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

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

 

For the quarterly period ended: September 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 November 16, 2020, there were 8,859,868 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 43
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk 62
     
Item 4. Controls and Procedures 62
     
PART II – OTHER INFORMATION  
     
Item 1. Legal Proceedings 63
     
Item 1A. Risk Factors 63
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 84
     
Item 3. Defaults Upon Senior Securities 84
     
Item 4. Mine Safety Disclosures 84
     
Item 5. Other Information 84
     
Item 6. Exhibits 85
     
Signatures 87

 

2
 

 

Part I - Financial Information

 

Item 1 - Financial Statements

 

AKERS BIOSCIENCES, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

September 30, 2020 and December 31, 2019

 

   As of 
   September 30,   December 31, 
   2020   2019 
   (unaudited)   (audited) 
ASSETS          
Current Assets          
Cash  $16,189,651   $517,444 
Marketable Securities   6,929,356    9,164,273 
Prepaid expenses   446,507    340,971 
Current assets of discontinued operations   -    288,126 
           
Total Current Assets   23,565,514    10,310,814 
           
Non-Current Assets          
Restricted Cash   115,094    115,094 
Property, Plant and Equipment, net   3,738    10,554 
Right-of-Use Asset   40,469    - 
Other Assets   -    2,722 
Non-current assets of discontinued operations   -    445,751 
           
Total Non-Current Assets   159,301    574,121 
           
Total Assets  $23,724,815   $10,884,935 
           
LIABILITIES          
Current Liabilities          
Trade and Other Payables  $1,057,469   $901,207 
Right-of-Use Liability   40,506    - 
Current liabilities of discontinued operations   1,457,671    628,558 
           
Total Current Liabilities   2,555,646    1,529,765 
           
Non-Current Liabilities          
Right-of-Use Liability, net of current   -    - 
           
Total Non-Current Liabilities   -    - 
           
Total Liabilities  $2,555,646   $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 September 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, 72,992 and 0 shares issued and outstanding as of September 30, 2020 and December 31, 2019   144,524    - 
Series E Junior Participating Preferred Stock, 100,000 shares designated, no par value and a stated value of $0.001 per share, 0 shares issued and outstanding as of September 30, 2020 and December 31, 2019   -    - 
Common stock, No par value, 100,000,000 shares authorized 8,859,868 and 1,738,837 issued and outstanding as of September 30, 2020 and December 31, 2019   154,901,639    128,920,414 
Accumulated Other Comprehensive Income (Loss)   -    17,886 
Accumulated Deficit   (133,876,994)   (119,583,130)
           
Total Shareholders’ Equity   21,169,169    9,355,170 
           
Total Liabilities and Shareholders’ Equity  $23,724,815   $10,884,935 

 

See accompanying notes to the 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 Nine Months Ended 
   September 30,   September 30, 
   2020   2019   2020   2019 
Product Revenue  $-   $-   $-   $- 
Product Cost of Sales   -    -    -    - 
Gross Income   -    -    -    - 
                     
Research and Development Expenses   1,741,269    -    6,140,487    - 
Administrative Expenses   1,223,354    843,144    2,983,443    2,687,681 
Sales and Marketing Expenses   6,250    6,163    16,667    18,750 
Litigation Settlement Expenses   -    -    -    75,000 
                     
Loss from Operations   (2,970,873)   (849,307)   (9,140,597)   (2,781,431)
                     
Other (Income) Expenses                    
Foreign Currency Transaction (Gain) Loss   -    (32)   (93)   4,846 
(Gain)/Loss on Investments   -    (6,416)   36,714    (2,155)
Gain on FMV of Equity Investments   (31,465)   -    (31,465)   - 
Interest and Dividend Income   (23,368)   (22,015)   (99,116)   (81,017)
Total Other Income   (54,833)   (28,463)   (93,960)   (78,326)
                     
Loss from Continuing Operations Before Income Tax   (2,916,040)   (820,844)   (9,046,637)   (2,703,105)
                     
Income Tax Benefit   -    -    -    - 
                     
Net Loss from Continuing Operations   (2,916,040)   (820,844)   (9,046,637)   (2,703,105)
                     
(Loss)/Income from Discontinued Operations Before Income Tax   (4,211,157)   (16,182)   (5,247,227)   154,230 
                     
Income Tax   -    -    -    - 
                     
Net (Loss)/Income from Discontinued Operations   (4,211,157)   (16,182)   (5,247,227)   154,230 
                     
Net Loss   (7,127,197)   (837,026)   (14,293,864)   (2,548,875)
                     
Other Comprehensive Income (Loss)                    
Net Unrealized Gain (Loss) on Marketable Securities   -    (1,805)   -    45,597 
Total Other Comprehensive Income (Loss)   -    (1,805)   -    45,597 
                     
Comprehensive Loss  $(7,127,197)  $(838,831)  $(14,293,864)  $(2,503,278)
                     
Basic and Diluted loss per common share from continuing operations  $(0.38)  $(1.51)  $(1.79)  $(4.99)
Basic and Diluted (loss) earnings per common share from discontinued operations  $(0.55)  $(0.03)  $(1.04)  $0.28 
Basic and Diluted loss per common share  $(0.93)  $(1.54)  $(2.83)  $(4.71)
                     
Weighted average basic common shares outstanding   7,626,780    541,859    5,044,737    541,289 

 

See accompanying notes to the condensed consolidated financial statements

 

4
 

 

AKERS BIOSCIENCES, INC. AND SUBSIDIARIES

Condensed Consolidated Statement of Changes in Shareholders Equity

For the Nine Months Ended September 30, 2020 and 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 
Issuance of restricted stock units for services   -    -    -    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 
Issuance of restricted stock units for services   -    -    -    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 
Net loss   -    -    -    -    (837,026)   -    (837,026)
Issuance of stock grants to key employees   -    -    312    3,111    -    -    3,111 
Issuance of restricted stock units for services   -    -    -    119,781    -    -    119,781 
Net unrealized gain on marketable securities   -    -    -    -         (1,805)   (1,805)
                                    
Balance at September 30, 2019 (unaudited)                -   $             -       542,014   $121,822,267   $(118,243,756)  $19,684   $  3,598,195 

 

   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 
Stock-based compensation - restricted stock units   -    -    -    1,302    -    -    1,302 
Stock-based compensation - acquisition of license for preferred series ‘D’ stock   211,353    418,479    -    -    -    -    418,479 
Stock-based compensation - acquisition of license for common stock   -    -    411,403    814,578    -    -    814,578 
Stock-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 
Exercise 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 
Net loss   -    -    -    -    (7,127,197)   -    (7,127,197)
Exercise of Series C Convertible Preferred Warrants for common stock   -    -    891,500    3,566,000    -    -    3,566,000 
Exercise of Series D Convertible Preferred Shares for common stock   (135,585)   (268,458)   135,585    268,458    -    -    - 
Registered direct offering of common stock net of offering costs of $689,874   -    -    1,207,744    6,158,034    -    -    6,158,034 
Share-based compensation - shares issued for litigation settlements             500,000    2,510,000              2,510,000 
Stock-based compensation - restricted stock units   -    -    -    69,031              69,031 
Reclassification of unrealized loss on marketable securities   -    -    -    -    -    21,153    21,153 
                                    
Balance at September 30, 2020 (unaudited)   72,992   $144,524    8,859,868   $154,901,639   $(133,876,994)  $-   $21,169,169 

 

See accompanying notes to the condensed consolidated financial statements

 

5
 

 

AKERS BIOSCIENCES, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

For the Nine Months Ended September 30, 2020 and 2019

(unaudited)

 

    For the Nine Months Ended  
    September 30,  
    2020     2019  
Cash flows from operating activities:                
Net loss from ongoing operations   $ (9,046,637 )   $ (2,703,105 )
Net income/(loss) from discontinued operations     (5,247,227 )     154,230  
Adjustments to reconcile net loss to net cash used in operating activities:                
Loss/(gain) on sale of securities     36,714       (2,155 )
Gain on fair market value of equity investments     (31,465 )     -  
Accrued loss on marketable securities     1,749       6,289  
Depreciation and amortization     28,757       54,522  
Loss on disposal of fixed assets     18,680       -  
Impairment of Prepaid Royalties     291,442          
Impairment of intangible assets     152,822       -  
Inventory adjustment for net realizable value     197,723       -  
Reserve for obsolete inventory     -       126,422  
Reserve for doubtful other receivables     -       105,325  
Share based compensation to an employee - restricted stock     -       25,555  
Share based compensation to directors - restricted stock units     70,333       242,165  
Share based compensation - shares issued to vendors     7,318       -  
Share based compensation - shares issued to Chubeworkx     2,510,000          
Share based compensation - shares issued for Cystron     1,233,057       -  
Change in assets and liabilities                
Decrease/(increase) in trade receivables     67,122       (59,899 )
Decrease in deposits and other receivables     -       9,347  
Decrease in inventories     1,262       46,786  
(Increase)/decrease in prepaid expenses     (98,410 )     18,147  
Decrease in other assets     2,722       4,330  
Increase/(decrease) in trade and other payables     961,134       (600,537 )
Increase in right-of-use liabilities     37       -  
Net cash used by operating activities     (8,842,867 )     (2,572,578 )
                 
Cash flows from investing activities:                
Short-term note receivable     -       (100,000 )
Purchases of marketable securities     (100,865 )     (87,305 )
Proceeds from sale of marketable securities     2,310,898       2,556,516  
Net cash provided by investing activities     2,210,033       2,369,211  
                 
Cash flows from financing activities                
Net proceeds from issuance of common stock     14,564,961       -  
Net proceeds from the exercise of Series C Convertible Preferred warrants for the purchase of common stock     7,740,000       -  
Net proceeds from the exercise of prepaid equity forward contracts for the purchase of common stock     80       -  
Net cash provided by financing activities     22,305,041       -  
                 
Net increase/(decrease) in cash and restricted cash     15,672,207       (203,367 )
Cash and restricted cash at beginning of period     632,538       681,755  
Cash and restricted cash at end of period   $ 16,304,745     $ 478,388  
                 
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   $ -     $ 45,597  
Operating lease right-of-use asset obtained in exchange for lease obligation   $ (79,942 )   $ -  
Exercise of Series D Convertible Preferred Stock for Common Stock   $ 273,955     $ -  

 

See accompanying notes to the 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 (“Cystron”), 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”).

 

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 and Note 6 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 September 30, 2020 and its results of operations and cash flows for the three and nine months ended September 30, 2020 and 2019. The results of operations for the three and nine months ended September 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 September 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 September 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 September 30, 2020  $6,929,356   $            -   $                  - 
                
Fixed Income Bonds at December 31, 2019  $9,164,273   $-   $- 

 

Marketable securities are classified as available for sale and are valued at fair market value. Maturities of the securities are less than one year.

 

As of September 30, 2020, the Company held certain fixed income investments which, under FASB ASC 321-10, were considered equity investments. As such, the change in fair value in the three months ended September 30, 2020 and the accumulated other comprehensive income (loss) of $21,153 at June 30, 2020 were included in the net loss.

 

Gains and losses resulting from the sales of marketable securities were gains of $0 and $6,416 for the three months ended September 30, 2020 and 2019, respectively and were (losses) and gains of ($36,714) and $2,155 for the nine months ended September 30, 2020 and 2019, respectively

 

Proceeds from the sales of marketable securities in the three and nine months ended September 30, 2020 were $3,436 and $2,310,898, respectively and were $1,201,870 and $2,556,516 for the three and nine months ended September 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.

 

(i) Prepaid Expenses

 

Prepaid expenses represent 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.

 

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.

 

 

(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 $1,045 and $6,815 for the three and nine months ended September 30, 2020, respectively and $6,455 and $19,366 for the three and nine months ended September 30, 2019, respectively.

 

12
 

 

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 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.

 

13
 

 

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

 

In June 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  September 30, 2020   January 1, 2020   December 31, 2019 
             
Operating Lease               
Right-of-use asset  $40,469   $306,706   $            - 
Liability, current   40,506    143,018    - 
Liability, net of current  $-  $163,688    - 

 

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

 

    Three months ended
September 30, 2020
    Nine months ended
September 30, 2020
 
             
Lease cost                
Operating lease   $ 41,148     $ 124,222  

 

Other information related to leases is presented below:

 

Other information  As of
September 30, 2020
 
     
Operating cash used by operating leases  $124,184 
Weighted-average remaining lease term – operating leases (in months)   3 
Weighted-average discount rate – operating leases   10.00%

 

As of September 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 nine months ended September 30, 2020)   $ 41,146  
Total future minimum lease payments, undiscounted   $ 41,146  
Less: Imputed interest     (640 )
Present value of future minimum lease payments   $ 40,506  

 

14
 

 

AKERS BIOSCIENCES, INC. AND CONSOLIDATED SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Note 2 - Significant Accounting Policies, continued

 

(n) 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.

 

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.

 

15
 

 

AKERS BIOSCIENCES, INC. AND CONSOLIDATED SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Note 2 - Significant Accounting Policies, continued

 

(o) 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.

 

(p) 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

 

(q) 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 September 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 nine months ended September 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 nine months ended September 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.

 

(r) Shipping and Handling Fees and Costs

 

The Company charges actual shipping costs plus a handling fee to customers. 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.

 

17
 

 

AKERS BIOSCIENCES, INC. AND CONSOLIDATED SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Note 2 - Significant Accounting Policies, continued

 

(s) 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.

 

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

 

As the Company reported a net loss from continuing operations for the three and nine months ended September 30, 2020 common stock equivalents were anti-dilutive.

 

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

 

   For the Nine Months Ended
September 30,
 
   2020   2019 
Stock Options   -    40 
Unvested RSUs   789,360    15,603 
Warrants to purchase common stock   514,516    88,015 
Series D Preferred Convertible Stock   72,992    - 
Warrants to purchase Series C Preferred stock   55,000    - 
Total potentially dilutive shares   1,431,868    103,658 

 

(t) Reclassifications

 

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

 

(u) Discontinued Operations

 

In accordance with FASB ASC 205, results of operations of a component of an entity that has either been disposed of or is held for sale is to be reported as discontinued operations in the condensed consolidated financial statements if the disposition or sale represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results. See Note 6 herein.

 

18
 

 

AKERS BIOSCIENCES, INC. AND CONSOLIDATED SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Note 2 - Significant Accounting Policies, continued

 

(v) 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 September 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 transactions 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.

 

The Company determined that the discontinuation of the production and distribution of the Company’s screening and testing products constituted a strategic shift in the Company’s business and as a result the elimination of the product lines should be presented as discontinued operations under FASB ASC 205-20 Presentation of Financial Statements, Discontinued Operations.

 

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 in the three months ended March 31,2020 and nine months ended September 30,2020. 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.

 

20
 

 

AKERS BIOSCIENCES, INC. AND CONSOLIDATED SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

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 (the “August Payment”) to the Sellers upon the consummation of the registered direct equity offerings that closed on May 18, 2020 and August 13, 2020, respectively. These funds (including funds of $299,074 representing Premas’ portion of the cash purchase price and $83,334 representing Premas’ portion of the April Payment temporarily returned to the Company in April 2020) due the sellers under the MIPA, as amended, were disbursed on September 25, 2020. For the three and nine month periods ended September 30, 2020, $684,790 and $1,827,290 are included in research and development expense within the Condensed Consolidated Statements of Operations and Comprehensive Loss for the April Payment, May Payment and August Payment.

 

On October 13, 2020, Premas returned $908,117 representing Premas’ portion of the initial cash component for the purchase of Cystron and Premas’ portion of the April Payment, May Payment and August Payment under the MIPA, as amended. These funds were returned temporarily for Premas to meet certain regulatory requirements in India.

 

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 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.

 

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 on July 7, 2020, Premas was paid $1,000,000 on August 4, 2020. Accordingly, for the three and nine months ended September 30, 2020, research and development expenses of $1,000,000 and $2,000,000 were recorded in the condensed consolidated statements of operations and comprehensive loss.

 

21
 

 

AKERS BIOSCIENCES, INC. AND CONSOLIDATED SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

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 nine months ended September 30, 2020, the Company recorded $10,651 and $20,925 as a charge to research and development expense within the Condensed Consolidated Statements of Operations and Comprehensive Loss.

 

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.

 

Subject to the Beneficial Ownership Limitation, 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 nine months ended September 30, 2020, 135,585 and 138,361 shares of Preferred Stock were converted to 135,585 and 138,361 common shares, respectively. As of September 30, 2020, 72,992 shares of Series D Preferred Stock were issued and outstanding.

 

22
 

 

AKERS BIOSCIENCES, INC. AND CONSOLIDATED SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Restricted Stock Unit Award Agreement

 

On September 11, 2020, the Company entered into Restricted Stock Unit Award Agreements (the “Agreements”) with the Company’s four directors. Pursuant to the Agreements, Christopher C. Schreiber, who is also the Company’s Executive Chairman and President, was granted 263,500 Restricted Stock Units (“RSUs”), Joshua Silverman was granted 219,000 RSUs, William White was granted 219,000 RSUs, and Robert Schroeder was granted 87,860 RSUs (each, a “Grant,” and, collectively, the “Grants”) under the Company’s 2018 Equity Incentive Plan, as amended (the “2018 Plan”).

 

Fifty percent (50%) of the RSUs in each Grant will vest on the first anniversary of the date of Grant, and the remaining fifty percent (50%) will vest on the second anniversary of the date of Grant; provided that the RSUs shall vest immediately upon the occurrence of (i) a change in control, provided that the director is employed by or providing services to the Company and its affiliates on the closing date of such change in control, (ii) the director’s termination of employment or service from the Company and its affiliates by reason of the director’s death or disability, or (iii) the director’s termination of employment or service by the Company without cause.

 

Rights Agreement

 

The Company’s board of directors (the “Board”) declared a dividend of one preferred share purchase right (a “Right”) for each of the Company’s issued and outstanding shares of common stock. The dividend is payable to the stockholders of record on September 21, 2020 (the “Record Date”). Each Right entitles the registered holder, subject to the terms of the Rights Agreement (as defined below), to purchase from the Company one one-thousandth of a share of the Company’s Series E Junior Participating Preferred Stock, no par value with a stated value of $0.001 (the “Preferred Stock”) at $15.00 (the “Purchase Price”), subject to certain adjustments. The description and terms of the Rights are set forth in the Rights Agreement dated as of September 9, 2020 (the “Rights Agreement”) between the Company and VStock Transfer, LLC, as Rights Agent (the “Rights Agent”).

 

23
 

 

AKERS BIOSCIENCES, INC. AND CONSOLIDATED SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

The Rights will not be exercisable until the earlier to occur of (i) the tenth business day following a public announcement or filing that a person has, or affiliates or associates of such person have, become an “Acquiring Person,” which is defined as a person, or affiliates or associates of such person, who, at any time after the date of the Rights Agreement, has acquired, or obtained the right to acquire, Beneficial Ownership of 10% or more of the Company’s outstanding shares of common stock, subject to certain exceptions, or (ii) the tenth business day (or such later date as may be determined by action of the Board prior to such time as any person or group of affiliated or associated persons becomes an Acquiring Person) after the commencement of, or announcement of an intention to commence, a tender offer or exchange offer the consummation of which would result in any person becoming an Acquiring Person (the earlier of such dates being called the “Distribution Date”). Beneficial Ownership, as defined in the Rights Agreement, includes certain interests in securities created by derivatives contracts, which are beneficially owned, directly or indirectly, by a counterparty (or any of such counterparty’s affiliates or associates) under any derivatives contract to which such person or any of such person’s affiliates or associates is a receiving party (as such terms are defined in Rights Agreement), subject to certain limitations.

 

Until the Distribution Date, (i) the Rights will be evidenced by the common stock certificates (or, for uncertificated shares of common stock, by the book-entry account that evidences record ownership of such shares) and will be transferred with, and only with, such Common Stock, and (ii) new common stock certificates issued after the Record Date will contain a legend incorporating the Rights Agreement by reference (for book entry common stock, this legend will be contained in the notations in book entry accounts). Until the earlier of the Distribution Date and the Expiration Date (defined below), the transfer of any shares of common stock outstanding on the Record Date will also constitute the transfer of the Rights associated with such shares of common stock. As soon as practicable after the Distribution Date, the Rights Agent will send by first-class, insured, postage prepaid mail, to each record holder of the common stock as of the close of business on Distribution Date separate rights certificates evidencing the Rights (“Right Certificates”), and such Right Certificates alone will evidence the Rights. The Company may choose book entry in lieu of physical certificates, in which case, references to “Rights Certificates” shall be deemed to mean the uncertificated book entry representing the Rights.

 

The Rights, which are not exercisable until the Distribution Date, expire upon the earliest to occur of (i) the close of business on September 8, 2021; (ii) the time at which the Rights are redeemed or exchanged pursuant to the Rights Agreement; and (iii) the time at which the Rights are terminated upon the closing of any merger or other acquisition transaction involving the Company pursuant to a merger or other acquisition agreement that has been approved by the Board prior to any person becoming an Acquiring Person (the earliest of (i), (ii), and (iii) is referred to as the “Expiration Date”).

 

Each share of Preferred Stock will be entitled to a preferential per share dividend rate equal to the greater of (i) $0.001 and (ii) the sum of (1) 1,000 times the aggregate per share amount of all cash dividends, plus (2) 1,000 times the aggregate per share amount (payable in kind) of all non-cash dividends or other distributions other than certain dividends or subdivisions of the outstanding shares of common stock. Each Preferred Stock will entitle the holder thereof to a number of votes equal to 1,000 on all matters submitted to a vote of the stockholders of the Company. In the event of any merger, consolidation or other transaction in which shares of common stock are exchanged, each Preferred Stock will be entitled to receive 1,000 times the amount received per one share of common stock. Pursuant to the Rights Agreement, the preferential rates noted above may be adjusted in the event that the Company (i) pays dividends in common stock, (ii) subdivides the outstanding common stock or (iii) combines outstanding Common Stock into a smaller number of shares.

 

The Purchase Price payable, and the number of shares of Preferred Stock or other securities or property issuable, upon exercise of the Rights are subject to adjustment from time to time to prevent dilution (i) in the event of a stock dividend, or a subdivision, combination or reclassification of the Preferred Stock, (ii) if the holders of Preferred Stock are granted certain rights, options or warrants to subscribe for the applicable Preferred Stock or securities convertible into the applicable Preferred Stock at less than the current market price of the applicable Preferred Stock, or (iii) upon the distribution to holders of Preferred Stock of evidences of indebtedness, cash (excluding regular quarterly cash dividends), assets (other than dividends payable in Preferred Stock) or subscription rights or warrants (other than those referred to in (ii) immediately above). The number of outstanding Rights and the number of one one-thousandths of a Preferred Stock issuable upon exercise of each Right are also subject to adjustment in the event of a stock split, reverse stock split, stock dividends and other similar transactions.

 

24
 

 

AKERS BIOSCIENCES, INC. AND CONSOLIDATED SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

With some exceptions, no adjustment in the purchase price relating to a Right will be required until cumulative adjustments amount to at least one percent (1%) of the purchase price relating to the Right. No fractional shares of Preferred Stock are required to be issued (other than fractions which are integral multiples of one one-thousandth of a share of Preferred Stock) and, in lieu of the issuance of fractional shares, the Company may make an adjustment in cash based on the market price of the Preferred Stock on the trading date immediately prior to the date of exercise.

 

In the event that a person or group of affiliated or associated persons becomes an Acquiring Person, each holder of a Right will thereafter have the right to receive, upon exercise, common stock (or, in certain circumstances, other securities, cash or other assets of the Company) having a value equal to two (2) times the exercise price of the Right. Notwithstanding any of the foregoing, following the occurrence of a person becoming an Acquiring Person, all Rights that are, or (under certain circumstances specified in the Rights Agreement) were, Beneficially Owned by any Acquiring Person (or by certain related parties) will be null and void and any holder of such Rights (including any purported transferee or subsequent holder) will be unable to exercise or transfer any such Rights. However, Rights are not exercisable following the occurrence of a person becoming an Acquiring Person until the Distribution Date.

 

In the event that, after a person or a group of affiliated or associated persons has become an Acquiring Person, the Company is acquired in a merger or other business combination transaction, or 50% or more of the Company’s assets or earning power are sold, proper provision will be made so that each holder of a Right will thereafter have the right to receive, upon the exercise of a Right that number of shares of common stock of the person with whom the Company has engaged in the foregoing transaction (or its parent) that at the time of such transaction have a market value of two (2) times the exercise price of the Right.

 

At any time before any person or group of affiliated or associated persons becomes an Acquiring Person, the Board may redeem the Rights in whole, but not in part, at a price of $0.001 per Right (subject to certain adjustments) (the “Redemption Price”). The redemption of the Rights may be made effective at such time, on such basis and with such conditions as the Board in its sole discretion may establish. Immediately upon the action of the Board electing to redeem or exchange the Rights, the right to exercise the Rights will terminate and the only right of the holders of Rights will be to receive the Redemption Price.

 

The Board may, at its option, at any time after the first occurrence of a Flip-in Event (as defined in the Rights Agreement), exchange all or part of the then outstanding and exercisable Rights for shares of common stock at an exchange ratio of one share of common stock per Right, appropriately adjusted to reflect any stock split, stock dividend or similar transaction occurring after the effective date. However, the Board shall not effect such an exchange at any time after any person, together with all affiliates and associates of such person, becomes a beneficial owner of 50% or more of the outstanding shares of common stock. Immediately upon the action of the Board to exchange the Rights, the Rights will terminate and the only right of the holders of Rights will be to receive the number of shares of Common equal to the number of Rights held by such holder multiplied by the exchange ratio.

 

Until a Right is exercised or exchanged, the holder thereof, as such, will have no rights as a stockholder of the Company, including, without limitation, the right to vote or to receive dividends.

 

The Board may amend or supplement the Rights Agreement without the approval of any holders of Rights at any time so long as the Rights are redeemable. At any time the Rights are no longer redeemable, no such supplement or amendment may (i) adversely affect the interests of the holders of Rights (other than an Acquiring Person or an affiliate or associate of an Acquiring Person), (ii) cause the Rights Agreement to become amendable other than in accordance with Section 27 of the Rights Agreement, or (iii) cause the Rights again to become redeemable.

 

25
 

 

AKERS BIOSCIENCES, INC. AND CONSOLIDATED SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

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

 

Liquidity

 

As of September 30, 2020, the Company’s cash on hand was $16,304,745 (which included restricted cash of $115,094), and marketable securities were $6,929,356. The Company has incurred net losses of $14,293,864 for the nine months ended September 30, 2020. As of September 30, 2020, the Company had working capital of $21,009,868 and stockholder’s equity of $21,169,169. During the nine months ended September 30, 2020, cash flows used in operating activities were $8,842,867, consisting primarily of a net loss of $14,293,864, which includes, principally, research and development costs in connection with the purchase of a license and milestone license fees of $6,060,348. 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, pursuant to the terms of the 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 July 21, 2020 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.

 

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 $6,847,908 and $6,158,034, 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.

 

26
 

 

AKERS BIOSCIENCES, INC. AND CONSOLIDATED SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

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

 

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 Candidate, 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 in connection with the Merger. 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.

 

27
 

 

AKERS BIOSCIENCES, INC. AND CONSOLIDATED SUBSIDIARIES

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.

 

Note 5 - Trade and Other Payables

 

Trade and other payables consist of the following:

 

  

September 30,

2020

  

December 31,

2019

 
         
Accounts Payable – Trade  $820,012   $608,630 
Accrued Expenses   237,457    232,827 
Deferred Compensation   -    59,750 
   $1,057,469   $901,207 

 

See also Note 9 for related party information.

 

Note 6 – Discontinued Operations

 

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 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 assets and liabilities of the discontinued operations have been reflected in the condensed consolidated balance sheet as of September 30, 2020 and consist of the following:

 

   As of 
   September 30, 
   2020 
Current Assets:  $- 
Non-Current Assets   - 
Total Assets  $- 
      
Current Liabilities:     
Trade and Other Payables of Discontinued Operations  $1,457,671 
Total Current Liabilities  1,457,671 
Non-Current Liabilities  - 
Total Liabilities  $1,457,671 
      
Shareholder Equity  $- 
      
Total Liabilities and Shareholder Equity  $1,457,671 

 

The results from the discontinued operations have been reflected in the condensed consolidated statements of operations for the three and nine months ended September 30, 2020 and consist of the following:

 

   For the   For the 
   Three Months   Nine Months 
  

Ended

  

Ended

 
   September 30,   September 30, 
   2020   2020 
Product Revenue  $-   $361,627 
Product Cost of Sales   109,983    660,023 
Gross Loss   (109,983)  (298,396)
           
Administrative Expenses   62,550    196,901 
Sales and Marketing Expenses   29,300    40,586 
Regulatory and Compliance Expenses   59,910    199,668 
Litigation Settlement Expenses   3,949,414    4,031,131 
Amortization of Non-Current Assets   -    17,601 
Impairment of Prepaid Royalties   -    291,442 
Impairment of Production Equipment   -    18,680 
Impairment of Intangible Assets   -    152,822 
           
Loss from Discontinued Operations  $(4,211,157)  $(5,247,227)

 

28
 

  

As a result of the discontinued operations, the previously presented 2019 financial statements have been revised to present the consolidated financial statements of the continuing operations separate from the discontinued operations. The effects on the consolidated balance sheet as of December 31, 2019 were as follows:

 

   December 31, 2019 
   As previously         
   Reported   Adjustment   As Revised 
ASSETS               
Current Assets               
Cash  $517,444   $-   $517,444 
Marketable Securities   9,164,273    -    9,164,273 
Accounts Receivable, net   42,881    42,881    - 
Deposits and Other Receivables   -    -    - 
Inventories, net   198,985    198,985    - 
Prepaid Expenses   387,231    46,260    340,971 
Current Assets – discontinued operations   -    (288,126)   288,126 
Total Current Assets   10,310,814    -    10,310,814 
                
Non-Current Assets               
Prepaid Expenses, net of current   252,308    252,308    - 
Restricted Cash   115,094    -    115,094 
Plant, Property and Equipment, net   33,574    23,020    10,554 
Intangible assets, net   170,423    170,423    - 
Other assets   2,722    -    2,722 
Non-current Assets – discontinued operations        (445,751)   445,751 
Total Non-Current Assets   574,121    -    574,121 
                
Total Assets  $10,884,935   $-   $10,884,935 
                
LIABILITIES               
Current Liabilities               
Trade and Other Payables   1,529,765    628,558    901,207 
Current Liabilities – discontinued operations   -    (628,558)   628,558 
Total Current Liabilities   1,529,765    -    1,529,765 
                
Total Liabilities   1,529,765    -    1.529.765 
                
Commitments and Contingencies               
                
SHAREHOLDERS’ EQUITY               
Preferred Stock, No par value, 50,000,000 total preferred shares authorized   -    -    - 
Common stock, No par value, 100,000,000 shares authorized 1,738,837 issued and outstanding as of December 31, 2019   128,920,414    -    128,920,414 
Accumulated Other Comprehensive Income (Loss)   17,886    -    17,886 
Accumulated Deficit   (119,583,130)   -    (119,583,130)
Total Shareholders’ Equity   9,355,170    -    9,355,170 
                
Total Liabilities and Shareholders’ Equity  $10,884,935   $-   $10,884,935 

 

29
 

  

The effects on the condensed consolidated statement of operations and comprehensive income (loss) for the three and nine months ended September 30, 2019 were as follows:

 

   For the Three Months Ended   For the Nine Months Ended 
   September 30, 2019   September 30, 2019 
   As Previously Reported   Adjusted   As Revised   As Previously Reported   Adjusted   As Revised 
Product Revenue  $420,812   $420,812   $-   $1,497,448   $1,497,448   $- 
Product Cost of Sales   (285,510)   (285,510)   -    (751,311)   (751,311)   - 
Gross Income   135,302    135,302    -    746,137    746,137    - 
                               
Research and Development Expenses   -    -    -    -    -    - 
Administrative Expenses   895,026    51,882    843,144    2,859,288    171,607    2,687,681 
Sales and Marketing Expenses   38,262    32,099    6,163    202,242    183,492    18,750 
Compliance and Regulatory Expenses   57,502    57,502    -    206,802    206,802    - 
Litigation Settlement Expenses   -    -    -    75,000    -    75,000 
Amortization of Non-Current Assets   10,001    10,001    -    30,006    30,006    - 
Impairment of Intangible Assets   -    -    -    -    -    - 
                               
(Loss) income from Operations   (865,489)   (16,182)   (849,307)   (2,627,201)   154,230    (2,781,431)
                               
Other (Income) Expense                              
Foreign Currency Transaction (Gain) Loss   (32)   -    (32)   4,846    -    4,846 
Gain on Investments   (6,416)   -    (6,416)   (2,155)   -    (2,155)
Interest and Dividend Income   (22,015)   -    (22,015)   (81,017)   -    (81,017)
Total Other Income   (28,463)   (16,182)   (28,463)   (78,326)   154,230    (78,326)
                               
Loss from Continuing Operations   (837,026)   -    (820,844)   (2,548,875)   -    (2,703,105)
                               
Income/(Loss) from Discontinued Operations   -    16,182    (16,182)   -    (154,230)   154,230 
                               
Loss Before Income Taxes   (837,026)   -    (837,026)   (2,548,875)   -    (2,548,875)
                               
Income Tax Benefit   -    -    -    -    -    - 
                               
Net Loss   (837,026)   -    (837,026)   (2,548,875)   -    (2,548,875)
                               
Other Comprehensive (Loss) Income                              
Net Unrealized Gain (Loss) on Marketable Securities   (1,805)   -    (1,805)   45,597    -    45,597 
Total Other Comprehensive (Loss) Income   (1,805)   -    (1,805)   45,597    -    45,597 
                               
Comprehensive Loss  $(838,831)  $-   $(838,831)  $(2,503,278)   -   $(2,503,278)

  

30
 

 

The depreciation, amortization and significant operating noncash items of the discontinued operations were as follows:

 

   For the Three Months Ended   For the Nine Months Ended 
   September 30,   September 30, 
   2020   2019   2020   2019 
Depreciation and amortization  $-   $13,087   $21,941   $35,156 
Impairment of Prepaid Royalties   -    -    291,442    - 
Impairment of intangible assets   -    -    152,822    - 
Inventory adjustment for net realizable value   -    -    197,723    - 
Reserve for obsolete inventory   -    79,413    -    126,422 
Share based compensation - shares issued to Chubeworkx   2,510,000    -    2,510,000    - 
   $2,510,000   $92,500   $3,173,928   $161,578 

 

31
 

 

AKERS BIOSCIENCES, INC. AND CONSOLIDATED SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Note 7 - 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 September 30, 2020, grants of restricted stock and options to purchase 2,813 shares of common stock have been issued pursuant to the 2013 Plan, and 1,510 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 September 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 Plan. The 2018 Plan initially provided for the issuance of up to 78,125 shares of the Company’s common stock. On August 27, 2020, the stockholders approved an amendment to the 2018 Plan increasing the number of shares available for issuance by an additional 1,042,000 shares to a total of 1,120,125 shares of the Company’s common stock. As of September 30, 2020, grants of RSUs to purchase 804,963 shares of common stock have been issued pursuant to the 2018 Plan, and 315,162 shares of common stock remain available for issuance.

 

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AKERS BIOSCIENCES, INC. AND CONSOLIDATED SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Note 7 - Share-based Payments, continued

 

Stock Options

 

The following table summarizes the option activities for the nine months ended September 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     (40)       236.16       151.68       0.24       -  
Canceled/Expired     -       -       -       -       -  
Balance at September 30, 2020     -     $ -     $ -       -     $ -  
Exercisable As of September 30, 2020     -     $ -     $ -       -     $  -  

 

The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the closing stock price of $2.25 for the Company’s common stock on September 30, 2020. As the closing stock price on September 30, 2020 is lower than the exercise price, there is no intrinsic value to disclose.

 

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

 

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AKERS BIOSCIENCES, INC. AND CONSOLIDATED SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Note 7 - Share-based Payments, continued

 

Restricted Stock Units

 

On March 29, 2019, the Compensation Committee of the Board approved the grant of 5,201 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 December 31, 2020.

 

On September 11, 2020, the Compensation Committee of the Board approved grant totaling 789,360 Restricted Stock Units (“RSUs”) to the four directors. Each RSU had a grant date fair value of $2.24 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 50% vest on September 11, 2021 and 50% vest on September 11, 2022.

 

At September 30, 2020, the unamortized value of the RSUs was $1,699,135. A summary of activity related to RSUs for the nine months ended September 30, 2020 is presented below:

 

          Weighted  
          Average  
    Number of     Grant Date  
    RSUs     Fair Value  
Balance at December 31, 2019     15,603     $ 23.28  
Granted     789,360       2.24  
Exercised     -       -  
Vested     (15,603)       23.28  
Forfeited     -       -  
Canceled/Expired     -       -  
Balance at September 30, 2020     789,360     $ 2.24  

 

The Company incurred RSU expense of $69,031 and $119,780 during the three months ended September 30, 2020 and 2019, respectively and $70,333 and $242,165 during the nine months ended September 30, 2020 and 2019, respectively.

 

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AKERS BIOSCIENCES, INC. AND CONSOLIDATED SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Note 7 - Share-based Payments, continued

 

Common Stock Warrants

 

The table below summarizes the warrant activity for the nine month period ended September 30, 2020:

 

          Weighted     Average  
          Average     Remaining  
    Number of     Exercise     Contractual  
    Warrants     Price     Term (years)  
Balance at December 31, 2019     247,215     $