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 disposable breathalyzer 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 correction of these errors and misstatements
has a material impact on the condensed consolidated financial statements as of and for the nine months ended September 30, 2017.
There is no impact on the condensed consolidated financial statements for the three months ended September 30, 2017. As a result,
the Company is restating its condensed consolidated financial statements as of and for the nine months ended September 30, 2017.
See below for a reconciliation of the previously reported amounts to the restated amounts.
The
table below sets forth the condensed consolidated balance sheets, including the balances originally reported, corrections and
the as restated balances:
|
|
As
of September 30, 2017
|
|
|
|
As
Reported
|
|
|
Correction
|
|
|
As
Restated
|
|
Trade
Receivables – Related Party, net
|
|
|
125,001
|
|
|
|
(125,001
|
)
|
|
|
-
|
|
Inventories,
net
|
|
|
2,085,867
|
|
|
|
62,140
|
|
|
|
2,148,007
|
|
Total
Current Assets
|
|
|
3,983,292
|
|
|
|
(62,861
|
)
|
|
|
3,920,431
|
|
Total
Assets
|
|
|
5,528,333
|
|
|
|
(62,861
|
)
|
|
|
5,465,472
|
|
Trade
and Other Payables
|
|
|
1,549,047
|
|
|
|
88,500
|
|
|
|
1,637,547
|
|
Total
Current Liabilities
|
|
|
1,581,792
|
|
|
|
88,500
|
|
|
|
1,670,292
|
|
Total
Liabilities
|
|
|
1,581,792
|
|
|
|
88,500
|
|
|
|
1,670,292
|
|
Accumulated
Deficit
|
|
|
(100,673,108
|
)
|
|
|
(151,361
|
)
|
|
|
(100,824,469
|
)
|
Total
Stockholder’s Equity
|
|
|
3,946,541
|
|
|
|
(151,361
|
)
|
|
|
3,795,180
|
|
Total
Liabilities and Stockholders’ Equity
|
|
|
5,528,333
|
|
|
|
(62,861
|
)
|
|
|
5,465,472
|
|
The
table below sets for the condensed consolidated statements of income, including the balances originally reported, corrections,
and the restated amounts:
|
|
For
the nine months ended September 30, 2017
|
|
|
|
As
Reported
|
|
|
Correction
|
|
|
As
Restated
|
|
Product
revenue
|
|
$
|
2,378,811
|
|
|
$
|
(370
|
)
|
|
$
|
2,378,441
|
|
Product
revenue – Related party
|
|
|
124,631
|
|
|
|
(124,631
|
)
|
|
|
-
|
|
Product
Cost of Sales
|
|
|
(846,487
|
)
|
|
|
(26,360
|
)
|
|
|
(872,847
|
)
|
Gross
Income
|
|
|
1,694,455
|
|
|
|
(151,361
|
)
|
|
|
1,543,094
|
|
Loss
from Operations
|
|
|
(3,209,039
|
)
|
|
|
(151,361
|
)
|
|
|
(3,360,400
|
)
|
Loss
Before Income Taxes
|
|
|
(3,193,571
|
)
|
|
|
(151,361
|
)
|
|
|
(3,344,932
|
)
|
Net
Loss Attributable to Common Stockholders
|
|
|
(3,193,571
|
)
|
|
|
(151,361
|
)
|
|
|
(3,344,932
|
)
|
Comprehensive
Loss
|
|
|
(3,193,571
|
)
|
|
|
(151,361
|
)
|
|
|
(3,344,932
|
)
|
Loss
per share
|
|
$
|
(0.39
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.40
|
)
|
The
table below sets forth the condensed consolidated statements of shareholders' equity, including the balances originally reported,
corrections and the as restated balances:
|
|
As
Reported
|
|
|
Correction
|
|
|
As
Restated
|
|
Net
loss, for the nine months ended September 30, 2017
|
|
$
|
(3,193,571
|
)
|
|
$
|
(151,361
|
)
|
|
$
|
(3,344,932
|
)
|
Accumulated
Deficit, as of September 30, 2017
|
|
|
(100,673,108
|
)
|
|
|
(151,361
|
)
|
|
|
(100,824,469
|
)
|
Total
Equity, as of September 30, 2017
|
|
|
3,946,541
|
|
|
|
(151,361
|
)
|
|
|
3,795,180
|
|
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 nine months ended September 30, 2017
|
|
|
|
As
Reported
|
|
|
Correction
|
|
|
As
Restated
|
|
Net
loss
|
|
$
|
(3,193,571
|
)
|
|
$
|
(151,361
|
)
|
|
$
|
(3,344,932
|
)
|
(Increase)/Decrease
in trade receivables – related party
|
|
|
(93,109
|
)
|
|
|
125,001
|
|
|
|
31,892
|
|
Increase
in inventories
|
|
|
(49,346
|
)
|
|
|
(62,140
|
)
|
|
|
(111,486
|
)
|
Decrease
in trade and other payables
|
|
|
85,685
|
|
|
|
88,500
|
|
|
|
174,185
|
|
Net
cash used in operating activities
|
|
|
(3,654,858
|
)
|
|
|
-
|
|
|
|
(3,654,858
|
)
|
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, 15, 16,
17 and 20 has been restated.
AKERS
BIOSCIENCES, INC. AND SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements
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 September 30, 2017 and its results of operations and cash
flows for the three and nine months ended September 30, 2017 and 2016. The results of operations for the three and nine months
ended September 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.
(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 4.
AKERS
BIOSCIENCES, INC. AND SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements
(g)
Fair Value Measurement – Marketable Securities
The
framework for measuring fair value provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to
measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets
or liabilities (level 1) and the lowest priority to unobservable inputs (level 3). The three levels of the fair value hierarchy
under FASB ASC 820 are described as follows:
|
Level
1
|
Inputs
to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the Company
has the ability to access.
|
|
|
|
|
Level
2
|
Inputs
to the valuation methodology include
|
|
|
●
|
quoted
prices for similar assets or liabilities in active markets;
|
|
|
●
|
quoted
prices for identical or similar assets or liabilities in inactive markets;
|
|
|
●
|
inputs
other than quoted prices that are observable for the asset or liability;
|
|
|
●
|
inputs
that are derived principally from or corroborated by observable market data by correlation or other means.
|
If
the asset or liability has a specified (contractual) term, the level 2 input must be observable for substantially the full term
of the asset or liability.
|
Level
3
|
Inputs
to the valuation methodology are unobservable and significant to the fair value measurement.
|
The
asset or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of input
that is significant to the fair value measurement. Valuation techniques maximize the use of relevant observable inputs and minimize
the use of unobservable inputs.
(h)
Trade Receivables, Trade Receivables – Related Parties 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.
AKERS
BIOSCIENCES, INC. AND SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements
As
of September 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 $- and $47,741 for the three month and nine months ended September 30, 2017 and a
credit of $1,299,609 and a credit of $1,153,414 for the three and nine months ended September 30, 2016. The credit of $1,153,414
comprises the reversal of an allowance for bad debts expense – related party of $1,299,609 and an allowance for bad debts
for an external party of $146,195 included in the administrative expenses for the nine months ended September 30, 2016.
As
of September 30, 2017 and December 31, 2016, the aging of trade receivables and trade receivables – related parties was
as follows:
|
|
September
30
|
|
|
|
|
|
December
31
|
|
|
|
|
Aging
Period
|
|
2017
|
|
|
%
|
|
|
2016
|
|
|
%
|
|
|
|
(restated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
907,225
|
|
|
|
69
|
%
|
|
$
|
464,365
|
|
|
|
28
|
%
|
01-30
Days
|
|
|
41,746
|
|
|
|
3
|
%
|
|
|
43,223
|
|
|
|
3
|
%
|
31-60
Days
|
|
|
50,000
|
|
|
|
3
|
%
|
|
|
39,203
|
|
|
|
2
|
%
|
61-90
Days
|
|
|
101,093
|
|
|
|
7
|
%
|
|
|
6,150
|
|
|
|
0
|
%
|
>90
Days
|
|
|
217,468
|
|
|
|
16
|
%
|
|
|
1,090,418
|
|
|
|
66
|
%
|
Subtotal
|
|
|
1,317,532
|
|
|
|
-
|
|
|
|
1,643,359
|
|
|
|
-
|
|
Bad
Debts Allowance
|
|
|
(192,435
|
)
|
|
|
-
|
|
|
|
(1,010,196
|
)
|
|
|
-
|
|
Total
|
|
$
|
1,125,097
|
|
|
|
-
|
|
|
$
|
633,163
|
|
|
|
-
|
|
Average
Days in Receivable
|
|
|
224
|
|
|
|
|
|
|
|
194
|
|
|
|
|
|
The
aging above represents the number of days that the account receivable balance exceeds the credit terms. Included in the current
category is accounts receivable of $450,000 and $- as of September 30, 2017 and December 31, 2016 with payment terms extended
to 180 days.
(i)
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 $130,053 and $67,865 with Fulton Bank
of New Jersey, $1,040 and $795 with Bank of America, NA and $4,040 and $4,040 with PayPal as of September 30, 2017 and December
31, 2016. No losses have been incurred in these accounts.
Four
customers accounted for
76% of trade receivables as of September 30, 2017. To limit such risks, the Company performs ongoing credit evaluations of its
customers’ financial condition.
(j)
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.
(k)
Property, Plant and Equipment
Items
of property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses. Costs include
expenditures that are directly attributable to the acquisition of the asset.
Gains
and losses on disposal of an item of property, plant and equipment are determined by comparing the proceeds from disposal with
the carrying amount of property, plant and equipment and are recognized within “other income” in the 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.
(l)
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 September 30, 2017, the Company has ten patents from the United States Patent Office in effect
(9,383,368; 7,896,167; 8,097,171; 8,003,061; 8,425,859; 8,871,521; 8,808,639; D691,056; D691,057 and D691,058). Other patents
are in effect in Australia through the Design Registry (348,310; 348,311 and 348,312), European Union Patents 1793906, 2684025,
002216895-0001; 002216895-0002 and 002216895-0003), 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.
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
Amortization
is recognized on a straight-line basis over the estimated useful lives of intangible assets, other than goodwill, from the date
that they are available for use. The estimated useful lives for the current and comparative periods are as follows:
|
Useful
Life
|
|
(in
years)
|
Patents
and trademarks
|
12-17
|
Customer
lists
|
5
|
(m)
Recoverability of Long Lived Assets
In
accordance with FASB ASC 360-10-35 “Impairment or Disposal of Long-lived Assets”, long-lived assets to be held and
used are analyzed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may
not be fully recoverable or that the useful lives of those assets are no longer appropriate. The Company evaluates at each balance
sheet date whether events and circumstances have occurred that indicate possible impairment.
The
Company determines the existence of such impairment by measuring the expected future cash flows (undiscounted and without interest
charges) and comparing such amount to the carrying amount of the assets. An impairment loss, if one exists, is then measured as
the amount by which the carrying amount of the asset exceeds the discounted estimated future cash flows. Assets to be disposed
of are reported at the lower of the carrying amount or fair value of such assets less costs to sell. Asset impairment charges
are recorded to reduce the carrying amount of the long-lived asset that will be sold or disposed of to their estimated fair values.
Charges for the asset impairment reduce the carrying amount of the long-lived assets to their estimated salvage value in connection
with the decision to dispose of such assets.
(n)
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.
(o)
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 September 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 $27,073 and $18,858, which is a reduction
of revenue as of September 30, 2017 and December 31, 2016. Accounts receivable will be reduced when the rebates are applied by
the customer. The Company recognized $51,791 and $222,469 during the three and nine months ended September 30, 2017 and $84,128
and $299,781 for the three and nine months ended September 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.
(p)
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
(q)
Shipping and Handling Fees and Costs
The
Company charges actual shipping plus a handling fee to customers, which amounted to $13,679 and $12,321 for the three months ended
September 30, 2017 and 2016 and to $47,148 and $42,754 for the nine months ended September 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
$16,148 and $63,719 for the three and nine months ended September 30, 2017 and to $19,695 and $88,427 for the three and nine months
ended September 30, 2016.
(r)
Research and Development Costs
In
accordance with FASB ASC 730, research and development costs are expensed when incurred.
(s)
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
(t)
Basic and Diluted Earnings per Share of Common Stock (restated)
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.
The
table below details the classification of the basic and diluted income/(loss) per share for the three and nine months ended September
30, 2017 and 2016:
|
|
Three
months ended
|
|
|
Nine
months ended
|
|
|
|
September
30,
|
|
|
September
30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
(restated)
|
|
|
|
|
Numerator
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income/(Loss)
|
|
$
|
(1,177,644
|
)
|
|
$
|
310,155
|
|
|
$
|
(3,344,932
|
)
|
|
$
|
(2,207,707
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
Average Basic Common Shares Outstanding
|
|
|
8,892,079
|
|
|
|
5,434,212
|
|
|
|
8,268,851
|
|
|
|
5,428,859
|
|
Add
the Dilutive Effect of Stock Options
|
|
|
-
|
|
|
|
56,000
|
|
|
|
-
|
|
|
|
-
|
|
Stock
Warrants
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Unvested
Restricted Shares
|
|
|
-
|
|
|
|
18,333
|
|
|
|
-
|
|
|
|
-
|
|
Weighted
Average Basic and Diluted Common Shares Outstanding
|
|
|
8,892,079
|
|
|
|
5,508,545
|
|
|
|
8,268,851
|
|
|
|
5,428,859
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income/(Loss)
per Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.13
|
)
|
|
$
|
0.06
|
|
|
$
|
(0.40
|
)
|
|
$
|
(0.41
|
)
|
Diluted
|
|
$
|
(0.13
|
)
|
|
$
|
0.06
|
|
|
$
|
(0.40
|
)
|
|
$
|
(0.41
|
)
|
(u)
Reclassifications
Certain
prior year amounts have been reclassified to conform to the current year’s presentation.
(v)
Recently Adopted Accounting Pronouncements
As
of September 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.
(w)
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. 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.
AKERS
BIOSCIENCES, INC. AND SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements
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.
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 ten
months ending October 31, 2017, the Company raised approximately $1.7 million in a public offering, $1.8 million from a private
placement of common stock and an additional $982,000 from the execution of warrants (Notes 11 and 20). As of November 10, 2017,
the Company had cash and marketable securities of approximately $432,000 and working capital of approximately $2.6 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. The Company has prepared the initial Go-To-Market Plan (“GTM Plan”) for 2018 and will present
the completed GTM Plan to the Board of Directors on December 19, 2017 for final approval.
Implementation
of the Strat Plan began in January 2017 and although management remains committed to the overall strategy, the Company will not
meet the Strat Plan’s revenue targets for 2017. The Company had anticipated the market introduction of its over-the-counter
Tri-Cholesterol test in the first half and its PIFA Chlamydia Rapid Assay product during the third quarter of 2017, both of which
were delayed.
The
Company encountered significant delays from raw material vendors for critical components of the Tri-Cholesterol test which resulted
in the product’s first commercial production to be postponed into the third quarter. The first shipments of the product
began at the end of September 2017 and feedback from the customer has been favorable. Three additional orders totaling $110,000
have been received.
The
PIFA Chlamydia Rapid Assay test’s introduction has been delayed into 2018 due to unanticipated requests for additional clinical
data from the United Stated Food & Drug Administration (“FDA”). The FDA’s approval of the 510(k) application
is required to begin production and commercialization of the product.
The
Company continues to encounter periods of cash shortages and is proactively working to minimize their impact on operations. The
Company expects to achieve a cash-flow positive position during the next twelve months based upon the revised revenue targets
as outlined in the Strat Plan and the 2018 GTM Plan. The Company is actively pursuing financing options with various financial
institution, investment banks and other sources to enhance The Company’s liquidity while minimizing dilution to the shareholders.
AKERS
BIOSCIENCES, INC. AND SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements
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 our weekly operating cash requirements of approximately
19% to $80,253 (2015: $98,699).
The
Company 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.
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.
D
uring
the nine months ended September 30, 2017, the Company’s average weekly operating cash requirement increased to $93,714 (2016:
$88,341). The increase resulted from 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, professional service fees
and other payments for contractual obligations. Many of these items are one-time events and the Company anticipates the cash requirements
to revert to the $85,000 to $90,000 per week by the end of 2017.
Substantial
doubt exists about the Company’s ability to continue as a going concern within one year after the financial statements are
issued. The Company has identified three conditions or events that support this determi
nation:
The
Company’s current working capital position.
The
Company is working diligently to raise additional working capital either through various financial institutions, investment banks
or other sources while minimizing dilution to the shareholders.
Executive
management continues to monitor expenses and directives are in place to restrict non-essential expenses until the working capital
situation is resolved.
Negotiations
are underway with a potential customer for the Company’s BreathScan OxiChek products and are anticipated to be completed
during the three months ending December 31, 2017; however, they have requested product design changes that must be completed prior
to the consummation of the purchase agreement. All parties are confident that a solution can be achieved but a significant delay
will impact revenue projections.
The
Company’s engineers are working with the potential customer’s scientific officer to develop a device to support their
unique requirements.
The
Company is awaiting a 510(k) approval from the United States Food & Drug Administration (“FDA”) for its PIFA Chlamydia
product. An extended delay in receipt of this approval will negatively impact revenue projections.
The
Company is actively working with the FDA’s examiner to insure requests for additional data and responses to questions are
completed as quickly as possible.
Note
5 - Fair Value Measurement - Marketable Securities
Following
is a description of the valuation methodologies used for assets measured at fair value as of September 30, 2017 and December 31,
2016.
U.S.
Agency Securities, Corporate and Municipal Securities and Certificates of Deposits:
Valued using pricing models maximizing
the use of observable inputs for similar securities. This includes basing value on yields currently available on comparable securities
of issuers with similar credit ratings.
|
|
As
of September 30, 2017
|
|
|
|
|
|
|
Accrued
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Income
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
Level
2:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money
market funds
|
|
$
|
10,000
|
|
|
$
|
1
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
10,001
|
|
Municipal
securities
|
|
|
-
|
|
|
|
177
|
|
|
|
-
|
|
|
|
-
|
|
|
|
177
|
|
Total
Level 2:
|
|
|
10,000
|
|
|
|
178
|
|
|
|
-
|
|
|
|
-
|
|
|
|
10,178
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total:
|
|
$
|
10,000
|
|
|
$
|
178
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
10,178
|
|
AKERS
BIOSCIENCES, INC. AND SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements
|
|
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 U.S. agency securities, corporate securities, 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 an unrealized loss of $1,009 and $- (net of effect of income tax expense of
$-) for the three and nine months ended September 30, 2017 and an unrealized loss of $2,837 and an unrealized gain of $3,691 for
the three and nine months ended September 30, 2016.
Proceeds
from the sale of marketable securities in the three and nine months ended September 30, 2017 were $1,003,565 and $2,749,119 and
were $950,514 and $3,452,833 for the three and nine months ended September 30, 2016. Gross gains, resulting from these sales,
amounted to $1,719 and $1,269 for the three months ended September 30, 2017 and 2016 and $3,375 and $3,421 for the nine months
ended September 30, 2017 and 2016.
Note
6 - Trade Receivables – Related Parties (restated)
Trade
receivables – related parties are made up of amounts due from related parties of 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:
|
|
September
30, 2017
|
|
|
December
31, 2016
|
|
|
|
(restated)
|
|
|
|
|
Raw
Materials
|
|
$
|
473,443
|
|
|
$
|
440,316
|
|
Sub-Assemblies
|
|
|
909,998
|
|
|
|
907,989
|
|
Finished
Goods
|
|
|
807,973
|
|
|
|
749,488
|
|
Reserve
for Obsolescence
|
|
|
(43,407
|
)
|
|
|
(61,272
|
)
|
|
|
$
|
2,148,007
|
|
|
$
|
2,036,521
|
|
AKERS
BIOSCIENCES, INC. AND SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements
Obsolete
inventory charged to cost of goods during the three and nine months ended September 30, 2017 totaled $2,664 and $3,158 and $24,965
and $27,933 was charged for the three and nine months ended September 30, 2016.
Note
8 - Property, Plant and Equipment
Property,
plant and equipment consists of the following:
|
|
September
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
|
|
|
2,203,700
|
|
|
|
2,149,165
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
242,048
|
|
|
$
|
259,392
|
|
Depreciation
expenses totaled $18,709 and $54,536 for the three and nine months ended September 30, 2017 and $65,264 and $93,615 for the three
and nine months ended September 30, 2016.
Note
9 - Intangible Assets
Intangible
assets as of September 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
September 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
|
|
|
128,331
|
|
|
|
-
|
|
|
|
128,331
|
|
Disposals
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
At
September 30, 2017
|
|
$
|
1,453,552
|
|
|
$
|
1,270,639
|
|
|
$
|
2,724,191
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Book Value
|
|
|
|
|
|
|
|
|
|
|
|
|
At
December 31, 2016
|
|
$
|
1,301,775
|
|
|
$
|
-
|
|
|
$
|
1,301,775
|
|
At
September 30, 2017
|
|
$
|
1,173,444
|
|
|
$
|
-
|
|
|
$
|
1,173,444
|
|
Amortization
expense totaled $42,777 and $128,331 during the three and nine months ended September 30, 2017 and $42,777 and $128,331 for the
three and nine months ended September 30, 2016.
AKERS
BIOSCIENCES, INC. AND SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements
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:
|
|
September
30, 2017
|
|
|
December
31, 2016
|
|
|
|
(restated)
|
|
|
|
|
Trade
Payables
|
|
$
|
1,044,056
|
|
|
$
|
923,311
|
|
Accrued
Expenses
|
|
|
533,741
|
|
|
|
480,302
|
|
Deferred
Compensation
|
|
|
59,750
|
|
|
|
59,750
|
|
|
|
$
|
1,637,547
|
|
|
$
|
1,463,363
|
|
Trade
and other payables – related party are as follows:
|
|
September
30, 2017
|
|
|
December
31, 2017
|
|
Trade
Payables
|
|
$
|
20,245
|
|
|
$
|
182,001
|
|
Accrued
Expenses
|
|
|
-
|
|
|
|
52,066
|
|
|
|
$
|
20,245
|
|
|
$
|
234,067
|
|
As
of September 30, 2017, the Company owed ChubeWorkx Guernsey Limited, a major shareholder, royalties of $17,164 (Note 14) which
was paid on October 24, 2017.
As
of September 30, 2017, the Company owed Hainan $670. Senior management at Hainan are actively involved in Shenzhen Savy-Akers
Biosciences (“Shenzhen”) which is therefore being included as a related party. The Company owed Shenzhen $2,411 as
of September 30, 2017.
Trade
and other payables are non-interest bearing and are normally settled on 30 – 60 day terms.
AKERS
BIOSCIENCES, INC. AND SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements
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 will provide for the issuance of up to 400,000 shares. The purpose of the Plan is to provide
additional incentive to those officers, employees, consultants and non-employee directors of the Company and its parents, subsidiaries
and affiliates whose contributions are essential to the growth and success of the Company’s business.
On
January 9, 2015, the Board of Directors of the Company approved, upon recommendation from the Compensation Committee of the Board,
by unanimous written consent the Amended and Restated 2013 Incentive Stock and Award Plan (the “Amended Plan”), which
increases the number of authorized shares of common stock subject to the Plan to 800,000 shares.
On
September 30, 2016, the Board of Directors increased the number of authorized shares of common stock subject to the Amended Plan
to 830,000 shares. As of September 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 7,292 shares of common stock remain available for
grants.
On
August 7, 2017, the Shareholders approved and the Company adopted the 2017 Equity Incentive Plan (the “Plan”) which
will provide for the issuance of up to 1,350,000 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.
The
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.
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 nine months ended September 30, 2017.
The
following table summarizes the option activities for the nine months ended September 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
|
|
|
(4,000
|
)
|
|
|
3.25
|
|
|
|
3.89
|
|
|
|
—
|
|
Canceled/Expired
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Balance
at September 30, 2017
|
|
|
255,000
|
|
|
$
|
4.25
|
|
|
|
2.27
|
|
|
$
|
—
|
|
Exercisable
as of September 30, 2017
|
|
|
250,334
|
|
|
$
|
4.27
|
|
|
|
2.24
|
|
|
$
|
—
|
|
AKERS
BIOSCIENCES, INC. AND SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements
The
aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the closing
stock price of $0.81 for our common shares on September 29, 2017.
A
summary of the Company’s non-vested shares as of September 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
|
|
|
(11,168
|
)
|
|
|
2.07
|
|
Forfeited
|
|
|
(4,000
|
)
|
|
|
2.36
|
|
Non-vested
at September 30, 2017
|
|
|
4,666
|
|
|
$
|
2.36
|
|
Unrecognized
compensation cost related to non-vested employee stock options totaled $9,702 as of September 30, 2017. The cost is to be recognized
over a weighted average period of 0.88 years.
During
the three and nine months ended September 30, 2017, the Company incurred stock option expenses totaling $4,373 and $16,685 and
totaled $38,263 and $46,504 for the three and nine months ended September 30, 2016.
During
the nine months ended September 30, 2017, the Company issued 894,750 warrants in conjunction with the January 2017 public offering
and an additional 796,620 warrants with the March 2017 private placement. All warrants carry a five-year expiration term. The
table below summarizes the warrant activity for the nine months ended September 30, 2017:
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Weighted
|
|
|
Remaining
|
|
|
|
Number
of
|
|
|
Average
|
|
|
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 September 30, 2017
|
|
|
1,490,570
|
|
|
$
|
1.73
|
|
|
|
4.40
|
|
Exercisable
as of September 30, 2017
|
|
|
1,490,570
|
|
|
$
|
1.73
|
|
|
|
4.40
|
|
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 expenses the cost of the restricted stock awards, which is determined to be
the fair market value of the shares at the date of grant, straight-line over the period during which the restrictions lapse. For
these purposes, the fair market value of the restricted stock is determined based on the closing price of the Company’s
common stock on the grant date.
AKERS
BIOSCIENCES, INC. AND SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements
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. $5,374 and $15,784 was recorded
during the three months and nine ended September 30, 2017 as administrative expense on the Condensed Consolidated Statement of
Operations and Comprehensive Loss and the remaining $8,788 is reported as deferred compensation, a contra equity account, on the
Condensed Consolidated Balance Sheet as of September 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.
|
|
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.
AKERS
BIOSCIENCES, INC. AND SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements
|
|
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
|
|
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 nine months ended September 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 – Earnings/(Loss) per share (restated)
Diluted
net loss per share is computed using the weighted average number of common and dilutive potential common shares outstanding during
the period.
Potential
common shares consist of options, warrants and unvested restricted stock. Diluted net loss per common share was the same as basic
net loss per common share for the three months ended September 30, 2017 since the effect of options and warrants would be anti-dilutive
due to the net loss attributable to the common shareholders. Instruments excluded from dilutive earnings per share, because their
inclusion would be anti-dilutive, were as follows: incentive and award stock options – 255,000; unvested restricted shares
of common stock – 9,166; warrants – 1,490,570 as of September 30, 2017.
Potential
common shares consist of options, warrants and unvested restricted stock. Diluted net income per common share was the same as
basic net income per common share for the three months ended September 30, 2016. Dilutive Instruments included were as follows:
incentive and award stock options – 56,000; unvested restricted shares of common stock – 18,333; warrants –
- as of September 30, 2016. Instruments excluded from dilutive earnings per share, because their inclusion would be anti-dilutive,
were incentive and award stock options – 203,000 as of September 30, 2016.
AKERS
BIOSCIENCES, INC. AND SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements
Potential
common shares consist of options, warrants and unvested restricted stock. Diluted net loss per common share was the same as basic
net loss per common share for the nine months ended September 30, 2017 and 2016 since the effect of options and warrants would
be anti-dilutive due to the net loss attributable to the common shareholders. Instruments excluded from dilutive earnings per
share, because their inclusion would be anti-dilutive, were as follows: incentive and award stock options – 255,000 (2016:
203,000); unvested restricted shares of common stock – 9,166 (2016: 18,333); warrants – 1,490,570 (2016: -) as of
September 30, 2017.
Note
14 - Income Tax Expense
There
is no income tax benefit for the losses for the three months ended September 30, 2017 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.
There
is no income tax expense for the three months ended September 30, 2016 since the income arose from the reversal of an allowance
for doubtful collection of a note. This temporary difference has no tax effect for the Company due to the net operating loss carry
forwards available.
There
is no income tax benefit for the losses for the nine months ended September 30, 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 three and nine months ended September
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.
AKERS
BIOSCIENCES, INC. AND SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements
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 current fiscal year
in the form of $750,000 of BreathScan® Alcohol Detector inventory – which the Company intends to subsequently sell –
and the balance of $549,609 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 Condensed 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® technology, which serves as the basis for a number
of commercialized products including BreathScan® Alcohol Detector and BreathScan OxiChek™; and a number of products
in development.
In
return for the Company regaining the full rights to sell breath technology products, under the terms of the Settlement Agreement,
ChubeWorkx is entitled to receive a royalty of 5% of the Company’s gross revenues (the “ChubeWorkx Royalty”)
until ChubeWorkx has earned an aggregate $5,000,000, after which point ChubeWorkx will no longer be entitled to receive any royalties
from the Company and the Company shall have no further obligation to ChubeWorkx. The Settlement Agreement further allows the Company
to retain 50% of the ChubeWorkx Royalty until the full $549,609 cash component of the monies owed by ChubeWorkx to the Company
as described above has been satisfied. The Company recorded royalty expenses of $34,328 and $128,108 for the three and nine months
ended September 30, 2017 and $117,949 for the three and nine months ended September 30, 2016 which are included in sales and marketing
expenses – related party on the Condensed Consolidated Statement of Operations and Comprehensive Loss.
AKERS
BIOSCIENCES, INC. AND SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements
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.
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.
Prior
to the acquisition of the BreathScan® Alcohol Detector inventory pursuant to the Settlement Agreement from ChubeWorkx, the
Company had pre-existing inventory totaling $467,646 for the detectors purchased. During the three and nine months ended September
30, 2017, the Company sold 1.8% and 6.2% of the cumulative unit inventory and recognized revenue totaling $39,100 and $139,900
and $- for the three and nine months ended September 30, 2016.
The
Company began purchasing manufacturing molds, plastic components and the assembled BreathScan Lync™ device through Hainan
and its related party during the year ended December 31, 2016 (Note 9). The Company purchased a total of $- during the three months
ended September 30, 2017 and 2016 and $16,774 and $2,287 for the nine months ended September 30, 2017 and 2016 from this related
party. As of September 30, 2017, the Company had a prepayment credit of $25,989 with Shenzhen and owed two other related companies
of Hainan $3,081 which is included in trade and other payables – related parties on the Condensed Consolidated Balance Sheet.
Trade
receivables – related parties as of September 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 parties for the three months ended September 30, 2017 and 2016 were $- and total $- and $380 for
the nine 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.
AKERS
BIOSCIENCES, INC. AND SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements
Rent
expense for the Thorofare Lease, including related CAM charges for the three months ended September 30, 2017 and 2016 totaled
$40,440 and $40,290, respectively. Rent expenses for the Thorofare Lease, including related CAM charges totaled $121,220 and $120,870
for the nine months ended September 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, including related CAM charges totaled $6,506 and $6,506 for the three and nine months ended September
30, 2017. 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 29-month lease for warehouse space located in Pitman, New Jersey (“Pitman Lease”) with annual
rents of $39,650. The lease took effect on August 1, 2017 and runs through December 31, 2019.
Rent
expenses for the Pitman Lease totaled $6,608 for the three and nine months ended September 30, 2017. A security deposit of $4,950
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
|
|
|
Pitman
|
|
|
Equipment
|
|
|
|
|
|
|
Lease
|
|
|
Lease
|
|
|
Lease
|
|
|
Lease
|
|
|
Total
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Next
12 Months
|
|
|
132,000
|
|
|
|
25,980
|
|
|
|
39,650
|
|
|
|
6,156
|
|
|
|
203,786
|
|
Next
13-24 Months
|
|
|
132,000
|
|
|
|
17,320
|
|
|
|
39,650
|
|
|
|
6,156
|
|
|
|
195,126
|
|
Next
25-36 Months
|
|
|
33,000
|
|
|
|
-
|
|
|
|
9,913
|
|
|
|
513
|
|
|
|
43,426
|
|
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 $90,000, at no charge to NovoTek for their use
and are to be shipped upon their request. 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 September 30, 2017.
AKERS
BIOSCIENCES, INC. AND SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements
Note
17 - Major Customers (restated)
For
the three months ended September 30, 2017, two customers generated 10% or more of the Company’s revenue. Sales to these
customers accounted for 65% of the Company’s revenue. As of September 30, 2017, the amount due from these customers
was $345,201. This concentration makes the Company vulnerable to a near-term severe impact should the relationships be terminated.
For
the nine months ended September 30, 2017, three customers generated 10% or more of the Company’s revenue. Sales to these
customers accounted for 72% of the Company’s revenue. As of September 30, 2017, the amount due from these customers
was $854,103 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 September 30, 2016, two customers each generated more than 10% of the Company’s product revenue.
In aggregate, sales to these customers accounted for 74% of the Company’s product revenue. As of September 30, 2016, the
amount due from these two customers was $669,437.
For
the nine months ended September 30, 2016, three customers each generated more than 10% of the Company’s product revenue.
In aggregate, sales to these customers accounted for 80% of the Company’s product revenue. As of September 30, 2016, the
amount due from these three customers was $675,838. This concentration makes the Company vulnerable to a near-term severe impact
should the relationships be terminated.
Note
18 - Major Suppliers
For
the three months ended September 30, 2017, two suppliers accounted for 10% or more of the Company’s purchases. These suppliers
accounted for 31% of the Company’s total purchases. As of September 30, 2017, the amount due to these suppliers was $30,702.
For
the nine months ended September 30, 2017, one supplier accounted for 10% or more of the Company’s purchases. This supplier
accounted for 11% of the Company’s total purchases. As of September 30, 2017, the amount due to this supplier was $-.
For
the three months ended September 30, 2016, one supplier accounted for more than 10% of the Company’s purchases. The supplier
accounted for 86% of the Company’s total purchases. As of September 30, 2016, the amount due to the supplier was $6,908.
For
the nine months ended September 30, 2016, one supplier accounted for more than 10% of the Company’s purchases. The supplier
accounted for 61% of the Company’s total purchases. As of September 30, 2016, the amount due to the supplier was $6,908.
AKERS
BIOSCIENCES, INC. AND SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements
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™ 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.
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 January 22, 2018. 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 September 30, 2017. All legal fees were expensed as and when incurred.
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.
AKERS
BIOSCIENCES, INC. AND SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements
The
total revenue by different product lines was as follows:
|
|
Three
months ended
|
|
|
Nine
months ended
|
|
|
|
September
30,
|
|
|
September
30,
|
|
Product
Line
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
(restated)
|
|
|
|
|
MicroParticle
Catalyzed Biosensor (“MPC”)
|
|
$
|
104,094
|
|
|
$
|
85,337
|
|
|
$
|
259,601
|
|
|
$
|
195,040
|
|
Particle
ImmunoFiltration Assay (“PIFA”)
|
|
|
490,058
|
|
|
|
514,840
|
|
|
|
1,477,726
|
|
|
|
2,029,095
|
|
Rapid
Enzymatic Assay (“REA”)
|
|
|
27,500
|
|
|
|
-
|
|
|
|
27,500
|
|
|
|
-
|
|
Other
|
|
|
16,679
|
|
|
|
13,021
|
|
|
|
613,614
|
|
|
|
83,573
|
|
Product
Revenue Total
|
|
$
|
638,331
|
|
|
$
|
613,198
|
|
|
$
|
2,378,441
|
|
|
$
|
2,307,708
|
|
License
Fees
|
|
|
37,500
|
|
|
|
-
|
|
|
|
37,500
|
|
|
|
-
|
|
Total
Revenue
|
|
$
|
675,831
|
|
|
$
|
613,198
|
|
|
$
|
2,415,941
|
|
|
$
|
2,307,708
|
|
The
total revenue by geographic area determined based on the location of the customers was as follows:
|
|
Three
months ended
|
|
|
Nine
months ended
|
|
|
|
September
30,
|
|
|
September
30,
|
|
Geographic
Region
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
(restated)
|
|
|
|
|
United
States
|
|
$
|
626,077
|
|
|
$
|
603,006
|
|
|
$
|
1,755,558
|
|
|
$
|
1,721,967
|
|
People’s
Republic of China
|
|
|
-
|
|
|
|
383
|
|
|
|
502,268
|
|
|
|
506,781
|
|
Rest
of World
|
|
|
49,754
|
|
|
|
9,809
|
|
|
|
158,115
|
|
|
|
78,960
|
|
Total
Revenue
|
|
$
|
675,831
|
|
|
$
|
613,198
|
|
|
$
|
2,415,941
|
|
|
$
|
2,307,708
|
|
The
Company had long-lived assets totaling $55,504 and $61,081 located in the People’s Republic of China and $1,359,987 and
$1,500,086 located in the United States as of September 30, 2017 and December 31, 2016, respectively.
Note
21 - Subsequent Events
On
October 12, 2017, the Company entered into Warrant Exercise Agreements with the existing holders from the March 2017 private placement
to exercise their current warrants at $1.00 per share and receive a new warrant which would be convertible into the same number
of common shares as the original warrant. The new warrants have an exercise price of $1.26, expire five years from the date of
issuance and are not exercisable for six months after issuance. The incremental fair value resulting from the modification of
these warrants will be accounted for as a deemed dividend in the statement of operations.
Pursuant
to the Warrant Exercise Agreements, as of the date of the filing of this report, 724,200 warrants were exercised for the purchase
of 724,200 shares of the Company’s common stock raising net proceeds of $680,748.
On
October 17, 2017, the Board of Directors issued 295,107 restricted shares of common stock to key employees and officers of the
Company as part of the 2017 Equity Incentive Plan. The restricted stock vested immediately and were issued at the closing price
of $0.88 per share. Expenses related to the grants totaled $259,694 and will be reported on the Consolidated Statement of Operations
for the year ending December 31, 2017 as follows:
Expense
Category
|
|
2017
|
|
|
2016
|
|
General
& Administrative
|
|
$
|
163,924
|
|
|
|
-
|
|
Sales
& Marketing
|
|
|
95,770
|
|
|
|
-
|
|
|
|
$
|
259,694
|
|
|
$
|
-
|
|