Item
1. Financial Statements.
AKERS
BIOSCIENCES, INC. AND SUBSIDIARIES
Condensed
Consolidated Balance Sheets
September
30, 2016 and December 31, 2015
|
|
2016
|
|
|
2015
|
|
|
|
(unaudited)
|
|
|
(audited)
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current
Assets
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
195,860
|
|
|
$
|
402,059
|
|
Marketable
Securities
|
|
|
599,942
|
|
|
|
4,025,104
|
|
Trade
Receivables, net
|
|
|
738,160
|
|
|
|
609,195
|
|
Trade
Receivables - Related Party, net
|
|
|
31,892
|
|
|
|
31,512
|
|
Deposits
and other receivables
|
|
|
29,722
|
|
|
|
95,577
|
|
Inventories,
net
|
|
|
1,942,516
|
|
|
|
1,131,654
|
|
Prepaid
expenses
|
|
|
94,261
|
|
|
|
185,967
|
|
Prepaid
expenses - Related Party
|
|
|
214,250
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Total
Current Assets
|
|
|
3,846,603
|
|
|
|
6,481,068
|
|
|
|
|
|
|
|
|
|
|
Non-Current
Assets
|
|
|
|
|
|
|
|
|
Prepaid
expenses - Related Party
|
|
|
276,385
|
|
|
|
-
|
|
Property,
Plant and Equipment, net
|
|
|
245,553
|
|
|
|
251,145
|
|
Intangible
Assets, net
|
|
|
1,344,552
|
|
|
|
1,472,883
|
|
Other
Assets
|
|
|
66,813
|
|
|
|
66,813
|
|
|
|
|
|
|
|
|
|
|
Total
Non-Current Assets
|
|
|
1,933,303
|
|
|
|
1,790,841
|
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
$
|
5,779,906
|
|
|
$
|
8,271,909
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
|
|
|
|
Trade
and Other Payables
|
|
$
|
1,249,733
|
|
|
$
|
1,668,731
|
|
Trade
and Other Payables - Related Party
|
|
|
59,673
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Total
Current Liabilities
|
|
|
1,309,406
|
|
|
|
1,668,731
|
|
|
|
|
|
|
|
|
|
|
Total
Liabilities
|
|
|
1,309,406
|
|
|
|
1,668,731
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’
EQUITY
|
|
|
|
|
|
|
|
|
Convertible
Preferred Stock, No par value, 50,000,000 shares authorized, no shares issued and outstanding as of September 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 September 30, 2016
and December 31, 2015
|
|
|
100,886,637
|
|
|
|
100,785,408
|
|
Deferred
Compensation
|
|
|
(29,891
|
)
|
|
|
-
|
|
Accumulated
Deficit
|
|
|
(96,383,706
|
)
|
|
|
(94,175,999
|
)
|
Accumulated
Other Comprehensive Income/(Loss)
|
|
|
(2,540
|
)
|
|
|
(6,231
|
)
|
|
|
|
|
|
|
|
|
|
Total
Stockholders’ Equity
|
|
|
4,470,500
|
|
|
|
6,603,178
|
|
|
|
|
|
|
|
|
|
|
Total
Liabilities and Stockholders’ Equity
|
|
$
|
5,779,906
|
|
|
$
|
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
|
|
Nine months ended
|
|
|
September 30
|
|
September 30
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product Revenue
|
|
$
|
613,198
|
|
|
$
|
169,473
|
|
|
$
|
2,307,708
|
|
|
$
|
1,325,887
|
|
License Revenue
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
15,000
|
|
License Revenue - Related party
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
305,556
|
|
Total Revenues
|
|
|
613,198
|
|
|
|
169,473
|
|
|
|
2,307,708
|
|
|
|
1,646,443
|
|
Cost of Sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product Cost of Sales
|
|
|
(236,700
|
)
|
|
|
(177,952
|
)
|
|
|
(713,576
|
)
|
|
|
(745,319
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Income/(Loss)
|
|
|
376,498
|
|
|
|
(8,479
|
)
|
|
|
1,594,132
|
|
|
|
901,124
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Administrative Expenses
|
|
|
558,293
|
|
|
|
760,336
|
|
|
|
2,298,099
|
|
|
|
2,341,300
|
|
Sales and Marketing Expenses
|
|
|
408,248
|
|
|
|
725,832
|
|
|
|
1,647,003
|
|
|
|
1,854,623
|
|
Sales and Marketing Expenses - Related party
|
|
|
117,949
|
|
|
|
-
|
|
|
|
117,949
|
|
|
|
-
|
|
Research and Development Expenses
|
|
|
247,578
|
|
|
|
319,646
|
|
|
|
932,858
|
|
|
|
1,003,445
|
|
(Reversal of Allowance for) Bad Debt Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Related parties
|
|
|
(1,299,609
|
)
|
|
|
-
|
|
|
|
(1,299,609
|
)
|
|
|
864,000
|
|
Impairment of Non-Current Assets
|
|
|
-
|
|
|
|
466,476
|
|
|
|
-
|
|
|
|
466,476
|
|
Amortization of Non-Current Assets
|
|
|
42,777
|
|
|
|
64,643
|
|
|
|
128,331
|
|
|
|
193,929
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(Loss) from Operations
|
|
|
301,262
|
|
|
|
(2,345,412
|
)
|
|
|
(2,230,499
|
)
|
|
|
(5,822,649
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (Income)/Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Currency Transaction Loss
|
|
|
(3,629
|
)
|
|
|
2,001
|
|
|
|
1,189
|
|
|
|
7,971
|
|
Interest and Dividend Income
|
|
|
(5,264
|
)
|
|
|
(20,478
|
)
|
|
|
(23,981
|
)
|
|
|
(89,647
|
)
|
Other Income
|
|
|
-
|
|
|
|
(42
|
)
|
|
|
-
|
|
|
|
(6,052
|
)
|
Total Other Income
|
|
|
(8,893
|
)
|
|
|
(18,519
|
)
|
|
|
(22,792
|
)
|
|
|
(87,728
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(Loss) Before Income Taxes
|
|
|
310,155
|
|
|
|
(2,326,893
|
)
|
|
|
(2,207,707
|
)
|
|
|
(5,734,921
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Tax Benefit
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income/(Loss) Attributable to Common Stockholders
|
|
|
310,155
|
|
|
|
(2,326,893
|
)
|
|
|
(2,207,707
|
)
|
|
|
(5,734,921
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Comprehensive Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Unrealized
(Losses)/Gains on Marketable Securities
|
|
|
(2,837
|
)
|
|
|
8,539
|
|
|
|
3,691
|
|
|
|
28,964
|
|
Total Other Comprehensive (Loss)/Income
|
|
|
(2,837
|
)
|
|
|
8,539
|
|
|
|
3,691
|
|
|
|
28,964
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Income/(Loss)
|
|
$
|
307,318
|
|
|
$
|
(2,318,354
|
)
|
|
$
|
(2,204,016
|
)
|
|
$
|
(5,705,957
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income/(loss) per common share
|
|
$
|
0.06
|
|
|
$
|
(0.45
|
)
|
|
$
|
(0.41
|
)
|
|
$
|
(1.12
|
)
|
Diluted income/(loss) per common share
|
|
$
|
0.06
|
|
|
$
|
(0.45
|
)
|
|
$
|
(0.41
|
)
|
|
$
|
(1.12
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average basic common shares outstanding
|
|
|
5,434,212
|
|
|
|
5,144,837
|
|
|
|
5,428,859
|
|
|
|
5,138,573
|
|
Weighted average diluted common shares outstanding
|
|
|
5,508,545
|
|
|
|
5,144,837
|
|
|
|
5,428,859
|
|
|
|
5,138,573
|
|
See
accompanying notes to these condensed consolidated financial statements.
AKERS
BIOSCIENCES, INC. AND SUBSIDIARIES
Condensed
Consolidated Statement of Changes in Stockholder’s Equity
For
nine months ended September 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
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,207,707
|
)
|
|
|
-
|
|
|
|
(2,207,707
|
)
|
Issuance
of restricted stock to officers
|
|
|
27,500
|
|
|
|
54,725
|
|
|
|
(54,725
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Amortization
of deferred compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
24,834
|
|
|
|
-
|
|
|
|
-
|
|
|
|
24,834
|
|
Options
issued to key employees
|
|
|
-
|
|
|
|
22,828
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
22,828
|
|
Options
issued for services
|
|
|
-
|
|
|
|
23,676
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
23,676
|
|
Net
unrealized gain on marketable securities
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,691
|
|
|
|
3,691
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at September 30, 2016 (unaudited)
|
|
|
5,452,545
|
|
|
$
|
100,886,637
|
|
|
$
|
(29,891
|
)
|
|
$
|
(96,383,706
|
)
|
|
$
|
(2,540
|
)
|
|
$
|
4,470,500
|
|
See
accompanying notes to these condensed consolidated financial statements.
AKERS
BIOSCIENCES, INC. AND SUBSIDIARIES
Condensed
Consolidated Statements of Cash Flows
For
nine months ended September 30, 2016 and 2015
(unaudited)
|
|
2016
|
|
|
2015
|
|
Cash
flows from operating activities
|
|
|
|
|
|
|
|
|
Net
loss for the period
|
|
$
|
(2,207,707
|
)
|
|
$
|
(5,734,921
|
)
|
Adjustments
to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Accrued
income on marketable securities
|
|
|
13,380
|
|
|
|
8,387
|
|
Depreciation
and amortization
|
|
|
221,946
|
|
|
|
241,512
|
|
Impairment
of non-current assets
|
|
|
-
|
|
|
|
466,476
|
|
Allowance
for doubtful accounts
|
|
|
(1,153,413
|
)
|
|
|
864,000
|
|
Gain
from other non-operating activities
|
|
|
-
|
|
|
|
(6,010
|
)
|
Amortization
of deferred compensation
|
|
|
24,834
|
|
|
|
-
|
|
Non-cash
share based compensation - options
|
|
|
22,828
|
|
|
|
-
|
|
Non-cash
share based payments for services - options
|
|
|
23,676
|
|
|
|
-
|
|
Changes
in assets and liabilities:
|
|
|
|
|
|
|
|
|
(Increase)/decrease
in trade receivables
|
|
|
(275,541
|
)
|
|
|
45,063
|
|
Decrease
in notes receivables - related party
|
|
|
-
|
|
|
|
176,156
|
|
(Increase)/decrease
in deposits and other receivables
|
|
|
65,855
|
|
|
|
(60,141
|
)
|
Increase
in inventories
|
|
|
(60,862
|
)
|
|
|
(50,047
|
)
|
(Increase)/decrease
in prepaid expenses
|
|
|
91,706
|
|
|
|
(60,529
|
)
|
Decrease
in prepaid expenses - related party
|
|
|
58,974
|
|
|
|
-
|
|
Increase/(decrease)
in trade and other payables
|
|
|
(418,998
|
)
|
|
|
415,163
|
|
Increase
in trade and other payables - related party
|
|
|
59,673
|
|
|
|
-
|
|
Decrease
in deferred revenue - related party
|
|
|
-
|
|
|
|
(305,556
|
)
|
Net
cash used in operating activities
|
|
|
(3,533,649
|
)
|
|
|
(4,000,447
|
)
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities
|
|
|
|
|
|
|
|
|
Purchases
of property, plant and equipment
|
|
|
(88,023
|
)
|
|
|
(60,254
|
)
|
Purchases
of marketable securities
|
|
|
(37,360
|
)
|
|
|
(52,319
|
)
|
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
|
|
|
3,452,833
|
|
|
|
4,108,632
|
|
Net
cash provided by investing activities
|
|
|
3,327,450
|
|
|
|
3,937,978
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash
|
|
|
(206,199
|
)
|
|
|
(62,469
|
)
|
Cash
at beginning of period
|
|
|
402,059
|
|
|
|
455,841
|
|
Cash
at end of period
|
|
$
|
195,860
|
|
|
$
|
393,372
|
|
|
|
|
|
|
|
|
|
|
Supplemental
Schedule of Non-Cash Financing and Investing Activities
|
|
|
|
|
|
|
|
|
Issuance
of restricted common stock grant to an officer
|
|
$
|
54,725
|
|
|
$
|
-
|
|
Net
unrealized gains on marketable securities
|
|
$
|
3,691
|
|
|
$
|
28,964
|
|
Reclassification
of note receivable to inventory
|
|
$
|
750,000
|
|
|
$
|
-
|
|
Reclassification
of note receivable to prepaid expense
|
|
$
|
549,609
|
|
|
$
|
-
|
|
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 nine
months ended September 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.
AKERS
BIOSCIENCES, INC. AND SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements
(unaudited)
|
(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.
The
normal credit terms extended to customers ranges between 30 and 90 days. The Company reviews all receivables that exceed terms
and establishes an allowance for doubtful accounts based on management’s assessment of the collectability of trade and other
receivables. A considerable amount of judgment is required in assessing the amount of allowance. The Company considers the historical
level of credit losses, makes judgments about the credit worthiness of each customer based on ongoing credit evaluations and monitors
current economic trends that might impact the level of credit losses in the future.
As
of September 30, 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 nine months ended September 30, 2016 and September 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 $181,216 and $369,525 with Fulton Bank of New Jersey, $10,604 and $28,494 with Bank of America and $4,040 with
PayPal as of September 30, 2016 and December 31, 2015.
Concentration
of credit risk with respect to trade receivables exists as approximately 80% of its revenue was generated by three customers for
the nine months ended September 30, 2016. These customers accounted for 38% of gross trade receivables (including related parties)
as of September 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.
|
(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.
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
|
Leasehold
Improvements
|
Shorter
of the 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 September 30, 2016, the Company has ten patents from the United States Patent Office in
effect (9,383,368; 7,896,167; 8,097,171; 8,003,061; 8,425,859; 8,871,521; 8,808,639; 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), in Hong Kong (HK11004006) 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 September 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 September 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 $84,128 and $299,781, which is
a reduction of revenue, for the three and nine months ended September 30, 2016 and $70,282 and $362,150 for the three and nine
months ended September 30, 2015 for this program. Accounts receivable will be reduced when the rebates are applied by the customer.
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 September
30, 2016 and December 31, 2015, accrued rebates amounted to $255,954 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 $12,321 and $42,754 for the three and nine
months ended September 30, 2016 and $10,998 and $43,776 for the three and nine months ended September 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 $19,418
and $88,427 for the three and nine months ended September 30, 2016 and $15,590 and $82,996 for the three and nine months ended
September 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.
Potential
common shares consist of restricted shares of common stock, options and warrants. Diluted net income per common share for the
three months ended September 30, 2016 included 56,000 units of options and 18,333 units of unvested restricted shares of
common stock. Diluted net loss per common share was the same as basic loss per common share for the nine months ended September
30, 2016 and for the three and nine months ended September 30, 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 203,000 units of options and 18,333 units of unvested restricted shares
of common stock for the nine months ended September 30, 2016 and 175,000 units of options for the three and nine months ended
September 30, 2015.
AKERS
BIOSCIENCES, INC. AND SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements
(unaudited)
The
table below details the calculation of the basic and diluted income/(loss) per share for the three and nine months ended September
30, 2016 and 2015:
|
|
Three
months ended
|
|
|
Nine
months ended
|
|
|
|
September
30,
|
|
|
September
30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Numerator
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income/(Loss)
|
|
$
|
310,155
|
|
|
$
|
(2,326,893
|
)
|
|
$
|
(2,207,707
|
)
|
|
$
|
(5,734,921
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
Average Basic Common Shares Outstanding
|
|
|
5,434,212
|
|
|
|
5,144,837
|
|
|
|
5,428,859
|
|
|
|
5,138,573
|
|
Add
the Dilutive Effect of Stock Options
|
|
|
56,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Unvested
Restricted Shares
|
|
|
18,333
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Weighted
Average Basic and Diluted Common Shares Outstanding
|
|
|
5,508,545
|
|
|
|
5,144,837
|
|
|
|
5,428,859
|
|
|
|
5,138,573
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income/(Loss) per
Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.06
|
|
|
$
|
(0.45
|
)
|
|
$
|
(0.41
|
)
|
|
$
|
(1.12
|
)
|
Diluted
|
|
$
|
0.06
|
|
|
$
|
(0.45
|
)
|
|
$
|
(0.41
|
)
|
|
$
|
(1.12
|
)
|
|
(u)
|
Recently
Adopted Accounting Pronouncements
|
As
of September 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 September 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 September 30, 2016 and December 31,
2015.
Money
market funds and Corporate and Municipal Securities:
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.
AKERS
BIOSCIENCES, INC. AND SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements
(unaudited)
|
|
As
of September 30, 2016
|
|
|
|
|
|
|
Accrued
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Income
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
Level
2:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money
market funds
|
|
$
|
2,966
|
|
|
$
|
17
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
2,983
|
|
Corporate
securities
|
|
|
578,308
|
|
|
|
861
|
|
|
|
-
|
|
|
|
(2,560
|
)
|
|
|
576,609
|
|
Municipal
securities
|
|
|
20,314
|
|
|
|
16
|
|
|
|
20
|
|
|
|
-
|
|
|
|
20,350
|
|
Total
Level 2:
|
|
|
601,588
|
|
|
|
894
|
|
|
|
20
|
|
|
|
(2,560
|
)
|
|
|
599,942
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total:
|
|
$
|
601,588
|
|
|
$
|
894
|
|
|
$
|
20
|
|
|
$
|
(2,560
|
)
|
|
$
|
599,942
|
|
The
above securities are classified as available for sale. The securities are valued at fair market value. Maturities of the securities
are less than one year. 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 $2,837 and a net unrealized gain of $3,691 for the three and nine months ended September 30, 2016 and a net unrealized gain
of $5,810 and $28,965 for the three and nine months ended September 30, 2015 were recorded in the condensed consolidated statement
of changes in stockholders’ equity as comprehensive income.
As
of September 30, 2016, investments in money market funds and corporate securities and municipal securities classified as available
for sale mature within one year.
Proceeds
from the sale of marketable securities for the three and nine months ended September 30, 2016 were $950,514 and $3,452,833 and
were $1,202,311 and $4,108,632 for the three and nine months ended September 30, 2015. As a result of these sales, a gross gain
of $1,269 and $3,421 was recorded for the three and nine months ended September 30, 2016 and a gross loss of $5,213 and $7,201
was recorded for the three and nine months ended September 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 30-90 days.
Note
5 - Inventories
Inventories
at September 30, 2016 and December 31, 2015 consists of the following categories:
|
|
2016
|
|
|
2015
|
|
Raw Materials
|
|
$
|
396,942
|
|
|
$
|
348,216
|
|
Sub-Assemblies
|
|
|
818,055
|
|
|
|
786,656
|
|
Finished Goods
|
|
|
756,458
|
|
|
|
25,721
|
|
Reserve
for Obsolescence
|
|
|
(28,939
|
)
|
|
|
(28,939
|
)
|
|
|
$
|
1,942,516
|
|
|
$
|
1,131,654
|
|
For
the three and nine months ended September 30, 2016, $24,965 and $27,933 were expensed to cost of goods sold for obsolete inventory.
For the three and nine months ended September 30, 2015, $252 was expensed to cost of goods sold for obsolete inventory.
AKERS
BIOSCIENCES, INC. AND SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements
(unaudited)
Note
6 - Property, Plant and Equipment
Property,
plant and equipment as of September 30, 2016 and December 31, 2015 are as follows:
|
|
2016
|
|
|
2015
|
|
Computer Equipment
|
|
$
|
114,771
|
|
|
$
|
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
|
|
|
|
|
2,373,279
|
|
|
|
2,312,006
|
|
Less
|
|
|
|
|
|
|
|
|
Accumulated Depreciation
|
|
|
2,127,726
|
|
|
|
2,060,861
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
245,553
|
|
|
$
|
251,145
|
|
Depreciation
expense was $65,264 and $93,615 for the three and nine months ended September 30, 2016 and $15,938 and $47,583 for the three and
nine months ended September 30, 2015.
The
Company disposed of a fully depreciated telephone system with no salvage value during the nine months ended September 30, 2016.
N
ote
7 - Intangible Assets
Intangible
assets as of September 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 September 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
|
|
|
128,331
|
|
|
|
-
|
|
|
|
128,331
|
|
Disposals
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
At September 30, 2016
|
|
$
|
1,282,444
|
|
|
$
|
1,270,639
|
|
|
$
|
2,553,083
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Book Value
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2015
|
|
$
|
1,472,883
|
|
|
$
|
-
|
|
|
$
|
1,472,883
|
|
At September 30, 2016
|
|
$
|
1,344,552
|
|
|
$
|
-
|
|
|
$
|
1,344,552
|
|
Amortization
expense was $42,777 and $128,331 for the three and nine months ended September 30, 2016 and $64,643 and $193,929 for the three
and nine months ended September 30, 2015.
Impairment
expense was $- for the three and nine months ended September 30, 2016 and $466,476 for the three and nine months ended September
30, 2015.
AKERS
BIOSCIENCES, INC. AND SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements
(unaudited)
Note
8 - Trade and Other Payables and Trade and Other Payables - Related Party
Trade
and other payables as of September 30, 2016 and December 31, 2015 are as follows:
|
|
2016
|
|
|
2015
|
|
Trade Payables
|
|
$
|
589,108
|
|
|
$
|
538,449
|
|
Accrued Expenses
|
|
|
595,875
|
|
|
|
1,020,532
|
|
Legal Settlements Payable
|
|
|
5,000
|
|
|
|
50,000
|
|
Deferred Compensation
|
|
|
59,750
|
|
|
|
59,750
|
|
|
|
$
|
1,249,733
|
|
|
$
|
1,668,731
|
|
Trade
and other payables – related party as of September 30, 2016 and December 31 2015 are as follows:
|
|
2016
|
|
|
2015
|
|
Trade Payables
|
|
$
|
7,607
|
|
|
$
|
-
|
|
Accrued Expenses
|
|
|
52,066
|
|
|
|
-
|
|
|
|
$
|
59,673
|
|
|
$
|
-
|
|
The
Company recorded royalty expenses of $117,949 in the three and nine months ended September 30, 2016 for ChubeWorkx Guernsey Limited
(“ChubeWorkx”), a major shareholder, in relation to the settlement of legal claims (Note 12). The expense is included
in sales and marketing expenses – related party on the condensed consolidated statement of operations and comprehensive
income. As of September 30, 2016, the Company owed ChubeWorkx $6,908 for the period of August 18, 2016 through September 30, 2016
which was paid on October 20, 2016 and had an accrual of $52,066 for the period of January 1, 2016 through August 17, 2016 which
is payable on January 17, 2017.
As
of September 30, 2016, the Company owed Hainan Savy–Akers Biosciences, a joint venture partner, $699.
Trade
and other payables and trade ant other payables – related party 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.
AKERS
BIOSCIENCES, INC. AND SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements
(unaudited)
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.
On September 30, 2016, the Board
of Directors increased the number of authorized shares of common stock subject to the Amended and Restated 2013 Incentive Stock
and Award Plan to 830,000 shares. As of September 30, 2016, under the 2013 Plan, grants of restricted stock and options to purchase
277,333 shares of common stock have been issued and are unvested or unexercised and 73,292 shares of common stock remain available
for grants.
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.
On January 1, 2016, the Company
approved the issuance of 12,500 options to purchase common shares to a key consultant for services at an exercise price of $3.70
per common share with vesting over one year.
On
August 9, 2016 the Company approved the issuance of 26,000 options to purchase common shares to two key employees at an
exercise price of $3.25 per common share with vesting over two years.
These
options were issued under the Amended and Restated 2013 Incentive Stock and Award Plan. The options have a five-year expiration.
The
calculated fair value of the options was distributed to the following categories on the condensed consolidated statement of operations
and comprehensive income:
|
|
Three months ended
|
|
|
Nine months ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
Expense Category
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Cost of Goods
|
|
$-
|
|
|
$-
|
|
|
$-
|
|
|
$-
|
|
General & Administrative
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Sales & Marketing
|
|
|
22,828
|
|
|
|
-
|
|
|
|
31,069
|
|
|
|
-
|
|
Research & Development
|
|
|
15,435
|
|
|
|
-
|
|
|
|
15,435
|
|
|
|
-
|
|
|
|
$
|
38,263
|
|
|
$
|
-
|
|
|
$
|
46,504
|
|
|
$
|
-
|
|
The
options and warrants issued under the above plan were valued using a Black Scholes option pricing model. The assumptions utilized
in calculating the value of the issued options under Black Scholes are as follows:
|
|
2016
|
|
|
2015
|
|
Expected option term
|
|
|
5
yrs
|
|
|
|
n/a
|
|
Expected volatility
|
|
|
93.08
|
%
|
|
|
n/a
|
|
Expected divident yeild
|
|
|
0.00
|
%
|
|
|
n/a
|
|
Risk free interest rate
|
|
|
1.25
|
%
|
|
|
n/a
|
|
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 nine months ended September 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
|
|
|
|
38,500
|
|
|
|
3.40
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Canceled/Expired
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2016
|
|
|
|
259,000
|
|
|
$
|
4.23
|
|
|
|
|
|
|
|
|
|
Exercisable as of September 30, 2016
|
|
|
|
239,167
|
|
|
$
|
4.31
|
|
|
|
3.30
|
|
|
$
|
64,853
|
|
The
aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the closing
stock price of $3.36 for the Company’s common shares on September 30, 2016. The above intrinsic value represents that of
awards with an exercise price below $3.36.
The
total grant date fair value of stock options vested for the three and nine months ended September 30, 2016 was $35,422 and for
the three and nine months ended September 30, 2015 was $-.
As of September
30, 2016 and December 31, 2015 the Company had 259,000 and 220,500 respectively reserved shares of its common stock for outstanding
options.
As
of September 30, 2016, there was $38,444 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.
On
June 8, 2016, the Company issued 27,500 restricted 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. $6,591 and $24,833 was recorded
during the three and nine months ended September 30, 2016 as administrative expense on the condensed consolidated statement of
operations and comprehensive income and the remaining $29,891 was recorded as deferred compensation, a contra equity account,
on the condensed consolidated balance sheet as of September 30, 2016.
AKERS
BIOSCIENCES, INC. AND SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements
(unaudited)
Note
11 - Income Tax Expense
There
is no income tax expense for the three months ended September 30, 2016 since the income arose from the reversal of an allowance
for doubtful collection of a note. This temporary difference has no tax effect for the Company due to the net operating loss carry
forwards available.
There
is no income tax benefit for the losses for the nine months ended September 30, 2016 and for the three and nine months ended September
30, 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 nine months ended September
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 September 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.
AKERS
BIOSCIENCES, INC. AND SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements
(unaudited)
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.
On August 17, 2016,
the Company entered into a Settlement Agreement with ChubeWorkx Guernsey Limited (“ChubeWorkx”), a major shareholder,
which settled all pending claims between the Company and ChubeWorkx. Specifically, the Company and ChubeWorkx agreed to voluntarily
dismiss the action brought by the Company against ChubeWorkx for outstanding amounts due to Akers Bio under a promissory note
in a United States Federal Court suit, District of New Jersey and various claims brought by ChubeWorkx against the Company arising
from an exclusive licensing agreement between ChubeWorkx and the Company (“Licensing Agreement”) in a suit brought
in The High Court of Justice, Queen’s Bench Division Commercial Court, Royal Courts of Justice, United Kingdom.
Under
the terms of the Settlement Agreement, the Company will recover the full outstanding principal amount in the current fiscal year
in the form of $750,000 of BreathScan® Alcohol Detector inventory – which the Company intends to subsequently sell –
and the balance of $549,609 in cash. Akers Bio established an allowance for this doubtful note in the Company’s financial
statements for the year ended December 31, 2015. As a result of the Settlement Agreement, the Company reversed the allowance for
doubtful note in the amount of $1,299,609 which is included in the Condensed Consolidated Statement of Operations and Comprehensive
Income for the three and nine months ended September 30, 2016.
In
addition to addressing the promissory note described above, the Settlement Agreement also allows the Company to market and sell
all of the Company’s breath technology tests worldwide, unencumbered by any past/future claims by ChubeWorkx under the Licensing
Agreement (entered into with ChubeWorkx in 2012 and subsequently amended in 2013). Under the terms of the Settlement Agreement,
ChubeWorkx no longer holds any rights pertaining to Akers Bio’s BreathScan® technology, which serves as the basis for
a number of commercialized products including BreathScan® Alcohol Detector and BreathScan OxiChek™; and a number of
products in development.
In
return for the Company regaining the full rights to sell breath technology products, under the terms of the Settlement Agreement,
ChubeWorkx is entitled to receive a royalty of 5% of the Company’s gross revenues (the “ChubeWorkx Royalty”)
until ChubeWorkx has earned an aggregate $5,000,000, after which point ChubeWorkx will no longer be entitled to receive any royalties
from the Company and the Company shall have no further obligation to ChubeWorkx. The Settlement Agreement further allows
the Company to retain 50% of the ChubeWorkx Royalty until the full $549,609 cash component of the monies owed by ChubeWorkx to
the Company as described above has been satisfied. The Company recorded royalty expenses of $117,949 in the three and nine months
ended September 30, 2016 which are included in sales and marketing expenses – related party on the condensed consolidated
statement of operations and comprehensive income.
AKERS
BIOSCIENCES, INC. AND SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements
(unaudited)
Other terms
of the Settlement include: 1) the pledge as security by the Company to ChubeWorkx
all
Company assets, worthy to satisfy its obligations, including all inventory and receivables, with the exception of (i) distribution
contracts of the Company or any of its affiliates, (ii) customer lists, (iii) manufacturing processes (including all intellectual
property required to use those processes and exploit products made thereby), and (iv) all equipment required to perform said manufacturing
processes and other equipment; and 2) the grant of voting proxy by ChubeWorkx to the Company which allows the Company to vote
ChubeWorkx’s shares for corporate formalities under certain conditions.
The
pledged assets are only at risk in the event that the Company cannot satisfy any outstanding royalty payment obligations subject
to various cure periods and/or through a restructuring and/or liquidation under the United States Bankruptcy laws of the Company
in favor of payment of said obligation.
The
Company re-classified $864,000 for an allowance for bad debts in nine months ended September 30, 2015 from general and administrative
expenses to (reversal of allowances for) bad debt expense – related party on the condensed consolidated statement of operations
and comprehensive income
The
Company has begun purchasing plastic and electronic components through Hainan Savy – Akers Biosciences, Ltd (“Hainan
Savy”) for use in the production of finished goods. For the three and nine months ended September 30, 2016, these purchases
totaled $79 and $33,206 respectively. The amount due to Hainan Savy as of September 30, 2016 and December 31, 2015 was $699 and
$-.
Trade
receivables – related party as of September 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 30-90 days (Note 4). This receivable is past due and management deemed
it fully collectable.
Product
revenue – related party for the three and nine months ended September 30, 2016 were $- and $380 and were $12,620 and $26,963
for the three and nine months ended September 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 $120,870 for the three and nine months ended September 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.
AKERS
BIOSCIENCES, INC. AND SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements
(unaudited)
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 37-40 Months
|
|
|
|
33,000
|
|
|
|
513
|
|
|
|
33,513
|
|
Note
14 – Major Customers
For
the three months ended September 30, 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 September 30, 2016, the
amount due from these two customers was $669,437.
For
the nine months ended September 30, 2016, three customers each generated more than 10% of the Company’s product revenue.
In aggregate, sales to these customers accounted for 80% of the Company’s product revenue. As of September 30, 2016, the
amount due from these three customers was $675,838. This concentration makes the Company vulnerable to a near-term severe impact
should the relationships be terminated.
For
the three months ended September 30, 2015, two customers each generated more than 10% of the Company’s product revenue.
In aggregate, sales to these customers accounted for 54% of the Company’s product revenue.
For
the nine months ended September 30, 2015, two customers each generated more than 10% of the Company’s product revenue. In
aggregate, sales to these customers accounted for 65% of the Company’s product revenue. As of September 30, 2015, the amount
due from these two customers was $397,589.
Note
15 – Major Suppliers
For
the three months ended September 30, 2016, one supplier accounted for more than 10% of the Company’s purchases. The supplier
accounted for 86% of the Company’s total purchases. As of September 30, 2016, the amount due to the supplier was $6,908.
For
the nine months ended September 30, 2016, one supplier accounted for more than 10% of the Company’s purchases. The supplier
accounted for 61% of the Company’s total purchases. As of September 30, 2016, the amount due to the supplier was $6,908.
For
the three months ended September 30, 2015, three suppliers each accounted for more than 10% of the Company’s purchases.
In aggregate, these suppliers accounted for 61% of the Company’s total purchases. As of September 30, 2015, the amount due
to the suppliers was $30.
AKERS
BIOSCIENCES, INC. AND SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements
(unaudited)
For
the nine months ended September 30, 2015, three 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.
Note
16 – Contingencies
On October 17, 2016 the Company
was served with a notice that Pulse Health LLC (“Pulse”) filed a lawsuit against the Company on September 30, 2016
in United States Federal District Court, District of Oregon, alleging a breach of contract under the Settlement Agreement entered
into by the Company and Pulse on April 8, 2011 which settled all claims and disputes between the Company and Pulse arising from
a previously executed Technology Development Agreement entered into by the Company and Pulse and damages resulting from said alleged
breach. Additionally, Pulse alleges false advertising and unlawful trade practices in connection with the Company’s sales
activities of the Company’s OxiChek products. The Company disputes such allegations. The lawsuit is in an early stage and
the Company intends to establish a rigorous defense of all claims. As a reasonable estimate of any loss from this case cannot
be made, no accrual for losses was made as of September 30, 2016.
Note
17 – Subsequent Events
On
October 24, 2016, the Company filed a Simplified Registration Statement (Form S-3) with the Security and Exchange Commission for
an indeterminate number of shares of common stock, shares of preferred stock, warrants, rights and units that may be sold by the
Company from time to time for a maximum aggregate offering price of all securities not to exceed $7,000,000.
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 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. We believe that our FDA-cleared rapid diagnostic tests help facilitate targeted diagnoses and real-time treatment.
We also believe that our 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.
We
believe 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 affordable mass screening tests for key infectious diseases, cardiac conditions, and metabolic markers;
|
|
|
|
|
●
|
need
for easy to use, accurate at-home tests for individuals to monitor their personal health and wellness; 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 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
September 30, 2016, Akers had cash of $195,860, working capital of $2,537,197, stockholders’ equity of $4,470,500 and an
accumulated deficit of $96,383,706. The Company believes that its current working capital position will be sufficient to meet
its estimated cash needs for at least the next 12 months. The Company closely monitors its cash balances, cash needs and
expense levels.
Summary
of Statements of Operations for the Three Months Ended September 30, 2016 and 2015
Revenue
Akers’
revenue for the three months ended September 30, 2016 totaled $613,198, a 262% increase from the same period in 2015. The
table below summarizes our revenue by product line for the three months ended September 30, 2016 and 2015 as well as the percentage
of change year-over-year:
Product Lines
|
|
3 Months
Ended
September 30, 2016
|
|
|
3 Months
Ended
September 30, 2015
|
|
|
Percent Change
|
|
Particle ImmunoFiltration Assay (“PIFA”)
|
|
$
|
514,839
|
|
|
$
|
116,783
|
|
|
|
341
|
%
|
MicroParticle Catalyzed Biosensor (“MPC”)
|
|
|
85,338
|
|
|
|
23,953
|
|
|
|
256
|
%
|
Other
|
|
|
13,021
|
|
|
|
28,737
|
|
|
|
(55
|
)%
|
Product Revenue Total
|
|
$
|
613,198
|
|
|
$
|
169,473
|
|
|
|
262
|
%
|
License Fees
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
%
|
Total Revenue
|
|
$
|
613,198
|
|
|
$
|
169,473
|
|
|
|
262
|
%
|
Revenue
from the Company’s PIFA Heparin/PF4 Rapid Assay products increased 341% during the three months ended September 30, 2016
over the same period of 2015. The increase is due primarily to two events; first, the implementation of a significant price increase
for the product line and second, during 2015, the Company experienced lower than usual distributor stock depletion for the PIFA
Heparin/PF4 Rapid Assay products which did not re-occur during the three months ended September 30, 2016.
The Company received a $2.5 million order
for 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
Company recognized no revenue for PIFA Heparin/PF4 products from Novotek during the three months ended September 30, 2016; however,
the remaining products will be scheduled to ship at various points throughout the remainder of the current fiscal year
with the remaining $2,000,000 of revenue under the order being recognized when the criteria for the recognition
of revenue is met.
The Company’s MPC breathalyzer technology
product sales increased 256% during the three months ended September 30, 2016 over the same period of 2015. A distributor’s
initial stocking order of $41,800 for the Company’s BreathScan Lync and BreathScan OxiChek™ products and renewed interest
in the Company’s BreathScan Alcohol Breathalyzers, both domestically and internationally contributed to the increase during
the three months ended September 30, 2016.
Other
operating revenue decreased due to a decline in miscellaneous component sales during the three months ended September 30, 2016.
The
Company’s gross margin improved significantly, rising to 61% (2015: (5)%) for the three months ended September 30, 2016.
The improvement is attributed to higher selling prices for the PIFA Heparin PF/4 Rapid Assay products, improved volumes and a
significantly different component mix for the MPC products and the continued implementation of the new inventory and cost management
procedures.
Cost
of sales for the three months ended September 30, 2016 totaled $236,700 (2015: $177,952). Direct cost of sales decreased to 18%
of product revenue while other cost of sales decreased to 21% for the three months ended September 30, 2016 as compared to 42%
and 63% respectively for the same period in 2015.
Direct
cost of sales for the three-month period ended September 30, 2016 were $109,835 (2015: $71,722). Other cost of sales for the three
months ended September 30, 2016 were $126,865 (2015: $106,230).
General
and Administrative Expenses
General
and administrative expenses for the three months ended September 30, 2016, totaled $558,293, which was a 27% decrease as compared
to $760,336 for the three months ended September 30, 2015.
The
table below summarizes our general and administrative expenses for the three months ended September 30, 2016 and 2015 as well
as the percentage of change year-over-year:
Description
|
|
3 Months Ended
September 30, 2016
|
|
|
3 Months
Ended
September 30, 2015
|
|
|
Percent Change
|
|
Personnel Costs
|
|
$
|
168,913
|
|
|
$
|
194,740
|
|
|
|
(13
|
)%
|
Professional Service Costs
|
|
|
110,101
|
|
|
|
242,355
|
|
|
|
(55
|
)%
|
Stock Market & Investor Relations Costs
|
|
|
88,953
|
|
|
|
146,859
|
|
|
|
(39
|
)%
|
Other General and Administrative Costs
|
|
|
190,326
|
|
|
|
176,382
|
|
|
|
8
|
%
|
Total General and Administrative Expense
|
|
$
|
558,293
|
|
|
$
|
760,336
|
|
|
|
(27
|
)%
|
The
decrease in personnel costs for the three months ended September 30, 2016 is the result of the transfer of Dr. Akers to the Research
and Development Department effective April 25, 2016.
Professional
service costs decreased 55% for the three months ended September 30, 2016 as compared to the same period of 2015. Significant
decreases in legal fees ($56,919 (2015: $146,640)) and in personnel recruiting and general consulting fees ($2,125 (2015: $61,292))
were the major contributors.
A
significant decline in general consulting, investor relations and transfer agent fees ($77,122 (2015: $136,531)) during the three
months ended September 30, 2016 resulted in an overall reduction in stock market and investor relations costs.
A
significant decrease in travel expenses ($18,074 (2015: $65,171)) was offset by increases in depreciation (a one-time non-cash
adjustment) and insurance costs ($98,624 (2015: $38,989)) accounting for an increase of 8% in other general and administrative
costs for the three months ended September 30, 2016.
Sales
and Marketing Expenses
Sales
and marketing expenses for the three months ended September 30, 2016 totaled $526,197, which was a 28% decrease as compared to
$725,832 for the three months ended September 30, 2015.
The
table below summarizes our sales and marketing expenses for the three months ended September 30, 2016 and 2015 as well as the
percentage of change year-over-year:
Description
|
|
3 Months
Ended
September 30, 2016
|
|
|
3 Months
Ended
September 30, 2015
|
|
|
Percent Change
|
|
Personnel Costs
|
|
$
|
222,980
|
|
|
$
|
371,133
|
|
|
|
(40
|
)%
|
Professional Service Costs
|
|
|
77,094
|
|
|
|
170,985
|
|
|
|
(55
|
)%
|
Royalties and Outside Commission Costs
|
|
|
128,828
|
|
|
|
113,308
|
|
|
|
14
|
%
|
Other Sales and Marketing Costs
|
|
|
97,295
|
|
|
|
70,406
|
|
|
|
38
|
%
|
Total Sales and Marketing Expenses
|
|
$
|
526,197
|
|
|
$
|
725,832
|
|
|
|
(28
|
)%
|
Personnel
costs decreased in the three months ended September 30, 2016 as compared to the same period of 2015. The Company has reduced the
number of sales and marketing staff from 11 as of September 30, 2015 to 5 as of September 30, 2016. This reduction in the department’s
headcount is a result of the transition of 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. Costs declined
in all major categories including base wages, employee benefits, bonuses and commissions and employer taxes.
The decrease in the use of contracted marketing
services firms ($- (2015: $55,500)) and general sales consultants ($77,094 (2015: $115,435)) resulted in a 55% decrease in professional
service costs. The Company has refocused its sales and marketing strategy, concentrating on the development of relationships with
Independent Manufacturing Representatives that are paid for performance versus the use of contracted sales groups paid
fixed monthly fees.
A decrease in outside sales commissions ($10,879
(2015: $36,134)) was offset by a significant increase in royalty expenses ($117,949 (2015: $77,174)) for the three months
ended September 30, 2016.
Other
sales and marketing costs increased primarily due to technology and sponsorship expenses ($35,544 (2015: $1,788)) and was offset
by decrease in advertising expenses ($2,255 ((2015: $12,905)).
Research
and Development
Research
and development expenses for the three months ended September 30, 2016 totaled $247,578, which was a 23% decrease as compared
to $319,646 for the three months ended September 30, 2015.
The
table below summarizes our research and development expenses for the three months ended September 30, 2016 and 2015 as well as
the percentage of change year-over-year:
Description
|
|
3 Months
Ended
September 30, 2016
|
|
|
3 Months
Ended September 30, 2015
|
|
|
Percent Change
|
|
Personnel Costs
|
|
$
|
161,257
|
|
|
$
|
156,569
|
|
|
|
3
|
%
|
Clinical Trial Costs
|
|
|
19,062
|
|
|
|
12,075
|
|
|
|
58
|
%
|
Professional Service Costs
|
|
|
39,369
|
|
|
|
106,763
|
|
|
|
(63
|
)%
|
Other Research and Development Costs
|
|
|
27,890
|
|
|
|
44,239
|
|
|
|
(37
|
)%
|
Total Research and Development Expenses
|
|
$
|
247,578
|
|
|
$
|
319,646
|
|
|
|
(23
|
)%
|
Personnel
costs increased 3% during the three months ended September 30, 2016 as compared to the same period of 2015 as a result of the
transfer of Dr. Akers from the General and Administrative Department effective April 25, 2016 which was offset by an allocation
of expenses to direct cost of goods for the use of research and development personnel in manufacturing activities.
The
Company had a clinical trial in-process during the three months ended September 30, 2016 resulting in a significant increase in
costs associated with these programs. The on-going trial is collecting data to support submissions to the U.S. Food and Drug Administration
for approvals and to support the clinical effectiveness of the product.
Professional
service costs declined 63% during the three months ended September 30, 2016. During the three months ended September 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 and a decrease in travel expenses ($4,042 (2015:
$18,720)) resulted in a decrease of 37% for other research and development costs during the three months ended September 30, 2016.
The
following table illustrates research and development costs by project for the three months ended September 30, 2016 and 2015,
respectively:
Project
|
|
2016
|
|
|
2015
|
|
Asthma/pH
|
|
$
|
-
|
|
|
$
|
-
|
|
Breath Alcohol
|
|
|
-
|
|
|
|
54,340
|
|
Chlamydia Trachomatis
|
|
|
22,307
|
|
|
|
18,635
|
|
Heparin/PF4
|
|
|
16,885
|
|
|
|
55,363
|
|
HIV
|
|
|
-
|
|
|
|
-
|
|
Ketone
|
|
|
-
|
|
|
|
14,288
|
|
KetoChek / OxiChek
|
|
|
117,871
|
|
|
|
103,629
|
|
Lithium
|
|
|
-
|
|
|
|
448
|
|
METRON
|
|
|
74
|
|
|
|
16,174
|
|
Other Projects
|
|
|
248
|
|
|
|
3,324
|
|
Pulmo Health
|
|
|
5,447
|
|
|
|
6,745
|
|
Troponin (heart attacks)
|
|
|
-
|
|
|
|
22,503
|
|
Tri-Cholesterol
|
|
|
84,746
|
|
|
|
17,261
|
|
VIVO
|
|
|
-
|
|
|
|
6,936
|
|
Total R&D Expenses:
|
|
$
|
247,578
|
|
|
$
|
319,646
|
|
Reversal of Reserve for Bad Debts
The Company reversed a reserve for bad
debts for $1,299,609 during the three months ended September 30, 2016 as a result of the legal settlement with ChubeWorkx Guernsey
Limited (“ChubeWorkx”) on August 17, 2016. Details of the settlement are included in Part II,
Section 1, Legal Proceedings.
Other
Income and Expense
Other
income, net of expense for the three months ended September 30, 2016 totaled $8,893, which was a 52% decrease as compared to $18,519
for the three months ended September 30, 2015.
The
table below summarizes our other income and expenses for the three months ended September 30, 2016 and 2015 as well as the percentage
of change year-over-year:
Description
|
|
3 Months
Ended
September 30, 2016
|
|
|
3 Months
Ended
September 30, 2015
|
|
|
Percent Change
|
|
Currency Translation Gain/(Loss)
|
|
$
|
3,629
|
|
|
$
|
(2,001
|
)
|
|
|
281
|
%
|
Realized Gain/(Loss) on Investments
|
|
|
1,269
|
|
|
|
(5,213
|
)
|
|
|
124
|
%
|
Interest and Dividends
|
|
|
3,995
|
|
|
|
25,691
|
|
|
|
(84
|
)%
|
Other Income
|
|
|
-
|
|
|
|
42
|
|
|
|
(100
|
)%
|
Total Other Income, Net of Expenses
|
|
$
|
8,893
|
|
|
$
|
18,519
|
|
|
|
(52
|
)%
|
Gains
and losses associated with foreign currency transactions improved by 281% during the three months ended September 30, 2016 as
compared to the same period of 2015, primarily a result of improved exchange rates between the US Dollar and the British Pound.
Other
income and expenses primarily consist of realized gains on investments totaling $1,269 (2015: loss of $5,213) and interest and
dividend earnings on the marketable securities and the note receivable totaling $3,995 (2015: $25,691).
Income
Taxes
As
of September 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 Nine Months Ended September 30, 2016 and 2015:
Revenue
Akers’
revenue for the nine months ended September 30, 2016 totaled $2.307,708, a 40% increase from the nine months ended September 30,
2015. Product revenue increased by 74%, 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 nine months ended June 30, 2016 and 2015 as well as the percentage
of change year-over-year:
Product Lines
|
|
9 Months
Ended
September 30, 2016
|
|
|
9 Months
Ended
September 30, 2015
|
|
|
Percent Change
|
|
Particle ImmunoFiltration Assay (“PIFA”)
|
|
$
|
2,029,094
|
|
|
$
|
1,015,742
|
|
|
|
100
|
%
|
MicroParticle Catalyzed Biosensor (“MPC”)
|
|
|
195,040
|
|
|
|
233,758
|
|
|
|
(17
|
)%
|
Other
|
|
|
83,574
|
|
|
|
76,387
|
|
|
|
9
|
%
|
Product Revenue Total
|
|
$
|
2,307,708
|
|
|
$
|
1,325,887
|
|
|
|
74
|
%
|
License Fees
|
|
|
-
|
|
|
|
320,556
|
|
|
|
(100
|
)%
|
Total Revenue
|
|
$
|
2,307,708
|
|
|
$
|
1,646,443
|
|
|
|
40
|
%
|
Revenue
from the Company’s PIFA Heparin/PF4 Rapid Assay products increased 100% during the nine months ended September 30, 2016
over the same period of 2015. The increase is due primarily to two events; first, the implementation of a significant price increase
for the product line and second, 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 resulting in the recognition of $493,850 for PIFA Heparin/PF4 products and $12,551 of other
products from Novatek for the nine months ended September, 30, 2016. The remaining products will be scheduled to ship at various
points throughout the remainder of the current fiscal year with the remaining $2,000,000 of revenue under the
order being recognized when the criteria for the recognition of revenue is met.
The Company’s MPC product sales declined
17% during the nine months ended September 30, 2016 over the same period of 2015. A distributor’s initial stocking order
of approximately $144,000 for the Company’s BreathScan Alcohol Breathalyzer products in Great Britain was included for the
nine months ended September 30, 2015 but not repeated in the nine months ended September 30, 2016. Net of this significant
order, MPC product sales increased 117% for the nine months ended September 30, 2016.
While
most of the MPC product sales in the nine months ended September 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 which contributed $65,969.
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 69% (2015: 54%) for the nine months ended September 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 nine months ended September 30, 2016 decreased by 4% to $713,576 (2015: $745,319). Direct cost of sales decreased
to 14% of product revenue while other cost of sales decreased to 17% for the nine months ended September 30, 2016 as compared
to 26% and 30% respectively for the same period in 2015.
Direct
cost of sales for the nine-month period ended September 30, 2016 were $325,922 (2015: $353,659). The decrease is attributed to
the offset of manufacturing costs to inventory.
Other cost of sales for the nine months ended
September 30, 2016 were $387,654 (2015: $391,660). The decrease is attributed to reductions in expenses related to quality
control testing and inventory shrinkage and is offset by increases in manufacturing consumable supplies and repairs and maintenance
expenses.
General
and Administrative Expenses
General and administrative expenses for the
nine months ended September 30, 2016, totaled $2,298,099, which was a 2% decrease as compared to $2,341,500 for
the nine months ended September 30, 2015.
The
table below summarizes our general and administrative expenses for the nine months ended September 30, 2016 and 2015 as well as
the percentage of change year-over-year:
Description
|
|
9 Months
Ended
September 30, 2016
|
|
|
9 Months
Ended
September 30, 2015
|
|
|
Percent Change
|
|
Personnel Costs
|
|
$
|
712,683
|
|
|
$
|
611,841
|
|
|
|
16
|
%
|
Professional Service Costs
|
|
|
587,196
|
|
|
|
740,825
|
|
|
|
(21
|
)%
|
Stock Market & Investor Relations Costs
|
|
|
322,956
|
|
|
|
418,866
|
|
|
|
(23
|
)%
|
Other General and Administrative Costs
|
|
|
675,264
|
|
|
|
569,768
|
|
|
|
19
|
%
|
Total General and Administrative Expense
|
|
$
|
2,298,099
|
|
|
$
|
2,341,300
|
|
|
|
(2
|
)%
|
The
increase in personnel costs for the nine months ended September 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 21% for
the nine months ended September 30, 2016 as compared to the same period of 2015. Decreases in personnel recruiting, general consulting
fees and legal fees ($448,988 (2015: $636,014)) was offset by increases in accounting fees ($80,896 (2015: $45,160)).
A decline in investor relations and transfer
agent fees ($201,806 (2015: $315,434)) during the nine months ended September 30, 2016 was partially offset by increases in general
consulting ($121,150 (2015: $103,436)) resulting in an overall reduction in stock market and investor relations costs.
An increase in bad debts expense ($146,196
(2015: $-)) and depreciation expense ($65,326 (2015: $9,114)) was offset by a decline in travel expenses ($114,293
(2015: $208,567)) which contributed to the 19% increase in other general and administrative costs for the nine months
ended September 30, 2016.
Sales
and Marketing Expenses
Sales and marketing expenses for the nine
months ended September 30, 2016 totaled $1,764,952, which was a 5% decrease as compared to $1,854,623 for the nine months
ended September 30, 2015.
The
table below summarizes our sales and marketing expenses for the nine months ended September 30, 2016 and 2015 as well as the percentage
of change year-over-year:
Description
|
|
9 Months
Ended
September 30, 2016
|
|
|
9 Months
Ended
September 30, 2015
|
|
|
Percent Change
|
|
Personnel Costs
|
|
$
|
937,777
|
|
|
$
|
987,740
|
|
|
|
(5
|
)%
|
Professional Service Costs
|
|
|
384,114
|
|
|
|
537,766
|
|
|
|
(29
|
)%
|
Royalties and Outside Commission Costs
|
|
|
178,873
|
|
|
|
140,762
|
|
|
|
27
|
%
|
Other Sales and Marketing Costs
|
|
|
264,188
|
|
|
|
188,355
|
|
|
|
40
|
%
|
Total Sales and Marketing Expenses
|
|
$
|
1,764,952
|
|
|
$
|
1,854,623
|
|
|
|
(5
|
)%
|
Personnel
costs decreased by 5% during the nine months ended September 30, 2016 as compared to the same period of 2015. The Company has
reduced the number of sales and marketing staff from 11 on September 30, 2015 to 5 as of September 30, 2016. The 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: $176,047)) and general sales consultants ($332,868
(2015: $361,669)) resulted in a 29% decrease in professional service costs. The Company has refocused its sales and marketing
strategy, concentrating on the development of relationships with Independent Manufacturing Representatives that are paid
for performance versus the use of contracted sales groups paid fixed monthly fees.
Royalty
and commission costs increased as a result of outside sales commissions ($60,925 (2015: $52,966)), due to increased sales of the
PIFA products, both domestically and internationally, and royalty expenses ($117,949 (2015: $87,796)) in the nine months ended
September 30, 2016.
Other
sales and marketing costs increased primarily due to technology ($38,449 (2015: $12,839)), sponsorships ($10,500 (2015: $-)) and
travel ($144,622 (2015: $93,077)) expenses and was partially offset by decreases in advertising and promotional materials expenses
($4,663 (2015: $33,164)).
Research
and Development
Research
and development expenses for the nine months ended September 30, 2016 totaled $932,858, which was a 9% decrease as compared to
$1,003,444 for the nine months ended September 30, 2015.
The
table below summarizes our research and development expenses for the nine months ended September 30, 2016 and 2015 as well as
the percentage of change year-over-year:
Description
|
|
9 Months
Ended
September 30, 2016
|
|
|
9 Months
Ended
September 30, 2015
|
|
|
Percent Change
|
|
Personnel Costs
|
|
$
|
539,810
|
|
|
$
|
488,260
|
|
|
|
11
|
%
|
Clinical Trial Costs
|
|
|
160,405
|
|
|
|
35,688
|
|
|
|
349
|
%
|
Professional Service Costs
|
|
|
96,515
|
|
|
|
352,889
|
|
|
|
(73
|
)%
|
Other Research and Development Costs
|
|
|
136,128
|
|
|
|
126,608
|
|
|
|
8
|
%
|
Total Research and Development Expenses
|
|
$
|
932,858
|
|
|
$
|
1,003,445
|
|
|
|
(7
|
)%
|
Personnel
costs increased 11% during the nine months ended September 30, 2016 as compared to the same period of 2015 as a result of 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 nine months ended September 30, 2016 resulting in a significant increase
in costs associated with these programs. The 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 73% during the nine months ended September 30, 2016. During the nine months ended September 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.
Increase in supplies ($47,979 (2015: $36.221)),
seminars and professional development ($26,849 (2015: $780)) and waste disposal expenses ($15,252 (2015: $11,311)) was
offset by a reduction in the utilization of inventory resources for development and testing ($6,976 (2015: $34,551)) that resulted
in an increase of 8% for other research and development costs during the nine months ended September 30, 2016.
The
following table illustrates research and development costs by project for the nine months ended September 30, 2016 and 2015, respectively:
Project
|
|
2016
|
|
|
2015
|
|
Asthma/pH
|
|
$
|
-
|
|
|
$
|
4,917
|
|
Breath Alcohol
|
|
|
1,381
|
|
|
|
100,966
|
|
Chlamydia Trachomatis
|
|
|
10,685
|
|
|
|
98,496
|
|
CHUBE
|
|
|
22,307
|
|
|
|
397
|
|
Heparin/PF4
|
|
|
72,823
|
|
|
|
98,876
|
|
HIV
|
|
|
16,885
|
|
|
|
58,718
|
|
Ketone
|
|
|
2,125
|
|
|
|
60,210
|
|
KetoChek / OxiChek
|
|
|
365,177
|
|
|
|
103,629
|
|
Lithium
|
|
|
117,871
|
|
|
|
41,086
|
|
METRON
|
|
|
2,507
|
|
|
|
77,473
|
|
Other Projects
|
|
|
101,659
|
|
|
|
77,625
|
|
Pulmo Health
|
|
|
6,126
|
|
|
|
6,745
|
|
Sonicator OQ
|
|
|
5,447
|
|
|
|
886
|
|
Troponin (heart attacks)
|
|
|
-
|
|
|
|
127,094
|
|
Tri-Cholesterol
|
|
|
117,903
|
|
|
|
82,151
|
|
VIVO
|
|
|
89,962
|
|
|
|
64,176
|
|
Total R&D Expenses:
|
|
$
|
932,858
|
|
|
$
|
1,003,445
|
|
Reversal of Reserve for Bad Debts
The Company reversed a reserve for bad
debts for $1,299,609 during the nine months ended September 30, 2016 as a result of the legal settlement with ChubeWorkx Guernsey
Limited (“ChubeWorkx”) on August 17, 2016. Details of the settlement are included in Part II,
Section 1, Legal Proceedings.
During the nine months ended September
30, 2015, the Company established a reserve for bad debts for $864,000 for 36 Strategies General Trading, a related party.
Impairment
of Non-Current Assets
The
Company performed a routine analysis of its intangible assets and determined that two patents and a trademark acquired in the
fiscal year ended December 31, 2007 are no longer contributing to the Company’s revenue flows and were therefore impaired
for $466,476 (2014: $-) during the nine months ended September 30, 2015.
Other
Income and Expense
Other income, net of expenses for the nine
months ended September 30, 2016 totaled $22,792, which was a 74% decrease as compared to $87,729 for the nine months ended September
30, 2015.
The
table below summarizes our other income and expenses for the nine months ended September 30, 2016 and 2015 as well as the percentage
of change year-over-year:
Description
|
|
9 Months
Ended
September 30, 2016
|
|
|
9 Months
Ended
September 30, 2015
|
|
|
Percent Change
|
|
Currency Translation Loss
|
|
$
|
(1,189
|
)
|
|
$
|
(7,970
|
)
|
|
|
85
|
%
|
Realized Gain/(Loss) on Investments
|
|
|
3,421
|
|
|
|
(7,201
|
)
|
|
|
148
|
%
|
Interest and Dividends
|
|
|
20,560
|
|
|
|
96,848
|
|
|
|
(79
|
)%
|
Other Income
|
|
|
-
|
|
|
|
6,052
|
|
|
|
(100
|
)%
|
Total Other Income, Net of Expenses
|
|
$
|
22,792
|
|
|
$
|
87,729
|
|
|
|
(74
|
)%
|
Losses
associated with foreign currency transactions improved by 85% during the nine months ended September 30, 2016 as compared to the
same period of 2015, primarily a result of improved exchange rates between the US Dollar and the British Pound.
Other
income and expenses primarily consist of realized gains on investments totaling $3,421 (2015: loss of $7,201) and interest and
dividend earnings on the marketable securities and the note receivable totaling $20,560 (2015: $96,848).
Income
Taxes
As
of September 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 nine months ended September 30, 2016 and 2015, the Company generated a net loss attributable to shareholders of $2,207,707
and $5,734,921, respectively. As of September 30, 2016 and December 31, 2015, the Company has an accumulated deficit of $96,383,706
and $94,175,999 and had cash totaling $195,860 and $402,059, 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 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 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 and breath alcohol
detectors 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 nine months ended September 30, 2016 were $88,023 (2015: $60,254). Capital expenditures, primarily for production
and laboratory costs for the year ending December 31, 2016 are expected to be approximately $125,000. 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 nine months ended September 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 nine months ended September 30, 2016 and 2015 as well as the percentage of change
year-over-year:
Description
|
|
9 Months
Ended
September 30, 2016
|
|
|
9 Months
Ended
September 30, 2015
|
|
|
Percent Change
|
|
Cash at beginning of period
|
|
$
|
402,059
|
|
|
$
|
455,841
|
|
|
|
(12
|
)%
|
Loss from operations
|
|
|
(2,207,707
|
)
|
|
|
(5,734,921
|
)
|
|
|
62
|
%
|
Adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Operating Gains
|
|
|
(1,153,413
|
)
|
|
|
(6,010
|
)
|
|
|
19,092
|
%
|
Non-Cash Activities
|
|
|
306,664
|
|
|
|
1,580,375
|
|
|
|
81
|
%
|
Cash Used in Operating Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Consumed by Operating Activities
|
|
|
(755,401
|
)
|
|
|
(476,273
|
)
|
|
|
(58
|
)%
|
Cash Contributed by Operating Activities
|
|
|
276,208
|
|
|
|
636,382
|
|
|
|
(57
|
)%
|
Cash Flows from Investing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Consumed by Investing Activities
|
|
|
(125,383
|
)
|
|
|
(176,664
|
)
|
|
|
29
|
%
|
Cash Contributed by Investing Activities
|
|
|
3,452,833
|
|
|
|
4,114,642
|
|
|
|
(16
|
)%
|
Cash Flows from Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Consumed by Financing Activities
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
%
|
Cash Contributed by Financing Activities
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
%
|
Cash at end of period
|
|
$
|
195,860
|
|
|
$
|
393,372
|
|
|
|
(50
|
)%
|
The
Company’s net cash provided by investing and financing activities totaled $3,327,450 during the nine months ended September
30, 2016. Cash of $125,383 was consumed by capital expenditures and the purchase of marketable securities. Proceeds from the sale
of marketable securities contributed cash of $3,452,833 for the period ended September 30, 2016.
The
Company’s net cash provided by investing and financing activities totaled $3,937,978 during the nine months ended September
30, 2015. Cash of $176,664 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 $4,114,642 for the period ended September 30, 2015.
Our net cash consumed by operating activities
totaled $3,533,649 during the nine months ended September 30, 2016. Cash was consumed by the loss of $2,207,707 plus non-cash
adjustments of $221,946 for depreciation and amortization of non-current assets, $146,196 for allowances for doubtful accounts,
$24,834 for amortization of deferred compensation, $22,828 for share based compensation, $23,676 for options issued for services
and $13,380 for accrued income on marketable securities less $1,299,609 for the reversal of a bad debt allowance. For the
nine months ended September 30, 2016, decreases in deposits and other receivables of $65,855. prepaid expense of $91,706, prepaid
expense – related party of $58,974 and an increase in trade and other payables – related party of $59,673 provided
cash, primarily related to routine changes in operating activities. A net increase in trade receivables of $275,541 and inventories
of $60,862 and a decrease in trade and other payables of $418,998 consumed cash from operating activities.
Our
net cash consumed by operating activities totaled $4,000,447 during the nine months ended September 30, 2015. Cash was consumed
by the loss of $5,734,921 less non-operating gains of $6,010 plus non-cash adjustments of $241,512 for depreciation and amortization
of non-current assets, $466,476 for impairment of non-current assets, $864,000 for an allowance for doubtful accounts and $8,387
for accrued interest and dividends on marketable securities. For the nine months ended September 30, 2015, decreases in trade
receivables and notes receivable – related party $221,219 and an increase in trade and other payables of $415,163 provided
cash, primarily related to routine changes in operating activities. A net increase in other receivables, inventories, and other
assets of $170,717 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 September
30, 2016, the Company has ten patents from the United States Patent Office in effect (9,383,368; 7,896,167;
8,097,171; 8,003,061; 8,425,859; 8,871,521; 8,808,639; 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), in Hong Kong (HK11004006) 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.