TIDMAKR
RNS Number : 6654U
Akers Biosciences, Inc.
16 July 2018
July 16, 2018
This announcement contains inside information
Akers Biosciences, Inc.
Correction: Second Quarter 2017 Results (Restated)
This Amendment No. 1 on Form 10-Q/A that follows (this "Form
10-Q/A") amends and restates certain items noted below in the
Quarterly Report on Form 10-Q of Akers Biosciences, Inc. (the
"Company") for the quarterly period ended June 30, 2017, as
originally filed with the Securities and Exchange Commission on
August 14, 2017 (the "Original Filing") and announced in summary
through RNS on August 15, 2017 with RNS Number: 9768N, with the
heading "Half-year Report". This Form 10-Q/A is published in full
and amends the Original Filing to reflect the correction of errors
in the previously reported quarterly period ended June 30, 2017
financial statements related to the Company's revenue and expense
recognition. See Note 2 to the Condensed Consolidated Financial
Statements included in Part I, Item 1, for additional information
and a reconciliation of the previously reported amounts to the
restated amounts.
For the convenience of the reader, this Form 10-Q/A sets forth
the Original Filing, as amended, in its entirety; however, this
Form 10-Q/A amends and restates only the following financial
statements and disclosures that were impacted from the correction
of the error:
-- Part I, Item 1 - Financial Statements
-- Part I, Item 2 - Management's Discussion and Analysis of Financial Condition and Results of
Operations
-- Part I, Item 4 - Controls and Procedures
-- Part II, Item 1A - Risk Factors
-- Signatures
The Company's Chief Executive Officer and Chief Financial
Officer have provided new certifications dated as of the date of
this filing in connection with this Form 10-Q/A (Exhibits 31.1,
31.2, 32.1 and 32.2), and the Company has provided its condensed
consolidated financial statements formatted in Extensible Business
Reporting Language (XBRL) in Exhibit 101.
Except as described above, no other changes have been made to
the Original Filing. This Form 10-Q/A speaks as of the date of the
Original Filing and does not reflect events that may have occurred
after the date of the Original Filing, or modify or update any
disclosures that may have been affected by subsequent events.
The Company is also concurrently filing an amended Quarterly
Report on Form 10-Q for the three and nine months ended September
30, 2017 and 2016 and an amended Annual Report for the years ended
December 31, 2017 and 2016 to restate those previously issued
financial statements.
About Akers Biosciences, Inc.
Akers Bio develops, manufactures, and supplies rapid screening
and testing products designed to deliver quicker and more
cost-effective healthcare information to healthcare providers and
consumers. The Company has advanced the science of diagnostics
while responding to major shifts in healthcare through the
development of several proprietary platform technologies. The
Company's state-of-the-art rapid diagnostic assays can be performed
virtually anywhere in minutes when time is of the essence. The
Company has aligned with major healthcare companies and high volume
medical product distributors to maximize product offerings, and to
be a major worldwide competitor in diagnostics.
Additional information on the Company and its products can be
found at www.akersbio.com. Follow us on Twitter @AkersBio.
Enquiries:
Akers Biosciences, Inc.
John J. Gormally, Chief Executive Officer
Tel. +1 856 848 8698
finnCap (UK Nominated Adviser and Broker)
Adrian Hargrave / Scott Mathieson (Corporate Finance)
Steve Norcross (Broking)
Tel. +44 (0)20 7220 0500
Vigo Communications (Global Public Relations)
Ben Simons / Fiona Henson
Tel. +44 (0)20 7390 0234
Email: akers@vigocomms.com
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
(Amendment No. 1)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: June 30, 2017
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File No. 001-36268
AKERS BIOSCIENCES, INC.
(Exact name of registrant as specified in its charter)
New Jersey 22-2983783
------------------------------ --------------------
(State or other jurisdiction (IRS Employer
of incorporation) Identification No.)
201 Grove Road
Thorofare, NJ 08086
(Address of principal executive offices)
(856) 848-2116
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by section 13 or 15(d) of the
Securities Exchange Act of 1934 during the past 12 months, and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant
to Rule 405 of Regulation S-T (Sec.232.405 of this chapter) during
the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes [X] No
[ ]
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer,
smaller reporting company, or an emerging growth company. See the
definitions of "large accelerated filer," "accelerated filer,"
"smaller reporting company" and "emerging growth company" in Rule
12b-2 of the Exchange Act.
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] Smaller reporting company [X]
Emerging growth company [X]
If an emerging growth company, indicate by check mark if the
registrant has elected not to use the extended transition period
for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange Act. [
]
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
As of August 14, 2017, there were 8,901,245 shares outstanding
of the registrant's common stock.
Explanatory Note
This Amendment No. 1 on Form 10-Q/A (this "Form 10-Q/A") amends
and restates certain items noted below in the Quarterly Report on
Form 10-Q of Akers Biosciences, Inc. (the "Company") for the
quarterly period ended June 30, 2017, as originally filed with the
Securities and Exchange Commission on August 14, 2017 (the
"Original Filing"). This Form 10-Q/A amends the Original Filing to
reflect the correction of errors in the previously reported
quarterly period ended June 30, 2017 financial statements related
to the Company's revenue and expense recognition. See Note 2 to the
Condensed Consolidated Financial Statements included in Part I,
Item 1, for additional information and a reconciliation of the
previously reported amounts to the restated amounts.
For the convenience of the reader, this Form 10-Q/A sets forth
the Original Filing, as amended, in its entirety; however, this
Form 10-Q/A amends and restates only the following financial
statements and disclosures that were impacted from the correction
of the error:
-- Part I, Item 1 - Financial Statements
-- Part I, Item 2 - Management's Discussion and Analysis of Financial Condition and Results of
Operations
-- Part I, Item 4 - Controls and Procedures
-- Part II, Item 1A - Risk Factors
-- Signatures
The Company's Chief Executive Officer and Chief Financial
Officer have provided new certifications dated as of the date of
this filing in connection with this Form 10-Q/A (Exhibits 31.1,
31.2, 32.1 and 32.2), and the Company has provided its condensed
consolidated financial statements formatted in Extensible Business
Reporting Language (XBRL) in Exhibit 101.
Except as described above, no other changes have been made to
the Original Filing. This Form 10-Q/A speaks as of the date of the
Original Filing and does not reflect events that may have occurred
after the date of the Original Filing, or modify or update any
disclosures that may have been affected by subsequent events.
The Company is also concurrently filing an amended Quarterly
Report on Form 10-Q for the three and nine months ended September
30, 2017 and 2016 and an amended Annual Report for the years ended
December 31, 2017 and 2016 to restate those previously issued
financial statements.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
AKERS BIOSCIENCES, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
June 30, 2017 and December 31, 2016
June 30, 2017 December 31, 2016
--------------- -------------------
(unaudited) (audited)
(restated)
ASSETS
Current Assets
Cash $ 197,175 $ 72,700
Marketable Securities 1,011,625 50,001
Trade Receivables, net 927,534 601,271
Trade Receivables - Related Party, net - 31,892
Deposits and other receivables 13,090 23,782
Inventories, net 2,228,839 2,036,521
Prepaid expenses 147,526 168,277
Prepaid expenses - Related Party 317,439 202,500
----------- ---------------
Total Current Assets 4,843,228 3,186,944
----------- ---------------
Non-Current Assets
Prepaid expenses - Related Party 108,353 270,183
Property, Plant and Equipment, net 260,756 259,392
Intangible Assets, net 1,216,221 1,301,775
Other Assets 71,143 66,813
----------- ---------------
Total Non-Current Assets 1,656,473 1,898,163
----------- ---------------
Total Assets $ 6,499,701 $ 5,085,107
=========== ===============
LIABILITIES
Current Liabilities
Trade and Other Payables $ 1,501,641 $ 1,463,363
Trade and Other Payables - Related Party 33,911 234,067
----------- ---------------
Total Current Liabilities 1,535,552 1,697,430
----------- ---------------
Total Liabilities 1,535,552 1,697,430
----------- ---------------
STOCKHOLDERS' EQUITY
Convertible Preferred Stock, No par value, 50,000,000 shares
authorized, no shares issued
and outstanding as of June 30, 2017 and December 31, 2016 - -
Common Stock, No par value, 500,000,000 shares authorized,
8,901,245 and 5,452,545 issued
and outstanding as of June 30, 2017 and December 31, 2016 104,624,119 100,891,786
Deferred Compensation (14,163) (24,572)
Accumulated Deficit (99,646,816) (97,479,537)
Accumulated Other Comprehensive Income 1,009 -
----------- ---------------
Total Stockholders' Equity 4,964,149 3,387,677
----------- ---------------
Total Liabilities and Stockholders' Equity $ 6,499,701 $ 5,085,107
=========== ===============
See accompanying notes to these condensed consolidated financial
statements.
AKERS BIOSCIENCES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations and
Comprehensive Loss
(unaudited)
Three months ended Six months ended
June 30, June 30,
------------------------ -------------------------
2017 2016 2017 2016
---------- ----------- ----------- -----------
(restated) (restated)
Revenues:
Product Revenue $1,096,925 $ 956,486 $ 1,740,111 $ 1,694,510
Product Revenue - Related party (24,064) - - -
--------- ---------- ---------- ----------
Total Revenues 1,072,861 956,486 1,740,111 1,694,510
Cost of Sales:
Product Cost of Sales (290,591) (276,848) (549,312) (476,876)
--------- ---------- ---------- ----------
Gross Income 782,270 679,638 1,190,799 1,217,634
Administrative Expenses 829,929 816,244 1,620,457 1,739,806
Sales and Marketing Expenses 354,889 513,430 911,545 1,238,754
Sales and Marketing Expenses - Related
Party 61,502 - 93,781 -
Research and Development Expenses 290,841 321,989 639,283 685,280
Research and Development Expenses -
Related Party 22,994 - 22,994 -
Amortization of Non-Current Assets 42,777 42,777 85,554 85,554
--------- ---------- ---------- ----------
Loss from Operations (820,662) (1,014,802) (2,182,815) (2,531,760)
--------- ---------- ---------- ----------
Other (Income)/Expenses
Foreign Currency Transaction
(Gain)/Loss 978 2,562 (9,367) 4,817
Interest and Dividend Income (3,632) (8,432) (6,169) (18,716)
Other Income - - - -
--------- ---------- ---------- ----------
Total Other Income (2,654) (5,870) (15,536) (13,899)
--------- ---------- ---------- ----------
Loss Before Income Taxes (818,008) (1,008,932) (2,167,279) (2,517,861)
Income Tax Benefit - - - -
--------- ---------- ---------- ----------
Net Loss (818,008) (1,008,932) (2,167,279) (2,517,861)
--------- ---------- ---------- ----------
Other Comprehensive Income/(Loss)
Net Unrealized Gain/(Loss) on
Marketable Securities 852 (2,006) 1,009 6,528
--------- ---------- ---------- ----------
Total Other Comprehensive Income/(Loss) 852 (2,006) 1,009 6,528
--------- ---------- ---------- ----------
Comprehensive Loss $ (817,156) $(1,010,938) $(2,166,270) $(2,511,333)
========= ========== ========== ==========
Basic and diluted loss per common
share $ (0.09) $ (0.19) $ (0.27) $ (0.46)
========= ========== ========== ==========
Weighted average basic and diluted
common shares outstanding 8,882,326 5,427,261 7,943,168 5,426,153
========= ========== ========== ==========
See accompanying notes to these condensed consolidated financial
statements.
AKERS BIOSCIENCES, INC. AND SUBSIDIARIES
Condensed Consolidated Statement of Changes in Stockholder's
Equity
For the six months ended June 30, 2017
Common Accumulated
Shares Other
Issued and Common Deferred Accumulated Comprehensive Total
Outstanding Stock Compensation Deficit Income/(Loss) Equity
------------ ------------ -------------- ------------ --------------- -----------
Balance at December
31, 2016 (audited) 5,452,545 $100,891,786 $ (24,572) $(97,479,537) $ - $ 3,387,677
Net loss
(restated) - - - (2,167,279) - (2,167,279)
Public offering
of common
stock, net of
offering costs
of $494,406 1,789,500 1,652,994 - - - 1,652,994
Private offering
of common
stock, net of
offering costs
of $267,443 1,448,400 1,760,317 - - - 1,760,317
Exercise of
warrants for
common stock 200,800 301,200 - - - 301,200
Amortization of
deferred
compensation - - 10,409 - - 10,409
Issuance of
non-qualified
stock options
to key
employees - 10,184 - - - 10,184
Issuance of
non-qualified
stock options
for services to
non-employees - 2,183 - - - 2,183
Issuance of
restricted
stock for
services to
non-employees 10,000 5,455 - - - 5,455
Net unrealized
gain on
marketable
securities - - - - 1,009 1,009
----------- ----------- ---------- ----------- --- ---------- ----------
Balance at June 30,
2017 (unaudited)
(restated) 8,901,245 $104,624,119 $ (14,163) $(99,646,816) $ 1,009 $ 4,964,149
=========== =========== ========== =========== === ========== ==========
See accompanying notes to these condensed consolidated financial
statements.
AKERS BIOSCIENCES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
For the six months ended June 30, 2017 and 2016
(unaudited)
2017 2016
----------- -----------
(restated)
Cash flows from operating activities
Net loss for the year $(2,167,279) $(2,517,861)
Adjustments to reconcile net loss to net cash used in operating activities:
Accrued income on marketable securities (1,001) 8,927
Depreciation and amortization 121,381 113,906
Reserve and write-off for obsolete inventory 21,542 -
Allowance for doubtful accounts 46,239 146,196
Fair value of restricted common stock issued for services 15,864 18,243
Share based compensation to employees - options 10,184 -
Share based compensation to non-employees - options 2,183 8,241
Changes in assets and liabilities:
Increase in trade receivables (372,502) (79,906)
Decrease in trade receivables - related party 31,892 -
Decrease in deposits and other receivables 10,692 31,196
Increase in inventories (213,860) (85,588)
Decrease in prepaid expenses 20,752 43,933
Decrease in prepaid expenses - related party 46,890 -
Increase in other assets (4,330) -
Increase/(decrease) in trade and other payables 38,278 (103,029)
Decrease in trade and other payables - related party (200,156) -
---------- ----------
Net cash used in operating activities (2,593,231) (2,415,742)
---------- ----------
Cash flows from investing activities
Purchases of property, plant and equipment (37,191) (81,462)
Purchases of marketable securities (2,705,168) (27,643)
Proceeds from sale of marketable securities 1,745,554 2,502,319
---------- ----------
Net cash (used in)/provided by investing activities (996,805) 2,393,214
---------- ----------
Cash flows from financing activities
Net proceeds from issuance of common stock 3,413,311 -
Net proceeds from exercise of warrants for common stock 301,200 -
---------- ----------
Net cash provided by financing activities 3,714,511 -
---------- ----------
Net increase/(decrease) in cash 124,475 (22,528)
Cash at beginning of period 72,700 402,059
---------- ----------
Cash at end of period $ 197,175 $ 379,531
========== ==========
Supplemental Schedule of Non-Cash Financing and Investing Activities
Issuance of a restricted common stock grant for services $ 5,455 $ -
========== ==========
Issuance of a restricted common stock grant to an officer $ - $ 54,725
========== ==========
Net unrealized gains on marketable securities $ 1,009 $ 6,528
========== ==========
See accompanying notes to these condensed consolidated financial
statements.
AKERS BIOSCIENCES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
Note 1 - Nature of Business
(a) Reporting Entity
The accompanying financial statements have been prepared by
Akers Biosciences, Inc. ("Akers" or the "Company"), a company
domiciled in the United States of America. The address of the
Company's registered office is 201 Grove Road, West Deptford, New
Jersey, 08086. The Company is incorporated in the United States of
America under the laws of the State of New Jersey.
The consolidated financial statements include two dormant
subsidiaries, Akers Acquisition Sub, Inc. and Bout Time Marketing
Corporation. All material intercompany transactions have been
eliminated upon consolidation.
(b) Nature of 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 rapid disposable breath test that measures Free Radical activity
in the human body. When the Company enters into an agreement with a
new distributor it typically requires an upfront licensing fee to
be paid for the right to sell the Company's products in specific
markets.
Note 2 - Restatement of Previously Issued Financial
Statements
As previously disclosed, the Company determined that certain
revenue transactions did not qualify for revenue recognition under
generally accepted accounting principles. In the process of this
determination, the Company discovered information that existed at
June 30, 2017 which affected the revenue and an obligation. The
Company concluded that the impact of applying corrections for these
errors and misstatements on the condensed consolidated financial
statements as of and for the three and six months ended June 30,
2017 is material. As a result, the Company is restating its
condensed consolidated financial statements for the periods
impacted. See below for a reconciliation of the previously reported
amounts to the restated amounts.
The table below sets forth the consolidated balance sheets,
including the balances originally reported, corrections and the as
restated balances:
As of June 30, 2017
------------------------------------------
As Reported Correction As Restated
------------ ------------ ------------
Trade Receivables - Related Party, net $ 125,001 $ (125,001) $ -
Inventories, net 2,166,699 62,140 2,228,839
Total Current Assets 4,906,089 (62,861) 4,843,228
Total Assets 6,562,562 (62,861) 6,499,701
Trade and Other Payables 1,413,141 88,500 1,501,641
Total Current Liabilities 1,447,052 88,500 1,535,552
Total Liabilities 1,447,052 88,500 1,535,552
Accumulated Deficit (99,495,455) (151,361) (99,646,816)
Total Stockholder's Equity 5,115,510 (151,361) 4,964,149
Total Liabilities and Stockholders' Equity 6,562,562 (62,861) 6,499,701
The table below sets for the consolidated statements of income,
including the amounts originally reported, corrections, and the
restated amounts:
For the three months ended June 30, 2017
----------------------------------------------
As Reported Correction As Restated
----------------- ----------- ------------
Product revenue $ 1,097,295 $ (370) $ 1,096,925
Product revenue - Related party 100,567 (124,631) (24,064)
Product Cost of Sales (264,231) (26,360) (290,591)
Gross Income 933,631 (151,361) 782,270
Loss from Operations (669,301) (151,361) (820,662)
Loss Before Income Taxes (666,647) (151,361) (818,008)
Net Loss Attributable to Common Stockholders (666,647) (151,361) (818,008)
Comprehensive Loss (665,795) (151,361) (817,156)
Loss per share $ (0.08) $ (0.01) $ (0.09)
AKERS BIOSCIENCES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the six months ended June 30, 2017
--------------------------------------------
As Reported Correction As Restated
---------------- ---------- ------------
Product revenue $ 1,740,481 $ (370) $ 1,740,111
Product revenue - Related party 124,631 (124,631) -
Product Cost of Sales (522,952) (26,360) (549,312)
Gross Income 1,342,160 (151,361) 1,190,799
Loss from Operations (2,031,454) (151,361) (2,182,815)
Loss Before Income Taxes (2,015,918) (151,361) (2,167,279)
Net Loss Attributable to Common Stockholders (2,015,918) (151,361) (2,167,279)
Comprehensive Loss (2,014,909) (151,361) (2,166,270)
Loss per share $ (0.25) $ (0.02) $ (0.27)
The table below sets forth the condensed consolidated statements
of shareholders' equity, including the balances originally
reported, corrections and the as restated balances:
For the six months ended June 30, 2017
-------------------------------------------------
As Reported Correction As Restated
---------------- ------------ ------------
Net loss, for the six months ended June 30, 2017 $ (2,015,918) $ (151,361) $ (2,167,279)
Accumulated Deficit, as of June 30, 2017 (99,495,455) (151,361) (99,646,816)
Total Equity, as of June 30, 2017 5,115,510 (151,361) 4,964,149
The table below sets forth the condensed consolidated statements
of cash flows from operating activities, including the balances
originally reported, corrections and the as restated balances:
For the six months ended June 30, 2017
--------------------------------------------
As Reported Correction As Restated
---------------- ---------- ------------
Net loss $ (2,015,918) $ (151,361) $ (2,167,279)
(Increase)/decrease in trade receivables - related
party (93,109) 125,001 31,892
Increase in inventories (151,720) (62,140) (213,860)
Increase/(decrease) in trade and other payables (50,222) 88,500 38,278
Net cash used in operating activities (2,593,231) - (2,593,231)
The restatement had no impact on cash flows from investing
activities or financing activities.
In addition to the restated condensed consolidated financial
statements, the information contained in Notes 3, 6, 7, 10, 13, 15,
16, 17, and 20 has been restated.
Note 3 - 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 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,
2016 and 2015 included in the Company's 2016 Form 10-K. In the
opinion of the management, these consolidated financial statements
include all adjustments, consisting of only normal recurring
nature, necessary for a fair statement of the financial position of
the Company as of June 30, 2017 and its results of operations and
cash flows for the three and six months ended June 30, 2017 and
2016. The results of operations for the three and six months ended
June 30, 2017 are not necessarily indicative of the results to be
expected for the full fiscal year ending December 31, 2017.
The Company is an emerging growth company as the term is used in
The Jumpstart Our Business Startups Act enacted on April 5, 2012
and has elected to comply with certain reduced public company
reporting requirements.
(b) Use of Estimates 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, allowances for doubtful accounts, inventory
write-downs, impairment of intangible assets and valuation of share
based payments.
AKERS BIOSCIENCES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(c) Functional and Presentation Currency
These 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 consolidated statement 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
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 consolidated balance sheet.
(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 3(c).
(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:
AKERS BIOSCIENCES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
Level Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities
1 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 Inputs to the valuation methodology are unobservable and significant to the fair value measurement.
3
The asset or liability's fair value measurement level within the
fair value hierarchy is based on the lowest level of input that is
significant to the fair value measurement. Valuation techniques
maximize the use of relevant observable inputs and minimize the use
of unobservable inputs.
(h) Trade Receivables, Trade Receivables - Related Party and Allowance for Doubtful Accounts (restated)
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. 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 June 30, 2017 and December 31, 2016, allowances for
doubtful accounts for trade receivables were $192,435 and
$1,010,196. Bad debt expenses for trade receivables were $5,380 and
$47,741 for the three month and six months ended June 30, 2017 and
$146,196 for the three and six months ended June 30, 2016.
AKERS BIOSCIENCES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(j) Concentration of Credit Risk (restated)
The Company is exposed to credit risk in the normal course of
business primarily related to trade receivables and cash and cash
equivalents.
All of the Company's cash is maintained with Fulton Bank of New
Jersey, Bank of America, NA and PayPal. The funds are insured by
the FDIC up to a maximum of $250,000, but are otherwise
unprotected. The Company placed $182,913 and $67,865 with Fulton
Bank of New Jersey, $10,222 and $795 with Bank of America, NA and
$4,040 and $4,040 with PayPal as of June 30, 2017 and December 31,
2016. No losses have been incurred in these accounts.
Three customers accounted for 76% of trade receivables as of
June 30, 2017. In order to limit such risks, the Company performs
ongoing credit evaluations of its customers' financial
condition.
(k) 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 overheads based on
normal operating capacity.
(l) Property, Plant and Equipment
Items of property, plant and equipment are measured at cost less
accumulated depreciation and accumulated impairment losses. Costs
include expenditures that are directly attributable to the
acquisition of the asset.
Gains and losses on disposal of an item of property, plant and
equipment are determined by comparing the proceeds from disposal
with the carrying amount of property, plant and equipment and are
recognized within "other income" in the consolidated statement of
operations and comprehensive loss.
Depreciation is recognized in profit and loss on the accelerated
basis over the estimated useful lives of the property, plant and
equipment. Leased assets are depreciated over the shorter of the
lease term or their useful lives.
AKERS BIOSCIENCES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
The estimated useful lives for the current and comparative
periods are as follows:
Useful Life
(in years)
---------------------
Plant and equipment 5-12
Furniture and fixtures 5-10
Computer equipment & software 3-5
Shorter of the
Leasehold Improvements remaining lease or
estimated useful life
Depreciation methods, useful lives and residual values are
reviewed at each reporting date.
(m) Intangible Assets
(i) Patents and Trade Secrets
The Company has developed or acquired several diagnostic tests
that can detect the presence of various substances in a person's
breath, blood, urine and saliva. Propriety protection for the
Company's products, technology and process is important to its
competitive position. As of June 30, 2017, the Company has eleven
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; D691,058 and D786,872). Other patents are in
effect in Australia through the Design Registry (348,310; 348,311
and 348,312), European Union Patents 1793906, 2684025,
002216895-0001; 002216895-0002; 002216895-0003; 3459700-0001 and
3459395-001), United Kingdom and France (2684025), Germany
(602012021524.0), Spain (E12755523), China (2016305495829), in Hong
Kong (HK11004006) and in Japan (1,515,170; 4,885,134; 4,931,821
5,775,790, and 6023096). Patents are in the national phase of
prosecution in many Patent Cooperation Treaty participating
countries. Additional proprietary technology consists of numerous
different inventions. The Company intends to file additional patent
applications, where appropriate, relating to new products,
technologies and their use in the U.S., European and Asian markets.
Management intends to protect all other intellectual property (e.g.
copyrights, trademarks and trade secrets) using all legal remedies
available to the Company.
(ii) Patent Costs
Costs associated with applying for patents are capitalized as
patent costs. Once the patents are approved, the respective costs
are amortized over their estimated useful lives (maximum of 17
years) on a straight-line basis. Patent pending costs for patents
that are not approved are charged to 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.
AKERS BIOSCIENCES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(iv) Amortization
Amortization is recognized on a straight-line basis over the
estimated useful lives of intangible assets, other than goodwill,
from the date that they are available for use. The estimated useful
lives for the current and comparative periods are as follows:
Useful Life
(in years)
-----------
Patents and trademarks 12-17
Customer lists 5
(n) Recoverability of Long Lived Assets
In accordance with FASB ASC 360-10-35 "Impairment or Disposal of
Long-lived Assets", long-lived assets to be held and used are
analyzed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be fully
recoverable or that the useful lives of those assets are no longer
appropriate. The Company evaluates at each balance sheet date
whether events and circumstances have occurred that indicate
possible impairment.
The Company determines the existence of such impairment by
measuring the expected future cash flows (undiscounted and without
interest charges) and comparing such amount to the carrying amount
of the assets. An impairment loss, if one exists, is then measured
as the amount by which the carrying amount of the asset exceeds the
discounted estimated future cash flows. Assets to be disposed of
are reported at the lower of the carrying amount or fair value of
such assets less costs to sell. Asset impairment charges are
recorded to reduce the carrying amount of the long-lived asset that
will be sold or disposed of to their estimated fair values. Charges
for the asset impairment reduce the carrying amount of the
long-lived assets to their estimated salvage value in connection
with the decision to dispose of such assets.
(o) Investments
In accordance with FASB ASC 323, the Company recognizes
investments in joint ventures based upon the Company's ability to
significantly influence the operational or financial policies of
the joint venture. An objective judgment of the level of influence
is made at the time of the investment based upon several factors
including, but not limited to the following:
a) Representation on the Board of Directors
b) Participation in policy-making processes
c) Material intra-entity transactions
d) Interchange of management personnel
e) Technological dependencies
f) Extent of ownership and the ability to influence decision making based upon the makeup of
other owners when the shareholder group is small.
The Company follows the equity method for valuating investments
in joint ventures when the existence of significant influence over
operational and financial policy has been established, as
determined by management; otherwise, the Company will valuate these
investments using the cost method.
AKERS BIOSCIENCES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
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.
(p) Revenue Recognition
In accordance with FASB ASC 605, the Company recognizes revenue
when (i) persuasive evidence of a customer or distributor
arrangement exists, (ii) a retailer, distributor or wholesaler
receives the goods and acceptance occurs, (iii) the price is fixed
or determinable, and (iv) the collectability of the revenue is
reasonably assured. Subject to these criteria, the Company
recognizes revenue from product sales when title passes to the
customer based on shipping terms. The Company typically does not
accept returns nor offer charge backs or rebates except for certain
distributors. Revenue recorded is net of any discount, rebate or
sales return. The accrual for estimated sales returns was $- as of
June 30, 2017 and December 31, 2016.
The Company implemented a standard dealer cost model during the
year ended December 31, 2016 which includes a provision for rebates
to the distributors under limited circumstances. The Company
established an accrual of $24,294 and $41,120, which is a reduction
of revenue as of June 30, 2017 and December 31, 2016. Accounts
receivable will be reduced when the rebates are applied by the
customer. The Company recognized $67,855 and $170,678 during the
three and six months ended June 30, 2017 and $115,685 and $215,653
for the three and six months ended June 30, 2016 for rebates, which
is included as a reduction of product revenue in the Condensed
Consolidated Statement of Operations and Comprehensive Loss.
License fee revenue is recognized on a straight-line basis over
the term of the license agreement.
When the Company enters into arrangements that contain more than
one deliverable, the Company allocates revenue to the separate
elements under the arrangement based on their relative selling
prices in accordance with FASB ASC 605-25.
(q) Income Taxes
The Company follows FASB ASC 740 when accounting for income
taxes, which requires an asset and liability approach to financial
accounting and reporting for income taxes. Deferred income tax
assets and liabilities are computed annually for temporary
differences between the financial statements and tax bases of
assets and liabilities that will result in taxable or deductible
amounts in the future based on enacted tax laws and rates
applicable to the periods in which the differences are expected to
affect taxable income. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount expected to
be realized. Income tax expense or benefit is the tax payable or
refundable for the period plus or minus the change during the
period in deferred tax assets and liabilities.
AKERS BIOSCIENCES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(r) Shipping and Handling Fees and Costs
The Company charges actual shipping plus a handling fee to
customers, which amounted to $15,049 and $14,387 for the three
months ended June 30, 2017 and 2016 and to $33,469 and $30,432 for
the six months ended June 30, 2017 and 2016. 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 part of the cost of net revenue, which amounted
to $31,393 and $47,570 for the three and six months ended June 30,
2017 and to $47,018 and $68,732 for the three and six months ended
June 30, 2016.
(s) Research and Development Costs
In accordance with FASB ASC 730, research and development costs
are expensed when incurred.
(t) Stock-based Payments
The Company accounts for stock-based compensation under the
provisions of FASB ASC 718, "Compensation-Stock Compensation",
which requires the measurement and recognition of compensation
expense for all stock-based awards made to employees and directors
based on estimated fair values on the grant date. The Company
estimates the fair value of stock-based awards on the date of grant
using the Black-Scholes model. The value of the portion of the
award that is ultimately expected to vest is recognized as expense
over 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 warrants or stock-based
compensation awards granted as either the fair value of the
consideration received or the fair value of the equity instruments
issued, whichever is more reliably measurable.
The Company estimates the fair value of stock-based awards to
non-employees on the date of grant using the Black-Scholes model.
The value of the portion of the award that is ultimately expected
to vest is recognized as expense over the period which services are
to be received. At the end of each financial reporting period,
prior to vesting or prior to 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-measurement until the
equity based payments are fully vested or the service is
completed.
AKERS BIOSCIENCES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(u) Basic and Diluted Earnings per Share of Common Stock
Basic earnings per common share are based on the weighted
average number of shares outstanding during the periods presented.
Diluted earnings per share are computed using the weighted average
number of common shares plus dilutive common share equivalents
outstanding during the period. Potential common shares that would
have the effect of increasing diluted earnings per share are
considered anti-dilutive, i.e. the exercise prices of the
outstanding stock options were greater than the market price of the
common stock.
(v) Reclassifications
Certain prior year amounts have been reclassified to conform to
the current year's presentation.
(w) Recently Adopted Accounting Pronouncements
As of June 30, 2017 and for the period then ended, there were no
recently adopted accounting pronouncements that had a material
effect on the Company's financial statements.
(x) Recently Issued Accounting Pronouncements Not Yet Adopted
As the Company is an emerging growth company, it has elected to
adopt recently issued standards based on effective dates applicable
to nonpublic entities. All effective dates as mentioned in the
following paragraphs refer to that applicable to nonpublic
entities.
In May 2014, the FASB issued ASU No. 2014-09, Revenue from
Contracts with Customers (Topic 606). The core principle of the
guidance is that an entity should recognize revenue to depict the
transfer of promised goods or services to customers in an amount
that reflects the consideration to which the entity expects to be
entitled in exchange for those goods or services. In August 2015,
FASB issued ASU 2015-14 which deferred the effective date of Update
2014-09 to annual reporting periods beginning after December 15,
2018 and interim reporting periods within annual reporting periods
beginning after December 15, 2019. Early application is permitted
as of annual reporting periods beginning after December 15, 2016
including interim reporting periods within that reporting period.
The Company is currently evaluating the effect of the amendments
but it does not anticipate a material impact of its financial
statements. The Company expects to use the modified retrospective
adoption method.
In November 2015, the FASB issued ASU No. 2015-17, Income Taxes
(Topic 740), Balance Sheet Classification of Deferred Taxes. The
amendments in this Update require that deferred tax liabilities and
assets be classified as noncurrent in a classified statement of
financial position. For nonpublic entities, the amendments in this
Update are effective for financial statements issued for annual
periods beginning after December 15, 2017, and interim periods
within annual periods beginning after December 31, 2018. Earlier
application is permitted for all entities as of the beginning of an
interim or annual reporting period. The Company has no deferred tax
balances as a 100% valuation allowance has been made. No material
impact is expected.
AKERS BIOSCIENCES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
In January 2016, the FASB issued ASU No. 2016-01, Financial
Instruments - Overall (Subtopic 825-10), Recognition and
Measurement of Financial Assets and Financial Liabilities. The
amendments in this Update require all equity investments to be
measured at fair value with changes in the fair value recognized
through net income (other than those accounted for under the equity
method of accounting or those that result in consolidation of the
investee). The amendments in this Update also require an entity to
present separately in other comprehensive income the portion of the
total change in the fair value of a liability resulting from a
change in the instrument-specific credit risk when the entity has
elected to measure the liability at fair value in accordance with
the fair value option for financial instruments. The amendments in
this Update are effective for fiscal years beginning after December
15, 2018, and interim periods within fiscal years beginning after
December 15, 2019. The Company is evaluating the effect of the
adoption of this Update on its financial statements.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic
842). The amendments in this Update specify the accounting for
leases. The core principle of Topic 842 is that a lessee should
recognize the assets and liabilities that arise from leases. The
amendments in this Update are effective for fiscal years beginning
after December 15, 2019, and interim periods within fiscal years
beginning after December 15, 2020. Early application of the
amendments in this Update is permitted. The Company is currently
evaluating the effect the amendments in this Update will have on
its financial statements and related disclosures.
In March 2016, the FASB issued ASU No. 2016-08, Revenue from
Contracts with Customers (Topic 606): Principal versus Agent
Considerations (Reporting Revenue Gross versus Net), which
clarifies certain aspects of the principal versus agent guidance in
the new revenue recognition standard. The effective date and
transition requirement for this ASU are the same as the effective
date and transition requirements of ASU 2014-09, Revenue from
Contracts with Customers (Topic 606), as amended by ASU 2015-14,
Revenue from Contracts with Customers (Topic 606): Deferral of the
Effective Date, which deferred the effective date to annual
reporting periods beginning after December 15, 2018. The Company is
currently evaluating the effect the amendments in this Update will
have on its financial statements and related disclosures.
In March 2016, the FASB issued ASU No. 2016-09, Compensation -
Stock Compensation (Topic 718): Improvements to Employee
Share-Based Payment Accounting, which simplifies several aspects of
the accounting for share-based payment award transactions,
including: (1) income tax consequences; (2) classification of
awards as either equity or liabilities, and (3) classification on
the statement of cash flows. The amendments in this ASU are
effective for annual periods beginning after December 15, 2017, and
interim periods within annual periods beginning after December 15,
2018. Early adoption is permitted in any interim or annual period.
The Company is currently evaluating the effect the amendments in
this Update will have on its financial statements and related
disclosures.
In August 2016, the FASB issued ASU No. 2016-15, Statement of
Cash Flows (Topic 230), Classification of Certain Cash Receipts and
Cash Payments. The Update addresses eight specific changes to how
cash receipts and cash payments are presented and classified in the
statement of cash flows. The amendments in this Update are
effective for fiscal years beginning after December 15, 2018, and
interim periods within fiscal years beginning after December 15,
2019. Early adoption is permitted. An entity that elects early
adoption must adopt all of the amendments in the same period. The
amendments in this Update should be applied using a retrospective
transition method to each period presented. If it is impracticable
to apply the amendments retrospectively for some of the issues, the
amendments for those issues would be applied prospectively as of
the earliest date practicable. The Company is currently evaluating
the effect the amendments in this Update will have on its financial
statements and related disclosures.
AKERS BIOSCIENCES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
In May 2017, the FASB issued ASU 2017-09, Compensation - Stock
Compensation (Topic 718), Scope of Modification Accounting. The
amendments in this Update provide guidance about which changes to
the terms or conditions of a share-based payment award require an
entity to apply modification accounting. The amendments in this
Update are effective for all entities for annual periods, and
interim periods within those annual periods, beginning after
December 15, 2017. Early adoption is permitted, including adoption
in any interim period, for (1) public business entities for
reporting periods for which financial statements have not yet been
issued and (2) all other entities for reporting periods for which
financial statements have not yet been made available for issuance.
The amendments in this Update should be applied prospectively to an
award modified on or after the adoption date.
Note 4 - Management Plan
Historically, the Company has relied upon public offerings and
private placements of common stock to raise operating capital.
During the three months ending March 31, 2017, the Company raised
approximately $1.7 million in a public offering and an additional
$1.8 million from a private placement of common stock (Note 11). As
of August 10, 2017, the Company had cash and marketable securities
of approximately $734,000 and working capital of approximately
$3.25 million.
The 2017-19 Strategic Business Plan ("Strat Plan") was presented
to and approved by the Board of Directors on December 12, 2016. The
plan outlines the Company's business objectives for the next three
years and sets measurable targets for new product releases, sales
and marketing programs to increase market penetration for the
Company's products and operational expense management.
Implementation of the Strat Plan began in January 2017 and
management remains confident that the objectives are achievable.
The Company anticipates achievement of a cash-flow positive
position during the next twelve months based upon the revenue
targets as outlined in the Strat Plan, the results of the private
placement offering in March 2017 and the backing of a shareholder,
if required. In Addition, the Company has initiated discussions
with our primary financial institution to establish a line of
credit to manage short-term cash fluctuations.
During the year ended December 31, 2016, the Company
significantly reduced operating expenses through a systematic
review of operations throughout the organization. As a result, the
Company achieved a reduction in its weekly operating cash
requirements of approximately 19% to $80,253 (2015: $98,699). The
Strat Plan assumes the weekly cash requirement will decline through
the year ending December 31, 2017.
The Company has achieved the reduction in weekly cash
requirements by renegotiating contracts with key consultants and
canceling consulting agreements where the cost-benefits are
negligible, working with vendors to reduce or eliminate minimum
purchasing requirements, to extend payment terms and re-sourcing
materials when necessary to reduce costs.
AKERS BIOSCIENCES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
Production cost savings, especially direct manufacturing costs,
have been realized by utilizing sub-contractors to perform labor
intensive production processes. This improves efficiency for our
manufacturing staff, allowing them to concentrate their efforts on
more complex assembly and production tasks.
During the six months ended June 30, 2017, the Company's average
weekly operating cash requirement was $99,740 (2016: $89,472).
Payments to vendors and sub-contractors included in the December
31, 2016 accounts payable balance, a significant royalty payment
that had been deferred in 2016 as part of a legal settlement and
other payments for contractual obligations has resulted in a higher
than expected rate as compared to the year ended December 31, 2016.
Many of these items are one-time events and the Company anticipates
the cash requirements to revert to $80,000 to $85,000 per week by
the end of 2017.
Barring any unforeseen circumstances, the Company believes that
it is probable that it will be able to meet its obligations as they
fall due within one year after the financial statements are
issued.
Note 5 - Fair Value Measurement - Marketable Securities
Following is a description of the valuation methodologies used
for assets measured at fair value as of June 30, 2017 and December
31, 2016.
Money Market Funds 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.
As of June 30, 2017
-----------------------------------------------------------------------------
Unrealized
Cost Accrued Income Gains Unrealized Losses Fair Value
---------- --------------- --------------- ------------------- ----------
Level 2:
Money market
funds $ 228 $ - $ - $ - $ 228
Municipal
securities 1,009,356 1,030 1,009 - 1,011,395
--------- --- ---------- --- ---------- --------- -------- ---------
Total Level 2: 1,009,584 1,030 1,009 - 1,011,623
--------- --- ---------- --- ---------- --------- -------- ---------
Total: $1,009,584 $ 1,030 $ 1,009 $ - $1,011,623
========= === ========== === ========== ========= ======== =========
As of December 31, 2016
---------------------------------------------------------------------------------
Cost Accrued Income Unrealized Gains Unrealized Losses Fair Value
----------- -------------- ------------------ ------------------ ------------
Level 2:
Money market
funds $ 29,657 $ 15 $ - $ - $ 29,672
------- ----- ------- -------- -------- -------- -------- --------
Municipal
securities 20,314 15 - - 20,329
------- ----- ------- -------- -------- -------- -------- --------
Total Level 2: 49,971 30 - - 50,001
Total: $ 49,971 $ 30 $ - $ - 50,001
======= ===== ======= ======== ======== ======== ======== ========
Marketable securities include money market funds and municipal
securities which 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 relating to the
available for sale investment securities were recorded in the
Condensed Consolidated Statement of Changes in Stockholders' Equity
as comprehensive income. These amounts were $852 and $1,009 (net of
effect of income tax expense of $-) for the three and six months
ended June 30, 2017 and an unrealized loss of $2,006 and unrealized
gain of $6,528 for the three and six months ended June 30,
2016.
AKERS BIOSCIENCES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
Proceeds from the sale of marketable securities in the three and
six months ended June 30, 2017 and 2016 were $650,661 and
$1,745,554 and $900,863 and $2,502,319 for the three and six months
ended June 30, 2016. Gross gains, resulting from these sales,
amounted to $605 and $1,844 for the three months ended June 30,
2017 and 2016 and $1,656 and $2,152 for the six months ended June
30, 2017 and 2016.
Note 6 - Trade Receivables - Related Party (restated)
Trade receivables - related party are made up of amounts due
from Hainan Savy Akers Biosciences Ltd ("Hainan"), a joint venture
between Akers, Thomas Knox, Akers' former Board Chairman, and
Hainan Savy Investment Management Ltd, located in the People's
Republic of China. The Company holds a 19.9% position in the joint
venture. The amount due is non-interest bearing, unsecured and
generally has a term of 30-90 days (Note 14).
Note 7 - Inventories (restated)
Inventories consists of the following categories:
June 30, 2017 December 31, 2016
--------------- -------------------
(restated)
Raw Materials $ 487,209 $ 440,316
Sub-Assemblies 974,547 907,989
Finished Goods 810,381 749,488
Reserve for Obsolescence (43,298) (61,272)
----------- ---------------
$ 2,229,839 $ 2,036,521
=========== ===============
Obsolete inventory charged to cost of goods during the three and
six months ended June 30, 2017 totaled $21,542 and $21,542 and $-
and $2,968 was charged for the three and six months ended June 30,
2016.
Note 8 - Property, Plant and Equipment
Property, plant and equipment consists of the following:
June 30, 2017 December 31, 2016
--------------- -------------------
Computer Equipment $ 114,771 $ 114,771
Computer Software 40,681 40,681
Office Equipment 39,959 39,959
Furniture & Fixtures 38,356 29,939
Machinery & Equipment 1,138,134 1,126,134
Molds & Dies 851,254 834,480
Leasehold Improvements 222,593 222,593
----------- ---------------
2,445,748 2,408,557
Less
Accumulated Depreciation 2,184,992 2,149,165
----------- ---------------
$ 260,756 $ 259,392
=========== ===============
Depreciation expenses totaled $17,885 and $35,827 for the three
and six months ended June 30, 2017 and $14,650 and $28,352 for the
three and six months ended June 30, 2016.
AKERS BIOSCIENCES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
Note 9 - Intangible Assets
Intangible assets as of June 30, 2017 and December 31, 2016 and
the movements for the periods then ended are as follows:
Distributor &
Patents & Customer
Trademarks Relationships Totals
---------- --------------- ----------
Cost or Deemed Cost
At December 31, 2016 $2,626,996 $ 1,270,639 $3,897,635
Additions - - -
Disposals - - -
--------- ----------- ---------
At June 30, 2017 $2,626,996 $ 1,270,639 $3,897,635
========= =========== =========
Accumulated Amortization
At December 31, 2016 $1,325,221 $ 1,270,639 $2,595,860
Amortization Charge 85,554 - 85,554
Disposals - - -
--------- ----------- ---------
At June 30, 2017 $1,410,775 $ 1,270,639 $2,681,414
========= =========== =========
Net Book Value
At December 31, 2016 $1,301,775 $ - $1,301,775
========= =========== =========
At June 30, 2017 $1,216,221 $ - $1,216,221
========= =========== =========
Amortization expense totaled $42,777 and $85,554 during the
three and six months ended June 30, 2017 and $42,777 and $85,554
for the three and six months ended June 30, 2016.
The estimated aggregate amortization expense for each of the
five succeeding fiscal years is as follows:
Period Amount
------- --------
2017 $171,108
2018 $171,108
2019 $171,108
2020 $171,108
2021 $171,108
Note 10 - Trade and Other Payables (restated)
Trade and other payables consists of the following:
June 30, 2017 December 31, 2016
--------------- -------------------
(restated)
Trade Payables $ 821,581 $ 923,311
Accrued Expenses 620,310 480,302
Deferred Compensation 59,750 59,750
----------- ---------------
$ 1,501,641 $ 1,463,363
=========== ===============
AKERS BIOSCIENCES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
Trade and other payables - related party are as follows:
June 30, 2017 December 31, 2016
--------------- -------------------
Trade Payables $ 33,911 $ 182,001
Accrued Expenses - 52,066
----------- --- --------------
$ 33,911 $ 234,067
=========== === ==============
As of June 30, 2017, the Company owed ChubeWorkx Guernsey
Limited, a major shareholder, a royalty of $30,751 (Note 14) which
was paid on July 20, 2017.
As of June 30, 2017, the Company owed Hainan $670. Senior
management at Hainan are actively involved in two other companies,
Shenzhen Savy-Akers Biosciences ("Shenzhen") and Dong Guan Senming
E&P ("Senming") which are therefore being included as related
parties. The Company owed these two companies $2,490 as of June 30,
2017.
Trade and other payables are non-interest bearing and are
normally settled on 30 - 60 day terms.
Note 11 - 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 provides for the issuance of up
to 400,000 shares. The purpose of the Plan is to provide additional
incentive to those officers, employees, consultants and
non-employee directors of the Company and its parents, subsidiaries
and affiliates whose contributions are essential to the growth and
success of the Company's business.
On January 9, 2015, the Board of Directors of the Company
approved, upon recommendation from the Compensation Committee of
the Board, by unanimous written consent the Amended and Restated
2013 Incentive Stock and Award Plan (the "Amended Plan"), which
increased 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
Plan to 830,000 shares. As of June 30, 2017, under the 2013 Amended
Plan, grants of restricted stock and options to purchase 268,166
shares of common stock have been issued and are unvested or
unexercised and 3,292 shares of common stock remain available for
grants.
The Amended Plan may be administered by the board or a
board-appointed committee. Eligible recipients of option awards are
employees, officers, consultants or directors (including
non-employee directors) of the Company or of any parent, subsidiary
or affiliate of the Company. The board has the authority to grant
to any eligible recipient any options, restricted stock or other
awards valued in whole or in part by reference to, or otherwise
based on, the Company's common stock.
AKERS BIOSCIENCES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
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 Company did not issue any options or warrants under the
above plan during the three and six months ended June 30, 2017.
The following table summarizes the option activities for the six
months ended June 30, 2017:
Weighted
Average
Weighted Remaining Aggregate
Number of Average Contractual Intrinsic
Shares Exercise Price Term (years) Value
---------- ---------------- ------------ -----------
Balance at December 31, 2016 259,000 $ 4.23 3.05 $ 20,100
Granted - - - -
Exercised - - - -
Forfeited - - - -
Canceled/Expired - - - -
--------- --- ----------- ------------ -------
Balance at June 30, 2017 259,000 $ 4.23 2.55 $ 600
========= === =========== ============ =======
Exercisable as of June 30, 2017 241,667 $ 4.30 2.44 $ 600
========= === =========== ============ =======
The aggregate intrinsic value is calculated as the difference
between the exercise price of the underlying awards and the closing
stock price of $1.25 for our common shares on June 30, 2017.
A summary of the Company's non-vested shares as of June 30, 2017
and the changes during the period then ended are as follows:
Weighted
Average Grant
Non-Vested Shares Shares Date Fair Value
------------------------------ ------- -----------------
Non-vested at January 1, 2017 19,834 $ 2.36
Granted - -
Vested (2,500) 1.05
Forfeited - -
------
Non-vested at June 30, 2017 17,334 $ 2.36
======
Unrecognized compensation cost related to non-vested employee
stock options totaled $23,167 as of June 30, 2017. The cost is to
be recognized over a weighted average period of 1.13 years.
During the three and six months ended June 30, 2017, the Company
incurred stock option expenses totaling $7,275 and $12,367. No
stock option expenses were incurred in the three and six months
ended June 30, 2016.
During the six months ended June 30, 2017, the Company issued
894,750 warrants in conjunction with a public offering of its
common shares in January 2017 and an additional 796,620 warrants in
connection a private placement of its common shares in March 2017.
All warrants carry a five-year expiration term. The table below
summarizes the warrant activity for the six months ended June 30,
2017:
AKERS BIOSCIENCES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
Weighted
Weighted Average
Average Remaining
Number of Contractual
Warrants Exercise Price Term (years)
--------- -------------- -------------
Balance at December 31, 2016 - $ - -
Granted 1,691,370 1.88 -
Exercised (200,800) 1.50 -
Forfeited - - -
Canceled/Expired - - -
--------- --------------
Balance at June 30, 2017 1,490,570 $ 1.73 4.65
========= ==============
Exercisable as of June 30, 2017 693,950 $ 1.47 4.54
========= ==============
Note 12 - 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. $5,206 was recorded during the
three months ended June 30, 2017 as administrative expense on the
Condensed Consolidated Statement of Operations and Comprehensive
Loss and the remaining $14,163 is reported as deferred
compensation, a contra equity account, on the Condensed
Consolidated Balance Sheet as of June 30, 2017.
On January 13, 2017, the Company completed a public offering of
1,789,500 common shares, raising net proceeds of $1,652,994. Below
is a summary of the gross proceeds to net proceeds calculation.
AKERS BIOSCIENCES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
Shares $ $
---------- --------- ---------
Common Shares
Base Offering 1,667,000 2,000,400
Over-Allotment 122,500 147,000
---------
Gross Proceeds 2,147,400
Underwriter/Gunnar Expenses
Discount 150,318
Legal Fees 60,000
Roadshow 1,783
Miscellaneous 34,005
---------
Total 246,106
Akers Biosciences Expenses
Legal & Accounting 197,813
Registration/Regulatory 50,487
---------
Total 248,300
---------
Net Proceeds 1,652,994
=========
In addition to the common shares issued, the Company also issued
833,500 warrants with an exercise price of $1.50 per common share
in support of the base offering and 61,250 warrants with an
exercise price of $1.20 per common share. All of the warrants
issued have a five-year term.
During the three months ended March 31, 2017, warrant holders
from the January 13, 2017 public offering executed 163,300 warrants
with an exercise price of $1.50 per common share, raising net
proceeds of $244,950.
On March 30, 2017, the Company completed a private placement of
1,448,400 unregistered shares of common stock, raising net proceeds
of $1,760,317. The unregistered shares were admitted to trading on
June 30, 2017 upon notification from the Securities and Exchange
Commission that the Registration Statement, filed April 19, 2017,
had been deemed effective. Below is a summary of the gross proceeds
to net proceeds calculation.
Shares $ $
---------- --------- ---------
Common Shares
Base Offering 1,448,400 2,027,760
---------
Gross Proceeds 2,027,760
Underwriter/Gunnar Expenses
Discount 141,943
Legal Fees 50,000
---------
Total 191,943
Akers Biosciences Expenses
Legal & Accounting 75,000
Filing Fees 500
---------
Total 75,500
---------
Net Proceeds 1,760,317
=========
AKERS BIOSCIENCES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
In addition to the common shares issued, the Company also issued
796,620 warrants with an exercise price of $1.96 per common share
with a five-year term.
On April 11, 2017, the Company issued 10,000 restricted shares
to a consultant for services to be rendered during the year ending
December 31, 2017. These shares vested on the date of the grant.
The fair value of these shares was $18,000 and was based on the
share price on the date of the grant. The company recorded $5,455
during the three months ended June 30, 2017 as sales and marketing
expenses on the Condensed Consolidated Statement of Operations and
Comprehensive Loss.
During the three months ended June 30, 2017, warrant holders
from the January 13, 2017 public offering executed 37,500 warrants
with an exercise price of $1.50 per common share, raising net
proceeds of $56,250.
Note 13 - Loss per share (restated)
The calculation of basic and diluted loss per share at June 30,
2017 and 2016 was based on the net loss of $2,166,270 and
$2,517,861. The basic and diluted weighted average number of common
shares outstanding as of June 30, 2017 and 2016 was 7,943,168 and
5,426,153.
Diluted net loss per share is computed using the weighted
average number of common and dilutive potential common shares
outstanding during the period.
AKERS BIOSCIENCES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
Potential common shares consist of options and warrants. Diluted
net loss per common share was the same as basic net loss per common
share for the six months ended June 30, 2017 and 2016 since the
effect of options and warrants would be anti-dilutive due to the
net loss. Instruments excluded from dilutive earnings per share,
because their inclusion would be anti-dilutive, were as follows:
incentive and award stock options - 259,000 (2016: 203,000);
unvested restricted shares of common stock - 9,166 (2016: 18,333);
warrants - 1,490,570 (2016: -) as of June 30, 2017.
Note 14 - Income Tax Expense
There is no income tax benefit for the losses for the six months
ended June 30, 2017 and 2016 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, 2017, 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 six months ended June 30, 2017
related to unrecognized tax benefits. With few exceptions, the U.S.
and state income tax returns filed for the tax years ended on
December 31, 2013 and thereafter are subject to examination by the
relevant taxing authorities.
Note 15 - Related Party Transactions (restated)
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 Akers' 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 August 17, 2016, the Company entered into a Settlement
Agreement (the "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 (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").
Under the terms of the Settlement Agreement, the Company will
recover the full outstanding principal amount in the year of the
settlement in the form of $750,000 of BreathScan(R) Alcohol
Detector inventory - which the Company intends to subsequently sell
- and the balance of $549,609 as prepaid royalty. Akers'
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 was
included in the Consolidated Statement of Operations and
Comprehensive Loss for the year ended December 31, 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' BreathScan(R) technology, which serves as the basis for a
number of commercialized products including BreathScan(R) Alcohol
Detector and BreathScan OxiChek(TM); 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 $61,502 and $93,781 for the three and six months ended
June 30, 2017 which are included in sales and marketing expenses -
related party on the Condensed Consolidated Statement of Operations
and Comprehensive Loss.
Other terms of the Settlement include: 1) the pledge as security
of all earned but unpaid royalties 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; 2) the pledge as
security of the settlement sum which remains unpaid by the Company
to ChubeWorkx 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.
AKERS BIOSCIENCES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
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 began purchasing manufacturing molds, plastic
components and the assembled BreathScan Lync(TM) device through
Hainan and its related parties during the year ended December 31,
2016 (Note 9). The Company purchased a total of $- and $30,043
during the three months ended June 30, 2017 and 2016 and $16,774
and $30,043 for the six months ended June 30, 2017 and 2016 from
this related party. As of June 30, 2017, the Company owed the three
companies $3,160 which is included in trade and other payables -
related party on the Condensed Consolidated Balance Sheet.
Trade receivables - related party as of June 30, 2017 and
December 31, 2016 were $- and $31,892. The amounts due are
non-interest bearing, unsecured and generally have a term of 30-180
days (Note 6).
Product revenue - related party for the three months ended June
30, 2017 and 2016 were $(24,064) and $- and total $- and $- for the
six months then ended. The revenue was the result of sales to
Hainan and its related parties.
Note 16 - Commitments (restated)
The Company leases its facility in West Deptford, New Jersey
under an operating lease ("Thorofare Lease") with annual rentals of
$132,000 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.
Rent expense for the Thorofare Lease, including related CAM
charges for the three months ended June 30, 2017 and 2016 totaled
$40,440 and $40,290, respectively. Rent expenses for the Thorofare
Lease, including related CAM charges totaled $80,927 and $80,580
for the six months ended June 30, 2017 and 2016.
The Company entered into a 24-month lease for a satellite office
located in Ramsey, New Jersey ("Ramsey Lease") with annual rents of
$25,980 plus common area maintenance (CAM) charges. The lease took
effect on June 1, 2017 and runs through May 31, 2019.
Rent expenses for the Ramsey Lease for the three and six months
ended June 30, 2017 totaled $2,165. The Company posted a security
deposit of $4,330 which is included in other assets on the
Condensed Consolidated Balance Sheet.
The Company entered into a 60-month operating lease for
equipment with annual rentals of $6,156 on September 29, 2014. The
lease commenced on October 21, 2014 upon the delivery of the
equipment.
The schedule of lease commitments is as follows:
Thorofare Ramsey Equipment
Lease Lease Lease Total
$ $ $ $
---------- ------ --------- -------
Next 12 Months 132,000 25,980 6,156 164,136
Next 13-24 Months 132,000 23,815 6,156 161,971
Next 25-36 Months 66,000 - 2,052 68,052
On June 30, 2017, the Company signed the Third Amendment to the
exclusive Distribution Agreement with NovoTek Pharmaceuticals
Limited ('NovoTek') which expanded the geographic area of coverage
to include Poland and grants NovoTek the right to assemble certain
PIFA Heparin PF/4 products in their facilities from components
acquired from the Company.
The Company has agreed to provide PIFA Heparin/PF4 devices,
valued at approximately $88,500, at no charge to NovoTek for their
use and are to be shipped upon their request. Capitalized during
the three months ended June 30, 2017, the Company incurred a charge
to product cost of sales of $88,500 in connection with this product
obligation and included this amount as an accrued expense in trade
and other payables within the Company's condensed consolidated
balance sheets as of June 30, 2017.
Note 17 - Major Customers (restated)
For the three months ended June 30, 2017, two customers
generated 10% or more of the Company's revenue. Sales to these
customers accounted for 74% of the Company's revenue. As of June
30, 2017, the amount due from these customers was $701,826 of which
$500,000 has an extended term of 180 days. This concentration makes
the Company vulnerable to a near-term severe impact should the
relationships be terminated.
For the six months ended June 30, 2017, three customers
generated 10% or more of the Company's revenue. Sales to these
customers accounted for 73% of the Company's revenue. As of June
30, 2017, the amount due from these customers was $768,306 of which
$500,000 has an extended term of 180 days. This concentration makes
the Company vulnerable to a near-term severe impact should the
relationships be terminated.
For the three months ended June 30, 2016, two customers each
generated more than 10% of the Company's product revenue. In
aggregate, sales to these customers accounted for 79% of the
Company's product revenue. As of June 30, 2016, the amount due from
these two customers was $96,390.
For the six months ended June 30, 2016, three customers each
generated more than 10% of the Company's product revenue. In
aggregate, sales to these customers accounted for 82% of the
Company's product revenue. As of June 30, 2016, the amount due from
these three customers was $488,456. This concentration makes the
Company vulnerable to a near-term severe impact should the
relationships be terminated.
AKERS BIOSCIENCES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
Note 18 - Major Suppliers
For the three months ended June 30, 2017, two suppliers
accounted for 10% or more of the Company's purchases. These
suppliers accounted for 30% of the Company's total purchases. As of
June 30, 2017, the amount due to these suppliers was $42,742.
For the six months ended June 30, 2017, one supplier accounted
for 10% or more of the Company's purchases. This supplier accounted
for 14% of the Company's total purchases. As of June 30, 2017, the
amount due to this supplier was $-.
For the three months ended June 30, 2016, two suppliers each
accounted for more than 10% of the Company's purchases. In
aggregate, these suppliers accounted for 32% of the Company's total
purchases. As of June 30, 2016, the amount due to the suppliers was
$20,445.
For the six months ended June 30, 2016, no suppliers accounted
for more than 10% of the Company's purchases.
Note 19 - 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 related to the Company's OxiChek(TM)
products.
The Company filed a series of motions with the Court seeking (1)
to dismiss the Pulse complaint for lack of jurisdiction or, in the
alternative, transfer the matter to the District Court for the
District of New Jersey, Camden Vicinage and (2) to dismiss the
unfair competition claims for failure to state a claim on which
relief could be granted. Oral arguments on these motions were heard
by the Court on March 10, 2017.
The Court decided by order dated April 14, 2017 in favor of the
Company and has dismissed with prejudice the claims brought by
Pulse for unfair competition (both federal and state counts). The
court decided against the Company in its motions for transfer of
venue and for lack of jurisdiction. As such, the case shall proceed
in the District Court of Oregon with discovery commencing in late
April.
Pulse subsequently filed an Amended Complaint, in which Pulse
seeks not less than $500,000 in damages and, among other items, an
injunction prohibiting the Company from manufacture, use and sale
of the OxiChek product. The Company answered the Amended Complaint
on May 30, 2017. Discovery has commenced and is scheduled to
conclude on October 2, 2017. The Court has set the trial date for
July 17, 2018.
The Company intends to establish a rigorous defense of all
claims. As the case has not progressed beyond initial motion
practice and early discovery, the Company is unable to assess the
potential outcome, no accrual for losses was made as of June 30,
2017. All legal fees were expensed as and when incurred.
AKERS BIOSCIENCES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
Note 20 - Segment Information (restated)
The Company is organized and operates as one operating segment.
In accordance with FASB ASC 280 "Segment Reporting", the Chief
Operating Officer is the chief operating decision-maker who reviews
operating results to make decisions on allocation of resources and
assessment of performance for the entire company.
The total revenue by different product lines was as follows:
Three months ended Six months ended
June 30, June 30,
-------------------- ----------------------
Product Line 2017 2016 2017 2016
------------------------------------------ ---------- -------- ---------- ----------
(restated) (restated)
MicroParticle Catalyzed Biosensor ("MPC") $ 69,848 $ 44,918 $ 155,507 $ 109,702
Particle ImmunoFiltration Assay ("PIFA") 426,747 879,081 987,668 1,514,256
Other 576,266 32,487 596,936 70,552
--------- ------- --------- ---------
Total Revenue $1,072,861 $956,486 $1,740,111 $1,694,510
========= ======= ========= =========
The total revenue by geographic area determined based on the
location of the customers was as follows:
Three months ended Six months ended
June 30, June 30,
-------------------- ----------------------
Geographic Region 2017 2016 2017 2016
--------------------------- ---------- -------- ---------- ----------
(restated) (restated)
United States $ 512,257 $452,756 $1,129,482 $1,118,961
People's Republic of China 478,205 473,853 502,268 506,398
Rest of World 82,399 29,877 108,361 69,151
--------- ------- --------- ---------
Total Revenue $1,072,861 $956,486 $1,740,111 $1,694,510
========= ======= ========= =========
The Company had long-lived assets totaling $62,954 and $61,081
located in the People's Republic of China and $1,414,023 and
$1,500,086 located in the United States as of June 30, 2017 and
December 31, 2016, respectively.
Note 21 - Subsequent Events
On August 7, 2017, the Company's shareholders approved the 2017
Equity Incentive Plan ("Plan") which provides 1,350,000 common
shares to encourage and enable the officers, employees, directors,
consultants and other key persons of the Company, upon whose
judgment, initiative and efforts the Company largely depends for
the successful conduct of its business, to acquire a proprietary
interest in the Company.
On August 7, 2017, the Shareholders elected Bill J. White,
Richard C. Tarbox III and Christopher C. Schreiber to serve as
non-executive directors and re-elected Raymond F. Akers and elected
John J. Gormally as executive directors for the Company.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
This quarterly report on Form 10-Q/A 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.
Restatement of Previously Issued Financial Statements
As previously disclosed, we determined that certain revenue
transactions did not qualify for revenue recognition under
generally accepted accounting principles. In the process of this
determination, we discovered information that existed at June 30,
2017 which affected the revenue and an obligation. We concluded
that the impact of applying corrections for these errors and
misstatements on the condensed consolidated financial statements as
of and for the three and six months ended June 30, 2017 is
material. As a result, we are restating our condensed consolidated
financial statements for the periods impacted. See Note 2 to the
Condensed Consolidated Financial Statements included in Part I,
Item 1, for additional information and a reconciliation of the
previously reported amounts to the restated amounts.
Overview
Akers 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(R) DKA and
PIFA PLUSS(R) Infectious Disease point-of-care tests; and
-- to expand the use of its clinical laboratory products, the Company may need to invest in additional
marketing support programs to increase brand awareness.
At June 30, 2017, Akers had cash of $197,175, working capital of
$3,307,676, stockholders' equity of $4,964,149 and an accumulated
deficit of $99,646,816. 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
June 30, 2017 and 2016
Revenue
Akers' revenue for the three months ended June 30, 2017 totaled
$1,072,861, a 12% increase from the same period in 2016. The tables
below summarize our revenue by product line and geographic region
for the three months ended June 30, 2017 and 2016 as well as the
percentage of change year-over-year:
3 Months 3 Months
Ended Ended
Product Lines June 30, 2017 June 30, 2016 Percent Change
------------------------------------------ ---------------- ---------------- --------------
(restated)
Particle ImmunoFiltration Assay ("PIFA") $ 426,747 $ 879,081 (51)%
MicroParticle Catalyzed Biosensor ("MPC") 69,848 44,918 56%
Other 576,266 32,487 1,674%
------------ ------------
Total Revenue $ 1,072,861 $ 956,486 12%
============ ============
3 Months Ended 3 Months Ended
Geographic Region June 30, 2017 June 30, 2016 Percent Change
--------------------------- ---------------- ---------------- --------------
(restated)
United States $ 512,257 $ 452,756 13%
People's Republic of China 478,205 473,853 1%
Rest of World 82,399 29,877 176%
------------ ------------
Total Revenue $ 1,072,861 $ 956,486 12%
============ ============
Revenue from the Company's PIFA Heparin/PF4 Rapid Assay products
decreased 51% during the three months ended June 30, 2017 over the
same period of 2016. During the three months ended June 30, 2016
the Company recognized approximately $474,000 (2017: $-) in PIFA
revenue from the Company's distribution partner in the People's
Republic of China ("PRC"). The distributor continues to work with
the various provincial governments in the PRC to finalize
reimbursement rates for the providers. Once these rates are
established, the distributor expects strong demand for the PIFA
products. Revenue from PIFA related components, totaling $500,000,
during the three months ended June 30, 2017 is included in other
revenue.
Total unit sales volumes for PIFA Classic and PIFA PLUSS in the
United States remained steady, however; the ratio of each product
sold changed slightly year-over-year. The Company experienced
renewed interest in Western Europe and the Far East for the
products after reviving the Conformité Européene Mark ("CE Mark").
The PIFA Classic product is being actively marketed in Great
Britain and a clinical trial is scheduled in Italy.
MPC revenue increased 56% during the three months ended June 30,
2017 over the same period of 2016. Domestic and International sales
of the BreathScan Breath Alcohol tests which accounted for the
majority of the improvement.
The Company signed an amendment to the exclusive distribution
agreement for the PIFA Heparin/PF4 products with NovoTek
Pharmaceuticals Limited ("NovoTek") to expand their geographic
region to include Poland, include other PIFA Heparin/PF4 products
and allow NovoTek to assemble the products at its facilities in the
PRC or Poland from components acquired from the Company.
Other revenue increased 1,674% during the three months ended
June 30, 2017 as compared to the same period of 2016. The
significant increase resulted from an initial order for
manufacturing components from NovoTek totaling $500,000. NovoTek
will utilize these components along with additional materials to be
purchased in a future period to assemble PIFA Heparin/PF4 products
in either the PRC or Poland.
The Company's gross margin improved to 73% (2016: 71%) for the
three months ended June 30, 2017. Generally, costs associated with
production declined across the board; however, the Company was able
to sell a large quantity of raw materials associated with a
previously discontinued product that had been removed from
inventory and, as such, had no book value.
Cost of sales for the three months ended June 30, 2017 totaled
$290,591 (2016: $276,848). Direct cost of sales decreased to 13% of
revenue while other cost of sales decreased to 14% for the three
months ended June 30, 2017 as compared to 14 % and 15% respectively
for the same period in 2016.
Direct cost of sales for the three-month period ended June 30,
2017 were $143,552 (2016: $135,298). Other cost of sales for the
three months ended June 30, 2017 were $147,047 (2016:
$141,550).
General and Administrative Expenses
General and administrative expenses for the three months ended
June 30, 2017, totaled $829,929, which was a 2% increase as
compared to $816,244 for the three months ended June 30, 2016.
The table below summarizes our general and administrative
expenses for the three months ended June 30, 2017 and 2016 as well
as the percentage of change year-over-year:
3 Months
3 Months Ended Ended
Description June 30, 2017 June 30, 2016 Percent Change
----------------------------------------- ---------------- ---------------- --------------
Personnel Costs $ 223,944 $ 165,021 36%
Professional Service Costs 354,570 227,246 56%
Stock Market & Investor Relations Costs 117,253 116,962 -%
Other General and Administrative Costs 134,162 307,015 (56)%
------------ ------------
Total General and Administrative Expense $ 829,929 $ 816,244 2%
------------ ------------
Personnel expenses increased by 36% for the three months ended
June 30, 2017 as compared to the same period of 2016. The increase
is related to the creation of the Controller's position in the
Finance department and salary adjustments for executive
management.
Professional service costs increased by 56% for the three months
ended June 30, 2017 as compared to the same period of 2016. A
significant increase in accounting and audit fees ($104,000 (2016:
$20,600)), personnel recruitment ($22,355 (2016: ($25))),
engineering ($26,704 (2016: $7,847)) and general consulting
services ($30,000 (2016: $847)) accounted for the change.
The Company established a reserve for an uncollectable account
during the three months ended June 30, 2016 for $146,196 (2017:
$5,380) which accounted for the decline of 56% in other general and
administrative expenses for the three months ended June 30, 2017.
Travel restrictions, put in place earlier in the year, also
contributed to the decline, totaling $16,638 (2016: $34,276).
Sales and Marketing Expenses
Sales and marketing expenses for the three months ended June 30,
2017 totaled $416,391 which was a 19% decrease as compared to
$513,430 for the three months ended June 30, 2016.
The table below summarizes our sales and marketing expenses for
the three months ended June 30, 2017 and 2016 as well as the
percentage of change year-over-year:
3 Months 3 Months
Ended Ended
Description June 30, 2017 June 30, 2016 Percent Change
--------------------------------------- ---------------- ---------------- --------------
Personnel Costs $ 181,653 $ 295,108 (38)%
Professional Service Costs 72,079 113,916 (37)%
Royalties and Outside Commission Costs 103,702 30,302 242%
Other Sales and Marketing Costs 58,957 74,104 (20)%
------------ ------------
Total Sales and Marketing Expenses $ 416,391 $ 513,430 (19)%
------------ ------------
Personnel costs decreased in the three months ended June 30,
2017 as compared to the same period of 2016. The Company has
reduced its sales and marketing staff from 10 members on January 1,
2016 to 4 as of June 30, 2017 as a result of a new sales and
marketing strategy that targets large integrated delivery networks
instead of individual facilities. This strategy requires fewer, but
more experienced and technically knowledgeable sales personnel to
interact with executive management, laboratory and medical
directors. The Company incurred severance expenses related to staff
reductions during the three months ended June 30, 2016 which did
not recur during the same period of 2017.
The Company renegotiated or eliminated several consulting
arrangements targeted at improving market penetration or
identifying marketing or distribution partners during the first
half of 2016. The result is a reduction of 37% in professional
service costs with general consulting services ($68,092 (2016:
$104,958)) accounting for the majority of the savings for the three
months ended June 30, 2017.
The legal settlement with ChubeWorkx Guernsey, Ltd
("ChubeWorkx"), signed on August 11, 2016, requires the Company to
pay a 5% royalty on adjusted gross sales to ChubeWorkx on a
quarterly basis. During the three months ended June 30, 2017, this
royalty totaled $61,502 (2016: $-).
A significant decline in travel expenses ($21,065 (2016:
$50,435)) and small decreases in other expenses were partially
offset by an increase in technology expenses ($21,099 (2016: $147))
which resulted in an overall decline of 20% in other sales and
marketing costs.
Research and Development
Research and development expenses for the three months ended
June 30, 2017 totaled $313,835, which was a 3% decrease as compared
to $321,989 for the three months ended June 30, 2016.
The table below summarizes our research and development expenses
for the three months ended June 30, 2017 and 2016 as well as the
percentage of change year-over-year:
3 Months 3 Months
Ended Ended
Description June 30, 2017 June 30, 2016 Percent Change
---------------------------------------- ---------------- ---------------- --------------
Personnel Costs $ 227,887 $ 219,530 4%
Clinical Trial Costs 150 44,265 (100)%
Professional Service Costs 18,588 18,579 -%
Other Research and Development Costs 67,210 39,615 70%
------------ ------------
Total Research and Development Expenses $ 313,835 $ 321,989 (3)%
------------ ------------
Employee benefit expenses ($22,683 (2016: $14,050)) accounted
for the majority of the 4% increase in personnel expenses during
the three months ended June 30, 2017.
Clinical trial costs decreased 100% during the three months
ended June 30, 2017 as compared to the same period of 2016. The
Company continued to perform two clinical trials during the three
months ended June 30, 2016, one to test the effectiveness of the
PIFA Chlamydia assay and one for the KetoChek(TM) health and
wellness product. Both studies were completed during 2016 and no
significant expense was incurred during the three months ended June
30, 2017.
Significant increases in internal resource utilization ($11,852
(2016: $853)) and supplies expense ($34,124 (2016 $10,637)) were
offset by small declines in several expense categories to account
for the 70% increase in other research and development
expenses.
The following table illustrates research and development costs
by project for the three months ended June 30, 2017 and 2016,
respectively:
Project 2017 2016
--------------------------- -------- --------
Breath Alcohol $ 502 $ -
Chlamydia Trachomatis 98,325 5,345
Heparin/PF4 26,425 16,228
Ketone 1,757 708
KetoChek(TM) / OxiChek(TM) 124,499 181,281
Metron 1,098 -
Other Projects - 33,358
Pulmo Health 11,361 3,220
SeraSTAT - -
Tri-Cholesterol 49,868 76,633
VIVO - 5,216
------- -------
Total R&D Expenses: $313,835 $321,989
------- -------
Other Income and Expense
Other income, net of expense for the three months ended June 30,
2017 totaled $2,653, which was a 55% decrease as compared to $5,870
for the three months ended June 30, 2016.
The table below summarizes our other income and expenses for the
three months ended June 30, 2017 and 2016 as well as the percentage
of change year-over-year:
3 Months 3 Months
Ended Ended
Description June 30, 2017 June 30, 2016 Percent Change
------------------------------------ ---------------- ---------------- --------------
Currency Translation Loss $ (978) $ (2,562) 62%
Realized Gains on Investments 605 6,587 (91)%
Interest and Dividends 3,026 1,845 64%
Other Income - - -%
--- ----------- ------------
Total Other Income, Net of Expenses $ 2,653 $ 5,870 (55)%
--- ----------- ------------
Gains and losses associated with foreign currency transactions
improved by 62% during the three months ended June 30, 2017 as
compared to the same period of 2016, primarily a result of the
increased strength of the US Dollar compared to the British
Pound.
Realized gains, interest and dividend income declined to $3,631
(2016: $8,432). The Company's available capital for investment
activities was limited during the three months ended June 30, 2017
resulting in the decline in investment income.
Summary of Statements of Operations for the Six Months Ended
June 30, 2017 and 2016
Revenue
Akers' revenue for the six months ended June 30, 2017 totaled
$1,740,111, a 3% increase from the same period in 2016. The tables
below summarize our revenue by product line and by geographic
region for the six months ended June 30, 2017 and 2016 as well as
the percentage of change year-over-year:
6 Months 6 Months
Ended Ended
Product Lines June 30, 2017 June 30, 2016 Percent Change
------------------------------------------ ---------------- ---------------- --------------
(restated)
Particle ImmunoFiltration Assay ("PIFA") $ 987,668 $ 1,514,255 (35)%
MicroParticle Catalyzed Biosensor ("MPC") 155,507 109,703 42%
Other 596,936 70,552 746%
------------ ------------
Total Revenue $ 1,740,111 $ 1,694,510 3%
============ ============
6 Months 6 Months
Ended Ended
Geographic Region June 30, 2017 June 30, 2016 Percent Change
--------------------------- ---------------- ---------------- --------------
(restated)
United States $ 1,129,482 $ 1,118,961 1%
People's Republic of China 502,268 506,398 (1)%
Rest of World 108,361 69,151 57%
------------ ------------
Total Revenue $ 1,740,111 $ 1,694,510 3%
============ ============
Revenue from the Company's PIFA Heparin/PF4 Rapid Assay products
decreased 35% during the six months ended June 30, 2017 over the
same period of 2016. During the six months ended June 30, 2016 the
Company recognized approximately $474,000 (2017: $-) in PIFA
revenue from the Company's distribution partner in the People's
Republic of China ("PRC"). The distributor continues to work with
the various provincial governments in the PRC to finalize
reimbursement rates for the providers. Once these rates are
established, the distributor expects strong demand for the PIFA
products. Revenue from PIFA related components, totaling $500,000,
during the six months ended June 30, 2017 is included in other
revenue.
Total unit sales volumes for PIFA Classic and PIFA PLUSS in the
United States remained steady, however; the sales mix changed
slightly year-over-year. The Company experienced renewed interest
in Western Europe and the Far East for the products after reviving
the Conformité Européene Mark ("CE Mark"). The PIFA Classic
products have shipped to Great Britain and India and is being
actively marketed in the European Union and a clinical trial is
scheduled in Italy.
MPC revenue increased 42% during the six months ended June 30,
2017 over the same period of 2016. Domestic and International sales
of the BreathScan Breath Alcohol tests and domestic sales of the
BreathScan Lync(TM) and OxiChek(TM) products accounted for the
majority of the improvement.
The Company signed an amendment to the exclusive distribution
agreement for the PIFA Heparin/PF4 products with NovoTek
Pharmaceuticals Limited ("NovoTek") to expand their geographic
region to include Poland, include other PIFA Heparin/PF4 products
and allow NovoTek to assemble the products at its facilities in the
PRC or Poland from components acquired from the Company.
Other revenue increased 746% during the six months ended June
30, 2017 as compared to the same period of 2016. The significant
increase resulted from an initial order for manufacturing
components from NovoTek totaling $500,000. NovoTek will utilize
these components along with additional materials to be purchased in
a future period to assemble PIFA Heparin/PF4 products in either the
PRC or Poland.
The Company's gross margin was 68% (2016: 72%) for the six
months ended June 30, 2017. The Company's use of sub-contractors
for assembly and packaging services increased to $119,072 (2016:
$10,506) and increases in warehousing costs ($39,770 (2016:
$7,662)) were offset by smaller declines in several expense
categories. Additionally, the Company was able to sell its stock of
raw materials associated with a previously discontinued product
that had been removed from inventory and, as such, had no book
value.
Cost of sales for the six months ended June 30, 2017 totaled
$549,312 (2016: $476,876). Direct cost of sales increased to 14% of
revenue while other cost of sales increased to 17% for the six
months ended June 30, 2017 as compared to 13% and 15% respectively
for the same period in 2016.
Direct cost of sales for the six months ended June 30, 2017 were
$249,681 (2016: $216,087). Other cost of sales for the six months
ended June 30, 2017 were $299,639 (2016: $260,789).
General and Administrative Expenses
General and administrative expenses for the six months ended
June 30, 2017, totaled $1,620,457, which was a 7% decrease as
compared to $1,739,806 for the six months ended June 30, 2016.
The table below summarizes our general and administrative
expenses for the three months ended June 30, 2017 and 2016 as well
as the percentage of change year-over-year:
6 Months
6 Months Ended Ended
Description June 30, 2017 June 30, 2016 Percent Change
----------------------------------------- ---------------- ---------------- --------------
Personnel Costs $ 558,471 $ 543,770 3%
Professional Service Costs 546,322 477,094 15%
Stock Market & Investor Relations Costs 199,639 234,003 (15)%
Other General and Administrative Costs 316,025 484,939 (35)%
------------ ------------
Total General and Administrative Expense $ 1,620,457 $ 1,739,806 (7)%
------------ ------------
Personnel expenses increased by 3% for the six months ended June
30, 2017 as compared to the same period of 2016. The increase is
related to the creation of the Controller's position in the Finance
department and salary adjustments for executive management.
Professional service costs increased by 15% for the six months
ended June 30, 2017 as compared to the same period of 2016. A
significant increase in accounting and audit ($104,000 (2016:
$60,896)), personnel recruitment ($22,355 (2016: $409)),
engineering ($56,794 (2016: $24,605)) and general consulting
services ($52,975 (2016: $3,388)) were offset by a decrease in
legal fees ($310,198 (2016: $386,146)) which accounted for the
change.
Decreases in consulting ($47,185 (2016: $61,127)) and investor
relation services ($106,687 (2016: $130,436)) accounted for the 15%
decrease in stock market & investor relations expenses.
The Company established a reserve for an uncollectable account
during the six months ended June 30, 2016 for $146,196 (2017:
$47,741) which accounted for the decline of 35% in other general
and administrative expenses for the six months ended June 30, 2017.
Travel restrictions, put in place earlier in the year, also
contributed to the decline, totaling $26,205 (2016: $96,219).
Sales and Marketing Expenses
Sales and marketing expenses for the six months ended June 30,
2017 totaled $1,005,326 which was a 19% decrease as compared to
$1,238,754 for the six months ended June 30, 2016.
The table below summarizes our sales and marketing expenses for
the six months ended June 30, 2017 and 2016 as well as the
percentage of change year-over-year:
6 Months 6 Months
Ended Ended
Description June 30, 2017 June 30, 2016 Percent Change
--------------------------------------- ---------------- ---------------- --------------
Personnel Costs $ 517,485 $ 714,796 (28)%
Professional Service Costs 137,126 307,020 (55)%
Royalties and Outside Commission Costs 148,836 50,045 197%
Other Sales and Marketing Costs 201,879 166,893 21%
------------ ------------
Total Sales and Marketing Expenses $ 1,005,326 $ 1,238,754 (19)%
------------ ------------
Personnel costs decreased in the six months ended June 30, 2017
as compared to the same period of 2016. The Company has reduced its
sales and marketing staff from 10 members on January 1, 2016 to 4
as of June 30, 2017 as a result of a new sales and marketing
strategy that targets large integrated delivery networks instead of
individual facilities. This strategy requires fewer, but more
experienced and technically knowledgeable sales personnel to
interact with executive management, laboratory and medical
directors. The Company incurred severance expenses related to staff
reductions during the six months ended June 30, 2016 which did not
recur during the same period of 2017.
The Company renegotiated or eliminated several consulting
arrangements targeted at improving market penetration or
identifying marketing or distribution partners during the first
half of 2016. The result is a reduction of 55% in professional
service fees for general consulting services ($136,714 (2016:
$220,289)) and marketing services ($- (2016: $51,246)) for the six
months ended June 30, 2017.
The legal settlement with ChubeWorkx Guernsey, Ltd
("ChubeWorkx"), signed on August 11, 2016, requires the Company to
pay a 5% royalty on adjusted gross sales to ChubeWorkx on a
quarterly basis. During the six months ended June 30, 2017, this
royalty totaled $93,781 (2016: $-).
The Company has launched an awareness campaign directed at
surgeons, pathologists and laboratory and medical directors
regarding the risks associated with heparin induced
thrombocytopenia ("HIT") and a campaign directed at health and
wellness professionals to introduce the BreathScan Lync(TM) and
OxiChek(TM) products. In support of the health and wellness
project, the Company produced an infomercial in coordination with
Balancing Act that aired on May 8, 2017. Expenses related to the
production, which occurred in February, 2017, totaled $54,700.
Research and Development
Research and development expenses for the six months ended June
30, 2017 totaled $662,277, which was a 3% decrease as compared to
$685,280 for the six months ended June 30, 2016.
The table below summarizes our research and development expenses
for the six months ended June 30, 2017 and 2016 as well as the
percentage of change year-over-year:
6 Months
Ended 6 Months
Description June 30, 2017 Ended June 30, 2016 Percent Change
---------------------------------------- ---------------- ---------------------- --------------
Personnel Costs $ 512,837 $ 378,553 35%
Clinical Trial Costs 300 141,342 (100)%
Professional Service Costs 47,711 57,147 (17)%
Other Research and Development Costs 101,429 108,238 (6)%
------------ --- -----------------
Total Research and Development Expenses $ 662,277 $ 685,280 (3)%
------------ --- -----------------
Personnel costs increased 35% during the six months ended June
30, 2017 as compared to the same period of 2016. This increase was
a result of the transfer of Dr. Akers' salary and benefits from the
General and Administrative department to Research and Development
as he assumed his new responsibilities as Chief Scientific Director
for the Company. In addition, employee benefit expenses ($41,636
(2016: $31,221)) also contributed to the increase.
Clinical trial costs decreased 100% during the six months ended
June 30, 2017 as compared to the same period of 2016. The Company
performed two clinical trials during the six months ended June 30,
2016, one to test the effectiveness of the PIFA Chlamydia assay and
one for the KetoChek(TM) health and wellness product. Both studies
were completed during 2016 and no significant expense was incurred
during the six months ended June 30, 2017.
A reduction in general consulting services ($21,503 (2016:
$31,619)) for the six months ended June 30, 2017 was responsible
for the 17% decline in professional service fees.
Moderate decreases in several expense categories were offset by
increases in internal resource utilization ($13,739 (2016: $2,937))
and travel expenses ($19,593 (2016 $11,047)) to account for the 6%
decrease in other research and development expenses.
The following table illustrates research and development costs
by project for the six months ended June 30, 2017 and 2016,
respectively:
Project 2017 2016
--------------------------- -------- --------
Breath Alcohol $ 5,171 $ 1,381
Chlamydia Trachomatis 150,033 10,685
Heparin/PF4 37,923 72,575
Ketone 3,465 2,125
KetoChek(TM) / OxiChek(TM) 214,224 365,178
Metron 1,098 2,507
Other Projects 59,688 101,584
Pulmo Health 11,361 6,126
SeraSTAT 5,610 -
Tri-Cholesterol 173,112 117,903
VIVO 592 5,216
------- -------
Total R&D Expenses: $662,277 $685,280
------- -------
Other Income and Expense
Other income, net of expense for the six months ended June 30,
2017 totaled $15,536, which was a 12% increase as compared to
$13,899 for the six months ended June 30, 2016.
The table below summarizes our other income and expenses for the
six months ended June 30, 2017 and 2016 as well as the percentage
of change year-over-year:
6 Months 6 Months
Ended Ended
Description June 30, 2017 June 30, 2016 Percent Change
------------------------------------ ---------------- ---------------- --------------
Currency Translation Gain/(Loss) $ 9,367 $ (4,817) 294%
Realized Gains on Investments 1,656 2,152 (23)%
Interest and Dividends 4,513 16,564 (73)%
Other Income - - -%
------------ ------------
Total Other Income, Net of Expenses $ 15,536 $ 13,899 12%
------------ ------------
Gains and losses associated with foreign currency transactions
improved by 294% during the six months ended June 30, 2017 as
compared to the same period of 2016, primarily a result of the
increased strength of the US Dollar compared to the British Pound
and Euro.
Realized gains, interest and dividend income declined to $6,169
(2016: $18,716). The Company's available capital for investment
activities was limited during the six months ended June 30, 2017
resulting in the decline in investment income.
Income Taxes
As of June 30, 2017, the Company does not believe any uncertain
tax positions exist that would result in the Company having a
liability to the taxing authorities. The Company's policy is to
classify interest and penalties related to unrecognized tax
benefits, if and when required, as part of interest expense and
general and administrative expense, respectively in the
consolidated statement of operations.
Liquidity and Capital Resources
For the six months ended June 30, 2017 and 2016, the Company
generated a net loss of $2,167,279 and $2,517,861, respectively. As
of June 30, 2017 and December 31, 2016, the Company has an
accumulated deficit of $99,646,816 and $97,479,537 and had cash and
marketable securities totaling $1,208,800 and $122,701,
respectively.
During the six months ended June 30, 2017, the Company raised
$1,652,994 in net proceeds from a public offering of 1,789,500
shares of common stock, $1,760,317 in net proceeds from a private
placement of 1,448,400 shares of common stock and $301,200 from the
exercise of warrants for 200,800 shares of common stock.
The Company continues to expand the global distribution of our
PIFA Heparin/PF4 rapid assays. The Company's future and focus
resides in preparing for the launch of our health and wellness
product line linked to smartphones and tablets and the Company's
rapid manual point-of-care chlamydia assay.
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 our health and wellness line, Tri-cholesterol test,
PIFA Chlamydia assay and PIFA PLUSS(R) Infectious Disease
single-use assays 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. Based upon our experience, clinical
trial and related regulatory expenses can be significant costs.
Steps to achieve commercialization of emerging products will be an
ongoing and evolving process with expected improvements and
possible subsequent generations being evaluated for commercialized
and emerging tests. Should we be unable to achieve FDA clearance
for products that require such regulatory "approval", develop
performance characteristics for rapid tests that satisfy market
needs, or generate sufficient revenue from commercialized products,
we would need to rely on other business or product opportunities to
generate revenue and costs that we have incurred for the patents
may be deemed impaired.
Capital expenditures for the six months ended June 30, 2017 were
$37,191 (2016: $81,462). Capital expenditures, primarily for
production, laboratory and facility improvement costs for the year
ending December 31, 2017 are expected to be approximately $65,000.
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.
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.
The Company executed a lease for a satellite office in Ramsey,
New Jersey on June 23, 2017 which is effective through May 31,
2019. The satellite office supports members of executive management
and the sales and marketing team with convenient access to
resources in the metro New York area.
Due to recent market events that have adversely affected all
industries and the economy as a whole, management has placed
increased emphasis on monitoring the risks associated with the
current environment, particularly the recoverability of current
assets, the fair value of assets, and the Company's liquidity. At
this point in time, there has not been a material impact on the
Company's assets and liquidity. Management will continue to monitor
the risks associated with the current environment and their impact
on the Company's results.
The table below summarizes our cash flows for the six months
ended June 30, 2017 and 2016 as well as the percentage of change
year-over-year:
6 Months 6 Months
Ended Ended Percent
Description June 30, 2017 June 30, 2016 Change
-------------------------------------------- ---------------- ---------------- -------
(restated)
Cash at beginning of period $ 72,700 $ 402,059 (82)%
Loss from operations (2,167,279) (2,517,861) (14)%
Adjustments
Non-Cash Activities 216,392 295,513 (27)%
Cash Used in Operating Activities
Cash Consumed by Operating Activities (790,848) (268,523) 195%
Cash Contributed by Operating Activities 148,504 75,129 98%
Cash Flows from Investing Activities
Cash Consumed by Investing Activities (2,742,359) (109,105) 2,414%
Cash Contributed by Investing Activities 1,745,554 2,502,319 (30)%
Cash Flows from Financing Activities
Cash Consumed by Financing Activities - - -%
Cash Contributed by Financing Activities 3,714,511 - 100%
------------ ------------ -------
Cash at end of period $ 197,175 $ 379,531 (48)%
------------ ------------ -------
The Company's net cash consumed by investing activities totaled
$2,742,359 during the six months ended June 30, 2017. Cash of
$37,191 was consumed by capital expenditures and $2,705,168 for the
purchase of marketable securities. Proceeds from the sale of
marketable securities contributed cash of $1,745,554 for the period
ended June 30, 2017.
The Company's net cash provided by investing and financing
activities totaled $2,393,214 during the six months ended June 30,
2016. Cash of $109,105 was consumed by capital expenditures and the
purchase of marketable securities. Proceeds from the sale of
marketable securities contributed cash of $2,502,319 for the period
ended June 30, 2016.
Our net cash consumed by operating activities totaled $2,593,231
during the six months ended June 30, 2017. Cash was consumed by the
loss of $2,167,279 plus non-cash adjustments of $121,381 for
depreciation and amortization of non-current assets, $21,542 for
the write-off and reserve for obsolete inventory, $15,864 for the
fair value of restricted common stock issued for services and
$12,367 for share based compensation less $1,001 for accrued
interest and dividends on marketable securities. For the six months
ended June 30, 2017, decreases in deposits and other receivables of
$10,692, trade receivables - related parties of $31,892, prepaid
expenses of $20,752, prepaid expenses - related party of $46,890,
and an increase in trade and other payables of $38,278 provided
cash, primarily related to routine changes in operating activities.
A net increase in trade receivables of $372,502, inventories of
$213,860 and other assets of $4,330 and decreases trade and other
payables - related party of $200,156 consumed cash from operating
activities.
Our net cash consumed by operating activities totaled $2,415,742
during the six months ended June 30, 2016. Cash was consumed by the
loss of $2,517,861 plus non-cash adjustments of $113,906 for
depreciation and amortization of non-current assets, $146,196 for
allowances for doubtful accounts, $18,243 for share based
compensation, $8,241 for options issued for services and $8,927 for
accrued income on marketable securities. For the six months ended
June 30, 2016, decreases in deposits and other receivables of
$31,196 and prepaid expenses of $43,933 provided cash, primarily
related to routine changes in operating activities. A net increase
in trade receivables of $79,906 and inventories of $85,588 and a
decrease in trade and other payables of $103,029 consumed cash from
operating activities.
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. 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.
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 Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities
1 in active markets that the Company has the Ability to access.
Level Inputs to the valuation methodology include
2
-- 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 Inputs to the valuation methodology are unobservable and significant to the fair value measurement.
3
The asset or liability's fair value measurement level within the
fair value hierarchy is based on the lowest level of input that is
significant to the fair value measurement. Valuation techniques
maximize the use of relevant observable inputs and minimize the use
of unobservable inputs.
Intangible Assets
The Company has developed or acquired several diagnostic tests
that can detect the presence of various substances in a person's
breath, blood, urine and saliva. Propriety protection for the
Company's products, technology and process is important to its
competitive position. As of June 30, 2017, the Company has eleven
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; D691,058 and D786,872). Other patents are in
effect in Australia through the Design Registry (348,310; 348,311
and 348,312), European Union Patents 1793906, 2684025,
002216895-0001; 002216895-0002; 002216895-0003; 3459700-0001 and
3459395-001), United Kingdom and France (2684025), Germany
(602012021524.0), Spain (E12755523), China (2016305495829), in Hong
Kong (HK11004006) and in Japan (1,515,170; 4,885,134; 4,931,821
5,775,790, and 6023096). 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.
Quantitative and Qualitative Disclosure About Market Risk
We have limited exposure to market risks from instruments that
may impact the Balance Sheets, Statements of Operations, and
Statements of Cash Flows. Such exposure is due primarily to
changing interest rates.
Interest Rates
The primary objective for our investment activities is to
preserve principal while maximizing yields without significantly
increasing risk. This is accomplished by investing excess cash in
highly liquid debt and equity investments of highly rated entities
which are classified as trading securities.
Off-Balance Sheet Arrangements
We have no significant known off balance sheet arrangements.
Item 3. Quantitative and Qualitative Disclosures About Market
Risk.
We do not hold any derivative instruments and do not engage in
any hedging activities.
Item 4. Controls and Procedures.
(a) Evaluation of Disclosure Controls and Procedures.
Pursuant to Rule 13a- 15(b) under the Exchange Act, the Company
carried out an evaluation, with the participation of the Company's
management, including the Company's Principal Executive Officer
("PEO") and Principal Financial Officer ("PFO"), of the
effectiveness of the Company's disclosure controls and procedures
(as defined under Rule 13a-15(e) under the Exchange Act) as of the
end of the period covered by this report.
Subsequent to the initial filing of the Company's annual report
on Form 10-K for the year ended December 31, 2017, a special
committee of the board of directors of the Company was formed. This
special committee engaged independent outside legal counsel who
engaged independent outside forensic accountants to assist it with
an investigation to gather certain facts relevant to the Company's
financial statements. The Audit Committee subsequently identified
misstatements relevant to the Company's historical revenue
recognition, expense accrual and inventory valuation policies and
procedures. These misstatements resulted in a material misstatement
of the financial statements and required restatement of the
financial statements included in the Company's Form 10-K for the
fiscal year ended December 31, 2017 and in the Company's Forms 10-Q
for the quarterly periods ended June 30, 2017 and September 30,
2017. These misstatements, which were not detected timely by
management, were the result of inadequate design of controls
pertaining to the Company's review and ongoing monitoring of its
revenue recognition, expense accrual and inventory valuation
policies. The deficiency represents a material weakness in the
Company's internal control over financial reporting.
As of June 30, 2017 and based upon that evaluation, including
the fact that the Company has had to file restatements of its
condensed consolidated financial statements, the Company's PEO and
PFO concluded that the Company's disclosure controls and procedures
were not effective to ensure that information required to be
disclosed by the Company in the reports that the Company files or
submits under the Exchange Act, are recorded, processed, summarized
and reported, within the time periods specified in the SEC's rules
and forms, and that such information is accumulated and
communicated to the Company's management, including the Company's
PEO and PFO, as appropriate, to allow timely decisions regarding
required disclosure. Management is actively engaged in the planning
for and implementation of remediation efforts to address the
material weakness identified above. The remediation plan includes
i) hiring and/or engagement of additional qualified personnel, (ii)
the implementation of new controls designed to evaluate the
appropriateness of revenue recognition policies and procedures,
iii) the implementation of review and monitoring of transactions to
ensure compliance with the new policies and procedures, and iv) the
training of personnel responsible for revenue and inventory.
(b) Changes in Internal Control over Financial Reporting.
There were no changes in our internal control over financial
reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the
Exchange Act, during our most recently completed fiscal quarter
that have materially affected, or are reasonably likely to
materially affect, our internal control over financial
reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
From time to time, we are a party to litigation and subject to
claims incident to the ordinary course of business. Future
litigation may be necessary to defend ourselves and our customers
by determining the scope, enforceability and validity of third
party proprietary rights or to establish our proprietary
rights.
On August 17, 2016, the Company entered into a Settlement Deed
(the "Settlement Agreement") by and among the Company, ChubeWorkx
Guernsey Limited ("Chube"), Thirty Six Strategies, LLC ("36S"),
Gavin Moran ("Mr. Moran") and Frank Runge ("Mr. Runge") (each, a
"Party" and, collectively, the "Parties") to resolve disputes
related to (i) the Company's claims brought against Chube in United
States District Court, District of New Jersey for outstanding
amounts due to the Company pursuant to that certain promissory note
(the "Note") issued in favor of Chube on December 31, 2014
("Dispute 1"); (ii) various claims brought by Chube against the
Company brought in The High Court of Justice, Queen's Bench
Division Commercial Court, Royal Courts of Justice, United Kingdom
arising out that certain Licensing and Supply Agreement, as amended
(the "License Agreement"), pursuant to which Chube was granted a
worldwide, exclusive license to import, offer for sale, sell,
distribute, use, promote or label certain products using the
Company's intellectual property ("Dispute 2") and (iii) various
claims brought by the Company against 36S, Mr. Moran and Mr. Runge
in the United States District Court, District of New Jersey,
related to that certain Distribution Agreement entered into by and
between the Company and 36S on October 5, 2015 ("Dispute 3" and,
together with Dispute 1 and Dispute 2, the "Disputes").
Pursuant to the Settlement Agreement, all of the Disputes have
been settled and all of the proceedings related to such have been
dismissed. Under the terms of the Settlement Agreement, the Company
recovered the full outstanding principal amount of the Note during
the 2016 fiscal year in the form of $750,000 worth of BreathScan(R)
Alcohol Detector stock to inventory (which the Company intends to
subsequently sell) and $500,000 in prepaid royalty (the "Cash
Payment"). In addition, the Settlement Agreement also allows the
Company to market and sell all of the Company's breath technology
tests worldwide, unencumbered by any past and/or future claims by
Chube under the Licensing Agreement. Pursuant to the Settlement
Agreement, Chube no longer holds any rights pertaining to the
Company's BreathScan(R) technology.
In return for the Company regaining the full rights to sell its
breath technology products, among other things, Chube will receive
a royalty of 5% of the Company's gross revenues (the "Chube
Royalty") totaling $5,000,000, after which Chube will no longer be
entitled to receive any royalties and the Company shall have no
further obligations to Chube. The Settlement Agreement further
allows the Company to retain 50% of the Chube Royalty until the
Cash Payment has been made.
In connection with the Settlement Agreement, on August 17, 2016,
the Company and Chube entered into a Security Agreement pledging
all of the Company's assets including all inventory and receivables
(but excluding the specific assets referred to in the Settlement
Agreement) in order to secure the Chube Royalty, and as security
for the settlement sum which remains unpaid by the Company to
Chube, the Company pledged all (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. Upon payment of the Chube Royalty to
Chube the Security Agreement is terminated and the Company's assets
become unencumbered.
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 the alleged breach. Additionally, Pulse alleges
false advertising and unlawful trade practices in connection with
the Company's sales activities relating to the Company's
OxiChek(TM) products.
The Company filed a series of motions with the Court seeking (1)
to dismiss the Pulse complaint for lack of jurisdiction or, in the
alternative, transfer the matter to the District Court for the
District of New Jersey, Camden Vicinage and (2) to dismiss the
unfair competition claims for failure to state a claim on which
relief could be granted. Oral arguments on these motions were heard
by the Court on March 10, 2017.
The Court decided by order dated April 14, 2017 in favor of the
Company and has dismissed with prejudice the claims brought by
Pulse for unfair competition (both federal and state counts). The
court decided against the Company in its motions for transfer of
venue and for lack of jurisdiction. As such, the case is proceeding
in the District Court of Oregon.
Pulse subsequently filed an Amended Complaint, in which Pulse
seeks not less than $500,000 in damages and, among other items, an
injunction prohibiting the Company from manufacture, use and sale
of the OxiChek product. The Company answered the Amended Complaint
on May 30, 2017. Discovery commenced in April 2017 and is scheduled
to conclude on October 2, 2017. The Court has set the trial date
for July 17, 2018.
The Company intends to establish a rigorous defense of all
claims. As the case has not progressed beyond initial motion
practice and early discovery, the Company is unable to assess the
potential outcome, no accrual for losses was made as of June 30,
2017. All legal fees were expensed as and when incurred.
With the exception of the foregoing, we are not currently
involved in any litigation that we believe could have a materially
adverse effect on our financial condition or results of operations.
There is no action, suit, proceeding, inquiry or investigation
before or by any court, public board, government agency,
self-regulatory organization or body pending or, to the knowledge
of the executive officers of our Company, threatened against or
affecting our Company or our common stock, in which an adverse
decision could have a material adverse effect.
Item 1A. Risk Factors.
We believe there are no changes that constitute material changes
from the risk factors previously disclosed in our Annual Report on
Form 10-K, filed with the SEC on April 11, 2017.
Item 2. Unregistered Sales of Equity Securities and Use of
Proceeds.
There were no unregistered sales of the Company's equity
securities during the quarter ended June 30, 2017, other than those
previously reported in a Current Report on Form 8-K.
Item 3. Defaults Upon Senior Securities.
There has been no default in the payment of principal, interest,
sinking or purchase fund installment, or any other material
default, with respect to any indebtedness of the Company.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
There is no other information required to be disclosed under
this item which was not previously disclosed.
Item 6. Exhibits.
31.1 Certification by the Principal Executive Officer of Registrant pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002 (Rule 13a-14(a) or Rule 15d-14(a)). *
31.2 Certification by the Principal Financial Officer of Registrant pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002 (Rule 13a-14(a) or Rule 15d-14(a)). *
32.1 Certification by the Principal Executive Officer pursuant to 18 U.S.C. 1350 as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002. *
32.2 Certification by the Principal Financial Officer pursuant to 18 U.S.C. 1350 as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002. *
101.INS XBRL Instance Document
101.SCH XBRL Taxonomy Extension Schema
101.CAL XBRL Taxonomy Extension Calculation Linkbase
101.DEF XBRL Taxonomy Extension Definition Linkbase
101.LAB XBRL Taxonomy Extension Label Linkbase
101.PRE XBRL Taxonomy Extension Presentation Linkbase
* Filed herewith
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
AKERS BIOSCIENCES, INC.
Date: July 13, 2018 By: /s/ John J. Gormally
-------------------------------------
Name: John J. Gormally
Title: Chief Executive Officer
(Principal Executive Officer)
Date: July 13, 2018 By: /s/ Gary M. Rauch
-------------------------------------
Name: Gary M. Rauch
Title: Vice President, Finance and Treasurer
(Principal Financial Officer)
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
I, John J. Gormally, certify that:
1. I have reviewed this Form 10-Q/A, Amendment No.1, of Akers Biosciences, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to the period covered by
this report;
3. Based on my knowledge, the financial statements, and other financial information included
in this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this
report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e))
and internal control over financial reporting (as defined in Exchange Act Rules 13-a-15(f)
and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures
to be designed under our supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented
in this report our conclusions about the effectiveness of the disclosure controls and procedures,
as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant's internal control over financial reporting
that occurred during the registrant's most recent fiscal quarter (the registrant's fourth
fiscal quarter in the case of an annual report) that has materially affected, or is reasonably
likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrant's auditors and
the audit committee of the registrant's board of directors (or persons performing the equivalent
functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal
control over financial reporting which are reasonably likely to adversely affect the registrant's
ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant's internal control over financial reporting.
Date: July 13, 2018 By: /s/ John J. Gormally
---------------------------
John J. Gormally
Principal Executive Officer
Akers Biosciences, Inc.
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
I, Gary M. Rauch, certify that:
1. I have reviewed this Form 10-Q/A, Amendment No.1 of Akers Biosciences, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to the period covered by
this report;
3. Based on my knowledge, the financial statements, and other financial information included
in this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this
report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e))
and internal control over financial reporting (as defined in Exchange Act Rules 13-a-15(f)
and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures
to be designed under our supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented
in this report our conclusions about the effectiveness of the disclosure controls and procedures,
as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant's internal control over financial reporting
that occurred during the registrant's most recent fiscal quarter (the registrant's fourth
fiscal quarter in the case of an annual report) that has materially affected, or is reasonably
likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrant's auditors and
the audit committee of the registrant's board of directors (or persons performing the equivalent
functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal
control over financial reporting which are reasonably likely to adversely affect the registrant's
ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant's internal control over financial reporting.
Date: July 13, 2018 By: /s/ Gary M. Rauch
---------------------------
Gary M. Rauch
Principal Financial Officer
Akers Biosciences, Inc.
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF
THE SARBANES-OXLEY ACT OF 2002
In connection with this Quarterly Report of Akers Biosciences,
Inc. (the "Company"), on Form 10-Q/A, Amendment No.1, for the
period ended June 30, 2017, as filed with the U.S. Securities and
Exchange Commission on the date hereof, I, John J. Gormally,
Principal Executive Officer of the Company, certify to the best of
my knowledge, pursuant to 18 U.S.C. Sec. 1350, as adopted pursuant
to Sec. 906 of the Sarbanes-Oxley Act of 2002, that:
(1) Such Quarterly Report on Form 10-Q/A for the period ended June 30, 2017, fully complies with
the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in such Quarterly Report on Form 10-Q/A for the period ended June
30, 2017, fairly presents, in all material respects, the financial condition and results of
operations of the Company.
Date: July 13, 2018 By: /s/ John J. Gormally
---------------------------
John J. Gormally
Principal Executive Officer
Akers Biosciences, Inc.
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF
THE SARBANES-OXLEY ACT OF 2002
In connection with this Quarterly Report of Akers Biosciences,
Inc. (the "Company"), on Form 10-Q/A, Amendment No.1, for the
period ended June 30, 2017, as filed with the U.S. Securities and
Exchange Commission on the date hereof, I, Gary M. Rauch, Principal
Financial Officer of the Company, certify to the best of my
knowledge, pursuant to 18 U.S.C. Sec. 1350, as adopted pursuant to
Sec. 906 of the Sarbanes-Oxley Act of 2002, that:
(1) Such Quarterly Report on Form 10-Q/A for the period ended June 30, 2017, fully complies with
the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in such Quarterly Report on Form 10-Q/A for the period ended June
30, 2017, fairly presents, in all material respects, the financial condition and results of
operations of the Company.
Date: July 13, 2018 By: /s/ Gary M. Rauch
---------------------------
Gary M. Rauch
Principal Financial Officer
Akers Biosciences, Inc.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR FKPDNPBKDNOD
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