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

of incorporation)

 

(IRS Employer

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.

 

 

 

 

TABLE OF CONTENTS

 

  PART I – FINANCIAL INFORMATION  
       
Item 1.   Financial Statements 4
       
Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations 32
       
Item 3.   Quantitative and Qualitative Disclosures About Market Risk 47
       
Item 4.   Controls and Procedures 47
       
  PART II – OTHER INFORMATION  
       
Item 1.   Legal Proceedings 47
       
Item 1A.   Risk Factors 48
       
Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds 49
       
Item 3.   Defaults Upon Senior Securities 49
       
Item 4.   Mine Safety Disclosures 49
       
Item 5.   Other Information 49
       
Item 6.   Exhibits 49
       
Signatures 50

 

 3 

 

 

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.

 

 4 

 

 

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.

 

 5 

 

 

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.

 

 6 

 

 

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.

 

 7 

 

 

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

)

 

 8 

 

 

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.

 

 9 

 

 

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:

 

 10 

 

 

AKERS BIOSCIENCES, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

 

  Level 1 Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the Company has the ability to access.
     
  Level 2 Inputs to the valuation methodology include

 

  quoted prices for similar assets or liabilities in active markets;
  quoted prices for identical or similar assets or liabilities in inactive markets;
  inputs other than quoted prices that are observable for the asset or liability;
  inputs that are derived principally from or corroborated by observable market data by correlation or other means.

 

If the asset or liability has a specified (contractual) term, the level 2 input must be observable for substantially the full term of the asset or liability.

 

  Level 3 Inputs to the valuation methodology are unobservable and significant to the fair value measurement.

 

The asset or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. Valuation techniques maximize the use of relevant observable inputs and minimize the use of unobservable inputs.

 

  (h)Trade Receivables, Trade Receivables – Related Party and Allowance for Doubtful Accounts (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.

 

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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.

 

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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
  
Leasehold Improvements  Shorter of the
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.

 

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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.

 

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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.

 

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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.

 

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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.

 

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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.

 

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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.

 

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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 
   Cost   Accrued Income   Unrealized 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.

 

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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.

 

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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 

 

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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.

 

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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:

 

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AKERS BIOSCIENCES, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

 

                Weighted  
          Weighted     Average  
          Average     Remaining  
      Number of
Warrants
      Exercise Price       Contractual
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.

 

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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 

 

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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.

 

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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® 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® 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 $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.

 

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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™ 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.

 

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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™ 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.

 

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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: