Notes
to Condensed Consolidated Financial Statements
(Unaudited)
Note
1 – Organization and Description of Business
Akers
Biosciences, Inc. (“Akers”), is a New Jersey corporation. These consolidated financial statements include three wholly
owned subsidiaries, Cystron Biotech, LLC, Akers Acquisition Sub, Inc. and Bout Time Marketing Corporation, (together, the “Company”).
All material intercompany transactions have been eliminated in consolidation.
On
March 23, 2020, the Company entered into a Membership Interest Purchase Agreement (the “MIPA”) with the members of
Cystron Biotech, LLC (individually, each a “Seller,” and collectively, the “Sellers”), pursuant to which
the Company acquired 100% of the membership interests (the “Membership Interests”) of Cystron Biotech, LLC (“Cystron”).
Cystron is a party to a license agreement with Premas Biotech PVT Ltd (“Premas”), whereby Premas granted
Cystron, among other things, an exclusive license with respect to Premas’ vaccine platform for the development of
a vaccine against COVID-19 and other coronavirus infections.
The
Company continues to sell its rapid, point-of-care screening and testing products, but at continued reduced volumes compared to
prior years. As a result, the Company continues to experience low sales revenue from its screening and testing products. The Company
is also experiencing a production backlog for some of its screening and testing products, which will further reduce its sales
revenue. In addition, as the Company previously reported, the Company has eliminated its sales force for its screening and testing
products. In light of these facts and the progress that the Company has made in its partnership with Premas for the development
of a vaccine candidate for COVID-19, as previously announced, the Company recently initiated a strategic review of the screening
and testing products business. As part of this review, the Company is exploring potential strategic and alternative transactions,
which may include the disposition or winddown of its screening and testing products business. As a result, the makeup of the Company’s
lines of business is subject to change.
Note
2 – 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 accounting principles
generally accepted in the United States of America (US GAAP).
Certain
information and note disclosures normally included in the financial statements prepared in accordance with US GAAP have been condensed.
As such, the information included in these financial statements should be read in conjunction with the audited financial statements
as of and for the years ended December 31, 2019 and 2018 included in the Company’s 2019 Form 10-K, as filed on March 25,
2020. In the opinion of the Company’s management, these condensed consolidated financial statements include all adjustments,
which are of only a normal and recurring nature, necessary for a fair statement of the financial position of the Company as of
March 31, 2020 and its results of operations and cash flows for the three months ended March 31, 2020 and 2019. The results of
operations for the three months ended March 31, 2020 are not necessarily indicative of the results to be expected for the full
fiscal year ending December 31, 2020.
AKERS
BIOSCIENCES, INC. AND CONSOLIDATED SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
Note
2 - Significant Accounting Policies, continued
(b)
|
Use
of Estimates and Judgments
|
The
preparation of financial statements in conformity with US 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. 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, recording
research and development expenses, 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 has been rounded to the nearest dollar.
Foreign Currency Transaction Gains or Losses, resulting from cash balances denominated in Foreign Currencies, are recorded in the
Condensed Consolidated Statements of Operations and Comprehensive Loss.
(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
|
The
Company considers all highly liquid investments, which include short-term bank deposits (up to three months from date of deposit)
that are not restricted as to withdrawal date or use, to be cash equivalents.
At
March 31, 2020, restricted cash included in non-current assets on the Company’s Condensed Consolidated Balance Sheet
was $115,094 representing cash in trust for the purpose of funding legal fees for certain litigations.
AKERS
BIOSCIENCES, INC. AND CONSOLIDATED SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
Note
2 - Significant Accounting Policies, continued
(g)
|
Fair
Value of Financial Instruments
|
The
Company’s financial instruments consist of cash and cash equivalents, marketable securities, receivables and trade and other
payables. The carrying value of cash and cash equivalents, receivables and trade and other payables approximate their fair value
because of their short maturities.
The
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 CONSOLIDATED SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
Note
2 - Significant Accounting Policies, continued
(g)
|
Fair
Value of Financial Instruments, continued
|
Following
is a description of the valuation methodologies used for assets measured at fair value as of March 31, 2020 and December 31, 2019.
Marketable
Securities: Valued using quoted prices in active markets
for identical assets.
|
|
Quoted Prices in Active Markets for Identical Assets or Liabilities
(Level 1)
|
|
|
Quoted Prices for Similar Assets or Liabilities in Active Markets
(Level 2)
|
|
|
Significant Unobservable
Inputs
(Level 3)
|
|
Fixed Income
Bonds at March 31, 2020
|
|
$
|
6,629,434
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Income Bonds at
December 31, 2019
|
|
$
|
9,164,273
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Marketable
securities are classified as available for sale. The debt 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 Shareholders’ Equity as other comprehensive (loss) income.
These amounts were an unrealized loss of $240,937 and an unrealized gain of $29,343 for the three months ended March 31,
2020 and 2019, respectively.
Losses
resulting from the sales of marketable securities were $36,714 and $3,718 for the three months ended March 31, 2020 and 2019,
respectively.
Proceeds
from the sales of marketable securities in the three months ended March 31, 2020 and 2019 were $2,303,890 and $852,520, respectively.
(h)
|
Trade
Receivables and Allowance for Doubtful Accounts
|
The
carrying amounts of current trade receivables are stated at cost, net of allowance for doubtful accounts and approximates
their fair value given their short-term nature.
The
normal credit terms extended to customers range between 30 and 90 days. Credit terms longer than these may be extended
after considering the credit worthiness of the customers and the business requirements. The Company reviews all receivables that
exceed terms and establishes an allowance for doubtful accounts based on management’s assessment of the collectability of
trade and other receivables. A considerable amount of judgment is required in assessing the amount of allowance. The Company considers
the historical level of credit losses, makes judgments about the credit worthiness of each customer based on ongoing credit evaluations
and monitors current economic trends that might impact the level of credit losses in the future.
As
of March 31, 2020 and December 31, 2019, allowances for doubtful accounts for trade receivables were $458,902. Bad debt expenses
for trade receivables were $0 and $4,247 for the three months ended March 31, 2020 and 2019, respectively.
AKERS
BIOSCIENCES, INC. AND CONSOLIDATED SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
Note
2 - Significant Accounting Policies, continued
Financial
instruments that potentially subject the Company to concentrations of credit risk consist principally of cash on deposit with
financial institutions and accounts receivable. At times, the Company’s cash in banks is in excess of the FDIC insurance
limit. The Company has not experienced any loss as a result of these cash deposits. These cash balances are maintained with two
banks.
Major
Customers
For
the three months ended March 31, 2020, two customers generated 60% and 35%, or 95% in the aggregate, of the Company’s revenues.
For the three months ended March 31, 2019, two customers generated 45% and 44%, or 89% in the aggregate, of the Company’s
revenue.
Two
customers accounted for 65% and 30%, or 95% in the aggregate, and five customers accounted for 30%, 18%, 12%, 12% and 11%, or
83% in the aggregate, of trade receivables net of customer credits and allowances for doubtful accounts as of March 31, 2020 and
December 31, 2019, respectively. These concentrations make the Company vulnerable to a near-term severe impact should these relationships
be terminated. To limit such risks, the Company performs ongoing credit evaluations of its customers’ financial condition.
Major
Suppliers
One
supplier accounted for 64% and two suppliers accounted for 47% and 12%, or 59% in aggregate, of the Company’s purchases
for the three months ended March 31, 2020 and 2019, respectively.
None
of the Company’s suppliers accounted for more than 10% of the Company’s outstanding accounts payable as of March 31,
2020 and December 31, 2019.
(j)
|
Property,
Plant and Equipment
|
Items
of property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses. Costs include
expenditures that are directly attributable to the acquisition of the asset.
Gains
and losses on disposal of an item of property, plant and equipment are determined by comparing the proceeds from disposal with
the carrying amounts of property, plant and equipment and are recognized within “other income” in the Condensed Consolidated
Statement of Operations and Comprehensive Loss.
Depreciation
is recognized in profit and loss on an accelerated basis over the estimated useful lives of the property, plant and equipment.
Leased assets are depreciated over the shorter of the lease term or their useful lives.
Depreciation
expense totaled $6,896 and $5,434 for the three months ended March 31, 2020 and 2019, respectively.
AKERS
BIOSCIENCES, INC. AND CONSOLIDATED SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
Note
2 - Significant Accounting Policies, continued
The
Company leases its facility in West Deptford, New Jersey (the “Thorofare Facility”) under an operating lease
(“Thorofare Lease”) with annual rentals of $132,000 plus common area maintenance (CAM) charges. The Thorofare
Facility houses the Company’s office, manufacturing, laboratory and warehouse space. The Thorofare Lease
took effect on January 1, 2008. On January 7, 2013, the Company extended the Thorofare Lease extending the term to
December 31, 2019. On November 11, 2019, the Company entered into another extension of the Thorofare Lease,
extending the term to December 31, 2021, effective January 1, 2020, and providing for an early termination option with a 150
day notice period.
On
January 1, 2020 (“Effective Date”), the Company adopted FASB Accounting Standards Codification, or ASC, Topic 842,
Leases (“ASC 842”), which increases transparency and comparability by recognizing a lessee’s rights and
obligations resulting from leases by recording them on the balance sheet as lease assets and lease liabilities. The new guidance
requires the recognition of the right-of-use (“ROU”) assets and related operating and finance lease liabilities
on the balance sheet. The Company adopted the new guidance using the modified retrospective approach on January 1, 2020. As a
result, the consolidated balance sheet as of December 31, 2019 was not restated and is not comparative.
The
adoption of ASC 842 resulted in the recognition of ROU assets of $306,706 and lease liabilities for an operating lease
of $306,706 on the Company’s Condensed Consolidated Balance Sheet as of January 1, 2020.
The
Company elected the package of practical expedients permitted within the standard, which allows an entity to forgo reassessing
(i) whether a contract contains a lease, (ii) classification of leases, and (iii) whether capitalized costs associated with a
lease meet the definition of initial direct costs. Also, the Company elected the expedient allowing an entity to use hindsight
to determine the lease term and impairment of ROU assets and the expedient to allow the Company to not have to separate lease
and non-lease components. The Company has also elected the short-term lease accounting policy under which the Company would not
recognize a lease liability or ROU asset for any lease that at the commencement date has a lease term of twelve months or less
and does not include a purchase option that the Company is more than reasonably certain to exercise.
For
contracts entered into on or after the Effective Date, at the inception of a contract, the Company will assess whether
the contract is, or contains, a lease. The Company’s assessment is based on: (i) whether the contract involves the use of
a distinct identified asset, (ii) whether the Company obtained the right to substantially all the economic benefit from the use
of the asset throughout the period, and (iii) whether the Company has the right to direct the use of the asset. Leases entered
into prior to January 1, 2020, which were accounted for under ASC 840, were not reassessed for classification.
For
operating leases, the lease liability is initially and subsequently measured at the present value of the unpaid lease payments.
The Company generally uses its incremental borrowing rate as the discount rate for leases, unless an interest rate is implicitly
stated in the lease. The present value of the lease payments is calculated using the incremental borrowing rate for operating
leases, which was determined using a portfolio approach based on the rate of interest that the Company would have to pay
to borrow an amount equal to the lease payments on a collateralized basis over a similar term. The lease term for all of the Company’s
leases includes the non-cancellable period of the lease plus any additional periods covered by either a Company option to extend
the lease that the Company is reasonably certain to exercise, or an option to extend the lease controlled by the lessor. All ROU
assets are reviewed for impairment.
Lease
expense for operating leases consists of the lease payments plus any initial direct costs and is recognized on a straight-line
basis over the lease term.
AKERS
BIOSCIENCES, INC. AND CONSOLIDATED SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
Note
2 - Significant Accounting Policies, continued
(k)
|
Right-of-Use
Assets - continued
|
The
Company’s operating lease is comprised solely of the lease of its Thorofare Facility. Condensed Consolidated Balance
Sheet information related to its lease is presented below:
Balance Sheet Location
|
|
March 31, 2020
|
|
|
January 1, 2020
|
|
|
December 31, 2019
|
|
Operating Lease
|
|
|
|
|
|
|
|
|
|
|
|
|
Right-of-use asset
|
|
$
|
269,337
|
|
|
$
|
306,706
|
|
|
$
|
-
|
|
Liability, current
|
|
|
146,070
|
|
|
|
143,018
|
|
|
|
-
|
|
Liability, net of current
|
|
|
124,395
|
|
|
|
163,688
|
|
|
|
-
|
|
The
following provides details of the Company’s lease expense, including CAM charges:
|
|
Three Months Ended
March 31, 2020
|
|
Lease cost
|
|
|
|
|
Operating lease cost
|
|
$
|
42,944
|
|
Other
information related to leases is presented below:
|
|
As of March 31, 2020
|
|
Other information
|
|
|
|
|
Operating cash used by operating leases
|
|
$
|
41,816
|
|
Weighted-average remaining lease term – operating leases (in months)
|
|
|
21
|
|
Weighted-average discount rate – operating leases
|
|
|
10.00
|
%
|
As
of March 31, 2020, the annual minimum lease payments of the Company’s operating lease liabilities were as follows:
For Years Ending December 31,
|
|
Operating leases
|
|
2020 (excluding the three months ended March 31, 2020)
|
|
$
|
123,552
|
|
2021
|
|
|
172,696
|
|
Total future minimum lease payments, undiscounted
|
|
$
|
296,248
|
|
Less: Imputed interest
|
|
|
(25,783
|
)
|
Present value of future minimum lease payments
|
|
$
|
270,465
|
|
AKERS
BIOSCIENCES, INC. AND CONSOLIDATED SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
Note
2 - Significant Accounting Policies, continued
The
Company’s long-lived intangible assets, other than goodwill, are assessed for impairment when events or circumstances indicate
there may be an impairment. These assets were initially recorded at their estimated fair value at the time of acquisition and
assets not acquired in acquisitions were recorded at historical cost. However, if their estimated fair value is less than the
carrying amount, other intangible assets with indefinite lives are reduced to their estimated fair value through an impairment
charge to the Company’s Condensed Consolidated Statements of Operations and Comprehensive Loss.
Intangible
assets as of March 31, 2020 and December 31, 2019 were $158,597 and $170,423, respectively. Intangible assets at March
31, 2020 consisted of patents, trademarks and customer lists of $3,897,635, net of accumulated amortization and impairment
of $3,739,038. Intangible assets at December 31, 2019 consisted of patent, trademarks and customer lists of $3,897,635,
net of accumulated amortization and impairment of $3,727,212.
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. Amortization expense was $8,874 and $10,003 for the three months ended March 31, 2020 and 2019,
respectively.
The
following is an annual schedule of approximate future amortization of the Company’s intangible assets:
Period
|
|
Amount
|
|
|
|
|
|
2020 (nine months)
|
|
$
|
26,180
|
|
2021
|
|
|
34,907
|
|
2022
|
|
|
34,907
|
|
2023
|
|
|
27,823
|
|
2024
|
|
|
27,823
|
|
Thereafter
|
|
|
6,957
|
|
|
|
$
|
158,597
|
|
AKERS
BIOSCIENCES, INC. AND CONSOLIDATED SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
Note
2 - Significant Accounting Policies, continued
Beginning
on January 1, 2019, the Company recognizes revenue under ASC 606, Revenue from Contracts with Customers. The core principle of
this revenue standard is that a company should recognize revenue to depict the transfer of promised goods or services to
customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods
or services. The Company only applies the five-step model to contracts when it is probable that the Company will collect the consideration
it is entitled to in exchange for the goods and services transferred to the customer. The following five steps are applied to
achieve that core principle:
Step
1: Identify the contract with the customer
Step
2: Identify the performance obligations in the contract
Step
3: Determine the transaction price
Step
4: Allocate the transaction price to the performance obligations in the contract
Step
5: Recognize revenue when the Company satisfies a performance obligation
The
Company does not have any significant contracts with customers requiring performance beyond delivery. Shipping and handling activities
are performed before the customer obtains control of the goods and therefore represent a fulfillment activity rather than a promised
service to the customer. Revenue and costs of sales are recognized when control of the product transfers to the Company’s
customer, which generally occurs upon delivery to the customer but can also occur when goods are shipped by the Company, depending
on the shipment terms of the contract. The Company’s performance obligations are satisfied at that time.
The
Company uses the most likely amount approach to determine the variable consideration of the transaction price in order to account
for the contractual rebates and incentives that are estimated and adjusted for over time. The Company provides for rebates to
its distributors. The Company had accrued for rebates and incentives of $200 and $20,002 as of March 31, 2020 and December 31,
2019, respectively. Accounts receivable will be reduced when the rebates are applied by the customer. The Company recognized
a gain, net of adjustments, of $664 and an expense of $8,698 during the three months ended March 31, 2020 and 2019 for
rebates and incentives, which is included as a reduction of product revenue in the Condensed Consolidated Statement of Operations
and Comprehensive Loss.
(n)
|
Research
and Development Costs
|
In
accordance with FASB ASC 730, research and development costs are expensed as incurred and consist of fees paid to third
parties that conduct certain research and development activities on the Company’s behalf. These costs included, for the
three months ended March 31, 2020, costs incurred to acquire and develop the license for the COVID-19 vaccine project (See Note
3).
AKERS
BIOSCIENCES, INC. AND CONSOLIDATED SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
Note
2 - Significant Accounting Policies, continued
The
Company utilizes an asset and liability approach for financial accounting and reporting for income taxes. The provision for income
taxes is based upon income or loss after adjustment for those permanent items that are not considered in the determination of
taxable income. Deferred income taxes represent the tax effects of differences between the financial reporting and tax basis of
the Company’s assets and liabilities at the enacted tax rates in effect for the years in which the differences are expected
to reverse.
The
Company evaluates the recoverability of deferred tax assets and establishes a valuation allowance when it is more likely than
not that some portion or all the deferred tax assets will not be realized. Management makes judgments as to the interpretation
of the tax laws that might be challenged upon an audit and cause changes to previous estimates of tax liability. In management’s
opinion, adequate provisions for income taxes have been made. If actual taxable income by tax jurisdiction varies from estimates,
additional allowances or reversals of reserves may be necessary.
Tax
benefits are recognized only for tax positions that are more likely than not to be sustained upon examination by tax authorities.
The amount recognized is measured as the largest amount of benefit that is greater than 50 percent likely to be realized upon
settlement. A liability for “unrecognized tax benefits” is recorded for any tax benefits claimed in the Company’s
tax returns that do not meet these recognition and measurement standards. As of March 31, 2020 and December 31, 2019, no liability
for unrecognized tax benefits was required to be reported.
There
is no income tax benefit for the losses for the three months ended March 31, 2020 and 2019 since management has determined that
the realization of the net deferred assets is not assured and has created a valuation allowance for the entire amount of such
tax benefits.
The
Company’s policy for recording interest and penalties associated with tax audits is to record such items as a component
of general and administrative expense. There were no amounts accrued for penalties and interest for the three months ended March
31, 2020 and 2019. The Company does not expect its uncertain tax position to change during the next twelve months. Management
is currently unaware of any issues under review that could result in significant payments, accruals or material deviations from
its position.
(p)
|
Shipping
and Handling Fees and Costs
|
The
Company charges actual shipping costs plus a handling fee to customers, which amounted to $9,057 and $12,486 for the three months
ended March 31, 2020 and 2019, respectively. These fees are classified as part of product revenue in the Condensed Consolidated
Statement of Operations and Comprehensive Loss. Shipping and other related delivery costs, including those for incoming raw materials
are classified as product cost of sales, which amounted to $12,657 and $11,919 for the three months ended March 31, 2020 and 2019.
AKERS
BIOSCIENCES, INC. AND CONSOLIDATED SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
Note
2 - Significant Accounting Policies, continued
(q)
|
Basic
and Diluted Earnings per Share of Common Stock
|
Basic
earnings per common share is based on the weighted average number of shares outstanding during the periods presented. Diluted
earnings per share is computed using the weighted average number of common shares plus dilutive common share equivalents outstanding
during the period. Potential common shares that would have the effect of increasing diluted earnings per share are considered
anti-dilutive.
The
calculation of basic and diluted loss per share for the three months ended March 31, 2020 and 2019 was based on the net loss of
$3,538,536 and $916,958, respectively. The basic and diluted weighted average number of common shares outstanding for the three
months ended March 31, 2020 and 2019 was 2,226,847 and 540,628, respectively.
Diluted
net loss per share is computed using the weighted average number of common and dilutive potential common shares outstanding during
the period.
The
following securities are excluded from the calculation of weighted average dilutive common shares because their inclusion would
have been anti-dilutive:
|
|
For the Three Months Ended
March 31,
|
|
|
|
2020
|
|
|
2019
|
|
Stock Options
|
|
|
40
|
|
|
|
291
|
|
RSUs
|
|
|
15,603
|
|
|
|
15,603
|
|
Warrants to purchase common stock
|
|
|
247,215
|
|
|
|
88,015
|
|
Pre-funded Warrants to purchase common stock
|
|
|
30,000
|
|
|
|
-
|
|
Series D Preferred Convertible Stock
|
|
|
211,353
|
|
|
|
-
|
|
Warrants to purchase Series C Preferred stock
|
|
|
1,990,000
|
|
|
|
-
|
|
Total potentially dilutive shares
|
|
|
2,494,211
|
|
|
|
103,909
|
|
Certain
prior year amounts have been reclassified to conform to the current year’s presentation.
AKERS
BIOSCIENCES, INC. AND CONSOLIDATED SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
Note
2 - Significant Accounting Policies, continued
(s)
|
Recently
Issued Accounting Pronouncements
|
Recently
Issued Accounting Pronouncements Adopted
In
February 2016, the FASB issued ASU 2016-02—Leases (Topic 842) (“ASU-2016-02”), which requires an entity to recognize
right-of-use assets and lease liabilities on its balance sheet and disclose key information about leasing arrangements. ASU 2016-02
offers specific accounting guidance for a lessee, a lessor, and sale and leaseback transactions. Lessees and lessors are required
to disclose qualitative and quantitative information about leasing arrangements to enable a user of the financial statements to
assess the amount, timing and uncertainty of cash flows arising from leases. Leases will be classified as either finance or operating,
with classification affecting the pattern of expense recognition in the income statement. The Company has adopted ASU-2016-02,
effective January 1, 2020, and, as a result of this implementation, has recorded an operating lease right-of-use
asset and an operating lease liability as of March 31, 2020.
Recently
Issued Accounting Pronouncements Not Adopted
In
June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on
Financial Instruments (“ASU-2016-13”). ASU 2016-13 affects loans, debt securities, trade receivables, and any other
financial assets that have the contractual right to receive cash. The ASU requires an entity to recognize expected credit losses
rather than incurred losses for financial assets. ASU 2016-13 is effective for the fiscal year beginning after December 15, 2022,
including interim periods within that fiscal year. The Company expects that there would be no material impact on the Company’s
condensed consolidated financial statements upon the adoption of this ASU.
AKERS
BIOSCIENCES, INC. AND CONSOLIDATED SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
Note
3 – Recent Developments, Liquidity and Management’s Plans
Acquisition
of Cystron
On
March 23, 2020, the Company acquired Cystron pursuant to the MIPA. Cystron was incorporated on March 10, 2020. Upon
the Company’s purchase of Cystron, Cystron’s sole asset consisted of an exclusive license with respect to
Premas’ vaccine platform for the development of a vaccine against COVID-19 and other coronavirus infections. Since its
formation and through the date of its acquisition by the Company, Cystron did not have any employees. The acquisition of
Cystron was accounted for as the purchase of an asset.
As
consideration for the Membership Interests, the Company delivered to the Sellers: (1) that number of newly issued shares
of its common stock equal to 19.9% of the issued and outstanding shares of its common stock and pre-funded warrants
as of the date of the MIPA, but, to the extent that the issuance of its common stock would have resulted in any Seller
owning in excess of 4.9% of the Company’s outstanding common stock, then, at such Seller’s election, such Seller
received “common stock equivalent” preferred shares with a customary 4.9% blocker (with such common stock and preferred
stock collectively referred to as “Common Stock Consideration”), and (2) $1,000,000 in cash. On March 24, 2020 the
Company paid $1,000,000 to the Sellers and delivered 411,403 shares of common stock and 211,353 shares of Series D
Convertible Preferred Stock with a customary 4.9% blocker, with an aggregate fair market value of $1,233,057, and recorded
$2,233,057 as a charge to research and development expense within the Condensed Consolidated Statements of Operations and Comprehensive
Loss. On April 22, 2020, Premas, one of the Sellers, returned to us $299,074 representing its portion of the cash purchase
price to acquire Cystron. Premas has advised us that these funds were returned temporarily in order for Premas to meet certain
regulatory requirements in India.
Additionally,
the Company shall (A) make an initial payment to the Sellers of up to $1,000,000 upon its receipt of cumulative
gross proceeds from the consummation of an initial equity offering after the date of the MIPA of $8,000,000, and (B) pay to Sellers
an amount in cash equal to 10% of the gross proceeds in excess of $8,000,000 raised from future equity offerings after the date
of the MIPA until the Sellers have received an aggregate additional cash consideration equal to $10,000,000 (collectively,
the “Equity Offering Payments”). On May 14, 2020, the Company and the Sellers entered into an Amendment No. 1 to the
MIPA, which provided that any Equity Offering Payments in respect of an equity offering that is consummated prior to September
23, 2020, shall be accrued, but shall not be due and payable until September 24, 2020. The other provisions of the MIPA remain
unmodified and in full force and effect. Upon the achievement of certain milestones, including the completion of a Phase 2
study for a COVID-19 vaccine that meets its primary endpoints, Sellers will be entitled to receive an additional 750,000 shares
of the Company’s common stock or, in the event the Company is unable to obtain stockholder approval for the
issuance of such shares, 750,000 shares of non-voting preferred stock that are valued following the achievement of such milestones
and shall bear a 10% annual dividend (the “Milestone Shares”). Sellers will also be entitled to contingent payments
from the Company of up to $20,750,000 upon the achievement of certain milestones, including the approval of a new drug
application by the U.S. Food and Drug Administration (“FDA”). Pursuant to the MIPA, upon the Company’s consummation
of the registered direct equity offering closed on April 8, 2020, the Company paid the Sellers $250,000 on
April 20, 2020. On April 30, 2020, Premas, one of the Sellers, returned to us $83,334, representing their portion
of the $250,000 amount paid to the Sellers on April 20, 2020. Premas has advised us that these funds were returned
temporarily in order for Premas to meet certain regulatory requirements in India.
The
Company shall also make quarterly royalty payments to Sellers
equal to 5% of the net sales of a COVID-19 vaccine or combination product by the Company (the “COVID-19 Vaccine”)
for a period of five (5) years following the first commercial sale of the COVID-19 Vaccine; provided, that such payment shall
be reduced to 3% for any net sales of the COVID-19 Vaccine above $500 million.
In
addition, Sellers shall be entitled to receive 12.5% of the transaction value, as defined in the MIPA, of any change of control
transaction, as defined in the MIPA, that occurs prior to the fifth (5th) anniversary of the closing date of the MIPA, provided
that the Company is still developing the COVID-19 Vaccine at that time. Following the consummation of any change of control transaction,
the Sellers shall not be entitled to any payments as described above under the MIPA.
Support
Agreement
On
March 23, 2020, as an inducement to enter into the MIPA, and as one of the conditions to the consummation of the transactions
contemplated by the MIPA, the Sellers entered into a shareholder voting agreement with the Company (the “Support Agreement”),
pursuant to which each Seller agreed to vote their shares of the Company’s common stock or preferred stock in favor
of each matter proposed and recommended for approval by the Company’s management at every meeting of the stockholders
and on any action or approval by written consent of the stockholders.
AKERS
BIOSCIENCES, INC. AND CONSOLIDATED SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
Note
3 – Recent Developments, Liquidity and Management’s Plans, continued
Registration
Rights Agreement
To
induce the Sellers to enter into the MIPA, on March 23, 2020, the Company entered into a registration rights agreement
(the “Registration Rights Agreement”) with the Sellers, pursuant to which the Company shall by the 30th day
following the closing of the transactions contemplated by the MIPA, file with the United States Securities and Exchange Commission
(the “SEC”) an initial Registration Statement on Form S-3 (if such form is available for use by the Company at such
time) or, otherwise, on Form S-1, covering all of the shares of its common stock issued, or underlying the preferred stock
issued, at closing under the MIPA and to subsequently register the common stock issued or underlying the preferred stock issued
as Milestone Shares.
License
Agreement
Cystron
is a party to a License and Development Agreement (the “Initial License Agreement”) with Premas. As a condition
to the Company’s entry into the MIPA, Cystron amended and restated the Initial License Agreement on March 19, 2020 (as amended
and restated, the “License Agreement”). Pursuant to the License Agreement, Premas granted Cystron, amongst other things,
an exclusive license with respect to Premas’ vaccine platform for the development of a vaccine against COVID-19 and other
coronavirus infections.
Upon
the achievement of certain developmental milestones by Cystron, Cystron shall pay to Premas a total of up to $2,000,000. On April
16, 2020, the Company paid Premas $500,000 for the achievement of the first two development milestones, of which $250,000
was accrued as research and development expense for the three months ended March 31, 2020.
On
May 14, 2020, the Company and Premas agreed that Milestone No. 3 under the License Agreement has been satisfied. Due to the achievement
of this milestone, Premas is entitled to receive a payment of $500,000 from the Company.
Cystron
Medical Panel
On
April 10, 2020, the Company established the Cystron Medical Panel and appointed its first member to the panel. Each member shall
be compensated with an initial grant of the Company’s common stock with an aggregate fair market value of $25,000 and a
monthly cash stipend in the initial amount of $2,500.
AKERS
BIOSCIENCES, INC. AND CONSOLIDATED SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
Note
3 – Recent Developments, Liquidity and Management’s Plans, continued
Series
D Convertible Preferred Stock
On
March 24, 2020, the Company filed the Certificate of Designation of Preferences, Rights and Limitations of Series D Convertible
Preferred Stock (the “Certificate of Designation”) with the Secretary of State of the State of New Jersey. Pursuant
to the Certificate of Designation, in the event of the Company’s liquidation or winding up of its affairs, the holders
of its Series D Convertible Preferred Stock (the “Preferred Stock”) will be entitled to receive the same amount that
a holder of the Company’s common stock would receive if the Preferred Stock were fully converted (disregarding for
such purposes any conversion limitations set forth in the Certificate of Designation) to common stock which amounts shall be paid
pari passu with all holders of the Company’s common stock. Each share of Preferred Stock has a stated value equal to $0.01
(the “Stated Value”), subject to increase as set forth in Section 7 of the Certificate of Designation.
A
holder of Preferred Stock is entitled at any time to convert any whole or partial number of shares of Preferred Stock into shares
of the Company’s common stock determined by dividing the Stated Value of the Preferred Stock being converted by the
conversion price of $0.01 per share.
A
holder of Preferred Stock will be prohibited from converting Preferred Stock into shares of the Company’s common
stock if, as a result of such conversion, the holder, together with its affiliates, would own more than 4.99% of the total number
of shares of the Company’s common stock then issued and outstanding (with such ownership restriction referred to
as the “Beneficial Ownership Limitation”). However, any holder may increase or decrease such percentage to any other
percentage not in excess of 9.99%, provided that any increase in such percentage shall not be effective until 61 days after such
notice to us.
Subject
to the Beneficial Ownership Limitation, on any matter presented to the Company’s stockholders for their action or
consideration at any meeting of the Company’s stockholders (or by written consent of stockholders in lieu of a meeting),
each holder of Preferred Stock will be entitled to cast the number of votes equal to the number of whole shares of the Company’s
common stock into which the shares of Preferred Stock beneficially owned by such holder are convertible as of the record date
for determining stockholders entitled to vote on or consent to such matter (taking into account all Preferred Stock beneficially
owned by such holder). Except as otherwise required by law or by the other provisions of the Company’s certificate
of incorporation, the holders of Preferred Stock will vote together with the holders of the Company’s common stock
and any other class or series of stock entitled to vote thereon as a single class.
A
holder of Preferred Stock shall be entitled to receive dividends as and when paid to the holders of the Company’s
common stock on an as-converted basis.
AKERS
BIOSCIENCES, INC. AND CONSOLIDATED SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
Note
3 – Recent Developments, Liquidity and Management’s Plans - continued
Liquidity
As
of March 31, 2020, the Company’s cash on hand was $927,533 (which included restricted cash of $115,094),
and its marketable securities were $6,629,434. The Company has incurred net losses of $3,538,536 for the three months ended
March 31, 2020 and $3,888,249 for the year ended December 31, 2019, respectively. As of March 31, 2020, the Company
had working capital of $6,116,477 and stockholder’s equity of $6,817,451. During the three months ended March 31,
2020, cash flows used in operating activities were $1,966,983, consisting primarily of a net loss of $3,538,536, which includes,
principally, research and development costs in connection with the purchase of a license and milestone license fees of $2,483,057.
Since its inception, the Company has met its liquidity requirements principally through the sale of its common stock in
public and private placements.
On
April 7, 2020, pursuant to a Securities Purchase Agreement (the “Purchase Agreement”) with certain institutional and
accredited investors (the “Purchasers”), the Company agreed to issue and sell in a registered direct offering (the
“Offering”) an aggregate of 766,667 shares of common stock of the Company at an offering price of $6.00 per share,
for gross and net proceeds of $4,600,002 and $4,146,102, respectively. The shares were issued by the Company pursuant to a shelf
registration statement on Form S-3 (File No. 333- 234449), which was initially filed with the Securities and Exchange Commission
(the “Commission”) on November 1, 2019 and was declared effective by the Commission on April 7, 2020.
On
April 20, 2020, the Company paid $250,000 of the net proceeds from the Offering to the former members of Cystron Biotech,
LLC, pursuant to the terms of that certain MIPA.
During
the period of April 6, 2020 through April 16, 2020, warrants to purchase an aggregate of 1,043,500 shares of Series C Convertible
Preferred Stock were exercised at an exercise price of $4.00 per share, yielding proceeds of $4,174,000.
On May 14, 2020, the Company entered into
a Securities Purchase Agreement (the “May Purchase Agreement”) with certain institutional and accredited investors
(the “May Purchasers”), pursuant to which the Company agreed to issue and sell in a registered direct offering (the
“May Offering”) an aggregate of 1,366,856 shares (the “May Shares”) of its common stock at an offering
price of $3.53 per share, for gross and net proceeds of approximately $4.8 million and $4.3 million, respectively. The closing
of the May Offering is subject to satisfaction of customary closing conditions set forth in the May Purchase Agreement and is
expected to occur on or about May 18, 2020.
In
connection with the May Offering, the Company has agreed to grant to the placement agent (the “Placement Agent”) warrants
to purchase up to 109,348 shares of its common stock at an exercise price of $4.4125 (the “May Placement Agent Warrants”)
in a private placement. The May Placement Agent Warrants will be exercisable at any time and from time to time, in whole or in
part, following the date of issuance and for a term of five years from the effective date of the May Offering.
The
Company’s current cash resources will not be sufficient
to fund the development of its COVID-19 Vaccine candidate through all of the required clinical trials to receive regulatory
approval and commercialization. While the Company does not currently have an estimate of all of the costs that it
will incur in the development of the COVID-19 Vaccine, the Company anticipates that it will need to raise significant additional
funds in order to continue the development of the Company’s COVID-19 Vaccine candidate during the next 12-months.
In addition, the Company could also have increased capital needs if it were to engage in a strategic transaction
in the cannabinoid space. The Company’s ability to obtain additional capital may depend on prevailing economic conditions
and financial, business and other factors beyond its control. The COVID-19 pandemic has caused an unstable economic environment
globally. Disruptions in the global financial markets may adversely impact the availability and cost of credit, as well as the
Company’s ability to raise money in the capital markets. Current economic conditions have been, and continue to be volatile.
Continued instability in these market conditions may limit the Company’s ability to access the capital necessary to fund
and grow its business.
The
Company believes that its current financial resources as of the date of the issuance of these consolidated financial statements,
are sufficient to fund its current twelve month operating budget, alleviating any substantial doubt raised by the Company’s
historical operating results and satisfying its estimated liquidity needs for twelve months from the issuance of these
consolidated financial statements.
AKERS
BIOSCIENCES, INC. AND CONSOLIDATED SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
Note
4 – Inventories
Inventories
are measured at the lower of cost or net realizable value. The cost of inventories is based on the weighted-average principle,
and includes expenditures incurred in acquiring the inventories, production or conversion costs and other costs incurred in bringing
them to their existing location and condition. In the case of manufactured inventories and work in progress, costs include an
appropriate share of production overhead based on normal operating capacity.
Inventories
consist of the following:
|
|
March 31, 2020
|
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
Raw Materials
|
|
$
|
267,917
|
|
|
$
|
274,551
|
|
Sub-Assemblies
|
|
|
296,168
|
|
|
|
303,461
|
|
Finished Goods
|
|
|
28,968
|
|
|
|
28,223
|
|
Reserve for Obsolescence
|
|
|
(399,608
|
)
|
|
|
(407,250
|
)
|
|
|
$
|
193,445
|
|
|
$
|
198,985
|
|
Obsolete
inventory charged to product cost of sales was $3,884 and $0, during the three months ended March 31, 2020 and 2019, respectively.
Note
5 - Trade and Other Payables
Trade
and other payables consist of the following:
|
|
March 31, 2020
|
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
Trade Payables
|
|
$
|
847,752
|
|
|
$
|
657,293
|
|
Accrued Expenses
|
|
|
1,126,381
|
|
|
|
812,722
|
|
Deferred Compensation
|
|
|
59,750
|
|
|
|
59,750
|
|
|
|
$
|
2,033,883
|
|
|
$
|
1,529,765
|
|
See
also Note 8 for related party information.
AKERS
BIOSCIENCES, INC. AND CONSOLIDATED SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
Note
6 - Share-based Payments
Equity
Incentive Plans
2013
Stock Incentive Plan
On
January 23, 2014, the Company adopted the 2013 Stock Incentive Plan (“2013 Plan”). The 2013 Plan was amended by the
Board on January 9, 2015 and September 30, 2016, and such amendments were ratified by shareholders on December 7, 2018. The 2013
Plan provides for the issuance of up to 4,323 shares of the Company’s common stock. As of March 31, 2020, grants of restricted
stock and options to purchase 2,853 shares of common stock have been issued pursuant to the 2013 Plan, and 1,470 shares
of common stock remain available for issuance.
2017
Stock Incentive Plan
On
August 7, 2017, the shareholders approved and the Company adopted the 2017 Stock Incentive Plan (“2017 Plan”). The
2017 Plan provides for the issuance of up to 7,031 shares of the Company’s common stock. As of March 31, 2020, grants of
restricted stock and options to purchase 3,064 shares of common stock have been issued pursuant to the 2017 Plan, and 3,967
shares of common stock remain available for issuance.
2018
Stock Incentive Plan
On
December 7, 2018, the shareholders approved and the Company adopted the 2018 Stock Incentive Plan (“2018 Plan”). The
2018 Plan provides for the issuance of up to 78,125 shares of the Company’s common stock. As of March 31, 2020, grants of
RSUs to purchase 15,603 shares of common stock have been issued pursuant to the 2018 Plan, and 62,522 shares of common
stock remain available for issuance.
AKERS
BIOSCIENCES, INC. AND CONSOLIDATED SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
Note
6 - Share-based Payments, continued
Stock
Options
The
following table summarizes the option activities for the three months ended March 31, 2020:
|
|
Number
of Shares
|
|
|
Weighted
Average
Exercise Price
|
|
|
Weighted
Average
Grant
Date
Fair Value
|
|
|
Weighted
Average
Remaining
Contractual
Term (years)
|
|
|
Aggregate
Intrinsic Value
|
|
Balance
at December 31, 2019
|
|
|
40
|
|
|
$
|
236.16
|
|
|
$
|
151.68
|
|
|
|
0.99
|
|
|
$
|
-
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Canceled/Expired
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Balance at March 31, 2020
|
|
|
40
|
|
|
$
|
236.16
|
|
|
$
|
151.68
|
|
|
|
0.75
|
|
|
$
|
-
|
|
Exercisable as of March 31, 2020
|
|
|
40
|
|
|
$
|
236.16
|
|
|
$
|
151.68
|
|
|
|
0.75
|
|
|
$
|
-
|
|
The
aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the closing
stock price of $2.135 for the Company’s common stock on March 31, 2020. As the closing stock price on March 31, 2020
is lower than the exercise price, there is no intrinsic value to disclose.
As
of March 31, 2020, all the Company’s outstanding stock options were fully vested and exercisable.
During
the three months ended March 31, 2020 and 2019, the Company did not incur any stock option expenses.
AKERS
BIOSCIENCES, INC. AND CONSOLIDATED SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
Note
6 - Share-based Payments, continued
Restricted
Stock Units
On
March 29, 2019, the Compensation Committee of the Company’s board of directors approved the grant of 5,201
Restricted Stock Units (“RSUs”) to each of the three directors. Each RSU had a grant date fair value of
$23.28 which was amortized on a straight-line basis over the vesting period into administrative expenses within the Condensed
Consolidated Statement of Operations and Comprehensive Loss. Such RSUs were granted under the 2018 Plan and vested on January
1, 2020. Such RSUs are expected to be settled with the issuance of common stock during the three months ending June 30, 2020.
At
March 31, 2020, the unamortized value of the RSUs was $0. A summary of activity related to RSUs for the three months ended
March 31, 2020 is presented below:
|
|
Number of
RSUs
|
|
|
Weighted
Average
Grant Date
Fair Value
|
|
Balance at December 31, 2019
|
|
|
15,603
|
|
|
$
|
23.28
|
|
Granted
|
|
|
-
|
|
|
$
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
Canceled/Expired
|
|
|
-
|
|
|
|
-
|
|
Balance at March 31, 2020
|
|
|
15,603
|
|
|
$
|
23.28
|
|
Exercisable as of March 31, 2020
|
|
|
15,603
|
|
|
$
|
23.28
|
|
During
the three months ended March 31, 2020 and 2019, the Company incurred RSU expense of $1,302 and $3,906, respectively.
AKERS
BIOSCIENCES, INC. AND CONSOLIDATED SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
Note
6 - Share-based Payments, continued
Common
Stock Warrants
The
table below summarizes the warrant activity for the three month period ended March 31, 2020:
|
|
Number of
Warrants
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Average
Remaining
Contractual
Term (years)
|
|
Balance at December 31, 2019
|
|
|
247,215
|
|
|
$
|
29.79
|
|
|
|
4.32
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Canceled/Expired
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Balance at March 31, 2020
|
|
|
247,215
|
|
|
$
|
29.79
|
|
|
|
4.07
|
|
Exercisable as of March 31, 2020
|
|
|
247,215
|
|
|
$
|
29.79
|
|
|
|
4.07
|
|
All
common stock warrants were vested on date of grant.
Pre-funded
Common Stock Warrants
The
table below summarizes the pre-funded warrant activity for the three month period ended March 31, 2020:
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
|
Number of
|
|
|
Exercise
|
|
|
Contractual
|
|
|
|
Warrants
|
|
|
Price
|
|
|
Term (years)
|
|
Balance at December 31, 2019
|
|
|
795,000
|
|
|
$
|
0.0001
|
|
|
|
-
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
(765,000
|
)
|
|
|
0.0001
|
|
|
|
-
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Canceled/Expired
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Balance at March 31, 2020
|
|
|
30,000
|
|
|
$
|
0.0001
|
|
|
|
-
|
|
Exercisable as of March 31, 2020
|
|
|
30,000
|
|
|
$
|
0.0001
|
|
|
|
-
|
|
All
pre-funded warrants were vested on the date of grant and are exercisable at any time. During the three months ended March
31, 2020, pre-funded warrants to purchase 765,000 shares of common stock issued on December 9, 2019 were exercised at an
exercise price of $0.0001 per share, yielding net proceeds of $77.00. On April 6, 2020, 30,000 pre-funded warrants
issued on December 9, 2019 were exercised for common shares at an exercise price of $0.0001 per share yielding net proceeds of
$3.00.
AKERS
BIOSCIENCES, INC. AND CONSOLIDATED SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
Note
6 - Share-based Payments, continued
Warrants
for the purchase of Series C Convertible Preferred Stock
The
table below summarizes the activity during the three month period ended March 31, 2020 for warrants issued in December 2019 for
the purchase of Series C Convertible Preferred Stock:
|
|
Number of
Warrants
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Average
Remaining
Contractual
Term (years)
|
|
Balance at December 31, 2019
|
|
|
1,990,000
|
|
|
$
|
4.00
|
|
|
|
4.95
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Canceled/Expired
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Balance at March 31, 2020
|
|
|
1,990,000
|
|
|
$
|
4.00
|
|
|
|
4.70
|
|
Exercisable as of March 31, 2020
|
|
|
1,990,000
|
|
|
$
|
4.00
|
|
|
|
4.70
|
|
All
warrants to purchase Series C Convertible Preferred Stock were vested on the date of grant (See Note 3).
Note
7 – Commitments and Contingencies
Advisory
Board
On
December 4, 2019, the Company established a cannabinoid and hemp (“CBD”) Advisory Board, whose role
is to provide input to management and the board of directors regarding the identification and assessment of business opportunities
in the cannabinoid and hemp industry. Each member shall be compensated for their initial 24 months of service with the issuance
of Company stock with a fair market value of $25,000. Pursuant to the agreement, such shares shall be fully vested by May 31,
2020. During the three months ended March 31, 2020, the Company recorded a charge of $41,667, which is reflected in administrative
expense within the Condensed Consolidated Statements of Operations and Comprehensive Loss.
AKERS
BIOSCIENCES, INC. AND CONSOLIDATED SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
Note
7 – Commitments and Contingencies, continued
Commitments
ChubeWorkx
On
August 17, 2016, pursuant to a Settlement Agreement (the “Settlement Agreement”) with ChubeWorkx Guernsey Limited
(“ChubeWorkx”), which settled all pending claims between the Company and ChubeWorkx. Specifically, the Company and
ChubeWorkx agreed to voluntarily dismiss (i) the action in the United States Federal Court, District of New Jersey brought by
the Company against ChubeWorkx for outstanding amounts due to the Company under a promissory note and (ii) the action in The High
Court of Justice, Queen’s Bench Division Commercial Court, Royal Courts of Justice, United Kingdom brought by ChubeWorkx
against the Company arising from an exclusive licensing agreement between ChubeWorkx and the Company (“Licensing Agreement”).
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 expense of $13,816 and $31,284 for the three months ended
March 31, 2020 and 2019, respectively, which are included in sales and marketing expenses on the Condensed Consolidated Statement
of Operations and Comprehensive Loss. As of March 31, 2020 and December 31, 2019, the Company owed ChubeWorkx royalties of $6,908
and $4,906, respectively, which is included in trade and other payables within the condensed consolidated balance sheet.
Other
terms of the Settlement Agreement included: 1) as security for all earned but unpaid royalties, the pledge
by the Company to ChubeWorkx of 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; 2) as security of the settlement sum which remains
unpaid by the Company, the pledge to ChubeWorkx of all Company (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 3) 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.
AKERS
BIOSCIENCES, INC. AND CONSOLIDATED SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
Note
7 – Commitments and Contingencies, continued
Litigation
Watts
v. Gormally, et al., No. 2:18-15992 (D.N.J.) and Chan v. Gormally, et al., No. 2:19-cv-4989 (D.N.J.)
On
November 9, 2018, Cale Watts (“Watts Plaintiff”) filed a verified shareholder derivative complaint alleging violations
of the Securities Exchange Act of 1934, breach of fiduciary duty, unjust enrichment, and waste of corporate assets based on alleged
material weaknesses in controls, management, and documentation (the “Watts Action”). On January 14, 2019, the parties
reached an agreement in principle to settle the Watts Action that included corporate reforms and a payment of attorneys’
fees of $200,000. The parties finalized a Stipulation of Settlement on March 4, 2019. On February 7, 2019, Tiffany Chan, Jasmine
Henderson, and Don Danesh (“Chan Plaintiffs”) filed a verified shareholder derivative complaint alleging violations
of Section 14(a) of the Exchange Act and SEC Rule 14a-9, breach of fiduciary duty, unjust enrichment, and waste of corporate assets
based on the same circumstances as the Watts Action (the “Chan Action”). The Chan Action further alleged that the
Company should not have settled the Watts Action because the Watts Action plaintiffs lacked standing and the settlement would
cause irreparable harm to the Company and its shareholders. On March 22, 2019, the Watts Plaintiff filed a motion for preliminary
approval of the proposed settlement, approving the proposed form and method of providing notice of the settlement, scheduling
a hearing for final approval of the settlement (“Watts Motion for Preliminary Approval”). On April 1, 2019, the Chan
Plaintiffs filed an Opposition to the Motion for Preliminary Approval and a Motion to Intervene and Stay Proceedings (“Motion
to Intervene and Stay”). Subsequently, the Watts Plaintiff, Chan Plaintiffs, and Defendants reached an agreement in principle
to settle the Watts and Chan Actions that included corporate reforms and a payment of attorneys’ fees of $325,000. On October
2, 2019, the Watts Plaintiff filed an Unopposed Motion for Preliminary Approval of the Settlement (the “Omnibus Motion for
Preliminary Approval”). The Omnibus Motion for Preliminary Approval was granted on January 8, 2020. Plaintiffs filed
their motion for final approval of the proposed settlement on May 7, 2020. The return date for Motion for Final
Approval is June 1, 2020.
With
respect to the Watts, Chan and another previous matter which has since been settled, the Company maintains D&O liability insurance
coverage, with a company retention of $500,000. The D&O liability insurance coverage provides insurance coverage to both the
Company and its directors and officers for covered defense and indemnification. During the year ended December
31, 2018, the Company recorded a cumulative charge of $500,000, representing the insurance carrier retention requirement. The
insurance carrier has provided notice that it has reserved certain rights, and through the date of the filing of this Quarterly
Report on Form 10-Q, the Company may incur additional costs related to these matters, the amounts of which are not able to be
determined at this time.
NovoTek
Therapeutics Inc. and NovoTek Pharmaceuticals Limited v. Akers Biosciences, Inc.
On
June 21, 2019, the Company received a complaint, filed by Novotek Therapeutics Inc., and Novotek Pharmaceuticals Limited (collectively,
“Novotek”), Beijing-based entities, in the United States District Court for the District of New Jersey, alleging,
among other things, breach of contract. Novotek is seeking, among other things, damages in the amount of $1,551,562, plus interest,
disbursements and attorneys’ fees. The Company vigorously disputes the allegations in the complaint and has retained counsel
to defend it. On September 16, 2019, the Company filed a partial motion to dismiss the complaint, which was fully submitted as
of November 4, 2019. The Company is not yet able to determine the amount of the Company’s exposure, if any.
AKERS
BIOSCIENCES, INC. AND CONSOLIDATED SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
Note
7 – Commitments and Contingencies, continued
Litigation, continued
Neelima
Varma v. Akers Biosciences, Inc. and St. David’s Healthcare Partnership, L.P., LLP CAUSE NO: D-1-GN-19-004262
On
July 25, 2019, the Company was notified that on July 23, 2019, a complaint was filed by Neelima Varma, against the Company and
St. David’s Healthcare Partnership, L.P., LLP (“St. David’s”), in the district court of Travis County,
Texas, alleging, among other things, negligence, gross negligence and strict product liability, breach of express warranty, breach
of implied warranty and fraudulent misrepresentation and omission, with respect to a medical device which the Company had sold
through one its distributors to St. David’s. Ms. Varma is seeking aggregate monetary relief from the Company and St. David’s
in excess of $1,000,000. On September 20, 2019, the Company filed the original answer to plaintiff’s original petition and
on October 1, 2019, the Company received from plaintiff their first interrogatories and request for production of documents. The
Company carries product liability insurance. The insurance carrier has provided notice that it has reserved certain rights. The
Company and its insurance carrier will contest this complaint vigorously. The Company believes that its product liability insurance
coverage will be adequate to cover the potential exposure for this matter.
Douglas
Carrara v. Akers Biosciences, Inc., John Does 1-10, and XYZ Corp. 1-10, Docket No. ESX-L-5272-19 (N.J. Super. Ct., Essex County):
Douglas
Carrara, a former executive, has sued the Company over the termination of his employment. The executive seeks contractual severance
pay in the amount of $200,000. The executive asserts that the termination was without cause within the meaning of his employment
agreement, which provides for severance of one year’s salary in the event of termination without cause. The executive also
seeks indemnification for approximately $10,000 in attorneys’ fees that he contends he incurred related to company
business. On August 29, 2019, the Company filed an answer to the second amended complaint and the parties have exchanged documents
and interrogatories as part of the discovery process. A discovery cutoff has been set for June 24, 2020. With regard
to both claims, the executive seeks to recover his attorneys’ fees under a fee-shifting provision in his employment agreement.
With respect to the matter, the Company believes that the ultimate liability from the resolution of this matter will not be material
to the Company’s condensed consolidated financial statements.
The
Company intends to establish a rigorous defense of all claims. All legal fees were expensed as and when incurred.
AKERS
BIOSCIENCES, INC. AND CONSOLIDATED SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
Note
8 – Related Parties
Interim
CFO
Effective
on October 5, 2018 and through December 31, 2019, the Board appointed Howard R. Yeaton, to serve as the Chief Executive Officer
and interim Chief Financial Officer of the Company. Effective on January 1, 2020, Mr. Yeaton entered into a new agreement with
the Company whereby he serves as the Company’s Interim Chief Financial Officer. Mr. Yeaton is the managing principal of
Financial Consulting Strategies (“FCS”), and the Company’s relationship with FCS shall continue, with
FCS continuing to provide accounting services to the Company. FCS is considered to be a related party. During the three months
ended March 31, 2020 and 2019, the Company incurred costs of $0 and $23,506, respectively, with FCS in connection with
these services.
During
the three months ended March 31, 2020 and 2019, pursuant to his October 2018 employment agreement, the Company issued 0 and 625
shares of common stock under the 2017 Plan to Mr. Yeaton, with a fair value on the date of grant, of $0 and $15,874, respectively.
As
of March 31, 2020, included in accounts payable and accrued expenses was an obligation of $3,173, representing an obligation to
issue 471 shares of common stock to Mr. Yeaton, earned during 2019, but not issued. The accrual is reflected in trade and
other payables on the Condensed Consolidated Balance Sheet.
Note
9 – Revenue Information
Revenue
by product lines was as follows:
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
Product Line
|
|
2020
|
|
|
2019
|
|
MicroParticle Catalyzed Biosensor (“MPC”)
|
|
$
|
-
|
|
|
$
|
23,320
|
|
Particle ImmunoFiltration Assay (“PIFA”)
|
|
|
354,458
|
|
|
|
576,317
|
|
Other
|
|
|
9,057
|
|
|
|
12,486
|
|
Total Revenue
|
|
$
|
363,515
|
|
|
$
|
612,123
|
|
All
revenues for the three months ended March 31, 2020 and 2019 were generated through sales to customers who were located within
the United States.
The
Company had long-lived assets totaling $8,518 and $9,823 located in the People’s Republic of China and $176,757 and $194,174
located in the United States as of March 31, 2020 and December 31, 2019, respectively.
Note
10 – Employee Benefit Plan
The
Company maintains a defined contribution benefit plan under section 401(k) of the Internal Revenue Code covering substantially
all qualified employees of the Company (the “401(k) Plan”). Under the 401(k) Plan, the Company matches 100% up to
a 3% contribution, and 50% over a 3% contribution, up to a maximum of 5%.
During
the three months ended March 31, 2020 and 2019, the Company made matching contributions to the 401(k) Plan of $17,827 and $9,464,
respectively.