as well as development activities for its PIFA PLUSS® Infectious Disease single-use assays, BreathScan®
DKA, and Breath PulmoHealth products, including advancement of the steps required for FDA clearance or CE marking in the EU where
necessary.
We
expect to continue to incur losses from operations for the near-term and these losses could be significant as we incur product
development, clinical and regulatory activities, contract consulting and other product development and commercialization related
expenses. We believe that our current working capital position will be sufficient to meet our estimated cash needs for at least
twelve months. We are closely monitoring our cash balances, cash needs and expense levels. The accompanying financial statements
do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the
amounts and classification of liabilities that might result in the possible inability of the Company to continue as a going concern.
We expect that our primary expenditures will
be to continue development of additional health and wellness products, PIFA PLUSS® Infectious Disease single-use assays, BreathScan®
DKA and Breath PulmoHealth products, enrolling patients in clinical trials to support performance claims, generating studies in
peer-reviewed journals to support product marketing, and provide data for the FDA 510(k) clearance/CE certifications processes
when required. We will also continue to support commercialization and marketing activities of commercialized products (PIFA Heparin/PF4
rapid assays, PIFA PLUSS® PF4, breath alcohol detectors and METRON in the US and internationally. Based upon our experience,
clinical trial and related regulatory expenses can be significant costs. Steps to achieve commercialization of emerging products
will be an ongoing and evolving process with expected improvements and possible subsequent generations being evaluated for commercialized
and emerging tests. Should we be unable to achieve FDA clearance for products that require such regulatory “approval”,
develop performance characteristics for rapid tests that satisfy market needs, or generate sufficient revenue from commercialized
products, we would need to rely on other business or product opportunities to generate revenue and costs that we have incurred
for the patents may be deemed impaired.
Capital
expenditures for the six months ended June 30, 2016 were $81,462 (2015: $44,509). Capital expenditures, primarily for production,
laboratory and facility improvement costs for the year ending December 31, 2016 are expected to be approximately $200,000. As
per the Company’s lease agreement, the owner of the facility will be handling the majority of facility upgrades, and we
anticipate financing any production and laboratory capital expenditures through working capital.
During
the six months ended June 30, 2015, the Company invested $64,091 for a 19.9% ownership position in a joint venture with Hainan
Savy Investment Management, Ltd and Mr. Thomas Knox, the Company’s Chairman, to research, develop, produce and sell Akers’
rapid diagnostic screening and testing products in China. The new entity, incorporated in the People’s Republic of China,
operates as Hainan Savy Akers Biosciences, Ltd.
The
Company may enter into generally short-term consulting and development agreements primarily for testing services and in connection
with clinical trials conducted as part of the Company’s development process which may include activities related to the
development of technical files for FDA 510(k) clearance submissions. Such commitments at any point in time may be significant
but the agreements typically contain cancellation provisions.
We
lease our manufacturing facility which also contains our administrative offices. Our current lease was executed January 1, 2013
and is effective through December 31, 2019. The Company has leased this property from the current owner since 1997.
Management continues to place increased emphasis
on monitoring the risks associated with the current environment, particularly the recoverability of current assets, the fair value
of assets, and the Company’s liquidity. At this point in time, there has not been a material impact on the Company’s
assets and liquidity. Management will continue to monitor the risks associated with the current environment and their impact on
the Company’s results.
The
table below summarizes our cash flows for the six months ended June 30, 2016 and 2015 as well as the percentage of change year-over-year:
Description
|
|
6 Months
Ended
June 30, 2016
|
|
|
6 Months
Ended
June 30, 2015
|
|
|
Percent Change
|
|
Cash at beginning of period
|
|
$
|
402,059
|
|
|
$
|
455,841
|
|
|
|
(12
|
)%
|
Loss from operations
|
|
|
(2,517,861
|
)
|
|
|
(3,408,028
|
)
|
|
|
(26
|
)%
|
Adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Operating Gains
|
|
|
-
|
|
|
|
(6,010
|
)
|
|
|
(100
|
)%
|
Non-Cash Activities
|
|
|
295,513
|
|
|
|
1,025,154
|
|
|
|
(71
|
)%
|
Cash Used in Operating Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Consumed by Operating Activities
|
|
|
(268,523
|
)
|
|
|
(1,121,021
|
)
|
|
|
(76
|
)%
|
Cash Contributed by Operating Activities
|
|
|
75,129
|
|
|
|
546,121
|
|
|
|
(86
|
)%
|
Cash Flows from Investing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Consumed by Investing Activities
|
|
|
(109,105
|
)
|
|
|
(143,155
|
)
|
|
|
(24
|
)%
|
Cash Contributed by Investing Activities
|
|
|
2,502,319
|
|
|
|
2,912,332
|
|
|
|
(14
|
)%
|
Cash Flows from Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Consumed by Financing Activities
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
%
|
Cash Contributed by Financing Activities
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
%
|
Cash at end of period
|
|
$
|
379,531
|
|
|
$
|
261,234
|
|
|
|
45
|
%
|
The
Company’s net cash provided by investing and financing activities totaled $2,393,214 during the six months ended June 30,
2016. Cash of $109,105 was consumed by capital expenditures and the purchase of marketable securities. Proceeds from the sale
of marketable securities contributed cash of $2,502,319 for the period ended June 30, 2016.
The
Company’s net cash provided by investing and financing activities totaled $2,769,177 during the six months ended June 30,
2015. Cash of $143,155 was consumed by capital expenditures, the investment in Hainan Savy Akers Biosciences, Ltd. and the purchase
of marketable securities. Proceeds from the sale of marketable securities and a policy renewal incentive from an insurer contributed
cash of $2,912,332 for the period ended June 30, 2015.
Our net cash consumed by operating activities
totaled $2,415,742 during the six months ended June 30, 2016. Cash was consumed by the loss of $2,517,861 plus non-cash adjustments
of $113,906 for depreciation and amortization of non-current assets, $146,196 for allowances for doubtful accounts, $18,243 for
share based compensation, $8,241 for options issued for services and $8,927 for accrued income on marketable securities. For the
six months ended June 30, 2016, decreases in deposits and other receivables of $31,196 and prepaid expenses of $43,933 provided
cash, primarily related to routine changes in operating activities. A net increase in trade receivables of $79,906 and inventories
of $85,588 and a decrease in trade and other payables of $103,029 consumed cash from operating activities.
Akers’ net cash consumed by operating
activities totaled $2,963,784 during the six months ended June 30, 2015. Cash was consumed by the loss of $3,408,028 less non-operating
gains of $6,010 plus non-cash adjustments of $160,931 for depreciation and amortization of non-current assets, $864,000 for allowances
for doubtful accounts and $223 for accrued income on marketable securities. For the six months ended June 30, 2015, decreases
in notes receivable – related party of $131,566, deposits and other receivables of $7,578, inventory of $83,128 and an increase
in trade and other payables of $323,849 provided cash while a net increase in trade receivables of $747,629 and prepaid expenses
of $67,836 and a decrease in deferred revenue – related party of $305,556 consumed cash from operating activities.
Critical
Accounting Policies
We
intend to utilize the extended transition period provided in Securities Act Section 7(a)(2)(B) as allowed by Section 107(b)(1)
of the JOBS Act for the adoption of new or revised accounting standards as applicable to emerging growth companies. Under the
JOBS Act, emerging growth companies may delay adopting new or revised accounting standards that have different effective dates
for public and private companies until such time as those standards apply to private companies. We have elected to use the extended
transition period for complying with these new or revised accounting standards. Since we will not be required to comply with new
or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies,
our financial statements may not be comparable to the financial statements of companies that comply with public company effective
dates. If we were to elect to comply with these public company effective dates, such election would be irrevocable pursuant to
Section 107 of the JOBS Act.
The
preparation of financial statements in conformity with accounting principles generally accepted in the United States of America
(US GAAP) requires management to make estimates and assumptions about future events that affect the amounts reported in the financial
statements and accompanying notes. Future events and their effects cannot be determined with absolute certainty. Therefore, the
determination of estimates requires the exercise of judgment. Actual results inevitably will differ from those estimates, and
such differences may be material to the financial statements. The most significant accounting estimates inherent in the preparation
of our financial statements include estimates associated with revenue recognition, impairment analysis of intangibles and stock-based
compensation.
The
Company’s financial position, results of operations and cash flows are impacted by the accounting policies the Company has
adopted. In order to get a full understanding of the Company’s financial statements, one must have a clear understanding
of the accounting policies employed. A summary of the Company’s critical accounting policies follows:
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.
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.
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 June 30, 2016, the Company has eleven patents from the United States Patent Office in effect (7,896,167;
8,097,171; 8,003,061; 8,425,859; 8,871,521; 8,808,639; 7,285,246; 7,837,936; 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 (1,515,170; 4,885,134; 4,931,821 and 5,775,790). 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 US, 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 a period of twelve to seventeen 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.
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 life. The Company
amortizes these costs over the shorter of the legal life of the patent or its estimated economic life using the straight-line
method. The Company tests intangible assets with finite lives upon significant changes in the Company’s business environment.
Long-Lived
Assets
Items
of property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses. Cost includes
expenditure that is directly attributable to the acquisition of the asset. When parts of an item of property, plant and equipment
have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment. 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 net within “other income” in profit or loss.
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.
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.
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.
Stock-based
Compensation
FASB
ASC 718,
Share-Based Payment
, defines the fair-value-based method of accounting for stock-based employee compensation plans
and transactions used by the Company to account for its issuances of equity instruments to record compensation cost for stock-based
employee compensation plans at fair value as well as to acquire goods or services from non-employees. Transactions in which the
Company issues stock-based compensation to employees, directors and consultants and for goods or services received from non-employees
are accounted for based on the fair value of the equity instruments issued. The Company utilizes pricing models in determining
the fair values of options and warrants issued as stock-based compensation. The Black-Scholes model is utilized to calculate the
fair value of equity instruments
Recently
Issued and Adopted Accounting Pronouncements
The
Company has evaluated all recently issued and adopted accounting pronouncements and believes such pronouncements do not have a
material effect on the Company’s financial statements.
Interest
Rates
The
primary objective for our investment activities is to preserve principal while maximizing yields without significantly increasing
risk. This is accomplished by investing excess cash in highly liquid debt and equity investments of highly rated entities which
are classified as trading securities.
Off-Balance
Sheet Arrangements
We
have no significant known off balance sheet arrangements.