UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended: September 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 November 10, 2017, there were 9,920,552 shares outstanding of the registrant’s common stock.

 

 

 

TABLE OF CONTENTS

 

PART I – FINANCIAL INFORMATION
Item 1.	Financial Statements	3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	33
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	49
Item 4.	Controls and Procedures	49
PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	50
Item 1A.	Risk Factors	51
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	51
Item 3.	Defaults Upon Senior Securities	51
Item 4.	Mine Safety Disclosures	51
Item 5.	Other Information	51
Item 6.	Exhibits	52
Signatures		53

 

 

PART I – FINANCIAL INFORMATION

 

Item 1. Financial Statements.

 

AKERS BIOSCIENCES, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

September 30, 2017 and December 31, 2016

 

		2017				2016
		(unaudited)				(audited)
ASSETS
Current Assets
Cash		$	135,133			$	72,700
Marketable Securities			10,178				50,001
Trade Receivables, net			1,125,097				601,271
Trade Receivables - Related Parties, net			125,001				31,892
Deposits and other receivables			21,748				23,782
Inventories, net			2,085,867				2,036,521
Prepaid expenses			99,479				168,277
Prepaid expenses - Related Parties			380,789				202,500
Total Current Assets			3,983,292				3,186,944
Non-Current Assets
Prepaid expenses - Related Party			53,456				270,183
Property, Plant and Equipment, net			242,048				259,392
Intangible Assets, net			1,173,444				1,301,775
Other Assets			76,093				66,813
Total Non-Current Assets			1,545,041				1,898,163
Total Assets		$	5,528,333			$	5,085,107
LIABILITIES
Current Liabilities
Trade and Other Payables		$	1,549,047			$	1,463,363
Trade and Other Payables - Related Parties			20,245				234,067
Deferred Revenue			12,500
Total Current Liabilities			1,581,792				1,697,430
Total Liabilities			1,581,792				1,697,430
STOCKHOLDERS’ EQUITY
Convertible Preferred Stock, No par value, 50,000,000 shares authorized, no shares issued and outstanding  as of September 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 September 30, 2017 and December 31, 2016			104,628,437				100,891,786
Deferred Compensation			(8,788	)			(24,572	)
Accumulated Deficit			(100,673,108	)			(97,479,537	)
Accumulated Other Comprehensive Income			-				-
Total Stockholders’ Equity			3,946,541				3,387,677
Total Liabilities and Stockholders’ Equity		$	5,528,333			$	5,085,107

 

See accompanying notes to these condensed consolidated financial statements.

 

 

AKERS BIOSCIENCES, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations and Comprehensive Loss

(unaudited)

 

		Three months ended								Nine months ended
		September 30,								September 30,
		2017				2016				2017				2016
Revenues:
Product Revenue		$	638,331			$	613,198			$	2,378,811			$	2,307,328
Product Revenue - Related parties			-				-				124,631				380
License & Service Revenue			37,500				-				37,500				-
Total Revenues			675,831				613,198				2,540,942				2,307,708
Cost of Sales:
Product Cost of Sales			(323,527	)			(236,700	)			(846,487	)			(713,576	)
Gross Income			352,304				376,498				1,694,455				1,594,132
Administrative Expenses			819,565				558,293				2,440,023				2,298,099
Sales and Marketing Expenses			342,763				408,248				1,254,308				1,647,003
Sales and Marketing Expenses - Related Party			34,328				117,949				128,108				117,949
Research and Development Expenses			290,447				247,578				929,730				932,858
Research and Development Expenses - Related Party			-				-				22,994				-
(Reversal of Allowance for) Bad Debt Expenses- Related parties			-				(1,299,609	)			-				(1,299,609	)
Amortization of Non-Current Assets			42,777				42,777				128,331				128,331
(Loss)/Income from Operations			(1,177,576	)			301,262				(3,209,039	)			(2,230,499	)
Other (Income)/Expenses
Foreign Currency Transaction (Gain)/Loss			3,195				(3,629	)			(6,172	)			1,189
Interest and Dividend Income			(3,127	)			(5,264	)			(9,296	)			(23,981	)
Other Income			-				-				-				-
Total Other (Income)/Expense			68				(8,893	)			(15,468	)			(22,792	)
(Loss)/Income Before Income Taxes			(1,177,644	)			310,155				(3,193,571	)			(2,207,707	)
Income Tax Benefit			-				-				-				-
Net (Loss)/Income Attributable to Common Stockholders			(1,177,644	)			310,155				(3,193,571	)			(2,207,707	)
Other Comprehensive Income/(Loss)
Net Unrealized Gain/(Loss) on Marketable Securities			(1,009	)			(2,837	)			-				3,691
Total Other Comprehensive Income/(Loss)			(1,009	)			(2,837	)			-				3,691
Comprehensive (Loss)/Income		$	(1,178,653	)		$	307,318			$	(3,193,571	)		$	(2,204,016	)
Basic income/(loss) per common share		$	(0.13	)		$	0.06			$	(0.39	)		$	(0.41	)
Diluted income/(loss) per common share		$	(0.13	)		$	0.06			$	(0.39	)		$	(0.41	)
Weighted average basic common shares outstanding			8,892,079				5,434,212				8,268,851				5,428,859
Weighted average diluted common shares  outstanding			8,892,079				5,508,545				8,268,851				5,428,859

 

See accompanying notes to these condensed consolidated financial statements.

 

 

AKERS BIOSCIENCES, INC. AND SUBSIDIARIES

Condensed Consolidated Statement of Changes in Stockholder’s Equity

For the nine months ended September 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			-				-				-				(3,193,571	)			-				(3,193,571	)
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			-				-				15,784				-				-				15,784
Issuance of non-qualified stock options to key employees			-				14,502				-				-				-				14,502
Issuance of non-qualified stock options for services to non-employees			-				2,183				-				-				-				2,183
Issuance of restricted stock for services for non-employees			10,000				5,455				-				-				-				5,455
Balance at September 30, 2017 (unaudited)			8,901,245			$	104,628,437			$	(8,788	)		$	(100,673,108	)		$	-			$	3,946,541

 

See accompanying notes to these condensed consolidated financial statements.

 

 

AKERS BIOSCIENCES, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

For the nine months ended September 30, 2017 and 2016

(unaudited)

 

		2017				2016
Cash flows from operating activities
Net loss		$	(3,193,571	)		$	(2,207,707	)
Adjustments to reconcile net loss to net cash used in operating activities:
Accrued income on marketable securities			(148	)			13,380
Depreciation and amortization			182,866				221,946
Allowance for/(reversal of) doubtful accounts			46,239				(1,153,413	)
Amortization of deferred compensation			15,784				24,834
Share based compensation to employees - options			14,502				22,828
Share based compensation to non-employees - options			2,183				23,676
Share based compensation to non-employees - restricted stock			5,455				-
Changes in assets and liabilities:
Increase in trade receivables			(570,065	)			(275,541	)
Increase in trade receivables - related parties			(93,109	)			-
Decrease in deposits and other receivables			2,034				65,855
Increase in inventories			(49,346	)			(60,862	)
Decrease in prepaid expenses			68,797				91,706
Decrease in prepaid expenses - related parties			38,438				58,974
Increase in other assets			(9,280	)			-
Increase/(decrease) in trade and other payables			85,685				(418,998	)
Increase/(decrease) in trade and other payables - related parties			(213,822	)			59,673
Increase in deferred revenue			12,500				-
Net cash used in operating activities			(3,654,858	)			(3,533,649	)
Cash flows from investing activities
Purchases of property, plant and equipment			(37,191	)			(88,023	)
Purchases of marketable securities			(2,709,148	)			(37,360	)
Proceeds from sale of marketable securities			2,749,119				3,452,833
Net cash provided by investing activities			2,780				3,327,450
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			62,433				(206,199	)
Cash at beginning of period			72,700				402,059
Cash at end of period		$	135,133			$	195,860
Supplemental Schedule of Non-Cash Financing and Investing Activities
Issuance of a restricted common stock grant to an officer		$	-			$	54,725
Net unrealized gains on marketable securities		$	-			$	3,691
Reclassification of note receivable to inventory		$	-			$	750,000
Reclassification of note receivable to prepaid expense		$	-			$	549,609

 

See accompanying notes to these condensed consolidated financial statements.

 

 

AKERS BIOSCIENCES, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

 

Note 1 - Nature of Business

 

(a) Reporting Entity

 

The accompanying financial statements have been prepared by Akers Biosciences, Inc. (“Akers” or the “Company”), a company domiciled in the United States of America. The address of the Company’s registered office is 201 Grove Road, West Deptford, New Jersey, 08086. The Company is incorporated in the United States of America under the laws of the State of New Jersey.

 

The consolidated financial statements include two dormant subsidiaries, Akers Acquisition Sub, Inc. and Bout Time Marketing Corporation. All material intercompany transactions have been eliminated upon consolidation.

 

(b) Nature of Business

 

The Company’s primary focus is the development and sale of disposable diagnostic testing devices that can be performed in minutes, to facilitate time sensitive therapeutic decisions. The Company’s main products are a disposable breathalyzer test that measures the blood alcohol content of the user, a rapid test detecting the antibody causing an allergic reaction to Heparin and a 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 - 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.

 

 

AKERS BIOSCIENCES, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

 

(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

 

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				%
Current		$	1,008,025				70	%		$	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			241,669				17	%			1,090,418				66	%
Subtotal			1,442,533				-				1,643,359				-
Bad Debts Allowance			(192,435	)			-				(1,010,196	)			-
Total		$	1,250,098				-			$	633,163				-
Average Days in Receivable			166								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 $550,800 and $- as of September 30, 2017 and December 31, 2016 with payment terms extended to 180 days.

 

(i) Concentration of Credit Risk

 

The Company is exposed to credit risk in the normal course of business primarily related to trade receivables and cash and cash equivalents.

 

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.

 

Concentration of credit risk with respect to trade receivables exists as approximately 68% of the Company’s product revenue is generated by three customers. These customers accounted for 59% 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.

 

(ii)

Patent Costs

 

Costs associated with applying for patents are capitalized as patent costs. Once the patents are approved, the respective costs are amortized over their estimated useful lives (maximum of 17 years) on a straight-line basis. Patent pending costs for patents that are not approved are charged to operations the year the patent is rejected.

 

In addition, patents may be purchased from third parties. The costs of acquiring the patent are capitalized as patent costs if it represents a future economic benefit to the Company. Once a patent is acquired it is amortized over its remaining useful life.

 

(iii)

Other Intangible Assets

 

Other intangible assets that are acquired by the Company, which have definite useful lives, are measured at cost less accumulated amortization and accumulated impairment losses.

 

 

AKERS BIOSCIENCES, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

 

(iv)

Amortization

 

Amortization is recognized on a straight-line basis over the estimated useful lives of intangible assets, other than goodwill, from the date that they are available for use. The estimated useful lives for the current and comparative periods are as follows:

 

	Useful Life
	(in years)
Patents and trademarks	12-17
Customer lists	5

 

(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

 

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
Numerator
Net Income/(Loss)		$	(1,177,644	)		$	310,155			$	(3,193,571	)		$	(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			$	(0.39	)		$	(0.41	)
Diluted		$	(0.13	)		$	0.06			$	(0.39	)		$	(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 3 – 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.

 

During 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 determination:

 

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 4 - 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 5 - Trade Receivables – Related Parties

 

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). Credit terms of 180 days were extended to Hainan for a bulk purchase of BreathScan Breath Alcohol detectors during June 2017 while Hainan expands their market presence in the People’s Republic of China.

 

Note 6 - Inventories

 

Inventories consists of the following categories:

 

		September 30, 2017				December 31, 2016
Raw Materials		$	473,443			$	440,316
Sub-Assemblies			848,078				907,989
Finished Goods			807,973				749,488
Reserve for Obsolescence			(43,627	)			(61,272	)
		$	2,085,867			$	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 7 - 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 8 - 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 9 - Trade and Other Payables

 

Trade and other payables consists of the following:

 

		September 30, 2017				December 31, 2016
Trade Payables		$	1,044,056			$	923,311
Accrued Expenses			445,241				480,302
Deferred Compensation			59,750				59,750
		$	1,549,047			$	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 10 - 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 11 - 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 12 – Earnings/(Loss) per share

 

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 13 - Income Tax Expense

 

There is no income tax benefit for the losses for the three 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 14 - Related Party Transactions

 

On June 19, 2012, the Company entered into a 3-year exclusive License & Supply Agreement with ChubeWorkx Guernsey Limited (as successor to SONO International Limited) (“ChubeWorkx”) for the purchase and distribution of 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 $125,001 and $31,892. The amounts due are non-interest bearing, unsecured and generally have a term of 30-180 days (Note 5).

 

Product revenue – related parties for the three months ended September 30, 2017 and 2016 were $- and total $124,631 and $380 for the nine months then ended. The revenue was the result of sales to Hainan and its related parties.

 

Note 15 - Commitments

 

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. To date, the products purchased by NovoTek have been used for regulatory submissions, clinical studies or trials and as product samples to generate interest in the product in the Peoples Republic of China.

 

As of September 30, 2017, the Company had not incurred any expense related to the program.

 

 

AKERS BIOSCIENCES, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

 

Note 16 - Major Customers

 

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 67% 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 17 - 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 18 – 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 19 – Segment Information

 

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
MicroParticle Catalyzed Biosensor (“MPC”)		$	104,094			$	85,337			$	381,569			$	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				616,647				83,573
Product Revenue Total		$	638,331			$	613,198			$	2,503,442			$	2,307,708
License Fees			37,500				-				37,500				-
Total Revenue		$	675,831			$	613,198			$	2,540,942			$	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
United States		$	626,077			$	603,006			$	1,755,695			$	1,721,967
People’s Republic of China			-				383				627,132				506,781
Rest of World			49,754				9,809				158,115				78,960
Total Revenue		$	675,831			$	613,198			$	2,540,942			$	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 20 - 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