Attached files

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EX-32.2 - MyMD Pharmaceuticals, Inc.ex32-2.htm
EX-32.1 - MyMD Pharmaceuticals, Inc.ex32-1.htm
EX-31.2 - MyMD Pharmaceuticals, Inc.ex31-2.htm
EX-31.1 - MyMD Pharmaceuticals, Inc.ex31-1.htm

 

 

 

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: March 31, 2018

 

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) 848-8698

(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 July 13, 2018, there were 94,106,292 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 32
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk 45
     
Item 4. Controls and Procedures 45
     
PART II – OTHER INFORMATION  
     
Item 1. Legal Proceedings 46
     
Item 1A. Risk Factors 47
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 50
     
Item 3. Defaults Upon Senior Securities 50
     
Item 4. Mine Safety Disclosures 50
     
Item 5. Other Information 50
     
Item 6. Exhibits 53
     
Signatures 54

 

2
 

 

PART I – FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

AKERS BIOSCIENCES, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

March 31, 2018 and December 31, 2017

 

   March 31, 2018   December 31, 2017 
   (unaudited)   (audited) 
ASSETS        (restated) 
Current Assets          
Cash  $647,267   $438,432 
Marketable Securities   8,679,010    5,011,607 
Trade Receivables, net   416,898    964,671 
Deposits and other receivables   29,495    16,590 
Deposits and other receivables - Related Party   33,243    - 
Inventories, net   973,947    947,612 
Prepaid expenses   234,985    145,488 
Prepaid expenses - Related Party   148,916    251,499 
           
Total Current Assets   11,163,761    7,775,899 
           
Non-Current Assets          
Prepaid expenses - Related Party   209,774    120,118 
Property, Plant and Equipment, net   259,265    235,113 
Intangible Assets, net   1,087,890    1,130,667 
Other Assets   76,093    76,093 
           
Total Non-Current Assets   1,633,022    1,561,991 
           
Total Assets  $12,796,783   $9,337,890 
           
LIABILITIES          
Current Liabilities          
Trade and Other Payables  $1,360,533   $1,745,216 
Trade and Other Payables - Related Party   19,005    39,821 
           
Total Current Liabilities   1,379,538    1,785,037 
           
Total Liabilities   1,379,538    1,785,037 
           
SHAREHOLDERS’ EQUITY          
Convertible Preferred Stock, No par value, 50,000,000 shares authorized, 0 and 1,755 shares issued and outstanding as of March 31, 2018 and December 31, 2017   -    1,755,000 
Common Stock, No par value, 500,000,000 shares authorized, 86,437,624 and 44,220,552 issued and outstanding as of March 31, 2018 and December 31, 2017   118,139,926    110,647,169 
Deferred Compensation   -    (3,469)
Comprehensive Loss   (16,843)   - 
Accumulated Deficit   (106,705,838)   (104,845,847)
           
Total Shareholders’ Equity   11,417,245    7,552,853 
           
Total Liabilities and Shareholders’ Equity  $12,796,783   $9,337,890 

 

See accompanying notes to these condensed consolidated financial statements.

 

3
 

 

AKERS BIOSCIENCES, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations and Comprehensive Loss

For the three months ended March 31, 2018 and 2017

(unaudited)

 

   Three months ended 
   March 31, 
   2018   2017 
Revenues:          
Product Revenue  $302,475   $643,187 
Product Revenue - Related party   -    24,063 
Total Revenues   302,475    667,250 
Cost of Sales:          
Product Cost of Sales   (297,500)   (258,721)
           
Gross Income   4,975    408,529 
           
Administrative Expenses   915,533    790,529 
Sales and Marketing Expenses   468,463    556,655 
Sales and Marketing Expenses - Related Party   31,689    32,279 
Research and Development Expenses   391,381    348,442 
Research and Development Expenses – Related Party   48,589    - 
Amortization of Non-Current Assets   42,777    42,777 
           
Loss from Operations   (1,893,457)   (1,362,153)
           
Other (Income)/Expenses          
Foreign Currency Transaction (Gain)/Loss   2,875    (10,346)
Interest and Dividend Income   (36,341)   (2,537)
Total Other Income   (33,466)   (12,883)
           
Loss Before Income Taxes   (1,859,991)   (1,349,270)
           
Income Tax Benefit   -    - 
           
Net Loss Attributable to Common Shareholders   (1,859,991)   (1,349,270)
           
Other Comprehensive Income/(Loss)          
Net Unrealized Gain/(Loss) on Marketable Securities   (16,843)   156 
Total Other Comprehensive Income/(Loss)   (16,843)   156 
           
Comprehensive Loss  $(1,876,834)  $(1,349,114)
           
Basic and Diluted loss per common share  $(0.03)  $(0.19)
           
Weighted average basic and diluted common shares outstanding   71,315,461    6,993,574 

 

See accompanying notes to these condensed consolidated financial statements.

 

4
 

 

AKERS BIOSCIENCES, INC. AND SUBSIDIARIES

Condensed Consolidated Statement of Changes in Shareholder’s Equity

For the three months ended March 31, 2018 and 2017

 

    Preferred           Common                       Accumulated        
    Shares           Shares                       Other        
    Issued and     Preferred     Issued and     Common     Deferred     Accumulated     Comprehensive     Total  
    Outstanding     Stock     Outstanding     Stock     Compensation     Deficit     Loss     Equity  
                                                 
Balance at December 31, 2017 (audited) (restated)     1,755     $ 1,755,000       44,220,552     $ 110,647,169     $ (3,469 )   $ (104,845,847 )   $ -     $ 7,552,853  
                                                                 
Net loss     -       -       -       -       -       (1,859,991 )     -       (1,859,991 )
Exercise of warrants for common stock     -       -       30,492,070       5,717,325       -       -       -       5,717,325  
Conversion of preferred stock to common stock     (1,755 )     (1,755,000 )     11,700,002       1,755,000                               -  
Amortization of deferred compensation     -       -       -       -       3,469       -       -       3,469  
Issuance of stock grants to key employees                     25,000       5,175                               5,175  
Issuance of non-qualified stock options to key employees     -       -       -       2,712       -       -       -       2,712  
Issuance of restricted stock for services for non-employees     -       -       -       12,545       -       -       -       12,545  
Net unrealized loss on marketable securities                                                     (16,843 )     (16,843 )
                                                                 
Balance at March 31, 2018 (unaudited)     -     $ -       86,437,624     $ 118,139,926     $ -     $ (106,705,838 )   $ (16,843 )   $ 11,417,245  

 

See accompanying notes to these condensed consolidated financial statements.

 

5
 

 

AKERS BIOSCIENCES, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

For the three months ended March 31, 2018 and 2017

(unaudited)

 

 

    2018     2017  
Cash flows from operating activities                
Net loss   $ (1,859,991 )   $ (1,349,270 )
Adjustments to reconcile net loss to net cash used in operating activities:                
Accrued income on marketable securities     (13,955 )     (326 )
Depreciation and amortization     56,452       60,718  
Reserve and write-off for obsolete inventory     24,460       (32,333 )
Reserve for doubtful accounts     -       40,859  
Amortization of deferred compensation     3,469       5,203  
Share based compensation to employees - options     2,712       5,036  
Share based compensation to employees - restricted stock     5,175       -  
Share based compensation to non-employees - restricted stock     12,545       -  
Changes in assets and liabilities:                
Decrease in trade receivables     547,773       43,351  
Decrease in trade receivables - related party     -       7,458  
(Increase)/decrease in deposits and other receivables     (12,905 )     10,692  
Increase in deposit and other receivables - related party     (33,243 )     -  
Increase in inventories     (50,795     (100,878 )
(Increase)/decrease in prepaid expenses     (89,497 )     69,930  
Decrease in prepaid expenses - related party     12,927       16,140  
Decrease in trade and other payables     (384,683 )     (200,059 )
Decrease in trade and other payables - related party     (20,816 )     (138,184 )
Net cash used in operating activities     (1,800,372 )     (1,561,663 )
                 
Cash flows from investing activities                
Purchases of property, plant and equipment     (37,827 )     (16,774 )
Purchases of marketable securities     (3,972,386 )     (1,202,210 )
Proceeds from sale of marketable securities     302,095       1,095,218  
Net cash used in investing activities     (3,708,118 )     (123,766 )
                 
Cash flows from financing activities                
Net proceeds from issuance of common stock     -       3,452,861  
Net proceeds from exercise of warrants for common stock     5,717,325       244,950  
Net cash provided by financing activities     5,717,325       3,697,811  
                 
Net increase in cash     208,835       2,012,382  
Cash at beginning of period     438,432       72,700  
Cash at end of period   $ 647,267     $ 2,085,082  
                 
Supplemental Schedule of Non-Cash Financing and Investing Activities                
Net unrealized gains/(losses) on marketable securities   $ (16,843 )    $ 156  
Conversion of Series B Preferred Stock to common shares   $ 1,755,000     $ -  

 

See accompanying notes to these condensed consolidated financial statements.

 

6
 

 

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 condensed 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.

 

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, 2017 and 2016 included in the Company’s 2017 Form 10-K/A, Amendment No. 1, as filed on July 13, 2018. In the opinion of the management, these condensed 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 March 31, 2018 and its results of operations and cash flows for the three months ended March 31, 2018 and 2017. The results of operations for the three months ended March 31, 2018 are not necessarily indicative of the results to be expected for the full fiscal year ending December 31, 2018.

 

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.

 

7
 

 

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 condensed 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 Condensed 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 Condensed 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.

 

8
 

 

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 Party and Allowance for Doubtful Accounts

 

The carrying amounts of current trade receivables is stated at cost, net of allowance for doubtful accounts and approximate their fair value given their short-term nature.

 

The normal credit terms extended to customers ranges between 30 and 90 days. Credit terms longer than these may be extended after considering the credit worthiness of the customers and the business requirements. The Company reviews all receivables that exceed terms and establishes an allowance for doubtful accounts based on management’s assessment of the collectability of trade and other receivables. A considerable amount of judgment is required in assessing the amount of allowance. The Company considers the historical level of credit losses, makes judgments about the credit worthiness of each customer based on ongoing credit evaluations and monitors current economic trends that might impact the level of credit losses in the future.

 

9
 

 

AKERS BIOSCIENCES, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

 

As of March 31, 2018 and December 31, 2017, allowances for doubtful accounts for trade receivables were $596,196. Bad debt expenses for trade receivables were $- and $42,361 for the three months ended March 31, 2018 and 2017.

 

As of March 31, 2018 and December 31, 2017, the aging of trade receivables was as follows:

 

   March 31,   December 31, 
Aging Period  2018   %   2017   % 
           (restated)     
Current  $237,066    24%  $1,181,335    76%
01-30 Days   4,657    0%   79,535    5%
31-60 Days   1,428    0%   20,154    1%
61-90 Days   117    0%   25,100    2%
>90 Days   769,826    76%   254,743    16%
Subtotal  $1,013,094        $1,560,867      
Bad Debts Allowance   (596,196)        (596,196)     
Total  $416,898        $964,671      

 

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 $- and $470,000 as of March 31, 2018 and December 31, 2017 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 $631,099 and $426,927 with Fulton Bank of New Jersey, $12,578 and $7,915 with Bank of America, NA and $3,590 with PayPal as of March 31, 2018 and December 31, 2017. No losses have been incurred in these accounts.

 

Three customers accounted for 76% of trade receivables as of March 31, 2018. 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 overhead based on normal operating capacity.

 

10
 

 

AKERS BIOSCIENCES, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

 

(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 Condensed 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.

 

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.

 

(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 March 31, 2018, 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.

 

11
 

 

AKERS BIOSCIENCES, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

 

(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.

 

(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.

 

12
 

 

(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.

 

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 March 31, 2018 and December 31, 2017. In cases where the right of return is granted and the Company does not have historical experience to reasonably estimate the sales returns, the revenue is recognized when the return privilege has substantially expired.

 

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 $57,725 and $126,471 as of March 31, 2018 and December 31, 2017. Accounts receivable will be reduced when the rebates are applied by the customer. The Company recognized $37,544 and $102,824 during the three months ended March 31, 2018 and 2017 for rebates, which is included as a reduction of product revenue in the Condensed Consolidated Statement of Operations and Comprehensive Loss.

 

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AKERS BIOSCIENCES, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

 

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.

 

(q)Shipping and Handling Fees and Costs

 

The Company charges actual shipping plus a handling fee to customers, which amounted to $13,641 and $18,420 for the three months ended March 31, 2018 and 2017. 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 $26,944 and $16,177 for the three months ended March 31, 2018 and 2017.

 

(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.

 

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AKERS BIOSCIENCES, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

 

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.

 

(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.

 

(u)Recently Adopted Accounting Pronouncements

 

As of March 31, 2018 and for the three months then ended, there were no recently adopted accounting pronouncements that had a material effect on the Company’s financial statements.

 

(v)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 and April 2016, the FASB issued ASU No. 2014-09 and ASU No. 2016-10, 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 and will adopt this Update as of January 1, 2019.

 

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AKERS BIOSCIENCES, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

 

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.

 

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.

 

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AKERS BIOSCIENCES, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

 

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.

 

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 – Key Recent Events and Management Plans

 

On April 25, 2018, the Board of Directors of the Company terminated Dr. Raymond F. Akers from his position as Executive Chairman of the Board and from each of his officer positions as Chief Scientific Director and Secretary of the Company. Dr. Raymond F. Akers continued as a member of the Board of Directors until his resignation on May 27, 2018.

 

On April 25, 2018, the Board appointed Richard Carlyle Tarbox III, a current director of the Company as the interim Non-Executive Chairman of the Board, to hold that position until his successor is appointed, and to the position of Secretary of the Company.

 

The Company was not able to timely file this Quarterly Report on Form 10-Q due to delays in evaluating certain accounting and reporting matters. The Company’s evaluation resulted in its filing a notification on June 18, 2018 on Form 8-K providing notice that investors should no longer rely upon the financial statements included within the Company’s Quarterly Reports as of and for the periods ended June 30, 2017 and September 30, 2017, as well as the Company’s Annual Report on Form 10-K for the year ended December 31, 2017. The Company has since prepared amended financial statements for such periods and the respective amended Quarterly and Annual financial reports have been filed contemporaneously with the filing of this Quarterly Report on Form 10-Q for the three months ended March 31, 2018.

 

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AKERS BIOSCIENCES, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

 

By way of a letter dated May 22, 2018, the Listing Qualifications Department of the NASDAQ Stock Market LLC (“NASDAQ”) advised the Company that it did not comply with NASDAQ Listing Rule 5250(c)(1) for continued listing because NASDAQ has not received the Company’s Form 10-Q for the period ended March 31, 2018 (the “Quarterly Report”). NASDAQ has informed the Company that the Company is required to submit a plan to regain compliance with NASDAQ’s filing requirements for continued listing within 60 calendar days of the date of the Notice. Upon acceptance of the Company’s compliance plan, NASDAQ is permitted to grant an extension of up to 180 calendar days from the Quarterly Report’s filing due date, or until November 19, 2018, for the Company to regain compliance with NASDAQ Listing Rule 5250(c)(1). The Company believes that its filing of this Quarterly Report and the Amended Quarterly and Annual Reports as discussed above have cured the potential default as to the Company meeting the requirements to continue its listing in good standing under NASDAQ.

 

On June 11, 2018, the Company received a letter from the Listing Qualifications Department NASDAQ notifying the Company that it has determined that the Company violated the shareholder approval requirements of Listing Rule 5635(c). Listing Rule 5635(c) requires shareholder approval prior to the issuance of securities when a stock option or purchase plan is to be established or materially amended or other equity compensation arrangement made or materially amended, pursuant to which stock may be acquired by officers, directors, employees or consultants.

 

Prior to the Company’s public offering and listing on NASDAQ, the Company’s 2013 Incentive Stock and Award Plan (the “2013 Plan”) was approved by its Board of Directors. NASDAQ has concluded that the 2013 Plan was materially amended on two occasions after the Company’s public offering and listing on NASDAQ. The first amendment, as approved by the Board on January 9, 2015, increased the number of shares available under the 2013 Plan from 400,000 to 800,000 shares and the second amendment, as approved by the Board on October 5, 2016, increased the number of shares under the 2013 Plan from 800,000 to 830,000 shares (the “2013 Plan Amendments”).

 

During the first quarter of 2018, the Company promptly notified NASDAQ, as required by Listing Rule 5625, when it became aware of its potential non-compliance with Listing Rule 5635(c). On May 4, 2018, the Staff requested additional information from the Company with respect to such non-compliance and on May 31, 2018, the Company responded. On June 25, 2018, the Company submitted a plan to NASDAQ to remediate this matter (the “5635 Compliance Plan”). The 5635 Compliance Plan included that a proposal for shareholders of the Company to ratify the 2013 Plan Amendments be included in the proxy statement for the Company’s 2018 annual meeting of the shareholders of the Company and that the Company shall suspend the trading of each share granted, and each share granted upon the exercise of any option granted, in excess of 400,000 shares under the 2013 Plan (the number of shares properly approved pursuant to the 2013 Plan prior to the 2013 Plan Amendments until shareholder ratification). The 5635 Compliance Plan also proposes to prevent the exercise of any option granted under the 2013 Plan until shareholder ratification.

 

On July 12, 2018, NASDAQ approved of the 5635 Compliance Plan and granted the Company until December 10, 2018, to regain compliance with Listing Rule 5635.

 

On or about June 15, 2018, certain parties brought certain class action lawsuits against the Company.

 

Faulkner v. Akers Biosciences, Inc., No. 2:18-cv-10521 (D.N.J.)

 

On June 13, 2018, Plaintiff Tim Faulkner filed a class action complaint alleging securities violations against Akers Biosciences, Inc. (“Akers”), John J. Gormally, and Gary M. Rauch (“Individual Defendants”) (together with Akers, “Defendants”) on behalf of all persons and entities who purchased publicly traded Akers securities from May 15, 2017 through June 5, 2018. The complaint alleges violations of Section 10(b) of the Exchange Act and Rule 10b-5 against all Defendants, and violations of Section 20(a) of the Exchange Act against the Individual Defendants. In particular, the complaint alleges that Defendants made false and/or misleading statements and/or failed to disclose in its first, second, and third quarter 2017 10-Qs and its 2017 10-K that: (1) Akers was improperly recognizing revenue for the fiscal year ended December 31, 2017; and, (2) Akers had downplayed weaknesses in its internal controls over financial reporting and failed to disclose the true extent of those weaknesses. On July 10, 2018, Plaintiff and Defendants entered into a stipulation that Defendants are not required to respond to the complaint until the court appoints a lead plaintiff and lead counsel for the class, and then after the lead plaintiff chooses whether to file an amended complaint or whether to designate the complaint as the operative complaint.

 

Gleason v. Akers Biosciences, Inc., No. 2:18-cv-10805 (D.N.J.)

 

On June 20, 2018, Plaintiff David Gleason filed a class action complaint alleging securities violations against Akers Biosciences, Inc. (“Akers”), John J. Gormally, and Gary M. Rauch (“Individual Defendants”) (together with Akers, “Defendants”) on behalf of all persons and entities who purchased publicly traded Akers securities from May 15, 2017 through June 5, 2018. The complaint alleges violations of Section 10(b) of the Exchange Act and Rule 10b-5 against all Defendants, and violations of Section 20(a) of the Exchange Act against the Individual Defendants. In particular, the complaint alleges that Defendants made false and/or misleading statements and/or failed to disclose in its first, second, and third quarter 2017 10-Qs and its 2017 10-K that: (1) Akers was improperly recognizing revenue for the fiscal year ended December 31, 2017; and, (2) Akers had downplayed weaknesses in its internal controls over financial reporting and failed to disclose the true extent of those weaknesses. No Defendant has been served yet, and no response is due at this time.

 

Other class action lawsuits have been threatened against the Company and may be filed shortly. Ultimately, there will be one class action complaint upon the appointment of a lead plaintiff and lead Counsel.

 

The Company maintains D&O liability insurance coverage, insuring both the Company and the Directors and Officers for covered defense and indemnification, and has noticed these matters thereunder.

 

Historically, the Company has relied upon public offerings and private placements of Common Stock to raise operating capital. During the year ended December 31, 2017, the Company raised $9,478,897, net of expenses, in public and private offerings and an additional $981,948, net of expenses, from the exercise of warrants. During the three months ended March 31, 2018, the Company raised an additional $5,717,325 from the exercise of warrants (Note 10). As of July 6, 2018, the Company had cash and marketable securities of approximately $8.1 million and working capital of approximately $8.8 million. The Company is not yet able to determine the impact of the key events during June and July of 2018 may have on the Company’s ability to raise capital, nor the impact that these matters might have on its business operations.

 

Additionally, a former executive has threatened to sue the Company, Board members, and executives under the New Jersey Conscientious Employee Protection Act (“CEPA”), N.J. Stat. Ann. § 34-19.1 over the termination of his employment. That statute prohibits any retaliatory action against an employee who discloses, or threatens to disclose to a supervisor or to a public entity any activity, policy or practice of the employer that is a violation of a law, or a rule or regulation. Remedies may include a counter claim for back pay, reinstatement, compensatory and punitive damages and attorneys’ fees if appropriate. The Company will vigorously defend any litigation brought by this former executive.

 

The Company believes that its current working capital position will be sufficient to meet its obligations as they fall due within one year after the financial statements are issued.

 

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AKERS BIOSCIENCES, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

 

Note 4 - Fair Value Measurement - Marketable Securities

 

Following is a description of the valuation methodologies used for assets measured at fair value as of March 31, 2018 and December 31, 2017.

 

U.S. Agency Securities and Corporate 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 March 31, 2018 
       Accrued   Unrealized   Unrealized   Fair 
   Cost   Income   Gains   Losses   Value 
Level 2:                         
Money market funds  $26   $5   $      -   $-   $31 
Municipal securities   8,680,430    15,392    -    (16,843)   8,678,979 
Total Level 2:   8,680,456    15,397    -    (16,843)   8,679,010 
                          
Total:  $8,680,456   $15,397   $-   $(16,843)  $8,679,010 

 

   As of December 31, 2017 
       Accrued   Unrealized   Unrealized   Fair 
   Cost   Income   Gains   Losses   Value 
Level 2:                         
Money market funds  $5,165   $161   $      -   $         -   $5,326 
Municipal securities   5,005,000    1,281    -    -   5,006,281 
Total Level 2:   5,010,165    1,442    -    -   5,011,607 
                          
Total:  $5,010,165   $1,442   $-   $-  $5,011,607 

 

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 Shareholders’ Equity as comprehensive income. These amounts were an unrealized loss of $16,843 and unrealized gain of $156 (net of effect of income tax expense of $-) for the three months ended March 31, 2018 and 2017.

 

Proceeds from the sale of marketable securities in the three months ended March 31, 2018 and 2017 were $302,095 and $1,095,218. Gross gains of $- and $1,051 resulted from these sales for the three months ended March 31, 2018 and 2017.

 

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AKERS BIOSCIENCES, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

 

Note 5 - Inventories

 

Inventories consists of the following categories:

 

   March 31, 2018   December 31, 2017 
      

(restated)

 
Raw Materials  $513,052   $458,441 
Sub-Assemblies   898,778    886,274 
Finished Goods   774,725    815,505 
Reserve for Obsolescence   (1,212,608)   (1,212,608)
   $973,947   $947,612 

 

Obsolete inventory charged to cost of goods during the three months ended March 31, 2018 and 2017 totaled $24,460 and a credit of $32,333.

 

Note 6 - Property, Plant and Equipment

 

Property, plant and equipment consists of the following:

 

   March 31, 2018   December 31, 2017 
Computer Equipment  $114,771   $114,771 
Computer Software   40,681    40,681 
Office Equipment   39,959    39,959 
Furniture & Fixtures   38,356    38,356 
Machinery & Equipment   1,153,960    1,138,134 
Molds & Dies   890,571    868,570 
Leasehold Improvements   222,593    222,593 
    2,500,891    2,463,064 
Less          
Accumulated Depreciation   2,241,626    2,227,951 
           
   $259,265   $235,113 

 

Depreciation expenses totaled $13,675 and $17,941 for the three months ended March 31, 2018 and 2017.

 

Note 7 - Intangible Assets

 

Intangible assets as of March 31, 2018 and December 31, 2017 and the movements for the periods then ended are as follows:

 

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AKERS BIOSCIENCES, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

 

          Distributor &        
    Patents &     Customer        
    Trademarks     Relationships     Totals  
Cost or Deemed Cost                        
At December 31, 2017   $ 2,626,996     $ 1,270,639     $ 3,897,635  
Additions     -       -       -  
Disposals     -       -       -  
At March 31, 2018   $ 2,626,996     $ 1,270,639     $ 3,897,635  
                         
Accumulated Amortization                        
At December 31, 2017   $ 1,496,329     $ 1,270,639     $ 2,766,968  
Amortization Charge     42,777       -       42,777  
Disposals     -       -       -  
At March 31, 2018   $ 1,539,106     $ 1,270,639     $ 2,809,745  
                         
Net Book Value                        
At December 31, 2017   $ 1,130,667     $ -     $ 1,130,667  
At March 31, 2018   $ 1,087,890     $ -     $ 1,087,890  

 

Amortization expense totaled $42,777 for the three months ended March 31, 2018 and 2017.

 

The estimated aggregate amortization expense for each of the five succeeding fiscal years is as follows:

 

Period  Amount 
2019  $171,108 
2020   149,298 
2021   147,315 
2022   147,315 
2023   147,315 

 

Note 8 - Trade and Other Payables

 

Trade and other payables consists of the following:

 

   March 31, 2018   December 31, 2017 
       (restated) 
Trade Payables  $598,359   $948,951 
Accrued Expenses   702,424    736,515 
Deferred Compensation   59,750    59,750 
   $1,360,533   $1,745,216 

 

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AKERS BIOSCIENCES, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

 

Trade and other payables – related party are as follows:

 

   March 31, 2018   December 31, 2017  
Trade Payables  $19,005   $39,821 
   $19,005   $39,821 

 

As of March 31, 2018 the Company owed ChubeWorkx Guernsey Limited, previously a major shareholder, royalties of $15,845 (Note 13) which was paid on April 23, 2018.

 

As of March 31, 2018, 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 $2,490 as of March 31, 2018.

 

Trade and other payables are non-interest bearing and are normally settled on 30 – 60 day terms.

 

Note 9 - 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 (Note 3).

 

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 March 31, 2018, grants of restricted stock and options to purchase 255,000 shares of Common Stock have been issued, pursuant to the Amended Plan, and are unvested or unexercised and 7,292 shares of Common Stock remain available for grants under the Amended Plan.

 

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. As of March 31, 2018, grants totaling 320,107 shares of restricted Common Stock have been issued pursuant to the Plan and 1,029,893 shares of Common Stock remain available for grants under the Plan.

 

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Notes to Condensed Consolidated Financial Statements

 

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 months ended March 31, 2018.

 

The following table summarizes the option activities for the three months ended March 31, 2018:

 

           Weighted     
       Weighted   Average     
       Average   Remaining   Aggregate 
   Number of   Exercise   Contractual   Intrinsic 
   Shares   Price   Term (years)   Value 
Balance at December 31, 2017   255,000   $4.25    2.02   $   - 
Granted   -    -    -    - 
Exercised   -    -    -    - 
Forfeited   -    -    -    - 
Canceled/Expired   -    -    -    - 
Balance at March 31, 2018   255,000   $4.25    1.78   $- 
Exercisable as of March 31, 2018   250,334   $4.27    1.75   $- 

 

The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the closing stock price of $0.83 for our common shares on March 31, 2018.

 

A summary of the Company’s non-vested shares as of March 31, 2018 and the changes during the three months then ended are as follows:

 

       Weighted 
       Average Grant 
Non-Vested Shares  Shares   Date Fair Value 
Non-vested at December 31, 2017   4,666   $2.36 
Granted   -    - 
Vested   -    - 
Forfeited   -    - 
Non-vested at March 31, 2018   4,666   $2.36 

 

Unrecognized compensation cost related to non-vested employee stock options totaled $4,219 as of March 31, 2018. The cost is to be recognized over a weighted average period of 0.38 years.

 

During the three months ended March 31, 2018 and 2017, the Company incurred stock option expenses totaling $2,712 and $5,036.

 

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AKERS BIOSCIENCES, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

 

The table below summarizes the warrant activity for the three months ended March 31, 2018:

 

       Weighted   Average 
       Average   Remaining 
   Number of   Exercise   Contractual 
   Warrants   Price   Term (years) 
Balance at December 31, 2017   49,490,571   $0.22    4.95 
Granted   -    -    - 
Exercised   (30,492,070)   0.19    - 
Forfeited   -    -    - 
Canceled/Expired   -    -    - 
Balance at March 31, 2018   18,998,501   $0.28    4.68 
Exercisable as of March 31, 2018   18,998,501   $0.28    4.68 

 

Note 10 - Equity

 

The holders of common shares are entitled to one vote per share at meetings of the Company. Holders of Series B convertible preferred shares have no voting rights 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.

 

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. $3,469 and $5,203 was recorded during the three months ended March 31, 2018 and 2017 as administrative expense on the Condensed Consolidated Statement of Operations and Comprehensive Loss.

 

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. During the year ended December 31, 2017, $5,455 was recognized as stock based compensation expense. The remaining $12,545 was recognized during the three months ended March 31, 2018 as sales and marketing expenses on the Condensed Consolidated Statement of Operations and Comprehensive Loss.

 

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On January 16, 2018, the Board of Directors issued 25,000 restricted shares of Common Stock to a key employee of the Company as part of the Plan. The fair value of the shares was $5,175 and was based on the closing share price of $0.2070 per share. The share grants vested immediately. The Company recorded the expense as sales and marketing expenses on the Condensed Consolidated Statement of Operations and Comprehensive Loss for the three months ended March 31, 2018.

 

During the three months ended March 31, 2018, 1,755 shares of the Company’s Series B Preferred Stock, no par value, converted into 11,700,002 shares of Common Stock.

 

During the three months ended March 31, 2018, warrant holders from the December 21, 2017 public offering executed 30,492,070 warrants with an exercise price of $0.1875 per common share, raising net proceeds of $5,717,325.

 

Note 11 - Loss per share

 

The calculation of basic and diluted loss per share at March 31, 2018 and 2017 was based on the loss attributable to common shareholders of $1,859,991 and $1,349,270. The basic and diluted weighted average number of common shares outstanding at March 31, 2018 and 2017 was 71,315,461 and 6,993,574.

 

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 March 31, 2018 and 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 and 259,000; unvested restricted shares of Common Stock – - and 9,166; warrants – 18,998,501 and 1,455,650 as of March 31, 2018 and 2017.

 

Note 12 - Income Tax Expense

 

There is no income tax benefit for the losses for the three months ended March 31, 2018 and 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.

 

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, 2018, 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 months ended March 31, 2018 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, 2014 and thereafter are subject to examination by the relevant taxing authorities.

 

25
 

 

AKERS BIOSCIENCES, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

 

Note 13 - 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.

 

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 would receive the full outstanding principal amount in the year ended December 31, 2016 in the form of $750,000 of BreathScan® Alcohol Detector inventory 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.

 

26
 

 

AKERS BIOSCIENCES, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

 

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 $31,689 and $32,279 for the three months ended March 31, 2018 and 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.

 

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.

 

During the three months ended March 31, 2018 and 2017, the Company recognized $- for the BreathScan Breath Alcohol products acquired from the Settlement.

 

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 8). The Company purchased a total of $23,805 and $16,744 during the three months ended March 31, 2018 and 2017. As of March 31, 2018, the Company owed the Hainan and its related party $3,160 which is included in trade and other payables – related party on the Condensed Consolidated Balance Sheet.

 

During the three months ended March 31, 2018, the Company engaged Medical Horizons, Inc. (“Medical Horizons”), a company owned and operated by the spouse of a member of the Company’s leadership team, to provide engineering and design services. The Company recorded $48,589 during the three months ended March 31, 2018 related to the engagement of Medical Horizons which is included in research and development – related party on the Condensed Consolidated Statement of Operations and Comprehensive Loss.

 

Product revenue – related party for the three months ended March 31, 2018 and 2017 were $- and $24,063. The revenue was the result of sales to Hainan and its related party.

 

27
 

 

AKERS BIOSCIENCES, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

 

Note 14 – 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. Rent expense for the Thorofare Lease, including related CAM charges for the three months ended March 31, 2018 and 2017 totaled $42,218 and $40,487, respectively.

 

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 $6,495 and $- for the three months ended March 31, 2018 and 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 $9,913 and $- for the three months ended March 31, 2018 and 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   99,000    4,330    29,736    3,591    136,657 

 

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.

 

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AKERS BIOSCIENCES, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

 

Note 15 - Major Customers

 

For the three months ended March 31, 2018, one customer generated 10% or more of the Company’s revenue. Sales to this customer accounted for 79% of the Company’s revenue. As of March 31, 2018, the amount due from this customer was $175,881. This concentration makes the Company vulnerable to a near-term severe impact should the relationships be terminated.

 

For the three months ended March 31, 2017, two customers generated 10% or more of the Company’s revenue. Sales to these customers accounted for 67% of the Company’s revenue.

 

Note 16 - Major Suppliers

 

For the three months ended March 31, 2018, one supplier accounted for 10% or more of the Company’s purchases. As of March 31, 2018, the amount due to the supplier was $9,302.

 

For the three months ended March 31, 2017, two suppliers each accounted for more than 10% of the Company’s purchases. In aggregate, these suppliers accounted for 23% of the Company’s total purchases.

 

Note 17 – 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.

 

29
 

 

AKERS BIOSCIENCES, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

 

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 11, 2017. Discovery concluded on January 22, 2018. 

 

The Company filed a Motion for Summary Judgment on January 24, 2018.  On June 21, 2018, the Court ruled in favor of the Company on some issues and determined that other issues warranted a trial.  Trial has been set for November 13, 2018 in Portland, Oregon.

 

On or about June 15, 2018, certain parties brought certain class action lawsuits against the Company.

 

Faulkner v. Akers Biosciences, Inc., No. 2:18-cv-10521 (D.N.J.)

 

On June 13, 2018, Plaintiff Tim Faulkner filed a class action complaint alleging securities violations against Akers Biosciences, Inc. (“Akers”), John J. Gormally, and Gary M. Rauch (“Individual Defendants”) (together with Akers, “Defendants”) on behalf of all persons and entities who purchased publicly traded Akers securities from May 15, 2017 through June 5, 2018. The complaint alleges violations of Section 10(b) of the Exchange Act and Rule 10b-5 against all Defendants, and violations of Section 20(a) of the Exchange Act against the Individual Defendants. In particular, the complaint alleges that Defendants made false and/or misleading statements and/or failed to disclose in its first, second, and third quarter 2017 10-Qs and its 2017 10-K that: (1) Akers was improperly recognizing revenue for the fiscal year ended December 31, 2017; and, (2) Akers had downplayed weaknesses in its internal controls over financial reporting and failed to disclose the true extent of those weaknesses. On July 10, 2018, Plaintiff and Defendants entered into a stipulation that Defendants are not required to respond to the complaint until the court appoints a lead plaintiff and lead counsel for the class, and then after the lead plaintiff chooses whether to file an amended complaint or whether to designate the complaint as the operative complaint.

 

Gleason v. Akers Biosciences, Inc., No. 2:18-cv-10805 (D.N.J.)

 

On June 20, 2018, Plaintiff David Gleason filed a class action complaint alleging securities violations against Akers Biosciences, Inc. (“Akers”), John J. Gormally, and Gary M. Rauch (“Individual Defendants”) (together with Akers, “Defendants”) on behalf of all persons and entities who purchased publicly traded Akers securities from May 15, 2017 through June 5, 2018. The complaint alleges violations of Section 10(b) of the Exchange Act and Rule 10b-5 against all Defendants, and violations of Section 20(a) of the Exchange Act against the Individual Defendants. In particular, the complaint alleges that Defendants made false and/or misleading statements and/or failed to disclose in its first, second, and third quarter 2017 10-Qs and its 2017 10-K that: (1) Akers was improperly recognizing revenue for the fiscal year ended December 31, 2017; and, (2) Akers had downplayed weaknesses in its internal controls over financial reporting and failed to disclose the true extent of those weaknesses. No Defendant has been served yet, and no response is due at this time.

 

Other class action lawsuits have been threatened against the Company and may be filed shortly. Ultimately, there will be one class action complaint upon the appointment of a lead plaintiff and lead Counsel.

 

The Company maintains D&O liability insurance coverage, insuring both the Company and the Directors and Officers for covered defense and indemnification, and has noticed these matters thereunder.

 

Additionally, a former executive has threatened to sue the Company, Board members, and executives under CEPA over the termination of his employment. That statute prohibits any retaliatory action against an employee who discloses, or threatens to disclose to a supervisor or to a public entity any activity, policy or practice of the employer that is a violation of a law, or a rule or regulation. Remedies may include a counter claim for back pay, reinstatement, compensatory and punitive damages and attorneys’ fees if appropriate. The Company will vigorously defend any litigation brought by this former executive.

 

The Company intends to establish a rigorous defense of all claims. The Company is unable to assess the potential outcome, so no accrual for losses was made as of March 31, 2018. All legal fees were expensed as and when incurred.

 

Note 18 – 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.

 

The total revenue by different product lines was as follows:

 

    Three months ended  
    March 31,  
Product Line   2018     2017  
MicroParticle Catalyzed Biosensor (“MPC”)   $ 18,950     $ 85,659  
Particle ImmunoFiltration Assay (“PIFA”)     259,983       560,921  
Rapid Enzymatic Assay ("REA")     9,900       -  
Other     13,642       20,670  
Product Revenue Total   $ 302,475     $ 667,250  
License Fees     -       -  
Total Revenue   $ 302,475     $ 667,250  

 

30
 

 

AKERS BIOSCIENCES, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

 

The total revenue by geographic area determined based on the location of the customers was as follows:

 

    Three months ended  
    March 31,  
Geographic Region   2018     2017  
United States   $ 294,733     $ 617,691  
People's Republic of China     -       21,030  
Rest of World     7,742       28,529  
Total Revenue   $ 302,475     $ 667,250  

 

The Company had long-lived assets totaling $74,339 and $59,830 located in the People’s Republic of China and $1,272,816 and $1,305,950 located in the United States as of March 31, 2018 and December 31, 2017, respectively.

 

Note 19 - Subsequent Events

 

During the period April 1, 2018 through July 6, 2018, the Company received $1,437,875 from the exercise of 7,668,667 warrants. See also Note 3.

 

31
 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

This quarterly report on Form 10-Q and other reports filed by Akers Biosciences, Inc. (“Akers”, “Akers Bio”, “we” or the “Company”) from time to time with the SEC (collectively, the “Filings”) contain or may contain forward-looking statements and information that are based upon beliefs of, and information currently available to, the Company’s management as well as estimates and assumptions made by Company’s management. Readers are cautioned not to place undue reliance on these forward-looking statements, which are only predictions and speak only as of the date hereof. When used in the Filings, the words “anticipate,” “believe,” “estimate,” “expect,” “future,” “intend,” “plan,” or the negative of these terms and similar expressions as they relate to the Company or the Company’s management identify forward-looking statements. Such statements reflect the current view of the Company with respect to future events and are subject to risks, uncertainties, assumptions, and other factors, including the risks relating to the Company’s business, industry, and the Company’s operations and results of operations. Should one or more of these risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may differ significantly from those anticipated, believed, estimated, expected, intended, or planned.

 

Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, the Company cannot guarantee future results, levels of activity, performance, or achievements. Except as required by applicable law, including the securities laws of the United States, the Company does not intend to update any of the forward-looking statements to conform these statements to actual results.

 

Our financial statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). These accounting principles require us to make certain estimates, judgments and assumptions. We believe that the estimates, judgments and assumptions upon which we rely are reasonable based upon information available to us at the time that these estimates, judgments and assumptions are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities as of the date of the financial statements as well as the reported amounts of revenues and expenses during the periods presented. Our financial statements would be affected to the extent there are material differences between these estimates and actual results. In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP and does not require management’s judgment in its application. There are also areas in which management’s judgment in selecting any available alternative would not produce a materially different result. The following discussion should be read in conjunction with our financial statements and notes thereto appearing elsewhere in this report.

 

Overview

 

Akers Bio develops, manufactures, and supplies rapid, point-of-care screening and testing products designed to bring health-related information directly to the patient or clinician in a timely and cost-efficient manner. Akers believes it has advanced the science of diagnostics through the development of several proprietary platform technologies that provide product development flexibility.

 

All of Akers’ rapid, single-use tests are performed in vitro (outside the body) and are designed to enhance patient well-being and reduce the cost of healthcare. The Company’s current product offerings and pipeline products focus on delivering diagnostic assistance in a wide variety of healthcare fields/specialties, including diagnostic rapid manual point-of-care tests for the detection of allergic reactions to Heparin, metabolism/nutrition and for on- and off-the-job alcohol safety initiatives.

 

Akers believes that low-cost, single-use testing not only saves time and money, but allows for more frequent, near-patient testing which may save lives. We believe that our FDA-cleared rapid diagnostic tests help facilitate targeted diagnoses and real-time treatment. We also believe that our rapid diagnostic tests surpass most other current diagnostic products with their flexibility, speed, ease-of-use, readability, low cost and accuracy. In minutes, detection of disease states and medical conditions can be performed on single-patient specimens without sacrificing accuracy.

 

We believe the use of rapid tests, which can be performed at the point-of-care when and where the patient is being consulted, can result in immediate diagnostic decisions and subsequent treatment regimens and is an important development in the practice of medicine. Point-of-care testing addresses today’s challenges in the healthcare industry, such as:

 

  cost pressures/efficiency of healthcare delivery;
     
  need for affordable mass screening tests for key infectious diseases and metabolic markers;

 

  need for easy to use, accurate at-home tests for individuals to monitor their personal health and wellness; and

 

32
 

 

The Company has also developed tests for non-medical use within the health and wellness industry. These tests monitor general markers of health and wellness as they relate to diet, nutrition and exercise programs.

 

Key Events, Management’s Plans and Basis of Presentation

 

On April 25, 2018, the Board of Directors of the Company terminated Dr. Raymond F. Akers from his position as Executive Chairman of the Board and from each of his officer positions as Chief Scientific Director and Secretary of the Company. Dr. Raymond F. Akers continued as a member of the Board of Directors until his resignation on May 27, 2018.

 

On April 25, 2018, the Board appointed Richard Carlyle Tarbox III, a current director of the Company as the interim Non-Executive Chairman of the Board, to hold that position until his successor is appointed, and to the position of Secretary of the Company.

 

The Company was not able to timely file this Quarterly Report on Form 10-Q due to delays in evaluating certain accounting and reporting matters. The Company’s evaluation resulted in its filing a notification on June 18, 2018 on Form 8-K providing notice that investors should no longer rely upon the financial statements included within the Company’s Quarterly Reports as of and for the periods ended June 30, 2017 and September 30, 2017, as well as the Company’s Annual Report on Form 10-K for the year ended December 31, 2017. The Company has since prepared amended financial statements for such periods and the respective amended Quarterly and Annual financial reports have been filed contemporaneously with the filing of this Quarterly Report on Form 10-Q for the three months ended March 31, 2018.

 

By way of a letter dated May 22, 2018, the Listing Qualifications Department of the NASDAQ advised the Company that it did not comply with NASDAQ Listing Rule 5250(c)(1) for continued listing because NASDAQ has not received the Company’s Quarterly Report. NASDAQ has informed the Company that the Company is required to submit a plan to regain compliance with NASDAQ’s filing requirements for continued listing within 60 calendar days of the date of the Notice. Upon acceptance of the Company’s compliance plan, NASDAQ is permitted to grant an extension of up to 180 calendar days from the Quarterly Report’s filing due date, or until November 19, 2018, for the Company to regain compliance with NASDAQ Listing Rule 5250(c)(1). The Company believes that its filing of this Quarterly Report and the Amended Quarterly and Annual Reports as discussed above have cured the potential default as to the Company meeting the requirements to continue its listing in good standing under NASDAQ.

 

On June 11, 2018, the Company received a letter from the Listing Qualifications Department NASDAQ notifying the Company that it has determined that the Company violated the shareholder approval requirements of Listing Rule 5635(c). Listing Rule 5635(c) requires shareholder approval prior to the issuance of securities when a stock option or purchase plan is to be established or materially amended or other equity compensation arrangement made or materially amended, pursuant to which stock may be acquired by officers, directors, employees or consultants.

 

Prior to the Company’s public offering and listing on NASDAQ, the Company’s 2013 Plan was approved by its Board. NASDAQ has concluded that the 2013 Plan was materially amended on two occasions after the Company’s public offering and listing on NASDAQ. The first amendment, as approved by the Board on January 9, 2015, increased the number of shares available under the 2013 Plan from 400,000 to 800,000 shares and the second amendment, as approved by the Board on October 5, 2016, increased the number of shares under the 2013 Plan from 800,000 to 830,000 shares.

 

During the first quarter of 2018 the Company promptly notified NASDAQ, as required by Listing Rule 5625, when it became aware of its potential non-compliance with Listing Rule 5635(c). On May 4, 2018, the Staff requested additional information from the Company with respect to such non-compliance and on May 31, 2018, the Company responded. On June 25, 2018, the Company submitted the 5635 Compliance Plan to NASDAQ to remediate this matter. The 5635 Compliance Plan included that a proposal for shareholders of the Company to ratify the 2013 Plan Amendments be included in the proxy statement for the Company’s 2018 annual meeting of the shareholders of the Company and that the Company shall suspend the trading of each share granted, and each share granted upon the exercise of any option granted, in excess of 400,000 shares under the 2013 Plan (the number of shares properly approved pursuant to the 2013 Plan prior to the 2013 Plan Amendments until shareholder ratification). The 5635 Compliance Plan also proposes to prevent the exercise of any option granted under the 2013 Plan until shareholder ratification.

 

On July 12, 2018, NASDAQ approved of the 5635 Compliance Plan and granted the Company until December 10, 2018, to regain compliance with Listing Rule 5635.

 

On or about June 15, 2018, certain parties brought certain class action lawsuits against the Company.

 

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Faulkner v. Akers Biosciences, Inc., No. 2:18-cv-10521 (D.N.J.)

 

On June 13, 2018, Plaintiff Tim Faulkner filed a class action complaint alleging securities violations against Akers Biosciences, Inc. (“Akers”), John J. Gormally, and Gary M. Rauch (“Individual Defendants”) (together with Akers, “Defendants”) on behalf of all persons and entities who purchased publicly traded Akers securities from May 15, 2017 through June 5, 2018. The complaint alleges violations of Section 10(b) of the Exchange Act and Rule 10b-5 against all Defendants, and violations of Section 20(a) of the Exchange Act against the Individual Defendants. In particular, the complaint alleges that Defendants made false and/or misleading statements and/or failed to disclose in its first, second, and third quarter 2017 10-Qs and its 2017 10-K that: (1) Akers was improperly recognizing revenue for the fiscal year ended December 31, 2017; and, (2) Akers had downplayed weaknesses in its internal controls over financial reporting and failed to disclose the true extent of those weaknesses. On July 10, 2018, Plaintiff and Defendants entered into a stipulation that Defendants are not required to respond to the complaint until the court appoints a lead plaintiff and lead counsel for the class, and then after the lead plaintiff chooses whether to file an amended complaint or whether designate the complaint as the operative complaint.

 

Gleason v. Akers Biosciences, Inc., No. 2:18-cv-10805 (D.N.J.)

 

On June 20, 2018, Plaintiff David Gleason filed a class action complaint alleging securities violations against Akers Biosciences, Inc. (“Akers”), John J. Gormally, and Gary M. Rauch (“Individual Defendants”) (together with Akers, “Defendants”) on behalf of all persons and entities who purchased publicly traded Akers securities from May 15, 2017 through June 5, 2018. The complaint alleges violations of Section 10(b) of the Exchange Act and Rule 10b-5 against all Defendants, and violations of Section 20(a) of the Exchange Act against the Individual Defendants. In particular, the complaint alleges that Defendants made false and/or misleading statements and/or failed to disclose in its first, second, and third quarter 2017 10-Qs and its 2017 10-K that: (1) Akers was improperly recognizing revenue for the fiscal year ended December 31, 2017; and, (2) Akers had downplayed weaknesses in its internal controls over financial reporting and failed to disclose the true extent of those weaknesses. No Defendant has been served yet, and so no response is due at this time.

 

Other class action lawsuits have been threatened against the Company and may be filed shortly. Ultimately, there will be one class action complaint upon the appointment of a lead plaintiff and lead Counsel.

 

The Company maintains D&O liability insurance coverage, insuring both the Company and the Directors and Officers for covered defense and indemnification, and has noticed these matters thereunder.

 

As of March 31, 2018, the Company has in large part relied on equity financing to fund its operations, raising $29,279,506, net of expenses, in various public and private offering on the NASDAQ Capital Market and through the exercise of warrants associated with the offerings. The Company has experienced recurring losses and negative cash flows from operations. Management’s strategic plans include the following:

 

  continuing to advance the development and commercialization of the Company’s products, especially those that utilize MPC Biosensor, PIFA and seraSTAT technologies;
     
  continuing to strengthen and forge domestic and international relationships with well-established sales organizations with strong distribution channels in specific target markets for both our currently marketed and emerging products;
     
  establishing clinical protocols that support regulatory submissions and publication of data within peer-reviewed journals; and
     
  continuing to monitor and implement cost control initiatives to conserve cash.

 

Despite our plans, the Company expects to continue to incur losses from operations for the near-term for the following reasons:

 

  some of Akers’ distribution partnerships (Diagnostica Stago) have been recently established or are in the process of being initiated and, therefore, consistent and historical ordering patterns have not been instituted;
     
  the Company continues to incur expenses related to the commercialization and marketing activities for its existing product platforms and product development (research, clinical trials, regulatory tasks) costs;
     
  And to expand the use of its clinical laboratory products, the Company may need to invest in additional marketing support programs to increase brand awareness.

 

At March 31, 2018, Akers had cash of $647,267, working capital of $9,784,223, shareholders’ equity of $11,417,245 and an accumulated deficit of $106,705,838. The Company believes that its current working capital position will be sufficient to meet its estimated cash needs for at least the next 12 months. The Company closely monitors its cash balances, cash needs and expense levels. The Company is not yet able to determine the impact of the key events during June and July of 2018 as discussed above may have on the Company’s ability to raise capital, nor the impact that these matters might have on its business operations.

 

Summary of Statements of Operations for the Three Months Ended March 31, 2018 and 2017

 

Revenue

 

Akers’ revenue for the three months ended March 31, 2018 totaled $302,475, a 55% decrease from the same period in 2017. The table below summarizes revenue by product line for the three months ended March 31, 2018 and 2017 as well as the percentage of change year-over-year:

 

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Product Lines   3 Months Ended
March 31, 2018
    3 Months Ended
March 31, 2017
    Percent Change  
Particle ImmunoFiltration Assay (“PIFA”)   $ 259,983     $ 560,921       (54 )%
MicroParticle Catalyzed Biosensor (“MPC”)     18,950       85,659       (78 )%
Rapid Enzymatic Assay (“REA”)     9,900       -       - %
Other     13,642       20,670       (34 )%
Product Revenue Total   $ 302,475     $ 667,250       (55 )%
License and Service Fees     -       -       - %
Total Revenue   $ 302,475     $ 667,250       (55 )%

 

Revenue from the Company’s PIFA Heparin/PF4 Rapid Assay products decreased 54% to $259,983 (2017: $560,921) during the three months ended March 31, 2018, over the same period of 2017. The Company is taking steps to improve its market presence including the use of specialized Independent Sales Representatives (“ISRs”) and through a program to educate the marketplace through the preparation and publication of additional clinical studies and physician seminars on the risks associated with heparin induced thrombocytopenia.

 

During the three months ended March 31, 2018, we experienced lower yields in the process of extracting antigen from the supplier provided platelets used to produce our PIFA Heparin product. At these yield levels, our production of this product was under target levels, resulting in backorders. Our engineers and representatives from our supplier have been working together to adjust our processes in order to restore the yield to appropriate levels, the results of which are not yet determined.

 

Furthermore, we are evaluating and testing a resolution that may involve one or more alternative antigen suppliers and processes that may provide a path to restoring yield levels for this product. For each of these potential solutions, we will be conducting production validation and stability testing.

 

The Company’s dedicated technical sales account executives are supporting over 300 sales representatives of Akers’ U.S. distribution partners, Cardinal Health, Thermo Fisher Scientific and Diagnostica Stago. The Company’s relationship-building initiative with our partners has delivered a measurable increase in product trials and adoptions. Domestic sales for the three months ended March 31, 2018, of our distributors, Cardinal Health and Thermo Fisher Scientific, accounted for $209,471 of the total PIFA Heparin/PF4 Rapid Assay sales as compared to $454,656 for the same period of 2017.

 

The Company’s MPC product sales decreased by 78% to $18,950 (2017: $85,659) during the three months ended March 31, 2018. Sales of the Company’s Metron and BreathScan Alcohol products accounted for the revenue.

 

The Company’s REA products generated $9,900 (2017: $-) during the three months ended March 31, 2018. The Company’s re-introduced Tri-Cholesterol product is produced with this technology.

 

Other operating revenue decreased to $13,642 (2017: $20,670) during the three months ended March 31, 2018. The category is made up of the sales of miscellaneous raw material components, sub-assembled products and fees billed for shipping and handling charges.

 

The table below summarizes our revenue by geographic region for the three months ended March 31, 2018 and 2017 as well as the percentage of change year-over-year:

 

Geographic Region   3 months ended
March 31, 2018
    3 months ended
March 31, 2017
    Percent
Change
 
United States   $ 294,733     $ 617,691       (52 )%
People’s Republic of China     -       21,030       (100 )%
Rest of World     7,742       28,529       (73 )%
Total Revenue   $ 302,475     $ 667,250       (55 )%

 

Domestic sales represent the most significant portion of the Company’s revenue, contributing 97% (2016: 93%). The primary sales and marketing efforts are concentrated on expanding the Company’s domestic market share in the rapid clinical diagnostic and health and wellness segments. The introduction of the Tri-Cholesterol test has allowed the Company to re-enter the retail market.

 

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Gross Margin

 

The Company’s gross margin declined to 2% (2017: 61%) for the three months ended March 31, 2018. Increases in direct personnel costs ($96,824 (2017: $65,353)) and the transfer of raw materials and sub-assemblies from/to inventory for production ($13,419 (2017: $133,111)) were offset by a decrease in services provided by sub-contractors for material preparation, assembly and packaging to $600 (2017: $113,761).

 

During the three months ended March 31, 2018, low yields during antigen extraction processes and the addition of a production laboratory technician to the direct manufacturing staff in anticipation of increased demand for the PIFA and REA platform products significantly affected direct costs of production.

 

Cost of production also includes significant components that are fixed expenses which effectively reduces the gross margin when revenue declines. These expenses include the cost of personnel, manufacturing and warehousing space, depreciation of equipment and other similar items.

 

Cost of sales for the three months ended March 31, 2018 totaled $297,500 (2017: $258,721). Direct cost of sales increased to 44% of product revenue while other cost of sales increased to 54% for the three months ended March 31, 2018 as compared to 16% and 23% respectively for the same period in 2017.

 

Direct cost of sales for the three-month period ended March 31, 2018 were $132,653 (2017: $106,129). Other cost of sales for the three months ended March 31, 2018 were $164,847 (2017: $152,593).

 

General and Administrative Expenses

 

General and administrative expenses for the three months ended March 31, 2018, totaled $915,533, which was a 16% increase as compared to $790,529 for the three months ended March 31, 2017.

 

The table below summarizes our general and administrative expenses for the three months ended March 31, 2018 and 2017 as well as the percentage of change year-over-year:

 

Description   3 Months Ended
March 31, 2018
    3 Months Ended
March 31, 2017
    Percent Change  
Personnel Costs   $ 306,936     $ 334,527       (8 )%
Professional Service Costs     303,937       191,753       59 %
Stock Market & Investor Relations Costs     114,166       82,386       39 %
Other General and Administrative Costs     190,494       181,863       5 %
Total General and Administrative Expense   $ 915,533     $ 790,529       16 %

 

Personnel expenses decreased by 8% for the three months ended March 31, 2018 as compared to the same period of 2017. A reduction in bonuses included in salaries and wages to $243,941 (2017: $277,456) was offset by increases in auto allowance and employee benefit expenses of $19,938 (2017: $14,286).

 

Professional service costs increased 59% for the three months ended March 31, 2018 as compared to the same period of 2017. A significant increase in legal fees ($278,277 (2017: $138,688)) were offset partially by a decrease in engineering fees ($6,475 (2017: $30,090)) resulting in the change. The Company replaced its SEC attorneys in February 2018 and continues to incur legal expenses related to ongoing litigation (Part II, Item 1).

 

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Investor relations totaled $52,573 (2017: $39,354) and transfer agent fees of $21,402 (2017: $7,369) were the major contributors to the 39% increase in stock market and investor relations costs for the three months ended March 31, 2018.

 

Other general and administrative expenses increased by 5%. This increase is the result of increases in building expenses of $74,909 (2017: $45,253) for the addition of the Ramsey, New Jersey satellite office and licenses, permits and fees of $16,374 (2017: $4,869).

 

Sales and Marketing Expenses

 

Sales and marketing expenses for the three months ended March 31, 2018 totaled $500,152 which was a 15% decrease compared to $588,934 for the three months ended March 31, 2017.

 

The table below summarizes our sales and marketing expenses for the three months ended March 31, 2018 and 2017 as well as the percentage of change year-over-year:

 

Description  3 Months Ended
March 31, 2018
   3 Months Ended
March 31, 2017
   Percent Change 
Personnel Costs  $321,708   $335,832    (4)%
Professional Service Costs   71,559    65,046    10%
Royalties and Outside Commission Costs   27,855    45,133    (38)%
Other Sales and Marketing Costs   79,030    142,923    (45)%
Total Sales and Marketing Expenses  $500,152   $588,934    (15)%

 

The US market has been divided into two regional zones, each with a business director that is responsible for recruiting and supporting ISRs and independent manufacturing representatives (“IMRs”) to target large integrated delivery networks and individual facilities. This strategy requires more experienced and technically knowledgeable sales personnel to interact with surgeons, executive management, laboratory and medical directors. The Company has increased its sales and marketing staff from 4 members on March 31, 2017 to 5 as of March 31, 2018.

 

Personnel costs decreased in the three months ended March 31, 2018 as compared to the same period of 2017. A reduction in compensation, bonuses and commissions to $257,352 (2017: $293,269) primarily due to changes in the bonus and compensation plan was offset by increases in auto allowance and employee benefit expenses of $31,648 (2017: $14,208).

 

The Company renegotiated or eliminated several consulting arrangements targeted at improving market penetration or identifying marketing or distribution partners during the first half of 2017. The result was a significant reduction of in professional services for the three months ended March 31, 2017. The Company continually monitors the effectiveness of the remaining agreements and a few have been expanded to provide additional services resulting in an increase in professional service costs during the three months ended March 31, 2018.

 

The legal settlement with ChubeWorkx Guernsey, Ltd (“ChubeWorkx”), signed on August 11, 2016, requires the Company to pay a 5% royalty on adjusted gross sales to ChubeWorkx on a quarterly basis. During the three months ended March 31, 2018, this royalty totaled $31,689 (2017: $32,279). The Company received a credit for an overpayment of commissions to an IMR for $14,208 which contributed to the decline in royalty and outside commission costs during the three months ended March 31, 2018.

 

The Company recognized significant reductions in advertising expenses ($12,167 (2017: $54,700)) and trade show expenses ($885 (2017: $29,523)) plus smaller reductions in several other operating categories that resulted in a 45% reduction in other sales and marketing costs.

 

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Research and Development

 

Research and development expenses for the three months ended March 31, 2018 totaled $439,970, which was a 26% increase as compared to $348,442 for the three months ended March 31, 2018.

 

The table below summarizes our research and development expenses for the three months ended March 31, 2018 and 2017 as well as the percentage of change year-over-year:

 

Description   3 Months Ended
March 31, 2018
   

3 Months Ended

March 31, 2017

    Percent Change  
Personnel Costs   $ 299,212     $ 284,949       5 %
Clinical Trial Costs     905       150       503 %
Professional Service Costs     89,276       29,124       207 %
Other Research and Development Costs     50,577       34,219       48 %
Total Research and Development Expenses   $ 439,970     $ 348,442       26 %

 

Personnel costs increased 5% during the three months ended March 31, 2018 as compared to the same period of 2017. The Company expanded the research and development staff by one position to assist with the development of the health and wellness products.

 

Professional services consisted of fees paid to engineering consultants to address production mold designs, specialized tooling and manufacturing process development, regulatory consultants to assist with governmental filings and facility certifications and the medical director. Engineering service costs increased to $72,496 (2017: $17,705), fees for the consulting medical director totaled $9,000 (2017: $6,000) and other regulatory consulting fees totaled $5,280 (2017: $-) in the three months ended March 31, 2018.

 

Increases in laboratory supplies ($15,642 (2017: $8,059)) and the utilization of internal resources ($16,037 (2017: $1,887)) resulted in an increase of 48% for other research and development costs during the three months ended March 31, 2018.

 

The following table illustrates research and development costs by project for the three months ended March 31, 2018 and 2017, respectively:

 

Project  2018   2017 
Breath Alcohol  $-   $4,669 
Chlamydia Trachomatis   32,690    51,709 
Heparin/PF4   46,593    11,499 
Ketone   -    1,707 
KetoChek™ / OxiChek™   342,605    89,724 
Metron   9,723    - 
Other Projects   -    59,688 
SeraSTAT   -    5,610 
Tri-Cholesterol   8,359    123,244 
VIVO   -    592 
Total R&D Expenses:  $439,970   $348,442 

 

Other Income and Expense

 

Other income, net of expense for the three months ended March 31, 2018 totaled $33,466, which was a 160% increase as compared to $12,883 for the three months ended March 31, 2017.

 

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The table below summarizes our other income and expenses for the three months ended March 31, 2018 and 2017 as well as the percentage of change year-over-year:

 

Description  3 Months Ended
March 31, 2018
   3 Months Ended
March 31, 2017
   Percent Change 
Currency Translation Gain/(Loss)  $(2,875)  $10,346    (128)%
Realized Gains on Investments   -    1,051    (100)%
Interest and Dividends   36,341    1,486    2,346%
Total Other Income, Net of Expenses  $33,466   $12,883    160%

 

Losses associated with foreign currency transactions totaled $2,875 during the three months ended March 31, 2018 as compared to a gain of $10,346 the same period of 2017, primarily a result of the increased strength of the British Pound as compared to the US Dollar.

 

Realized gains, interest and dividend income increased to $36,341 (2017: $2,537). The Company’s available capital for investment activities increased significantly due to the capital raise in December 2017 and the subsequent exercises of warrants during the three months ended March 31, 2018 resulting in the increase in investment income.

 

Income Taxes

 

As of March 31, 2018, the Company does not believe any uncertain tax positions exist that would result in the Company having a liability to the taxing authorities. The Company’s policy is to classify interest and penalties related to unrecognized tax benefits, if and when required, as part of interest expense and general and administrative expense, respectively in the consolidated statement of operations.

 

Liquidity and Capital Resources

 

For the three months ended March 31, 2018 and 2017, the Company generated a net loss attributable to shareholders of $1,859,991 and $1,349,270, respectively. As of March 31, 2018 and December 31, 2017, the Company has an accumulated deficit of $106,705,838 and $104,845,847 and had cash and marketable securities totaling $9,326,277 and $5,450,039, respectively.

 

Our primary focus is to expand the global distribution of our PIFA Heparin PF/4 rapid assays. The Company continues commercialization of its BreathScan OxiChek, BreathScan Lync Readers, METRON, BreathScan Alcohol detection devices and the Tri-Cholesterol assay and development activities for PIFA PLUSS Chlamydia rapid assay and BreathScan KetoChek products.

 

We expect to continue to incur losses from operations for the near-term and these losses could be significant as we incur product development, clinical and regulatory activities, contract consulting and other product development and commercialization related expenses. We expect that our current working capital position will be sufficient to meet our estimated cash needs for at least the next twelve months. We are closely monitoring our cash balances, cash needs and expense levels. The accompanying financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that might result in the possible inability of the Company to continue as a going concern.

 

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We expect that our primary expenditures will be to continue development of BreathScan KetoChek via the enrollment of patients in clinical trials to support performance claims and generate studies in peer-reviewed journals to support product marketing. We will also continue to support commercialization and marketing activities of in-line products PIFA Heparin/PF4 rapid assays, PIFA PLUSS® PF4, breath alcohol detectors, METRON BreathScan OxiChek and BreathScan Lync Readers globally. Based upon our experience, clinical trial and related regulatory expenses can be significant costs. Steps to achieve commercialization of emerging products will be an ongoing and evolving process with expected improvements and possible subsequent generations being evaluated for commercialized and emerging tests. Should we be unable to achieve FDA clearance for products that require such regulatory “approval”, develop performance characteristics for rapid tests that satisfy market needs, or generate sufficient revenue from commercialized products, we would need to rely on other business or product opportunities to generate revenue and costs that we have incurred for the patents may be deemed impaired.

 

Capital expenditures for the three months ended March 31, 2018 were $37,827 (2017: $16,774). Capital expenditures, primarily for production, laboratory and facility improvement costs for the year ending December 31, 2018 are expected to be approximately $250,000. As per the Company’s lease agreement, the owner of the facility will be handling most of the facility upgrades, and we anticipate financing any production and laboratory capital expenditures through working capital.

 

The Company may enter into generally short-term consulting and development agreements primarily for testing services and in connection with clinical trials conducted as part of the Company’s development process which may include activities related to the development of technical files for FDA 510(k) clearance submissions. Such commitments at any point in time may be significant but the agreements typically contain cancellation provisions.

 

We lease our manufacturing facility which also contains our administrative offices. Our current lease was executed January 1, 2013 and is effective through December 31, 2019. The Company has leased this property from the current owner since 1997. The Company executed a lease for a satellite office in Ramsey, New Jersey on June 23, 2017 which expires May 31, 2019. The satellite office supports members of executive management and the sales and marketing team with convenient access to resources in the greater New York City area.

 

Due to recent market events that have adversely affected all industries and the economy as a whole, management has placed increased emphasis on monitoring the risks associated with the environment, particularly the recoverability of current assets, the fair value of assets, and the Company’s liquidity. At this point in time, there has not been a material impact on the Company’s assets and liquidity. Management will continue to monitor the risks associated with the environment and their impact on the Company’s results.

 

The table below summarizes our cash flows for the three months ended March 31, 2018 and 2017 as well as the percentage of change year-over-year:

 

 

Description   3 Months Ended
March 31, 2018
    3 Months Ended
March 31, 2017