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 months
ended March 31, 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 March 31, 2016 and December 31, 2015, allowances for doubtful accounts were $864,000. Allowances charged for doubtful accounts
amounted to $- for the three months ended March 31, 2016 and March 31, 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 $161,429 and $369,525 with Fulton Bank of New Jersey, $14,921 and $28,494 with Bank of America and $4,040 with
PayPal as of March 31, 2016 and December 31, 2015.
Concentration
of credit risk with respect to trade receivables exists as approximately 74% of its revenue was generated by two customers for
the three months ended March 31, 2016. These customers accounted for 30% of gross trade receivables (including related parties)
as of March 31, 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.
|
(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.
AKERS
BIOSCIENCES, INC. AND SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements
(unaudited)
Gains
and losses on disposal of an item of property, plant and equipment are determined by comparing the proceeds from disposal with
the carrying amount of property, plant and equipment and are recognized within “other income” in the condensed consolidated
statement of operations.
Depreciation
is recognized in the condensed consolidated statement of operations on the accelerated basis over the estimated useful lives of
the property, plant and equipment. Leased assets are depreciated over the shorter of the lease term or their useful lives.
The
estimated useful lives for the current and comparative periods are as follows:
|
|
Useful Life
|
|
|
(in years)
|
Plant and equipment
|
|
5-12
|
Furniture and fixtures
|
|
5-10
|
Computer equipment & software
|
|
3-5
|
Depreciation
methods, useful lives and residual values are reviewed at each reporting date.
|
(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 March 31, 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 March 31, 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 March 31, 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 March 31,
2016 for their existing customer base as of April 30, 2015. The Company has recorded rebates of $99,968, which is a reduction
of revenue, for the three months ended March 31, 2016 for this program. Accounts receivable will be reduced when the rebates are
applied by the customer.
License
fee revenue is recognized on a straight-line basis over the term of the license agreement.
When
the Company enters into arrangements that contain more than one deliverable, the Company allocates revenue to the separate elements
under the arrangement based on their relative selling prices in accordance with FASB ASC 605-25.
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 $16,045 for the three months ended March 31,
2016 and $18,941 for the three months ended March 31, 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 $21,714 for the three months ended March 31, 2016 and $44,690
for the three months ended March 31, 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 March 31, 2016 and 2015 was based on a loss attributable to common stockholders of $1,508,929
and $1,321,799.
Potential
common shares consist of options and warrants. Diluted net loss per common share was the same as basic loss per common share for
the three months ended March 31, 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 for the three months ended March 31, 2016 and 175,000 units of
options for the three months ended March 31, 2015.
AKERS
BIOSCIENCES, INC. AND SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements
(unaudited)
|
(u)
|
Recently
Adopted Accounting Pronouncements
|
As
of March 31, 2016 and for the three months 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 March 31, 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 March 31, 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.
|
|
2016
|
|
|
|
|
|
|
Accrued
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Income
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
Level 2:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
1,837
|
|
|
$
|
17
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,854
|
|
US agency securities
|
|
|
40,307
|
|
|
|
66
|
|
|
|
-
|
|
|
|
-
|
|
|
|
40,373
|
|
Certificates of deposits
|
|
|
1,070,000
|
|
|
|
1,193
|
|
|
|
2,712
|
|
|
|
-
|
|
|
|
1,073,905
|
|
Corporate securities
|
|
|
1,028,308
|
|
|
|
2,294
|
|
|
|
-
|
|
|
|
(707
|
)
|
|
|
1,029,895
|
|
Municipal securities
|
|
|
294,651
|
|
|
|
1,491
|
|
|
|
298
|
|
|
|
-
|
|
|
|
296,440
|
|
Total Level 2:
|
|
|
2,435,103
|
|
|
|
5,061
|
|
|
|
3,010
|
|
|
|
(707
|
)
|
|
|
2,442,467
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total:
|
|
$
|
2,435,103
|
|
|
$
|
5,061
|
|
|
$
|
3,010
|
|
|
$
|
(707
|
)
|
|
$
|
2,442,467
|
|
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 gains were $8,534 and $26,713 for
the three months ended March 31, 2016 and 2015.
AKERS
BIOSCIENCES, INC. AND SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements
(unaudited)
As
of March 31, 2016, investments in money market funds, U.S. agency securities, 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,030,868
|
|
|
$
|
1,411,599
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Proceeds
from the sale of marketable securities for the three months ended March 31, 2016 and 2015 were $1,601,456 and $1,253,436, respectively.
For the three months ended March 31, 2016 and 2015 the gross gain was $308 and $448 as a result of these sales.
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 90 days.
Note
5 - Inventories
Inventories
at March 31, 2016 and December 31, 2015 consists of the following categories:
|
|
2016
|
|
|
2015
|
|
Raw Materials
|
|
$
|
387,269
|
|
|
$
|
348,216
|
|
Sub-Assemblies
|
|
|
831,069
|
|
|
|
786,656
|
|
Finished Goods
|
|
|
22,759
|
|
|
|
25,721
|
|
Reserve for Obsolescence
|
|
|
(28,939
|
)
|
|
|
(28,939
|
)
|
|
|
$
|
1,212,158
|
|
|
$
|
1,131,654
|
|
For
the three months ended March 31, 2016 and 2015, $2,968 and $- were expensed to cost of goods sold for obsolete inventory.
Note
6 - Property, Plant and Equipment
Property,
plant and equipment as of March 31, 2016 and December 31, 2015 are as follows:
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
Computer Equipment
|
|
$
|
110,649
|
|
|
$
|
100,405
|
|
Computer Software
|
|
|
40,681
|
|
|
|
40,681
|
|
Office Equipment
|
|
|
39,959
|
|
|
|
50,049
|
|
Furniture & Fixtures
|
|
|
29,939
|
|
|
|
29,939
|
|
Machinery & Equipment
|
|
|
1,126,005
|
|
|
|
1,112,060
|
|
Molds & Dies
|
|
|
799,202
|
|
|
|
756,279
|
|
Leasehold Improvements
|
|
|
222,593
|
|
|
|
222,593
|
|
|
|
|
2,369,028
|
|
|
|
2,312,006
|
|
Less
|
|
|
|
|
|
|
|
|
Accumulated Depreciation
|
|
|
2,047,813
|
|
|
|
2,060,861
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
321,215
|
|
|
$
|
251,145
|
|
AKERS
BIOSCIENCES, INC. AND SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements
(unaudited)
Depreciation
expense was $13,702 and $15,706 for the three months ended March 31, 2016 and 2015.
The
Company disposed of a fully depreciated telephone system with no salvage value during the three months ended March 31, 2016.
N
ote
7 - Intangible Assets
Intangible
assets as of March 31, 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 March 31, 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
|
|
|
42,777
|
|
|
|
-
|
|
|
|
42,777
|
|
Disposals
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
At March 31, 2016
|
|
$
|
1,196,890
|
|
|
$
|
1,270,639
|
|
|
$
|
2,467,529
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Book Value
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2015
|
|
$
|
1,472,883
|
|
|
$
|
-
|
|
|
$
|
1,472,883
|
|
At March 31, 2016
|
|
$
|
1,430,106
|
|
|
$
|
-
|
|
|
$
|
1,430,106
|
|
Amortization
expense was $42,777 and $64,643 for the three months ended March 31, 2016 and 2014.
AKERS
BIOSCIENCES, INC. AND SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements
(unaudited)
Note
8 - Trade and Other Payables
Trade
and other payables as of March 31, 2016 and December 31, 2015 are as follows:
|
|
2016
|
|
|
2015
|
|
Trade Payables
|
|
$
|
694,900
|
|
|
$
|
538,449
|
|
Accrued Expenses
|
|
|
753,523
|
|
|
|
1,020,532
|
|
Legal Settlements Payable
|
|
|
35,000
|
|
|
|
50,000
|
|
Deferred Compensation
|
|
|
59,750
|
|
|
|
59,750
|
|
|
|
$
|
1,543,173
|
|
|
$
|
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, our common stock.
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 three months ended March 31, 2016:
AKERS
BIOSCIENCES, INC. AND SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements
(unaudited)
|
|
|
|
|
|
|
|
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 March 31, 2016
|
|
|
220,500
|
|
|
$
|
4.38
|
|
|
|
|
|
|
|
|
|
Exercisable as of March 31, 2016
|
|
|
220,500
|
|
|
$
|
4.38
|
|
|
|
3.56
|
|
|
$
|
13,500
|
|
The
aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the closing
stock price of $1.68 for the Company’s common shares on March 31, 2016. The above intrinsic value represents that of awards
with an exercise price below $1.68.
The
total grant date fair value of stock options vested for the three months ended March 31, 2016 and 2015 was $-.
As
of March 31, 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.
On December 29, 2015, the Company
issued 227,708 common shares to directors and officers for services rendered to the Company through December 31, 2015. The fair
value of these shares was $280,081 which was expensed in 2015.
On
December 29, 2015, the Company issued 22,500 common shares to key employees for services rendered to the Company through December
31, 2015. The fair value of these shares was $27,675 which was expensed in 2015.
On
December 29, 2015, the Company issued 30,000 common shares in exchange for legal services rendered. The fair value of these shares
was $36,900 which was expensed in 2015.
As
of March 31, 2016 and December 31, 2015 the Company has 220,500 reserved shares of its common stock for outstanding options.
AKERS
BIOSCIENCES, INC. AND SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements
(unaudited)
Note
11 - Income Tax Expense
There
is no income tax benefit for the losses for the three months ended March 31, 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 months ended March 31, 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., our joint venture partner in the Peoples
Republic of China. The total cost of the molds and sample components during the three months ended March 31, 2016 was $42,093.
The cost of the sample components, totaling $1,020, was included in research and development expenses in the condensed consolidated
statement of operations and comprehensive income. The cost of the molds, totaling $41,073, is included in property, plant and
equipment in the condensed consolidated balance sheet.
Trade
receivables – related party as of March 31, 2016 and December 31, 2015 are $31,522 and $31,512. The amounts due is 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 months ended March 31, 2016 and 2015 were $- and $14,343. The revenue was the result
of sales to Hainan Savy Akers Biosciences, 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 for the three months ended March 31, 2016 and 2015.
AKERS
BIOSCIENCES, INC. AND SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements
(unaudited)
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 37-48 Months
|
|
|
99,000
|
|
|
|
3,591
|
|
|
|
102,591
|
|
Note
14 – Major Customers
For
the three months ended March 31, 2016, two customers each generated more than 10% of the Company’s product revenue. In aggregate,
sales to these customers accounted for 74% of the Company’s product revenue. As of March 31, 2016, the amount due from these
two customers was $500,742. This concentration makes the Company vulnerable to a near-term severe impact should the relationships
be terminated.
For
the three months ended March 31, 2015, two customers each generated more than 10% of the Company’s product revenue. Sales
to these customers accounted for 66% of the Company’s product revenue.
Note
15 – Major Suppliers
For
the three months ended March 31, 2016, two suppliers each accounted for more than 10% of the Company’s purchases. In aggregate,
these suppliers accounted for 23% of the Company’s total purchases. As of March 31, 2016, the amount due to the suppliers
was $-. This concentration makes the Company vulnerable to a near-term severe impact should the relationships be terminated.
For
the three months ended March 31, 2015, two suppliers each accounted for more than 10% of the Company’s purchases. These
suppliers accounted for 45% 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.
The settlement discussions were terminated on March 24, 2016 after substantial good faith efforts by the Company to bring this
dispute to a resolution. Under the Federal Rules of Civil Procedure the Company will seek to reopen the case under Fed. R. Civ
P. 60(b)(1) and prosecute this case with full vigor to retrieve the monies owed to the Company.
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. The parties are working with their counsel to finalize and execute the settlement agreements.
After reviewing the terms of the agreement
in principal the Company has determined that no accrual for losses was necessary as of March 31, 2016. Legal fees were expensed
in the period in which they were incurred.
Note
17 – Subsequent Events
On April 25, 2016, Mr. Thomas Knox,
previously the Company’s Non-Executive Co-Chairman, became the Company’s sole Chairman. Raymond F. Akers, Jr. PhD,
formally the Company’s Executive Chairman, became the Chief Scientific Director. Dr. Akers will continue to lead the scientific
developments of the Company’s product pipeline and the enhancements of the Company’s commercialized products. Dr.
Akers remains an Executive Director on the Board and, as Co-Founder, will continue to be the primary interface with shareholders.
On April 29, 2016, the Company received
a payment of $250,000, in accordance with the terms of sale, from NovoTek Pharmaceuticals Limited (“NovoTek”), for
the initial release of PIFA Heparin PF/4 products against the $2,500,000 order received February 29, 2016. The revenue from this
initial lot of goods totaling $500,000, will be recognized when the criteria for the recognition of revenue are met. Management
believes that these criteria will be met in the second quarter of 2016. NovoTek is the Company’s exclusive distributor in
the Peoples Republic of China for the Company’s PIFA Heparin products.