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EX-31.1 - MyMD Pharmaceuticals, Inc.ex31-1.htm
EX-32.1 - MyMD Pharmaceuticals, Inc.ex32-1.htm
EX-31.2 - MyMD Pharmaceuticals, Inc.ex31-2.htm
EX-3.3 - MyMD Pharmaceuticals, Inc.ex3-3.htm
EX-3.2 - MyMD Pharmaceuticals, Inc.ex3-2.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: June 30, 2020

 

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)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading Symbol(s)   Name of exchange on which registered
Common Stock, no par value   AKER   NASDAQ

 

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 every Interactive Data File required to be submitted 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 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 [X] Smaller reporting company [X]
      Emerging growth company [  ]

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [  ]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [  ] No [X]

 

As of August 13, 2020 there were 8,724,283 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 37
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk 53
     
Item 4. Controls and Procedures 53
     
PART II – OTHER INFORMATION  
     
Item 1. Legal Proceedings 54
     
Item 1A. Risk Factors 55
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 70
     
Item 3. Defaults Upon Senior Securities 70
     
Item 4. Mine Safety Disclosures 70
     
Item 5. Other Information 70
     
Item 6. Exhibits 71
     
Signatures 73

 

2

 

 

Part I - Financial Information

 

Item 1 - Financial Statements

 

AKERS BIOSCIENCES, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

 

   As of 
   June 30,   December 31, 
   2020   2019 
   (unaudited)   (audited) 
ASSETS          
Current Assets          
Cash  $11,446,717   $517,444 
Marketable Securities   6,856,805    9,164,273 
Trade Receivables, net   2,301    42,881 
Inventories, net   -    198,985 
Prepaid expenses   172,096    387,231 
Total Current Assets   18,477,919    10,310,814 
           
Non-Current Assets          
Prepaid Expenses   -    252,308 
Restricted Cash   115,094    115,094 
Property, Plant and Equipment, net   4,783    33,574 
Operating Lease Right-of-Use Asset   79,942    - 
Intangible Assets, net   -    170,423 
Other Assets   -    2,722 
Total Non-Current Assets   199,819    574,121 
           
Total Assets  $18,677,738   $10,884,935 
           
LIABILITIES          
Current Liabilities          
Trade and Other Payables  $2,625,572   $1,529,765 
Operating Lease Liability   80,018    - 
Total Current Liabilities   2,705,590    1,529,765 
           
Operating Lease Liability - non-current   -    - 
           
Total Liabilities  $2,705,590   $1,529,765 
           
Commitments and Contingencies          
           
SHAREHOLDERS’ EQUITY          
Preferred Stock, No par value, 50,000,000 total preferred shares authorized   -    - 
Series C Convertible Preferred Stock, 1,990,000 shares designated, no par value and a stated value of $4.00 per share, 0 and 0 shares issued and outstanding as of June 30, 2020 and December 31, 2019   -    - 
Series D Convertible Preferred Stock, 211,353 shares designated, no par value and a stated value of $0.01 per share, 208,577 and 0 shares issued and outstanding as of June 30, 2020 and December 31, 2019   412,982    - 
Common stock, No par value, 100,000,000 shares authorized 6,125,039 and 1,738,837 issued and outstanding as of June 30, 2020 and December 31, 2019   142,330,116    128,920,414 
Accumulated Other Comprehensive Income (Loss)   (21,153)   17,886 
Accumulated Deficit   (126,749,797)   (119,583,130)
Total Shareholders’ Equity   15,972,148    9,355,170 
           
Total Liabilities and Shareholders’ Equity  $18,677,738   $10,884,935 

 

The accompanying notes are an integral part of these condensed consolidated financial statements

 

3

 

 

AKERS BIOSCIENCES, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations and Comprehensive Loss

(unaudited)

 

   For the Three Months Ended   For the Six Months Ended 
   June 30,   June 30, 
   2020   2019   2020   2019 
                 
Product Revenue  $(1,888)  $464,513   $361,627   $1,076,634 
Product Cost of Sales   (377,169)   (219,864)   (550,040)   (465,801)
                     
Gross Income (Loss)   (379,057)   244,649    (188,413)   610,833 
                     
Research and Development Expenses   1,916,161    -    4,399,218    - 
Administrative Expenses   736,708    981,309    1,894,440    1,964,265 
Sales and Marketing Expenses   7,240    14,139    21,703    163,979 
Regulatory and Compliance Expenses   67,667    60,909    139,758    149,300 
Litigation Settlement Expenses   81,717    -    81,717    75,000 
Amortization of Non-Current Assets   8,727    10,002    17,601    20,004 
Impairment of Prepaid Royalties   291,442    -    291,442    - 
Impairment of Production Equipment   18,680    -    18,680    - 
Impairment of Intangible Assets   149,870    -    152,822    - 
                     
Loss from Operations   (3,657,269)   (821,710)   (7,205,794)   (1,761,715)
                     
Other (Income) Expenses                    
Foreign Currency Transaction (Gain) Loss   (93)   219    (93)   4,878 
Loss on Investments   -    543    36,714    4,258 
Interest and Dividend Income   (29,045)   (27,581)   (75,748)   (59,002)
Total Other Income   (29,138)   (26,819)   (39,127)   (49,866)
                     
Loss Before Income Taxes   (3,628,131)   (794,891)   (7,166,667)   (1,711,849)
                     
Income Tax Benefit   -    -    -    - 
                     
Net Loss   (3,628,131)   (794,891)   (7,166,667)   (1,711,849)
                     
Other Comprehensive Income (Loss)                    
Net Unrealized Gain (Loss) on Marketable Securities   201,898    18,059    (39,039)   47,402 
Total Other Comprehensive Income (Loss)   201,898    18,059    (39,039)   47,402 
                     
Comprehensive Loss  $(3,426,233)  $(776,832)  $(7,205,706)  $(1,664,447)
                     
Basic and Diluted loss per common share  $(0.69)  $(1.47)  $(1.92)  $(3.16)
                     
Weighted average basic and diluted common shares outstanding   5,252,211    541,367    3,739,529    541,000 

 

The accompanying notes are an integral part of these condensed consolidated financial statements

 

4

 

 

AKERS BIOSCIENCES, INC. AND SUBSIDIARIES

Condensed Consolidated Statement of Changes in Shareholders’ Equity

 

   For the Six Months Ended June 30, 2019 
   Series D Convertible               Accumulated     
   Preferred Stock   Common Stock       Other     
               Common   Accumulated   Comprehensive   Total 
   Shares   Series D   Shares   Stock   Deficit   Income/(Loss)   Equity 
Balance at December 31, 2018 (audited)   -   $-    540,607   $121,554,547   $(115,694,881)  $(25,913)  $5,833,753 
Net loss   -    -    -    -    (916,958)   -    (916,958)
Issuance of stock grants to key employees   -    -    625    15,874    -    -    15,874 
Share-based compensation - Directors - restricted stock units   -    -    -    3,906    -    -    3,906 
Net unrealized gain on marketable securities   -    -    -    -    -    29,343    29,343 
                                    
Balance at March 31, 2019 (unaudited)   -   $-    541,232   $121,574,327   $(116,611,839)  $3,430   $4,965,918 
Net loss   -    -    -    -    (794,891)   -    (794,891)
Issuance of stock grants to key employees   -    -    470    6,570    -    -    6,570 
Share-based compensation - Directors - restricted stock units   -    -    -    118,478    -    -    118,478 
Net unrealized gain on marketable securities   -    -    -    -    -    18,059    18,059 
Balance at June 30, 2019 (unaudited)   -   $-    541,702   $121,699,375   $(117,406,730)  $21,489   $4,314,134 

 

   For the Six Months Ended June 30, 2020 
   Series D Convertible               Accumulated     
   Preferred Stock   Common Stock       Other     
               Common   Accumulated   Comprehensive   Total 
   Shares   Series D   Shares   Stock   Deficit   Income/(Loss)   Equity 
Balance at December 31, 2019 (audited)   -   $-    1,738,837   $128,920,414   $(119,583,130)  $17,886   $9,355,170 
Net loss   -    -    -    -    (3,538,536)   -    (3,538,536)
Exercise of prepaid equity forward contracts for common stock   -    -    765,000    77    -    -    77 
Share-based compensation - Directors - restricted stock units   -    -    -    1,302    -    -    1,302 
Shares issued for the purchase of license   211,353    418,479    411,403    814,578    -    -    1,233,057 
Share-based compensation - shares issued to vendors   -    -    -    7,318    -    -    7,318 
Net unrealized loss on marketable securities   -    -    -    -    -    (240,937)   (240,937)
                                    
Balance at March 31, 2020 (unaudited)   211,353   $418,479    2,915,240   $129,743,689   $(123,121,666)  $(223,051)  $6,817,451 
Net loss   -    -    -    -    (3,628,131)   -    (3,628,131)
Exercise of prepaid equity forward contracts for common stock   -    -    30,000    3    -    -    3 
Exercise of Series C Convertible Preferred warrants for common stock   -    -    1,043,500    4,174,000    -    -    4,174,000 
Conversion of Series D Convertible Preferred Shares for common stock   (2,776)   (5,497)   2,776    5,497    -    -    - 
Registered direct offering of common stock net of offering costs of $513,795   -    -    766,667    4,086,207    -    -    4,086,207 
Registered direct offering of common stock net of offering costs of $504,281   -    -    1,366,856    4,320,720    -    -    4,320,720 
Net unrealized gain on marketable securities   -    -    -    -    -    201,898    201,898 
Balance at June 30, 2020 (unaudited)   208,577   $412,982    6,125,039   $142,330,116   $(126,749,797)  $(21,153)  $15,972,148 

 

The accompanying notes are an integral part of these condensed consolidated financial statements

 

5

 

 

AKERS BIOSCIENCES, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(unaudited)

 

   For the Six Months Ended 
   June 30, 
   2020   2019 
Cash flows from operating activities:          
Net loss  $(7,166,667)  $(1,711,849)
Adjustments to reconcile net loss to net cash used in operating activities:          
Loss on sale of securities   36,714    4,258 
Accrued (income)/loss on marketable securities   348    3,514 
Depreciation and amortization   27,712    34,979 
Impairment of Prepaid Royalties   291,442    - 
Impairment of Production Equipment   18,680    - 
Impairment of intangible assets   152,822    - 
Inventory adjustment for net realizable value   197,723    - 
Reserve for doubtful trade receivables   1,273    4,247 
Share based compensation to an employee - common stock   -    22,444 
Share based compensation to directors - restricted stock units   1,302    122,384 
Share based compensation - shares issued to vendors   7,318    - 
Shares issued for the purchase of a license   1,233,057    - 
Change in assets and liabilities          
(Increase)/Decrease in trade receivables   63,548    (94,781)
Decrease in deposits and other receivables   -    9,347 
Decrease in inventories   1,262    41,026 
Decrease in prepaid expenses   176,001    305,531 
Decrease in other assets   2,722    4,330 
(Increase)/Decrease in trade and other payables   1,071,566    (355,782)
Increase in operating lease liability   76    - 
Net cash used by operating activities   (3,883,101)   (1,610,352)
           
Cash flows from investing activities:          
Purchases of marketable securities   (76,095)   (62,516)
Proceeds from sale of marketable securities   2,307,462    1,354,646 
Net cash provided by investing activities   2,231,367    1,292,130 
           
Cash flows from financing activities          
Net proceeds from issuance of common stock   8,406,927    - 
Net proceeds from the exercise of Series C Convertible Preferred warrants and conversion into common stock   4,174,000    - 
Net proceeds from the exercise of prepaid equity forward contracts for the purchase of common stock   80    - 
Net cash provided by financing activities   12,581,007    - 
           
Net increase/(decrease) in cash and restricted cash   10,929,273    (318,222)
Cash and restricted cash at beginning of period   632,538    681,755 
Cash and restricted cash at end of period  $11,561,811   $363,533 
           
Supplemental cash flow information          
Cash paid for:          
Interest  $-   $- 
Income Taxes  $-   $- 
           
Supplemental Schedule of Non-Cash Financing and Investing Activities          
Net unrealized gains/(losses) on marketable securities  $(39,039)  $47,402 
Operating lease right-of-use asset obtained in exchange for lease obligation  $(79,942)  $- 

 

The accompanying notes are an integral part of these condensed consolidated financial statements

 

6

 

 

AKERS BIOSCIENCES, INC. AND CONSOLIDATED SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Note 1 – Organization and Description of Business

 

Akers Biosciences, Inc. (“Akers”), is a New Jersey corporation. These consolidated financial statements include three wholly owned subsidiaries, Cystron Biotech, LLC, Akers Acquisition Sub, Inc. and Bout Time Marketing Corporation, (together, the “Company”). All material intercompany transactions have been eliminated in consolidation.

 

The Company was historically a developer of rapid health information technologies but since March 2020, has been primarily focused on the development of a vaccine candidate against SARS-CoV-2, a coronavirus currently causing a pandemic throughout the world. In response to the global pandemic, the Company is pursuing rapid development and manufacturing of its COVID-19 vaccine candidate, or combination product candidate (the “COVID-19 Vaccine Candidate”) in collaboration with Premas Biotech PVT Ltd. (“Premas”). With Premas, the Company is currently conducting animal studies for its COVID-19 Vaccine Candidate in India with different dose amounts, including amounts that would be applicable to humans. The Company and Premas are currently engaged in communications with the U.S. Food and Drug Administration (“FDA”) and the office of the drug controller in India.

 

On July 7, 2020, the Company immediately ceased the production and sale of its rapid, point-of-care screening and testing products. The Company will continue to provide support for these testing products that remain in the market through respective product expiration dates. For a more detailed discussion of the Company’s cessation of its screening and testing products, see Note 3 herein.

 

Note 2 – 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, 2019 and 2018 included in the Company’s 2019 Form 10-K, as filed on March 25, 2020. In the opinion of the Company’s management, these condensed consolidated financial statements include all adjustments, which are of only a normal and recurring nature, necessary for a fair statement of the financial position of the Company as of June 30, 2020 and its results of operations and cash flows for the three and six months ended June 30, 2020 and 2019. The results of operations for the three and six months ended June 30, 2020 are not necessarily indicative of the results to be expected for the full fiscal year ending December 31, 2020.

 

7

 

 

AKERS BIOSCIENCES, INC. AND CONSOLIDATED SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Note 2 - Significant Accounting Policies, continued

 

(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, recording research and development expenses, allowances for doubtful accounts, inventory and prepaid asset write-downs, impairment of equipment and 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 has been rounded to the nearest dollar. Foreign Currency Transaction Gains or Losses, resulting from cash balances denominated in Foreign Currencies, are recorded in the Condensed Consolidated Statements 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

 

The Company considers all highly liquid investments, which include short-term bank deposits (up to three months from date of deposit) that are not restricted as to withdrawal date or use, to be cash equivalents.

 

(f) Restricted Cash

 

At June 30, 2020, restricted cash included in non-current assets on the Company’s Condensed Consolidated Balance Sheet was $115,094 representing cash in trust for the purpose of funding legal fees for certain litigations.

 

8

 

 

AKERS BIOSCIENCES, INC. AND CONSOLIDATED SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Note 2 - Significant Accounting Policies, continued

 

(g) 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 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.

 

9

 

 

AKERS BIOSCIENCES, INC. AND CONSOLIDATED SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Note 2 - Significant Accounting Policies, continued

 

(g) Fair Value of Financial Instruments, continued

 

Following is a description of the valuation methodologies used for assets measured at fair value as of June 30, 2020 and December 31, 2019.

 

Marketable Securities: Valued using quoted prices in active markets for identical assets.

 

   Quoted Prices in Active
Markets for Identical Assets
or Liabilities
(Level 1)
   Quoted Prices for
Similar Assets or
Liabilities in Active
Markets
(Level 2)
   Significant
Unobservable
Inputs
(Level 3)
 
Fixed Income Bonds at June 30, 2020  $6,856,805   $                  -   $                        - 
                
Fixed Income Bonds at December 31, 2019  $9,164,273   $-   $- 

 

Marketable securities are classified as available for sale. The debt securities are valued at fair market value. Maturities of the securities are less than one year. Unrealized gains and losses relating to the available for sale investment securities were recorded in the Condensed Consolidated Statement of Changes in Shareholders’ Equity as other comprehensive (loss) income. These amounts were an unrealized gain of $201,898 and $18,059 for the three months ended June 30, 2020 and 2019, respectively and an unrealized loss of $39,039 and an unrealized gain of $47,402 for the six months ended June 30, 2020 and 2019, respectively.

 

Losses resulting from the sales of marketable securities were $0 and $543 for the three months ended June 30, 2020 and 2019, respectively and were a loss of $36,714 and $4,258 for the six months ended June 30, 2020 and 2019, respectively

 

Proceeds from the sales of marketable securities in the three and six months ended June 30, 2020 were $3,572 and $2,307,462, respectively and were $502,126 and $1,354,646 for the three and six months ended June 30, 2019, respectively.

 

10

 

 

AKERS BIOSCIENCES, INC. AND CONSOLIDATED SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Note 2 - Significant Accounting Policies, continued

 

(h) Trade Receivables and Allowance for Doubtful Accounts

 

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

 

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

 

As of June 30, 2020 and December 31, 2019, allowances for doubtful accounts for trade receivables were $1,273 and $458,902, respectively. Bad debt expenses for trade receivables were $1,273 and $0 for the three months ended June 30, 2020 and 2019 and $1,273 and $4,247 for the six months ended June 30, 2020 and 2019, respectively. During the three and six months ended June 30, 2020, the Company charged off accounts receivable of $458,902 against the allowance for doubtful accounts.

 

(i) Prepaid Expenses

 

For expenses paid prior to the date that the related services are rendered or used are recorded as prepaid expenses. Prepaid expenses are comprised principally of prepaid insurance and prepaid royalties.

 

As of June 30, 2020, the Company determined that, on account of the unfavorable factors existing within its rapid, point-of-care screening and testing products business, prepaid royalties in the amount of $291,442 would be fully impaired. For the three and six months ended June 30, 2020, this charge was reflected within Impairment of Prepaid Royalties in the Condensed Consolidated Statement of Operations and Comprehensive Loss.

 

11

 

 

AKERS BIOSCIENCES, INC. AND CONSOLIDATED SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Note 2 - Significant Accounting Policies, continued

 

(j) Concentrations

 

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash on deposit with financial institutions. At times, the Company’s cash in banks is in excess of the FDIC insurance limit. The Company has not experienced any loss as a result of these cash deposits. These cash balances are maintained with two banks.

 

Major Customers

 

For the three months ended June 30, 2020, revenues net of discounts and allowances, was a negative amount of $1,888. For the three months ended June 30, 2019, three customers generated 42%, 20% and 19%, or 81% in the aggregate, of the Company’s revenue.

 

For the six months ended June 30, 2020, two customers generated 58% and 35%, or 93% in the aggregate, of the Company’s revenues. For the six months ended June 30, 2019, two customers generated 44% and 34%, or 78% in the aggregate, of the Company’s revenue.

 

One customer accounted for 100%, and five customers accounted for 30%, 18%, 12%, 12% and 11%, or 83% in the aggregate, of trade receivables net of customer credits and allowances for doubtful accounts as of June 30, 2020 and December 31, 2019, respectively.

 

Major Suppliers

 

Three suppliers accounted for 37%, 28% and 11%, or 76% in the aggregate and two suppliers accounted for 70% and 11% or 81% in aggregate, of the Company’s purchases for the three months ended June 30, 2020 and 2019, respectively.

 

Two suppliers accounted for 49% and 17%, or 66% in the aggregate and one supplier accounted for 63% of the Company’s purchases for the six months ended June 30, 2020 and 2019, respectively.

 

None of the Company’s suppliers accounted for more than 10% of the Company’s outstanding accounts payable as of June 30, 2020 and December 31, 2019.

 

(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 amounts 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 an 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.

 

Depreciation expense totaled $3,214 and $10,111 for the three and six months ended June 30, 2020, respectively and $9,542 and $14,975 for the three and six months ended June 30, 2019, respectively. Impairment expense totaled $18,680 for the three and six months ended June 30, 2020, respectively and $0 for the three and six months ended June 30, 2019, respectively, in connection with the determination as of June 30, 2020 that equipment utilized in the production of the Company’s rapid, point-of-care screening and testing products was fully impaired.

 

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AKERS BIOSCIENCES, INC. AND CONSOLIDATED SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Note 2 - Significant Accounting Policies, continued

 

(l) Right-of-Use Assets

 

The Company leases its facility in West Deptford, New Jersey (the “Thorofare Facility”) under an operating lease (“Thorofare Lease”) with annual rentals of $132,000 plus common area maintenance (CAM) charges. The Thorofare Facility houses the Company’s office, manufacturing, laboratory and warehouse space. The Thorofare Lease took effect on January 1, 2008. On January 7, 2013, the Company extended the Thorofare Lease extending the term to December 31, 2019. On November 11, 2019, the Company entered into another extension of the Thorofare Lease, extending the term to December 31, 2021, effective January 1, 2020, and providing for an early termination option with a 150-day notice period. On July 16, 2020, the Company exercised the early termination option under the lease agreement, with the effect of the post exercise lease maturity date changing to December 13, 2020.

 

On January 1, 2020 (“Effective Date”), the Company adopted FASB Accounting Standards Codification, or ASC, Topic 842, Leases (“ASC 842”), which increases transparency and comparability by recognizing a lessee’s rights and obligations resulting from leases by recording them on the balance sheet as lease assets and lease liabilities. The new guidance requires the recognition of the right-of-use (“ROU”) assets and related operating and finance lease liabilities on the balance sheet. The Company adopted the new guidance using the modified retrospective approach on January 1, 2020. As a result, the consolidated balance sheet as of December 31, 2019 was not restated and is not comparative.

 

The adoption of ASC 842 resulted in the recognition of ROU assets of $306,706 and lease liabilities for an operating lease of $306,706 on the Company’s Condensed Consolidated Balance Sheet as of January 1, 2020.

 

The Company elected the package of practical expedients permitted within the standard, which allows an entity to forgo reassessing (i) whether a contract contains a lease, (ii) classification of leases, and (iii) whether capitalized costs associated with a lease meet the definition of initial direct costs. Also, the Company elected the expedient allowing an entity to use hindsight to determine the lease term and impairment of ROU assets and the expedient to allow the Company to not have to separate lease and non-lease components. The Company has also elected the short-term lease accounting policy under which the Company would not recognize a lease liability or ROU asset for any lease that at the commencement date has a lease term of twelve months or less and does not include a purchase option that the Company is more than reasonably certain to exercise.

 

For contracts entered into on or after the Effective Date, at the inception of a contract, the Company will assess whether the contract is, or contains, a lease. The Company’s assessment is based on: (i) whether the contract involves the use of a distinct identified asset, (ii) whether the Company obtained the right to substantially all the economic benefit from the use of the asset throughout the period, and (iii) whether the Company has the right to direct the use of the asset. Leases entered into prior to January 1, 2020, which were accounted for under ASC 840, were not reassessed for classification.

 

For operating leases, the lease liability is initially and subsequently measured at the present value of the unpaid lease payments. The Company generally uses its incremental borrowing rate as the discount rate for leases, unless an interest rate is implicitly stated in the lease. The present value of the lease payments is calculated using the incremental borrowing rate for operating leases, which was determined using a portfolio approach based on the rate of interest that the Company would have to pay to borrow an amount equal to the lease payments on a collateralized basis over a similar term. The lease term for all of the Company’s leases includes the non-cancellable period of the lease plus any additional periods covered by either a Company option to extend the lease that the Company is reasonably certain to exercise, or an option to extend the lease controlled by the lessor. All ROU assets are reviewed for impairment.

 

Lease expense for operating leases consists of the lease payments plus any initial direct costs and is recognized on a straight-line basis over the lease term.

 

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AKERS BIOSCIENCES, INC. AND CONSOLIDATED SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Note 2 - Significant Accounting Policies, continued

 

(m) Right-of-Use Assets - continued

 

Effective June 30, 2020, the Company recorded an adjustment to its right-of-use asset and liability in the amounts of $153,709 and $155,737, respectively, to adjust for the effect of the Company having elected to exercise the early termination option under the lease agreement, as discussed earlier. The following information reflects the effect of the adjustments discussed above in connection with the Company’s exercise of the early termination option.

 

The Company’s operating lease is comprised solely of the lease of its Thorofare Facility. Condensed Consolidated Balance Sheet information related to its lease is presented below:

 

Balance Sheet Location  June 30, 2020   January 1, 2020   December 31, 2019 
             
Operating Lease               
Right-of-use asset  $79,942   $306,706   $                - 
Liability, current   80,018    143,018    - 
Liability, net of current   -    163,688    - 

 

The following provides details of the Company’s lease expense, including CAM charges:

 

   Three months ended
June 30, 2020
   Six months ended
June 30, 2020
 
         
Lease cost          
Operating lease  $40,132   $83,076 

 

Other information related to leases is presented below:

 

Other information  As of June 30,
2020
 
     
Operating cash used by operating leases  $83,000 
Weighted-average remaining lease term – operating leases (in months)   6 
Weighted-average discount rate – operating leases   10.00%

 

As of June 30, 2020, the annual minimum lease payments of the Company’s operating lease liabilities were as follows:

 

For Years Ending December 31,  Operating leases 
     
2020 (excluding the six months ended June 30, 2020)  $82,368 
Total future minimum lease payments, undiscounted  $82,368 
Less: Imputed interest   (2,350)
Present value of future minimum lease payments  $80,018 

 

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AKERS BIOSCIENCES, INC. AND CONSOLIDATED SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Note 2 - Significant Accounting Policies, continued

 

(m) Intangible Assets

 

The Company’s long-lived intangible assets, other than goodwill, are assessed for impairment when events or circumstances indicate there may be an impairment. These assets were initially recorded at their estimated fair value at the time of acquisition and assets not acquired in acquisitions were recorded at historical cost. However, if their estimated fair value is less than the carrying amount, other intangible assets with indefinite lives are reduced to their estimated fair value through an impairment charge to the Company’s Condensed Consolidated Statements of Operations and Comprehensive Loss.

 

As of June 30, 2020, on account of the unfavorable factors existing within its rapid, point-of-care screening and testing products business, the Company determined that the intellectual property comprising the remaining intangible assets was fully impaired. Accordingly, during the three and six months ended June 30, 2020, the Company recorded impairment charges of $149,870 and $152,822, respectively. There were no impairment charges of intangible assets during the three and six months ending June 30, 2019.

 

Intangible assets as of June 30, 2020 and December 31, 2019 were $0 and $170,423, respectively. Intangible assets at June 30, 2020 consisted of patents, trademarks and customer lists of $3,897,635, net of accumulated amortization and impairment of $3,897,635. Intangible assets at December 31, 2019 consisted of patent, trademarks and customer lists of $3,897,635, net of accumulated amortization and impairment of $3,727,212.

 

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. Amortization expense was $8,727 and $10,002 for the three months ended June 30, 2020 and 2019 and $17,601 and $20,004 for the six months ended June 30, 2020 and 2019, respectively.

 

15

 

 

AKERS BIOSCIENCES, INC. AND CONSOLIDATED SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Note 2 - Significant Accounting Policies, continued

 

(n) Revenue Recognition

 

Beginning on January 1, 2019, the Company recognizes revenue under ASC 606, Revenue from Contracts with Customers. The core principle of this revenue standard is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The Company only applies the five-step model to contracts when it is probable that the Company will collect the consideration it is entitled to in exchange for the goods and services transferred to the customer. The following five steps are applied to achieve that core principle:

 

Step 1: Identify the contract with the customer

Step 2: Identify the performance obligations in the contract

Step 3: Determine the transaction price

Step 4: Allocate the transaction price to the performance obligations in the contract

Step 5: Recognize revenue when the Company satisfies a performance obligation

 

The Company does not have any significant contracts with customers requiring performance beyond delivery. Shipping and handling activities are performed before the customer obtains control of the goods and therefore represent a fulfillment activity rather than a promised service to the customer. Revenue and costs of sales are recognized when control of the product transfers to the Company’s customer, which generally occurs upon delivery to the customer but can also occur when goods are shipped by the Company, depending on the shipment terms of the contract. The Company’s performance obligations are satisfied at that time.

 

The Company uses the most likely amount approach to determine the variable consideration of the transaction price in order to account for the contractual rebates and incentives that are estimated and adjusted for over time. The Company provides for rebates to its distributors. The Company had accrued for rebates and incentives of $200 and $20,002 as of June 30, 2020 and December 31, 2019, respectively. Accounts receivable will be reduced when the rebates are applied by the customer. The Company recognized credits of $536 and $1,199 for the three and six months ended June 30, 2020 and rebates and incentives of $7,679 and $16,377 during the three and six months ended June 30, 2019. The Company recognized sales discounts of $10,632 and $11,366 for the three and six months ended June 30, 2020, and $7,406 and $20,957 for the three and six months ended June 30, 2019. These components are included as product revenue in the Condensed Consolidated Statement of Operations and Comprehensive Loss.

 

(o) Research and Development Costs

 

In accordance with FASB ASC 730, research and development costs are expensed as incurred and consist of fees paid to third parties that conduct certain research and development activities on the Company’s behalf. These costs included costs incurred to acquire and develop the license for the COVID-19 vaccine project (See Note 3).

 

16

 

 

AKERS BIOSCIENCES, INC. AND CONSOLIDATED SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Note 2 - Significant Accounting Policies, continued

 

(p) Income Taxes

 

The Company utilizes an asset and liability approach for financial accounting and reporting for income taxes. The provision for income taxes is based upon income or loss after adjustment for those permanent items that are not considered in the determination of taxable income. Deferred income taxes represent the tax effects of differences between the financial reporting and tax basis of the Company’s assets and liabilities at the enacted tax rates in effect for the years in which the differences are expected to reverse.

 

The Company evaluates the recoverability of deferred tax assets and establishes a valuation allowance when it is more likely than not that some portion or all the deferred tax assets will not be realized. Management makes judgments as to the interpretation of the tax laws that might be challenged upon an audit and cause changes to previous estimates of tax liability. In management’s opinion, adequate provisions for income taxes have been made. If actual taxable income by tax jurisdiction varies from estimates, additional allowances or reversals of reserves may be necessary.

 

Tax benefits are recognized only for tax positions that are more likely than not to be sustained upon examination by tax authorities. The amount recognized is measured as the largest amount of benefit that is greater than 50 percent likely to be realized upon settlement. A liability for “unrecognized tax benefits” is recorded for any tax benefits claimed in the Company’s tax returns that do not meet these recognition and measurement standards. As of June 30, 2020, and December 31, 2019, no liability for unrecognized tax benefits was required to be reported.

 

There is no income tax benefit for the losses for the three and six months ended June 30, 2020 and 2019 since management has determined that the realization of the net deferred assets is not assured and has created a valuation allowance for the entire amount of such tax benefits.

 

The Company’s policy for recording interest and penalties associated with tax audits is to record such items as a component of general and administrative expense. There were no amounts accrued for penalties and interest for the three and six months ended June 30, 2020 and 2019. The Company does not expect its uncertain tax position to change during the next twelve months. Management is currently unaware of any issues under review that could result in significant payments, accruals or material deviations from its position.

 

(q) Shipping and Handling Fees and Costs

 

The Company charges actual shipping costs plus a handling fee to customers, which amounted to $1,511 and $10,568 for the three and six months ended June 30, 2020 and $9,511 and $21,997 for the three and six months ended June 30, 2019, respectively. 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 product cost of sales, which amounted to $5,261 and $17,918 for the three and six months ended June 30, 2020 and $15,660 and $27,579 for the three and six months ended June 30, 2019.

 

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AKERS BIOSCIENCES, INC. AND CONSOLIDATED SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Note 2 - Significant Accounting Policies, continued

 

(r) Basic and Diluted Earnings per Share of Common Stock

 

Basic earnings per common share is based on the weighted average number of shares outstanding during the periods presented. Diluted earnings per share is 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.

 

The calculation of basic and diluted loss per share for the three months ended June 30, 2020 and 2019 was based on the net loss of $3,628,131 and $794,891, respectively and $7,166,667 and $1,711,849 for the six months ended June 30, 2020 and 2019, respectively. The basic and diluted weighted average number of common shares outstanding for the three months ended June 30, 2020 and 2019 was 5,252,211 and 541,367, respectively and 3,739,529 and 541,000 for the six months ended June 30, 2020, respectively.

 

Diluted net loss per share is computed using the weighted average number of common and dilutive potential common shares outstanding during the period.

 

As the Company reported a net loss for the three and six months ended June 30, 2020 and 2019, common share equivalents were anti-dilutive. Therefore, the amounts report for basic and diluted loss per share were the same.

 

The following securities are excluded from the calculation of weighted average dilutive common shares because their inclusion would have been anti-dilutive:

 

   For the Three and Six Months Ended
June 30,
 
   2020   2019 
Stock Options   40    291 
RSUs   15,603    15,603 
Warrants to purchase common stock   417,896    88,015 
Series D Preferred Convertible Stock   208,577    - 
Warrants to purchase Series C Preferred stock   946,500    - 
Total potentially dilutive shares   1,588,616    103,909 

 

(s) Reclassifications

 

Certain prior year amounts have been reclassified to conform to the current year’s presentation.

 

18

 

 

AKERS BIOSCIENCES, INC. AND CONSOLIDATED SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Note 2 - Significant Accounting Policies, continued

 

(t) Recently Issued Accounting Pronouncements

 

Recently Issued Accounting Pronouncements Adopted

 

In February 2016, the FASB issued ASU 2016-02—Leases (Topic 842) (“ASU-2016-02”), which requires an entity to recognize right-of-use assets and lease liabilities on its balance sheet and disclose key information about leasing arrangements. ASU 2016-02 offers specific accounting guidance for a lessee, a lessor, and sale and leaseback transactions. Lessees and lessors are required to disclose qualitative and quantitative information about leasing arrangements to enable a user of the financial statements to assess the amount, timing and uncertainty of cash flows arising from leases. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The Company has adopted ASU-2016-02, effective January 1, 2020, and, as a result of this implementation, has recorded an operating lease right-of-use asset and an operating lease liability as of June 30, 2020.

 

Recently Issued Accounting Pronouncements Not Adopted

 

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments (“ASU-2016-13”). ASU 2016-13 affects loans, debt securities, trade receivables, and any other financial assets that have the contractual right to receive cash. The ASU requires an entity to recognize expected credit losses rather than incurred losses for financial assets. ASU 2016-13 is effective for the fiscal year beginning after December 15, 2022, including interim periods within that fiscal year. The Company expects that there would be no material impact on the Company’s condensed consolidated financial statements upon the adoption of this ASU.

 

19

 

 

AKERS BIOSCIENCES, INC. AND CONSOLIDATED SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Note 3 – Recent Developments, Liquidity and Management’s Plans

 

Ceasing Production and Sale of Rapid, Point-Of-Care Screening and Testing Products

 

As previously disclosed, in light of the unfavorable factors persistent in our rapid, point-of-care screening and testing product business and the progress the Company has made in its partnership with Premas, the Company conducted a strategic review of the screening and testing products business. Following such review, in early July 2020, the Company ceased the production and sale of its rapid, point-of-care screening and testing products. The Company will continue to provide support for these testing products that remain in the market through their respective product expiration dates. The Company had been experiencing declining sales revenue and production backlogs for these products and, as it previously reported, had eliminated its sales force for such products. The Company intends to devote its attention to its partnership with Premas for the development of its COVID-19 Vaccine Candidate and will continue to explore strategic alternatives that the Company believes will increase shareholder value. In connection with the ceasing production and sale of its existing product line, on July 16, 2020, the Company decided to close the Thorofare Facility and exercised the early termination option under the Thorofare Lease, which provided for a 150-day notice to terminate the lease. Pursuant to the early termination option, the Thorofare Lease will mature on December 13, 2020.

 

Exploration of Strategic Alternatives

 

In addition, the Company’s board of directors (the “Board”) continues to evaluate strategic alternatives to maximize shareholder value. This process will consider a range of potential strategic alternatives including, but not limited to, business combinations. The Company does not plan to disclose or comment on developments regarding the strategic review process until it is complete or further disclosure is deemed appropriate. There can be no assurance that the exploration of strategic alternatives will result in any transaction or other alternative.

 

August Offering

 

On August 13, 2020, pursuant to a securities purchase agreement with certain institutional and accredited investors, dated August 11, 2020, the Company issued and sold in a registered direct offering (the “August Offering”) an aggregate of 1,207,744 shares of its common stock at an offering price of $5.67 per share, for gross and net proceeds of approximately $6.8 million and $6.2 million, respectively. The Company issued to the placement agent or its designees warrants to purchase up to 96,620 shares of common stock at an exercise price of $7.0875 as compensation in connection with the August Offering. Such warrants are exercisable immediately and will expire on August 11, 2025.

 

ChubeWorkx Settlement Agreement and General Release

 

On August 3, 2020, the Company entered into a Settlement Agreement and General Release (the “SAGR”) with ChubeWorkx Guernsey Limited (“ChubeWorkx”). The Company and ChubeWorkx entered into the SAGR to terminate a prior Settlement Agreement, dated August 17, 2016, by and among the Company and ChubeWorkx, pursuant to which the Company granted ChubeWorkx a security interest in substantially all of the Company’s assets, and to fully and finally settle and compromise any and all current and future claims and liabilities of any nature arising between the Company and ChubeWorkx in relation to, or otherwise connected with, the Prior Agreements, on the terms set forth in the SAGR. For a more detailed discussion of the ChubeWorkx Settlement, see Note 7 herein.

 

Corporate Governance Reforms

 

On May 28, 2020, the United States District Court for the District of New Jersey approved that certain Amended Stipulation and Agreement of Settlement, dated October 1, 2019 (the “Settlement”) among the settling parties in connection with a consolidated shareholder derivative action, Case No.: 2:18-cv-15992. Pursuant to the Settlement, effective as of July 21, 2020, the Company made various modifications to its corporate governance and business ethics practices as further discussed below.

 

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AKERS BIOSCIENCES, INC. AND CONSOLIDATED SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Note 3 – Recent Developments, Liquidity and Management’s Plans - continued

 

On July 21, 2020, the Board adopted amended and restated bylaws (the “A&R Bylaws”) that became effective as of July 21, 2020 pursuant to the Settlement. The A&R Bylaws were adopted to require that, among other things: (i) each member of the Board attend each annual meeting of our shareholders in person, absent extraordinary circumstances; (ii) the role of the Chairman of the Board be rotated among our independent directors every five years; (iii) at least half (50%) of the Board be comprised of directors who qualify as independent directors under applicable listing standards of The Nasdaq Stock Market LLC; (iv) our independent directors to meet in executive session following each Board meeting, in no event less than four (4) times per year; (v) following November 27, 2020, the positions of Chairman of the Board and Chief Executive Officer are to be held by different individuals, and (vi) following November 27, 2020, no one person shall serve the positions of the chief executive officer and the chief financial officer. Pursuant to the Settlement, these changes will remain in place for at least four years.

 

In addition, pursuant to the Settlement, on July 21, 2020, the Board formed a risk and disclosure committee (the “Risk and Disclosure Committee”) and adopted a new whistleblower policy (the “Whistleblower Policy”) and a charter for the Risk and Disclosure Committee (the “Risk and Disclosure Committee Charter”) to govern the Risk and Disclosure Committee. In order to align the Company’s Code of Ethics (the “Code”) that applies to all of its directors, officers, and employees with the newly adopted Whistleblower Policy and the Risk and Disclosure Committee Charter, the Board revised the Code. As required by the Settlement, any waivers of any provision of the Code may be granted only by the Risk and Disclosure Committee. In addition, the Code was revised to clarify the enforcement mechanism for violations of the Code. Furthermore, pursuant to the Settlement, the Board approved and adopted revised charters of our standing committees.

 

Departure of Interim Chief Financial Officer

 

On July 19, 2020, the Company and Howard R. Yeaton, our Interim Chief Financial Officer, agreed by mutual understanding that Mr. Yeaton’s employment as the Company’s officer and employee will cease effective August 19, 2020, in accordance with the terms of his employment agreement dated January 6, 2020.

 

Appointment of Chief Financial Officer

 

On July 21, 2020, the Company entered into a CFO Consulting Agreement (the “Consulting Agreement”) with Brio Financial Group (“Brio”), pursuant to which the Company appointed Mr. Stuart Benson as Chief Financial Officer, effective August 19, 2020, with a term ending June 30, 2021. Pursuant to the Consulting Agreement, the Company will pay Brio an initial retainer fee of $7,500 and a fixed monthly payment of $13,500, commencing August 15, 2020. The Company will also be billed for travel and other out-of-pocket costs, such as report production, postage, etc.

 

Acquisition of Cystron

 

On March 23, 2020, the Company acquired Cystron pursuant to that certain Membership Interest Purchase Agreement (the “MIPA”). Cystron was incorporated on March 10, 2020. Upon the Company’s purchase of Cystron, Cystron’s sole asset consisted of an exclusive license with respect to Premas’ vaccine platform for the development of a vaccine against COVID-19 and other coronavirus infections. Since its formation and through the date of its acquisition by the Company, Cystron did not have any employees. The acquisition of Cystron was accounted for as the purchase of an asset.

 

As consideration for the Membership Interests (as defined in the MIPA), the Company delivered to the members of Cystron (the “Sellers”): (1) that number of newly issued shares of its common stock equal to 19.9% of the issued and outstanding shares of its common stock and pre-funded warrants as of the date of the MIPA, but, to the extent that the issuance of its common stock would have resulted in any Seller owning in excess of 4.9% of the Company’s outstanding common stock, then, at such Seller’s election, such Seller received “common stock equivalent” preferred shares with a customary 4.9% blocker (with such common stock and preferred stock collectively referred to as “Common Stock Consideration”), and (2) $1,000,000 in cash. On March 24, 2020 the Company paid $1,000,000 to the Sellers and delivered 411,403 shares of common stock and 211,353 shares of Series D Convertible Preferred Stock with a customary 4.9% blocker, with an aggregate fair market value of $1,233,057, and recorded $2,233,057 as a charge to research and development expense within the Condensed Consolidated Statements of Operations and Comprehensive Loss. On April 22, 2020, Premas, one of the Sellers, returned to us $299,074 representing its portion of the cash purchase price to acquire Cystron. Premas has advised us that these funds were returned temporarily for Premas to meet certain regulatory requirements in India.

 

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AKERS BIOSCIENCES, INC. AND CONSOLIDATED SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Note 3 – Recent Developments, Liquidity and Management’s Plans - continued

 

Additionally, the Company shall (A) make an initial payment to the Sellers of up to $1,000,000 upon its receipt of cumulative gross proceeds from the consummation of an initial equity offering after the date of the MIPA of $8,000,000, and (B) pay to Sellers an amount in cash equal to 10% of the gross proceeds in excess of $8,000,000 raised from future equity offerings after the date of the MIPA until the Sellers have received an aggregate additional cash consideration equal to $10,000,000 (collectively, the “Equity Offering Payments”). On May 14, 2020, the Company and the Sellers entered into an Amendment No. 1 to the MIPA (the “Amendment”), which provided that any Equity Offering Payments in respect of an equity offering that is consummated prior to September 23, 2020, shall be accrued, but shall not be due and payable until September 24, 2020. The other provisions of the MIPA remain unmodified and in full force and effect. Upon the achievement of certain milestones, including the completion of a Phase 2 study for a COVID-19 Vaccine Candidate that meets its primary endpoints, Sellers will be entitled to receive an additional 750,000 shares of the Company’s common stock or, in the event the Company is unable to obtain stockholder approval for the issuance of such shares, 750,000 shares of non-voting preferred stock that are valued following the achievement of such milestones and shall bear a 10% annual dividend (the “Milestone Shares”). Sellers will also be entitled to contingent payments from the Company of up to $20,750,000 upon the achievement of certain milestones, including the approval of a new drug application by the FDA.

 

Pursuant to the MIPA, upon the Company’s consummation of the registered direct equity offering closed on April 8, 2020, the Company paid the Sellers $250,000 on April 20, 2020 (the “April Payment”). On April 30, 2020, Premas, one of the Sellers, returned to us $83,334, representing their portion of the $250,000 amount paid to the Sellers on April 20, 2020. Premas has advised us that these funds were returned temporarily for Premas to meet certain regulatory requirements in India. The Company recorded liabilities of $892,500 (the “May Payment”) and $684,790 to the Sellers upon the consummation of the registered direct equity offering closed on May 18, 2020 and the consummation of the August Offering, respectively, which are payable on September 24, 2020 pursuant to the Amendment. For the three months period ended June 30, 2020, $1,142,500 is included in research and development expense within the Condensed Consolidated Statements of Operations and Comprehensive Loss for the April Payment and the May Payment.

 

The Company shall also make quarterly royalty payments to Sellers equal to 5% of the net sales of a COVID-19 vaccine or combination product by the Company (the “COVID-19 Vaccine”) for a period of five (5) years following the first commercial sale of the COVID-19 Vaccine; provided, that such payment shall be reduced to 3% for any net sales of the COVID-19 Vaccine above $500 million.

 

In addition, Sellers shall be entitled to receive 12.5% of the transaction value, as defined in the MIPA, of any change of control transaction, as defined in the MIPA, that occurs prior to the fifth (5th) anniversary of the closing date of the MIPA, provided that the Company is still developing the COVID-19 Vaccine Candidate at that time. Following the consummation of any change of control transaction, the Sellers shall not be entitled to any payments as described above under the MIPA.

 

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Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Note 3 – Recent Developments, Liquidity and Management’s Plans - continued

 

License Agreement

 

Cystron is a party to a License and Development Agreement (the “Initial License Agreement”) with Premas. As a condition to the Company’s entry into the MIPA, Cystron amended and restated the Initial License Agreement on March 19, 2020 (as amended and restated, the “License Agreement”). Pursuant to the License Agreement, Premas granted Cystron, amongst other things, an exclusive license with respect to Premas’ vaccine platform for the development of a vaccine against COVID-19 and other coronavirus infections.

 

Upon the achievement of certain developmental milestones by Cystron, Cystron shall pay to Premas a total of up to $2,000,000. On April 16, 2020, the Company paid Premas $500,000 for the achievement of the first two development milestones of which $250,000 was accrued as research and development expense for the three months ended March 31, 2020. On May 18, 2020, the Company paid Premas $500,000 for the achievement of the third development milestone. On July 7, 2020, the Company and Premas agreed that the fourth milestone under the License Agreement had been satisfied. Due to the achievement of this milestone, Premas is entitled to receive a payment of $1,000,000.

 

Cystron Medical Panel

 

On April 10, 2020, the Company established the Cystron Medical Panel and appointed its first member to the panel. Each member shall be compensated with an initial grant of the Company’s common stock with an aggregate fair market value of $25,000 and a monthly cash stipend in the initial amount of $2,500. During the three and six months ended June 30, 2020, the Company recorded $10,274 as a charge to research and development expense within the Condensed Consolidated Statements of Operations and Comprehensive Loss.

 

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Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Note 3 – Recent Developments, Liquidity and Management’s Plans, continued

 

Series D Convertible Preferred Stock

 

On March 24, 2020, the Company filed the Certificate of Designation of Preferences, Rights and Limitations of Series D Convertible Preferred Stock (the “Certificate of Designation”) with the Secretary of State of the State of New Jersey. Pursuant to the Certificate of Designation, in the event of the Company’s liquidation or winding up of its affairs, the holders of its Series D Convertible Preferred Stock (the “Preferred Stock”) will be entitled to receive the same amount that a holder of the Company’s common stock would receive if the Preferred Stock were fully converted (disregarding for such purposes any conversion limitations set forth in the Certificate of Designation) to common stock which amounts shall be paid pari passu with all holders of the Company’s common stock. Each share of Preferred Stock has a stated value equal to $0.01 (the “Stated Value”), subject to increase as set forth in Section 7 of the Certificate of Designation.

 

A holder of Preferred Stock is entitled at any time to convert any whole or partial number of shares of Preferred Stock into shares of the Company’s common stock determined by dividing the Stated Value of the Preferred Stock being converted by the conversion price of $0.01 per share.

 

A holder of Preferred Stock will be prohibited from converting Preferred Stock into shares of the Company’s common stock if, as a result of such conversion, the holder, together with its affiliates, would own more than 4.99% of the total number of shares of the Company’s common stock then issued and outstanding (with such ownership restriction referred to as the “Beneficial Ownership Limitation”). However, any holder may increase or decrease such percentage to any other percentage not in excess of 9.99%, provided that any increase in such percentage shall not be effective until 61 days after such notice to us. In addition, a holder of Preferred Stock is prohibited from converting any portion of the Preferred Stock if, as a result of such conversion, the holder, together with its affiliates, would exceed the aggregate number shares of our common stock which we may issue under the MIPA without breaching our obligations under the rules or regulations of the Nasdaq Stock Market (the number of shares which may be issued without violating such rules and regulations, the “Exchange Cap”).

 

Subject to the Beneficial Ownership Limitation and the Exchange Cap, on any matter presented to the Company’s stockholders for their action or consideration at any meeting of the Company’s stockholders (or by written consent of stockholders in lieu of a meeting), each holder of Preferred Stock will be entitled to cast the number of votes equal to the number of whole shares of the Company’s common stock into which the shares of Preferred Stock beneficially owned by such holder are convertible as of the record date for determining stockholders entitled to vote on or consent to such matter (taking into account all Preferred Stock beneficially owned by such holder). Except as otherwise required by law or by the other provisions of the Company’s certificate of incorporation, the holders of Preferred Stock will vote together with the holders of the Company’s common stock and any other class or series of stock entitled to vote thereon as a single class.

 

A holder of Preferred Stock shall be entitled to receive dividends as and when paid to the holders of the Company’s common stock on an as-converted basis.

 

During the three and six months ended June 30, 2020, 2,776 shares of Preferred Stock were converted to 2,776 common shares. As of June 30, 2020, 208,577 shares of Series D Preferred Stock were issued and outstanding.

 

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Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Note 3 – Recent Developments, Liquidity and Management’s Plans - continued

 

Liquidity

 

As of June 30, 2020, the Company’s cash on hand was $11,561,811 (which included restricted cash of $115,094), and its marketable securities were $6,856,805. The Company has incurred net losses of $7,166,667 for the six months ended June 30, 2020. As of June 30, 2020, the Company had working capital of $15,772,329 and stockholder’s equity of $15,972,148. During the six months ended June 30, 2020, cash flows used in operating activities were $3,883,101, consisting primarily of a net loss of $7,166,667, which includes, principally, research and development costs in connection with the purchase of a license and milestone license fees of $4,375,557. Since its inception, the Company has met its liquidity requirements principally through the sale of its common stock in public and private placements.

 

On April 8, 2020, pursuant to a securities purchase agreement with certain institutional and accredited investors, the Company issued and sold in a registered direct offering (the “April Offering”) an aggregate of 766,667 shares of common stock of the Company at an offering price of $6.00 per share, for gross and net proceeds of $4,600,002 and $4,086,207, respectively.

 

In connection with the April Offering, the Company issued to the placement agent or designees warrants to purchase up to 61,333 shares of its common stock at an exercise price of $7.50 (the “April Placement Agent Warrants”) in a private placement. The April Placement Agent Warrants will be exercisable at any time and from time to time, in whole or in part, following the date of issuance and for a term of five years from the effective date of the April Offering.

 

On April 20, 2020, the Company recorded $250,000 of the net proceeds from the April Offering to the former members of Cystron Biotech, LLC, pursuant to the terms of that certain MIPA as a charge to research and development expense within the Condensed Consolidated Statements of Operations and Comprehensive Loss.

 

During the period of April 6, 2020 through April 16, 2020, warrants to purchase an aggregate of 1,043,500 shares of Series C Convertible Preferred Stock were exercised at an exercise price of $4.00 per share, yielding proceeds of $4,174,000.

 

On May 18, 2020, pursuant to a securities purchase agreement with certain institutional and accredited investors, the Company issued and sold in a registered direct offering (the “May Offering”) an aggregate of 1,366,856 shares of its common stock at an offering price of $3.53 per share, for gross and net proceeds of $4,825,002 and $4,320,720, respectively.

 

In connection with the May Offering, the Company issued to the placement agent or designees warrants to purchase up to 109,348 shares of its common stock at an exercise price of $4.4125 (the “May Placement Agent Warrants”) in a private placement. The May Placement Agent Warrants will be exercisable at any time and from time to time, in whole or in part, following the date of issuance and for a term of five years from the effective date of the May Offering.

 

During the period subsequent to June 30, 2020 and through August 11, 2020, warrants to purchase an aggregate of 891,500 shares of Series C Convertible Preferred Stock were exercised at an exercise price of $4.00 per share, yielding proceeds of $3,566,000.

 

In connection with the August Offering, the Company issued and sold an aggregate of 1,207,744 shares of its common stock at an offering price of $5.67 per share, for gross and net proceeds of $6,847,908 and approximately $6,178,000, respectively.

 

In connection with the August Offering, the Company issued to the placement agent or designees warrants to purchase up to 96,620 shares of its common stock at an exercise price of $7.0875 (the “August Placement Agent Warrants”) in a private placement. The August Placement Agent Warrants will be exercisable at any time and from time to time, in whole or in part, following the date of issuance and for a term of five years from the effective date of the August Offering.

 

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Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Note 3 – Recent Developments, Liquidity and Management’s Plans - continued

 

Liquidity

 

The Company’s current cash resources will not be sufficient to fund the development of its COVID-19 Vaccine candidate through all of the required clinical trials to receive regulatory approval and commercialization. While the Company does not currently have an estimate of all of the costs that it will incur in the development of the COVID-19 Vaccine, the Company anticipates that it will need to raise significant additional funds in order to continue the development of the Company’s COVID-19 Vaccine candidate during the next 12-months. In addition, the Company could also have increased capital needs if it were to engage in strategic alternatives. The Company’s ability to obtain additional capital may depend on prevailing economic conditions and financial, business and other factors beyond its control. The COVID-19 pandemic has caused an unstable economic environment globally, and the ultimate impact of the COVID-19 pandemic on the Company’s operations is unknown and will depend on future developments, which are highly uncertain and cannot be predicted with confidence. These include but are not limited to the duration of the COVID-19 pandemic, new information which may emerge concerning the severity of the COVID-19 pandemic, and any additional preventative and protective actions that regulators, or the board or management of the Company, may determine are needed. Disruptions in the global financial markets may adversely impact the availability and cost of credit, as well as the Company’s ability to raise money in the capital markets. Current economic conditions have been and continue to be volatile. Continued instability in these market conditions may limit the Company’s ability to access the capital necessary to fund and grow its business.

 

The Company believes that its current financial resources as of the date of the issuance of these consolidated financial statements, are sufficient to fund its current twelve month operating budget, alleviating any substantial doubt raised by the Company’s historical operating results and satisfying its estimated liquidity needs for twelve months from the issuance of these consolidated financial statements.

 

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Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Note 4 – 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.

 

Inventories consist of the following:

 

   June 30, 2020   December 31, 2019 
         
Raw Materials  $-   $274,551 
Sub-Assemblies   -    303,461 
Finished Goods   -    28,223 
Reserve for Obsolescence   -    (407,250)
   $       -   $198,985 

 

As of June 30, 2020, on account of the unfavorable factors existing within its rapid, point-of-care screening and testing products business, the Company determined that inventory would be written down to a net realizable value of $0. Accordingly, during the three and six months ended June 30, 2020, the Company recorded charges of $193,839 and $197,723, respectively, to adjust inventory to net realizable value. During the three and six months ended June 30, 2019, the Company recorded charges of $41,849 and $45,946, respectively, to adjust for obsolete inventory. These amounts were reflected within product cost of sales in the condensed consolidated statement of operations and comprehensive loss.

 

Note 5 - Trade and Other Payables

 

Trade and other payables consist of the following:

 

   June 30, 2020   December 31, 2019 
         
Accounts Payable – Trade  $561,578   $657,293 
Obligations to Cystron Sellers   1,274,906     
Accrued Expenses   789,088    812,722 
Deferred Compensation   -    59,750 
   $2,625,572   $1,529,765 

 

See also Note 8 for related party information.

 

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Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Note 6 - Share-based Payments

 

Equity Incentive Plans

 

2013 Stock Incentive Plan

 

On January 23, 2014, the Company adopted the 2013 Stock Incentive Plan (“2013 Plan”). The 2013 Plan was amended by the Board on January 9, 2015 and September 30, 2016, and such amendments were ratified by shareholders on December 7, 2018. The 2013 Plan provides for the issuance of up to 4,323 shares of the Company’s common stock. As of June 30, 2020, grants of restricted stock and options to purchase 2,853 shares of common stock have been issued pursuant to the 2013 Plan, and 1,470 shares of common stock remain available for issuance.

 

2017 Stock Incentive Plan

 

On August 7, 2017, the shareholders approved, and the Company adopted the 2017 Stock Incentive Plan (“2017 Plan”). The 2017 Plan provides for the issuance of up to 7,031 shares of the Company’s common stock. As of June 30, 2020, grants of restricted stock and options to purchase 3,064 shares of common stock have been issued pursuant to the 2017 Plan, and 3,967 shares of common stock remain available for issuance.

 

2018 Stock Incentive Plan

 

On December 7, 2018, the shareholders approved, and the Company adopted the 2018 Stock Incentive Plan (“2018 Plan”). The 2018 Plan provides for the issuance of up to 78,125 shares of the Company’s common stock. As of June 30, 2020, grants of RSUs to purchase 15,603 shares of common stock have been issued pursuant to the 2018 Plan, and 62,522 shares of common stock remain available for issuance.

 

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Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Note 6 - Share-based Payments, continued

 

Stock Options

 

The following table summarizes the option activities for the six months ended June 30, 2020:

 

           Weighted   Weighted     
       Weighted   Average   Average     
       Average   Grant   Remaining   Aggregate 
   Number of   Exercise   Date Fair   Contractual   Intrinsic 
  

Shares

  

Price

  

Value

   Term (years)  

Value

 
Balance at December 31, 2019   40   $236.16   $151.68    0.99   $- 
Granted   -    -    -    -    - 
Exercised   -    -    -    -    - 
Forfeited   -    -    -    -    - 
Canceled/Expired   -    -    -    -    - 
Balance at June 30, 2020   40   $236.16   $151.68    0.50   $- 
Exercisable as of June 30, 2020   40   $236.16   $151.68    0.50   $                - 

 

The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the closing stock price of $3.48 for the Company’s common stock on June 30, 2020. As the closing stock price on June 30, 2020 is lower than the exercise price, there is no intrinsic value to disclose.

 

As of June 30, 2020, all the Company’s outstanding stock options were fully vested and exercisable.

 

During the three and six months ended June 30, 2020 and 2019, the Company did not incur any stock option expenses.

 

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Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Note 6 - Share-based Payments, continued

 

Restricted Stock Units

 

On March 29, 2019, the Compensation Committee of the Company’s board of directors approved the grant of 5,201 Restricted Stock Units (“RSUs”) to each of the three directors. Each RSU had a grant date fair value of $23.28 which was amortized on a straight-line basis over the vesting period into administrative expenses within the Condensed Consolidated Statement of Operations and Comprehensive Loss. Such RSUs were granted under the 2018 Plan and vested on January 1, 2020. Such RSUs are expected to be settled with the issuance of common stock during the three months ending September 30, 2020.

 

At June 30, 2020, the unamortized value of the RSUs was $0. A summary of activity related to RSUs for the six months ended June 30, 2020 is presented below:

 

       Weighted 
       Average 
   Number of   Grant Date 
   RSUs   Fair Value 
Balance at December 31, 2019   15,603   $23.28 
Granted   -    - 
Exercised   -    - 
Forfeited   -    - 
Canceled/Expired   -    - 
Balance at June 30, 2020   15,603   $23.28 
Exercisable as of June 30, 2020   15,603   $23.28 

 

The Company incurred RSU expense of $0 and $118,478 during the three months ended June 30, 2020 and 2019, respectively and $1,302 and $122,384 during the six months ended June 30, 2020 and 2019, respectively.

 

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Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Note 6 - Share-based Payments, continued

 

Common Stock Warrants

 

The table below summarizes the warrant activity for the six month period ended June 30, 2020:

 

       Weighted   Average 
       Average   Remaining 
   Number of   Exercise   Contractual 
   Warrants   Price   Term (years) 
Balance at December 31, 2019   247,215   $29.79    4.32 
Granted   170,681    5.52    4.85 
Exercised   -    -    - 
Forfeited   -    -    - 
Canceled/Expired   -    -    - 
Balance at June 30, 2020   417,896   $19.88    4.24 
Exercisable as of June 30, 2020   417,896   $19.88    4.24 

 

All common stock warrants were vested on date of grant.

 

Pre-funded Common Stock Warrants

 

The table below summarizes the pre-funded warrant activity for the six month period ended June 30, 2020:

 

       Weighted   Average 
       Average   Remaining 
   Number of   Exercise   Contractual 
   Warrants   Price   Term (years) 
Balance at December 31, 2019   795,000   $0.0001    - 
Granted   -    -    - 
Exercised   (795,000)   0.0001    - 
Forfeited   -    -    - 
Canceled/Expired   -    -    - 
Balance at June 30, 2020   -   $-    - 
Exercisable as of June 30, 2020   -   $-                  - 

 

All pre-funded warrants were vested on the date of grant and are exercisable at any time. During the six months ended June 30, 2020, pre-funded warrants to purchase 795,000 shares of common stock issued on December 9, 2019 were exercised at an exercise price of $0.0001 per share, yielding net proceeds of $80.00.

 

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Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Note 6 - Share-based Payments, continued

 

Warrants for the purchase of Series C Convertible Preferred Stock

 

The table below summarizes the activity during the six month period ended June 30, 2020 for warrants issued in December 2019 for the purchase of Series C Convertible Preferred Stock:

 

       Weighted   Average 
       Average   Remaining 
   Number of   Exercise   Contractual 
   Warrants   Price   Term (years) 
Balance at December 31, 2019   1,990,000   $4.00    4.95 
Granted   -    -    - 
Exercised   (1,043,500)   4.00    4.45 
Forfeited   -    -    - 
Canceled/Expired   -    -    - 
Balance at June 30, 2020   946,500   $4.00    4.45 
Exercisable as of June 30, 2020   946,500   $4.00    4.45 

 

All warrants to purchase Series C Convertible Preferred Stock were vested on the date of grant. During the six months ended June 30, 2020, 1,043,500 warrants to purchase 1,043,500 share of Series C Convertible Preferred Stock issued on December 9, 2019 were exercised and such shares of Series C Convertible Preferred Stock were immediately converted to 1,043,500 shares of common stock at an exercise price of $4.00 per share, yielding net proceeds of $4,174,000 (See Note 3).

 

Note 7 – Commitments and Contingencies

 

Advisory Board

 

On December 4, 2019, the Company established a cannabinoid and hemp (“CBD”) Advisory Board, whose role was to provide input to management and the board of directors regarding the identification and assessment of business opportunities in the cannabinoid and hemp industry. The Company is no longer pursuing opportunities in the cannabinoid and hemp industry, and as such, the CBD Advisory Board will be disbanded during the third quarter of 2020. Each member was compensated for their initial 24 months of service with the issuance of Company stock with a fair market value of $25,000. Pursuant to the agreement, such shares, when issued, were fully vested. During the three and six months ended June 30, 2020, the Company recorded a charge of $8,333 and $50,000, respectively which is reflected in administrative expense within the Condensed Consolidated Statements of Operations and Comprehensive Loss.

 

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Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Note 7 – Commitments and Contingencies, continued 

 

Commitments

 

ChubeWorkx Settlement Agreement and General Release

 

On August 3, 2020, the Company entered into a Settlement Agreement and General Release (the “SAGR”) with ChubeWorkx. The Company and ChubeWorkx entered into the SAGR to terminate a prior Settlement Agreement, dated August 17, 2016, by and among the Company and ChubeWorkx, pursuant to which the Company granted ChubeWorkx a security interest in substantially all of the Company’s assets, and to fully and finally settle and compromise any and all current and future claims and liabilities of any nature arising between the Company and ChubeWorkx in relation to, or otherwise connected with, the Prior Agreements, on the terms set forth in the SAGR.

 

As consideration for the settlement of claims pursuant to the SAGR, on August 5, 2020, the Company (i) paid to ChubeWorkx an amount equal to $300,000 and (ii) delivered to ChubeWorkx 500,000 shares of the Company’s common stock (the “Shares”). The Company granted ChubeWorkx registration rights with respect to the Shares. In the event that the Company fails to file a resale registration statement covering the Shares by August 18, 2020 (the “Filing Deadline”), or fails to cause such registration statement to be declared effective by the earlier of October 2, 2020 or 45 days after the filing of such registration statement (the “Effectiveness Deadline”), then, on each of the Filing Deadline and the Effectiveness Deadline, as the case may be, and on each monthly anniversary thereof (if the such registration statement shall not have been filed or declared effective by such date, as the case may be) until such registration statement is filed or declared effective, the Company shall pay to ChubeWorkx an amount in cash, as partial liquidated damages equal to 1.0% of the market value of the Shares.

 

As of the earlier to occur, following and subject to delivery and complete full effective legal transfer to ChubeWorkx of the Shares and delivery of the cash payment to ChubeWorkx in full in accordance with the provisions of the SAGR, of (i) the date that the resale registration statement covering the Shares is declared effective by the U.S. Securities and Exchange Commission and (ii) the date that all of the Shares may be resold by ChubeWorkx under Rule 144 of the Securities Act of 1933, as amended, without restriction (the “Release Date”), any and all claims, differences, and disputes of any current and/or future claims and/or liabilities arising between the Company and ChubeWorkx in relation to, or otherwise connected with, the Prior Agreements shall be deemed fully and finally settled and compromised (with the exception of any claims arising under the SAGR or the Leak-Out and Support Agreement as described below). As of the Release Date, each of the Prior Agreements will be terminated, and ChubeWorkx will automatically and irrevocably release all security interests and liens created under the Security Agreement or otherwise as security for the Company obligations under the Prior Agreements.

 

ChubeWorkx Leak-Out and Support Agreement

 

On August 3, 2020, as an inducement to enter into the SAGR, and as one of the conditions to the consummation of the transactions contemplated by the SAGR, ChubeWorkx entered into a Leak-Out and Support Agreement with the Company (the “Support Agreement”), pursuant to which ChubeWorkx agreed to vote the Shares in favor of each matter proposed and recommended for approval by the Company’s board of directors or management at every meeting of the stockholders and on any action or approval by written consent of the stockholders and (ii) limit sales of its shares of common stock issued pursuant to the SAGR per day to no more than 10% of our daily traded volume per day on the Nasdaq Capital Market and we agreed to register the resale of such shares pursuant to a registration statement.

 

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Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Note 7 – Commitments and Contingencies, continued

 

Litigation

 

Watts v. Gormally, et al., No. 2:18-15992 (D.N.J.) and Chan v. Gormally, et al., No. 2:19-cv-4989 (D.N.J.)

 

On November 9, 2018, Cale Watts (“Watts Plaintiff”) filed a verified shareholder derivative complaint alleging violations of the Securities Exchange Act of 1934, breach of fiduciary duty, unjust enrichment, and waste of corporate assets based on alleged material weaknesses in controls, management, and documentation (the “Watts Action”). On January 14, 2019, the parties reached an agreement in principle to settle the Watts Action that included corporate reforms and a payment of attorneys’ fees of $200,000. The parties finalized a Stipulation of Settlement on March 4, 2019. On February 7, 2019, Tiffany Chan, Jasmine Henderson, and Don Danesh (“Chan Plaintiffs”) filed a verified shareholder derivative complaint alleging violations of Section 14(a) of the Exchange Act and SEC Rule 14a-9, breach of fiduciary duty, unjust enrichment, and waste of corporate assets based on the same circumstances as the Watts Action (the “Chan Action”). The Chan Action further alleged that the Company should not have settled the Watts Action because the Watts Action plaintiffs lacked standing and the settlement would cause irreparable harm to the Company and its shareholders. On March 22, 2019, the Watts Plaintiff filed a motion for preliminary approval of the proposed settlement, approving the proposed form and method of providing notice of the settlement, scheduling a hearing for final approval of the settlement (“Watts Motion for Preliminary Approval”). On April 1, 2019, the Chan Plaintiffs filed an Opposition to the Motion for Preliminary Approval and a Motion to Intervene and Stay Proceedings (“Motion to Intervene and Stay”). Subsequently, the Watts Plaintiff, Chan Plaintiffs, and Defendants reached an agreement in principle to settle the Watts and Chan Actions that included corporate reforms and a payment of attorneys’ fees of $325,000. On October 2, 2019, the Watts Plaintiff filed an Unopposed Motion for Preliminary Approval of the Settlement (the “Omnibus Motion for Preliminary Approval”). The Omnibus Motion for Preliminary Approval was granted on January 8, 2020. Plaintiffs filed their motion for final approval of the proposed settlement on May 7, 2020. The Motion for Final Approval was approved on May 28, 2020.

 

NovoTek Therapeutics Inc. and NovoTek Pharmaceuticals Limited v. Akers Biosciences, Inc.

 

On June 21, 2019, the Company received a complaint, filed by Novotek Therapeutics Inc., and Novotek Pharmaceuticals Limited (collectively, “Novotek”), Beijing-based entities, in the United States District Court for the District of New Jersey, alleging, among other things, breach of contract. Novotek is seeking, among other things, damages in the amount of $1,551,562, plus interest, disbursements and attorneys’ fees. The Company vigorously disputes the allegations in the complaint and has retained counsel to defend it. On September 16, 2019, the Company filed a partial motion to dismiss the complaint, which was fully submitted as of November 4, 2019. On June 9, 2020, the Court denied the Company’s motion. The Company’s Answer to the Complaint is currently due on September 8, 2020. The Company is not yet able to determine the amount of the Company’s exposure, if any.

 

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AKERS BIOSCIENCES, INC. AND CONSOLIDATED SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Note 7 – Commitments and Contingencies, continued

 

Litigation, continued

 

Neelima Varma v. Akers Biosciences, Inc. and St. David’s Healthcare Partnership, L.P., LLP CAUSE NO: D-1-GN-19-004262

 

On July 25, 2019, the Company was notified that on July 23, 2019, a complaint was filed by Neelima Varma, against the Company and St. David’s Healthcare Partnership, L.P., LLP (“St. David’s”), in the district court of Travis County, Texas, alleging, among other things, negligence, gross negligence and strict product liability, breach of express warranty, breach of implied warranty and fraudulent misrepresentation and omission, with respect to a medical device which the Company had sold through one its distributors to St. David’s. Ms. Varma was seeking aggregate monetary relief from the Company and St. David’s in excess of $1,000,000. The Company carries product liability insurance. On July 29, 2020, this matter was resolved. The resolution of this matter had no significant impact on the condensed consolidated financial statements of the Company.

 

Douglas Carrara v. Akers Biosciences, Inc., John Does 1-10, and XYZ Corp. 1-10, Docket No. ESX-L-5272-19 (N.J. Super. Ct., Essex County):

 

Douglas Carrara, a former executive, sued the Company for breach of contract in connection with the termination of his employment.  In his operative Complaint, filed August 9, 2019, Carrara primarily alleged that the Company breached the terms of his employment agreement by failing to pay “severance” after terminating his employment “without cause.”  Based on this alleged breach, Carrara sought compensatory damages and damages for lost wages and benefits.  Carrara also sought punitive and/or liquidated damages and attorneys’ fees.  On August 29, 2019, the Company filed an answer to the operative complaint, denying all substantive allegations of wrongdoing.  As of July 23, 2020, the parties have resolved all material disputes. The parties are in the process of preparing the appropriate documentation to effectuate this resolution and expect to file a stipulation of dismissal with prejudice shortly. The resolution of this matter had no significant impact on the condensed consolidated financial statements of the Company.

 

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AKERS BIOSCIENCES, INC. AND CONSOLIDATED SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Note 8 – Related Parties

 

Interim CFO

 

Effective on October 5, 2018 and through December 31, 2019, the Board appointed Howard R. Yeaton, to serve as the Chief Executive Officer and interim Chief Financial Officer of the Company. Effective on January 1, 2020, Mr. Yeaton entered into a new agreement with the Company whereby he serves as the Company’s Interim Chief Financial Officer. Mr. Yeaton is the managing principal of Financial Consulting Strategies (“FCS”), and the Company had an ongoing relationship with FCS as of June 30, 2020, with FCS continuing to provide accounting services to the Company, and the Company may continue to utilize the services of FCS in the future. FCS is considered to be a related party. During the three months ended June 30, 2020 and 2019, the Company incurred costs of $9,250 and $0, respectively and during the six months ended June 30, 2020 and 2019, the Company incurred costs of $9,250 and $23,506, respectively with FCS in connection with these services. As of June 30, 2020 and December 31, 2019 the Company had an obligation to FCS in the amounts of $9,250 and $18,323, respectively, for these services which is included in trade and other payables in the Condensed Consolidated Balance Sheet. On July 19, 2020, the Company and Mr. Yeaton agreed by mutual understanding that Mr. Yeaton’s employment as Interim Chief Financial Officer will cease as of August 19, 2020.

 

During the six months ended June 30, 2020 and 2019, pursuant to his October 2018 employment agreement, the Company issued 0 and 1,095 shares of common stock under the 2017 Plan to Mr. Yeaton, with a fair value on the date of grant, of $0 and $22,444, respectively.

 

As of June 30, 2020, included in accounts payable and accrued expenses was an obligation of $3,173, representing an obligation to issue 471 shares of common stock to Mr. Yeaton, earned during 2019, but not issued. The accrual is reflected in trade and other payables on the Condensed Consolidated Balance Sheet.

 

Note 9 – Revenue Information

 

Revenue by product lines was as follows:

 

   Three Months Ended   Six Months Ended 
   June 30,   June 30, 
Product Line  2020   2019   2020   2019 
MicroParticle Catalyzed Biosensor (“MPC”)  $-   $65,344   $-   $88,664 
Particle ImmunoFiltration Assay (“PIFA”)   (3,399)   304,658    351,059    880,973 
Rapid Enzymatic Assay (“REA”)   -    85,000    -    85,000 
Other   1,511    9,511    10,568    21,997 
Total Revenue  $(1,888)  $464,513   $361,627   $1,076,634 

 

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

 

   Three Months Ended   Six Months Ended 
   June 30,   June 30, 
Geographic Region  2020   2019   2020   2019 
United States  $(1,888)  $447,013   $361,627   $1,059,134 
Rest of World   -    17,500    -    17,500 
Total Revenue  $(1,888)  $464,513   $361,627   $1,076,634 

 

The Company had long-lived assets totaling $0 and $9,823 located in the People’s Republic of China and $4,783 and $194,174 located in the United States as of June 30, 2020 and December 31, 2019, respectively.

 

Note 10 – Employee Benefit Plan

 

The Company maintains a defined contribution benefit plan under section 401(k) of the Internal Revenue Code covering substantially all qualified employees of the Company (the “401(k) Plan”). Under the 401(k) Plan, the Company matches 100% up to a 3% contribution, and 50% over a 3% contribution, up to a maximum of 5%.

 

The Company made matching contributions to the 401(k) Plan during the three months ended June 30, 2020 and 2019 of $5,097 and $7,425, respectively and $22,924 and $16,888 during the six months ended June 30, 2020 and 2019, respectively.

 

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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.

 

Important factors that could cause actual results to differ materially from the results and events anticipated or implied by such forward-looking statements include, but are not limited to:

 

  our ability to achieve the expected benefits and costs of the transactions related to the acquisition of Cystron Biotech, LLC (“Cystron”), including:

  o the timing of, and our ability to, obtain and maintain regulatory approvals for clinical trials of our COVID-19 vaccine or combination product candidate (the “COVID-19 Vaccine Candidate”);
  o the timing and results of our planned clinical trials for our COVID-19 Vaccine Candidate;
  o the amount of funds we require for our COVID-19 Vaccine Candidate; and
  o our ability to maintain our existing license with Premas Biotech PVT Ltd. (“Premas”).

  our ability to develop a COVID-Vaccine Candidate in a timely manner;
  our ability to effectively execute and deliver our plans related to commercialization, marketing and manufacturing capabilities and strategy;
  emerging competition and rapidly advancing technology in our industry;
  our ability to obtain adequate financing in the future on reasonable terms, as and when we need it;
  challenges we may face in identifying, acquiring and operating new business opportunities;
  our ability to retain and attract senior management and other key employees;
  our ability to quickly and effectively respond to new technological developments;
  the outcome of litigation or other proceedings to which we are subject as described in the “Legal Proceedings” sections of our annual report on Form 10-K filed with the SEC on March 25, 2020 and our subsequent filings with the SEC or which we may become subject to in the future;
  changes in political, economic or regulatory conditions generally and in the markets in which we operate;
  delisting of our common stock from the Nasdaq capital market;
  our ability to protect our trade secrets or other proprietary rights, operate without infringing upon the proprietary rights of others and prevent others from infringing on our proprietary rights;
  our compliance with all laws, rules, and regulations applicable to our business and COVID-19 Vaccine Candidate; and
  the impact of the recent COVID-19 outbreak on our results of operations, business plan and the global economy.

 

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

 

We were historically a developer of rapid health information technologies but since March 2020, have been primarily focused on the development of a vaccine candidate against SARS-CoV-2, a coronavirus currently causing a pandemic throughout the world. In response to the global pandemic, we are pursuing rapid development and manufacturing of our COVID-19 Vaccine Candidate, in collaboration with Premas. With Premas, we are currently conducting animal studies for our COVID-19 Vaccine Candidate in India with different dose amounts, including amounts that would be applicable to humans. We and Premas are currently engaged in communications with the U.S. Food and Drug Administration (“FDA”) and the office of the drug controller in India.

 

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Coronavirus and COVID-19 Pandemic

 

In December 2019, SARS-CoV-2 was reported to have surfaced in Wuhan, China, and on March 12, 2020, the World Health Organization (“WHO”) declared the global outbreak of COVID-19, the disease caused by SARS-CoV-2, to be a pandemic. In an effort to contain and mitigate the spread of COVID-19, many countries, including the United States, Canada, China, and India, have imposed unprecedented restrictions on travel, quarantines, and other public health safety measures. According to the WHO situation report, dated as of August 6, 2020, approximately 18 million cases were reported globally and 700,000 of these were deadly, making the development of effective vaccines to prevent this disease a major global priority. Although multiple vaccine candidates against SARS-CoV-2 are under development, there is currently no known or approved vaccine or specific antiviral treatment, with the primary treatment being symptomatic and supportive therapies.

 

Competition

 

We face, and will continue to face, intense competition from large pharmaceutical companies, specialty pharmaceutical and biotechnology companies as well as academic and research institutions pursing research and development of technologies, drugs or other therapies that would compete with our products or product candidates. The pharmaceutical market is highly competitive, subject to rapid technological change and significantly affected by existing rival drugs and medical procedures, new product introductions and the market activities of other participants. Our competitors may develop products more rapidly or more effectively than us. If our competitors are more successful in commercializing their products than us, their success could adversely affect our competitive position and harm our business prospects.

 

Specifically, the competitive landscape of potential COVID-19 vaccines and treatment therapies has been rapidly developing since the beginning of the COVID-19 pandemic, with several hundreds of companies claiming to be investigating possible candidates and approximately 3,000 studies registered worldwide as investigating COVID-19 (source: clinicaltrials.gov). Given the global footprint and the widespread media attention on the COVID-19 pandemic, there are efforts by public and private entities to develop a COVID-19 vaccine as soon as possible, including large, multinational pharmaceutical companies such as AstraZeneca, GlaxoSmithKline, Johnson & Johnson, Moderna, Pfizer, and Sanofi, with vaccine candidates that are currently at more advanced stage of development than our vaccine candidate. Those other entities may develop COVID-19 vaccines that are more effective than any vaccine we may develop, may develop a COVID-19 vaccine that becomes the standard of care, may develop a COVID-19 vaccine at a lower cost or earlier than we are able to jointly develop any COVID-19 vaccine, or may be more successful at commercializing a COVID-19 vaccine. Many of these other organizations are much larger than we are and have access to larger pools of capital, and as such, able to fund and carry on larger research and development initiatives. Such other entities may have greater development capabilities than we do and have substantially greater experience in undertaking nonclinical and clinical testing of vaccine candidates, obtaining regulatory approvals and manufacturing and marketing pharmaceutical products. Our competitors may also have greater name recognition and better access to customers. In addition, based on the competitive landscape, multiple COVID-19 vaccines or therapeutics may be approved to be marketed. Should another party be successful in producing a more efficacious vaccine for COVID-19, such success could reduce the commercial opportunity for our COVID-19 vaccine candidate and could have a material adverse effect on our business, financial condition, results of operations and future prospects. Moreover, if we experience delayed regulatory approvals or disputed clinical claims, we may not have a commercial or clinical advantage over competitors’ products that we believe we currently possess. The success or failure of other entities, or perceived success or failure, may adversely impact our ability to obtain any future funding for our vaccine development efforts or for us to ultimately commercialize and market any vaccine candidate, if approved. In addition, we may not be able to compete effectively if our product candidates do not satisfy government procurement requirements with respect to biodefense products.

 

Coronavirus Vaccine Development

 

On March 23, 2020, we entered into that certain membership interest purchase agreement (as subsequently amended, the “MIPA”) with the members (the “Sellers”) of Cystron Biotech, LLC (“Cystron”), pursuant to which we acquired 100% of the membership interests (the “Membership Interests”) of Cystron. Cystron is a party to a license agreement with Premas whereby Premas granted Cystron, among other things, an exclusive license with respect to Premas’ genetically engineered yeast (S. cerevisiae)-based vaccine platform, D-Crypt™, for the development of a vaccine against COVID-19 and other coronavirus infections. We have partnered with Premas on this initiative as we seek to advance this COVID-19 Vaccine Candidate through the regulatory process, both with the FDA and the office of the drug controller in India. Premas is primarily responsible for the development of the COVID-19 Vaccine Candidate through proof of concept and is entitled to receive milestone payments upon achievement of certain development milestones through proof of concept.

 

Premas’ D-Crypt platform has been developed to express proteins that are difficult to clone, express and manufacture and are a key component in vaccine development. Premas has identified three major structural proteins of SARS-CoV-2 as antigens for potential vaccine candidates for COVID-19: spike protein or S protein, envelope protein or E protein, and membrane protein or M protein. In April 2020, Premas used its D-Crypt platform to recombinantly express all three of such antigens, which we considered as a significant milestone for development of a triple antigen vaccine. We believe including a combination of all three antigens will provide advantages against the likelihood of protein mutation, in which case a single-protein vaccine can be rendered non-efficacious, and therefore, enhance efficacy of our vaccine candidates. We believe the D-Crypt provides us advantages in vaccine production and manufacturing, as the technology platform is highly scalable with a robust process, which we expect will ultimately result in significant cost savings compared to other similar vaccine platforms. Based on genetically engineered baker’s yeast S. cerevisiae, the platform is highly scalable into commercial production quantities and has been previously utilized for the production of multiple human and animal health vaccines candidates during its 10-year development track record. Yeast has a large endoplasmic reticulum, or ER, which is a desirable attribute for expressing membrane protein. In complex cells, ER is where the protein is formed. The larger the surface, the more membrane protein that can attach to the ER inside the cell. Yeast is also generally believed to be easily manipulated and allow for results to be gathered quickly. Yeast multiplies faster than mammalian cells and is cheaper to work with than mammalian systems, which are much more complex and slower to grow comparatively. Yeast has received Generally Recommended as Safe status from the FDA.

 

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As of May 14, 2020, Premas has successfully completed its vaccine prototype and obtained transmission electron microscopic (TEM) images of the recombinant virus like particle (VLP) assembled in yeast. A manufacturing protocol has also been established and large-scale production studies have been initiated for our COVID-19 Vaccine Candidate. Though the prototype is complete, the COVID-19 Vaccine Candidate is still in early stages of development, and, accordingly, must undergo preclinical testing and all phases of clinical trials before we can submit a marketing application (in this case, a biologics license application, or “BLA”) to the FDA. The BLA must be approved by the FDA before any biological product, including vaccines, may be lawfully marketed in the United States. We believe the most pivotal, yet difficult, stage in our anticipated development of the contemplated COVID-19 Vaccine Candidate is the requisite conduct of extensive clinical trials to demonstrate the safety and efficacy of our COVID-19 Vaccine Candidate. Additionally, after we complete the necessary preclinical testing, but before we may begin any clinical studies in the United States, we must submit an Investigational New Drug (“IND”) application to the FDA, as this is required before any clinical studies may be conducted in the United States. In some cases, clinical studies may be conducted in other countries; however, the FDA may not accept data from foreign clinical studies in connection with a BLA (or other marketing application) submission.

 

In July 2020, animal studies for our COVID-19 Vaccine Candidate were initiated in India. In addition, we announced that Premas has successfully completed the manufacturing process for the VLP vaccine candidate. Clinical testing is expensive, time consuming, and uncertain as to outcome. We cannot guarantee that any clinical trials will be conducted as planned or completed in a timely manner, or at all. Failures in connection with one or more clinical trials can occur at any stage of testing.

 

Premas owns, and has exclusively licensed rights to us, two provisional Indian patent applications filed in January and March 2020. The scope of these Indian provisional patent applications is directed, respectively, to (i) a platform for the expression of difficult to express proteins (DTE-Ps), which might provide coverage for a method of making the to-be-developed vaccine; and (ii) an expression platform for SARS-CoV-2-like virus proteins, methods relevant thereto, and a relevant vaccine. If non-provisional patent rights are pursued claiming priority to each of these two provisional applications, any resulting patent rights that issue might not expire until approximately January 20, 2041 and March 4, 2041, if all annuities and maintenance fees are timely paid. The expiration dates may be extendable beyond these dates depending on the jurisdiction and the vaccine development process. As we do not own the patents or patent applications that we license, we may need to rely upon Premas to properly prosecute and maintain those patent applications and prevent infringement of those patents.

 

Impact of the COVID-19 Pandemic on Our Business

 

The ultimate impact of the global COVID-19 pandemic or a similar health epidemic is highly uncertain and subject to future developments. These include but are not limited to the duration of the COVID-19 pandemic, new information which may emerge concerning the severity of the COVID-19 pandemic, and any additional preventative and protective actions that regulators, or the board or management of the Company, may determine are needed. We do not yet know the full extent of potential delays or impacts on our business, our vaccine development efforts, healthcare systems or the global economy as a whole. However, the effects are likely to have a material impact on our operations, liquidity and capital resources, and we will continue to monitor the COVID-19 situation closely.

 

In response to public health directives and orders, we have implemented work-from-home policies for many of our employees and temporarily modified our operations to comply with applicable social distancing recommendations. The effects of the orders and our related adjustments in our business are likely to negatively impact productivity, disrupt our business and delay our timelines, the magnitude of which will depend, in part, on the length and severity of the restrictions and other limitations on our ability to conduct our business in the ordinary course. Similar health directives and orders are affecting third parties with whom we do business, including Premas, whose operations are located in India. Further, restrictions on our ability to travel, stay-at-home orders and other similar restrictions on our business have limited our ability to support our operations.

 

Severe and/or long-term disruptions in our operations will negatively impact our business, operating results and financial condition in other ways, as