0001493152-19-012548.txt : 20190814 0001493152-19-012548.hdr.sgml : 20190814 20190814162136 ACCESSION NUMBER: 0001493152-19-012548 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 60 CONFORMED PERIOD OF REPORT: 20190630 FILED AS OF DATE: 20190814 DATE AS OF CHANGE: 20190814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Akers Biosciences, Inc. CENTRAL INDEX KEY: 0001321834 STANDARD INDUSTRIAL CLASSIFICATION: IN VITRO & IN VIVO DIAGNOSTIC SUBSTANCES [2835] IRS NUMBER: 000000000 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-36268 FILM NUMBER: 191026723 BUSINESS ADDRESS: STREET 1: 201 GROVE RD CITY: THOROFARE STATE: NJ ZIP: 08086 BUSINESS PHONE: 856-848-8698 MAIL ADDRESS: STREET 1: 201 GROVE RD CITY: THOROFARE STATE: NJ ZIP: 08086 FORMER COMPANY: FORMER CONFORMED NAME: Akers Biosciences Inc DATE OF NAME CHANGE: 20050325 10-Q 1 form10-q.htm

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

 

For the quarterly period ended: June 30, 2019

 

OR

 

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

 

For the transition period from __________ to __________

 

Commission File No. 001-36268

 

AKERS BIOSCIENCES, INC.

(Exact name of registrant as specified in its charter)

 

New Jersey   22-2983783

(State or other jurisdiction

of incorporation)

 

(IRS Employer

Identification No.)

 

201 Grove Road

Thorofare, NJ 08086

(Address of principal executive offices)

 

(856) 848-8698

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [  ]

 

Indicate by check mark whether the registrant has submitted electronically 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 [X]

 

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

 

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

 

As of August 9, 2019, there were 12,512,708 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 31
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk 40
     
Item 4. Controls and Procedures 40
     
PART II – OTHER INFORMATION  
     
Item 1. Legal Proceedings 41
     
Item 1A. Risk Factors 44
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 44
     
Item 3. Defaults Upon Senior Securities 44
     
Item 4. Mine Safety Disclosures 44
     
Item 5. Other Information 44
     
Item 6. Exhibits 44
     
Signatures 45

 

2
 

 

PART I - FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

AKERS BIOSCIENCES, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

June 30, 2019 and December 31, 2018

 

   As of 
   June 30, 2019   December 31, 2018 
   (unaudited)   (audited) 
ASSETS          
Current Assets          
Cash  $248,439   $181,755 
Marketable Securities   4,020,498    5,272,998 
Trade Receivables, net   266,860    176,326 
Deposits and other receivables   -    9,347 
Inventories, net   544,241    585,267 
Prepaid expenses   169,591    444,435 
           
Total Current Assets   5,249,629    6,670,128 
           
Non-Current Assets          
Prepaid expenses   267,569    298,256 
Restricted Cash   115,094    500,000 
Property, Plant and Equipment, net   68,481    83,456 
Intangible Assets, net   223,407    243,411 
Other Assets   7,672    12,002 
           
Total Non-Current Assets   682,223    1,137,125 
           
Total Assets  $5,931,852   $7,807,253 
           
LIABILITIES          
Current Liabilities          
Trade and Other Payables   1,617,718    1,973,500 
           
Total Liabilities   1,617,718    1,973,500 
           
Commitments and Contingencies          
           
SHAREHOLDERS’ EQUITY          
Convertible Preferred Stock, No par value, 50,000,000 shares authorized, 0 and 0 shares issued and outstanding as of June 30, 2019 and December 31, 2018   -    - 
Common Stock, No par value, 500,000,000 shares authorized, 12,508,958 and 12,482,708 issued and outstanding as of June 30, 2019 and December 31, 2018   121,699,375    121,554,547 
Accumulated Other Comprehensive Income (Loss)   21,489    (25,913)
Accumulated Deficit   (117,406,730)   (115,694,881)
           
Total Shareholders’ Equity   4,314,134    5,833,753 
           
Total Liabilities and Shareholders’ Equity  $5,931,852   $7,807,253 

 

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

 

3
 

 

AKERS BIOSCIENCES, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations and Comprehensive Loss

For the Three and Six Months Ended June 30, 2019 and 2018

(unaudited)

 

   For the Three Months
Ended June 30,
   For the Six Months
Ended June 30,
 
   2019   2018   2019   2018 
                 
Product Revenue  $464,513   $526,601   $1,076,634   $829,076 
Product Cost of Sales   (219,864)   (302,826)   (465,801)   (600,326)
Gross Income   244,649    223,775    610,833    228,750 
                     
Administrative Expenses   981,309    1,565,602    1,964,265    2,481,134 
Sales and Marketing Expenses   14,139    469,469    163,979    969,620 
Compliance, Research and Development Expenses   60,909    259,124    149,300    699,094 
Litigation Settlement Expenses   -    -    75,000    - 
Amortization of Non-Current Assets   10,002    42,777    20,004    85,554 
                     
Loss from Operations   (821,710)   (2,113,197)   (1,761,715)   (4,006,652)
                     
Other (Income)/Expenses                    
Foreign Currency Transaction Loss   219    3,029    4,878    5,905 
Loss on Investments   543    4,400    4,258    4,401 
Interest and Dividend Income   (27,581)   (53,173)   (59,002)   (89,514)
Total Other Income   (26,819)   (45,744)   (49,866)   (79,208)
                     
Loss Before Income Taxes   (794,891)   (2,067,453)   (1,711,849)   (3,927,444)
                     
Income Tax Benefit   -    -    -    - 
                     
Net Loss   (794,891)   (2,067,453)   (1,711,849)   (3,927,444)
                     
Other Comprehensive Gain/(Loss)                    
Net Unrealized Gain/(Loss) on Marketable Securities   18,059    4,401    47,402    (12,443)
Total Other Comprehensive Gain/(Loss)   18,059    4,401    47,402    (12,443)
                     
Comprehensive Loss  $(776,832)  $(2,063,052)  $(1,664,447)  $(3,939,887)
                     
Basic and Diluted loss per common share  $(0.06)  $(0.18)  $(0.14)  $(0.38)
                     
Weighted average basic and diluted common shares outstanding   12,500,923    11,656,788    12,492,115    10,293,569 

 

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

 

4
 

 

AKERS BIOSCIENCES, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Changes in Shareholders’ Equity

(unaudited)

 

   For the Six Months Ended June 30, 2019 
   Preferred       Common               Accumulated     
   Shares       Shares               Other     
   Issued and   Preferred   Issued and   Common   Deferred   Accumulated   Comprehensive   Total 
   Outstanding   Stock   Outstanding   Stock   Compensation   Deficit   Income/(Loss)   Equity 
                                 
Balance at December 31, 2018 (audited)              -   $-    12,482,708   $121,554,547   $            -   $(115,694,881)  $(25,913)  $5,833,753 
                                         
Net loss   -    -    -    -    -    (916,958)   -    (916,958)
Issuance of unrestricted stock to a key employee   -    -    15,000    15,874    -    -    -    15,874 
Issuance of restricted stock units to directors for services   -    -    -    3,906    -    -    -    3,906 
Net unrealized gain on marketable securities   -    -    -    -    -    -    29,343    29,343 
                                         
Balance at March 31, 2019 (unaudited)   -    -    12,497,708    121,574,327    -    (116,611,839)   3,430    4,965,918 
Net loss   -    -    -    -    -    (794,891)   -    (794,891)
Issuance of unrestricted stock to a key employee   -    -    11,250    6,570    -    -    -    6,570 
Issuance of restricted stock units to directors for services   -    -    -    118,478    -    -    -    118,478 
Net unrealized gain on marketable securities   -    -    -    -    -    -    18,059    18,059 
                                         
Balance at June 30, 2019 (unaudited)   -    -    12,508,958    121,699,375    -    (117,406,730)   21,489    4,314,134 

 

   For the Six Months Ended June 30, 2018 
   Preferred       Common               Accumulated     
   Shares       Shares               Other     
   Issued and   Preferred   Issued and   Common   Deferred   Accumulated   Comprehensive   Total 
   Outstanding   Stock   Outstanding   Stock   Compensation   Deficit   Income/(Loss)   Equity 
                                 
Balance at December 31, 2017 (audited)   1,755   $1,755,000    5,534,692   $110,647,169   $(3,469)  $(104,845,847)  $            -   $7,552,853 
                                         
Net loss   -    -    -    -    -    (1,859,991)   -    (1,859,991)
Exercise of warrants for common stock   -    -    3,811,509    5,717,325    -    -    -    5,717,325 
Conversion of preferred stock to common stock   (1,755)   (1,755,000)   1,464,930    1,755,000    -    -    -    - 
Amortization of deferred compensation   -    -    -    -    3,469    -    -    3,469 
Issuance of unrestricted stock to a key employee   -    -    3,125    5,175    -    -    -    5,175 
Issuance of non-qualified stock options to key employees   -    -    -    2,712    -    -    -    2,712 
Issuance of restricted stock for services to non-employees   -    -    -    12,545    -    -    -    12,545 
Net unrealized loss on marketable securities   -    -    -    -    -    -    (16,843)   (16,843)
                                         
Balance at March 31, 2018 (unaudited)   -    -    10,814,256    118,139,926    -    (106,705,838)   (16,843)   11,417,245 
Net loss   -    -    -    -    -    (2,067,453)   -    (2,067,453)
Exercise of warrants for common stock   -    -    966,506    1,437,875    -    -    -    1,437,875 
Conversion of preferred stock to common stock   -    -    -    -    -    -    -    - 
Amortization of deferred compensation   -    -    -    -    -    -    -    - 
Issuance of unrestricted stock to a key employee   -    -    -    -    -    -    -    - 
Issuance of non-qualified stock options to key employees   -    -    -    2,742    -    -    -    2,742 
Issuance of restricted stock for services to non-employees   -    -    -    -    -    -    -    - 
Net unrealized loss on marketable securities   -    -    -    -    -    -    4,400    4,400 
                                         
Balance at June 30, 2018 (unaudited)   -    -    11,780,762    119,580,543    -    (108,773,291)   (12,443)   10,794,809 

 

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

 

5
 

 

AKERS BIOSCIENCES, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

For the Six Months Ended June 30, 2019 and 2018

(unaudited)

 

   For the Six Months Ended June 30, 
   2019   2018 
         
Cash flows from operating activities          
Net loss  $(1,711,849)  $(3,927,444)
Adjustments to reconcile net loss to net cash used in operating activities:          
Accrued income on marketable securities   3,514    (16,332)
Depreciation and amortization   34,979    112,903 
Reserve for obsolete inventory   -    32,283 
Reserve for doubtful accounts   4,247    97,000 
Loss on sales of securities   4,258    - 
Amortization of deferred compensation   -    3,469 
Share based compensation to employees - options   -    5,454 
Share based compensation to an employee   22,444    - 
Share based compensation to directors - restricted stock units   122,384    5,175 
Share based compensation to non-employees - restricted stock   -    12,545 
Changes in assets and liabilities:          
(Increase)/decrease in trade receivables   (94,781)   455,048 
(Increase)/decrease in deposits and other receivables   9,347    (43,941)
(Increase)/decrease in inventories   41,026    (99,220)
(Increase)/decrease in prepaid expenses   305,531    (521,676)
Decrease in other assets   4,330    - 
Increase/(decrease) in trade and other payables   (355,782)   66,844 
Net cash used in operating activities   (1,610,352)   (3,817,892)
           
Cash flows from investing activities          
Purchases of property, plant and equipment   -    (37,698)
Purchases of marketable securities   (62,516)   (5,268,754)
Proceeds from sale of marketable securities   1,354,646    2,306,675 
Net cash provided by/(used in) investing activities   1,292,130    (2,999,777)
           
Cash flows from financing activities          
Net proceeds from exercise of warrants for common stock   -    7,155,200 
Net cash provided by financing activities   -    7,155,200 
           
Net increase/(decrease) in cash and restricted cash   (318,222)   337,531 
Cash and restricted cash at beginning of period   681,755    438,432 
Cash and restricted cash at end of period  $363,533   $775,963 
           
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  $47,402   $(12,443)
Conversion of Series B Preferred Stock to common shares  $-   $1,755,000 

 

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

 

6
 

 

AKERS BIOSCIENCES, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

 

Note 1 – Organization and Description of Business

 

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

 

On November 7, 2018, the Company announced its intention to explore strategic alternatives in order to maximize shareholder value. As announced, this process will consider a range of potential strategic alternatives including, but not limited to, business combinations, while simultaneously supporting the Company’s management and employees in the execution of the Company’s current business activities.

 

Furthermore, the Company has undertaken steps to reduce its expenses, including reducing the number of personnel, reducing its office footprint, eliminating services from non-critical vendors and has withdrawn its shares from registration on the AIM exchange in the United Kingdom.

 

The Company’s medical device business has as its current focus the production and sale of disposable diagnostic testing devices that can be performed in minutes, to facilitate time sensitive therapeutic decisions. The Company’s principal products are a rapid test detecting the antibody causing an allergic reaction to Heparin, breath alcohol detectors used for health and safety and a consumer product used to screen for levels of cholesterols.

 

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, 2018 and 2017 included in the Company’s 2018 Form 10-K, as filed on April 1, 2019. In the opinion of the management, these condensed consolidated financial statements include all adjustments, consisting of only normal recurring nature, necessary for a fair statement of the financial position of the Company as of June 30, 2019 and its results of operations and cash flows for the three and six months ended June 30, 2019 and 2018. The results of operations for the three and six months ended June 30, 2019 are not necessarily indicative of the results to be expected for the full fiscal year ending December 31, 2019.

 

The Company is an emerging growth company as the term is used in The Jumpstart Our Business Startups Act enacted on April 5, 2012 and has elected to comply with certain reduced public company reporting requirements.

 

  (b) Use of Estimates and Judgments

 

The preparation of financial statements in conformity with US GAAP requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected. Information about significant areas of estimation, uncertainty and critical judgments in applying accounting policies that have the most significant effect on the amounts recognized in the financial statements is included in the following notes for revenue recognition, allowances for doubtful accounts, inventory write-downs, impairment of intangible assets and valuation of share-based payments.

 

7
 

 

AKERS BIOSCIENCES, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

 

Note 2 - Significant Accounting Policies, continued

 

  (c) Functional and Presentation Currency

 

These condensed consolidated financial statements are presented in U.S. Dollars, which is the Company’s functional currency. All financial information presented in U.S. Dollars has been rounded to the nearest dollar. Foreign Currency Transaction Gains or Losses, resulting from 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 3 months from date of deposit) that are not restricted as to withdrawal date or use, to be cash equivalents.

 

  (f) Restricted Cash

 

At June 30, 2019, restricted cash included in non-current assets on the Company’s 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 SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

 

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 SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

 

Note 2 - Significant Accounting Policies, continued

 

Following is a description of the valuation methodologies used for assets measured at fair value as of June 30, 2019 and December 31, 2018.

 

U.S. Agency Securities: Valued using pricing models maximizing the use of observable inputs for similar securities. This includes basing value on yields currently available on comparable securities of issuers with similar credit ratings.

 

   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) 
Marketable securities at June 30, 2019  $                -   $4,020,498   $                      - 
                
Marketable securities at December 31, 2018  $-   $5,272,998   $- 

 

Marketable securities include U.S. agency securities, which are classified as available for sale. The securities are valued at fair market value. Maturities of the securities are less than one year. Unrealized gains and losses relating to the available for sale investment securities were recorded in the Condensed Consolidated Statement of Changes in Shareholders’ Equity as comprehensive (loss) income. These amounts were $18,059 and $47,402 in unrealized gain for the three and six months ended June 30, 2019 and a decrease of $4,401 and an increase of $12,443 in unrealized loss for the three and six months ended June 30, 2018, respectively.

 

Gains and losses resulting from the sales of marketable securities were a loss of $543 and $4,400 for the three months ended June 30, 2019 and 2018, and a loss of $4,258 and $4,401 for the six months ended June 30, 2019 and 2018, respectively.

 

Proceeds from the sale of marketable securities in the three and six months ended June 30, 2019 were $502,126 and $1,354,646, respectively and in the three and six months ended June 30, 2018 were $2,004,580 and $2,306,675, respectively.

 

  (h) Trade Receivables and Allowance for Doubtful Accounts

 

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

 

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

 

As of June 30, 2019 and December 31, 2018, allowances for doubtful accounts for trade receivables were $605,848 and $606,835. Bad debt expenses for trade receivables were $0 and $125,500 for the three months ended June 30, 2019 and 2018, respectively and $4,247 and $125,500 for the six months ended June 30, 2019 and 2018, respectively.

 

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Notes to Condensed Consolidated Financial Statements

 

Note 2 - Significant Accounting Policies, continued

 

  (i) Concentrations

 

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

 

Major Customers

 

For the three months ended June 30, 2019, three customers generated 42%, 20%, and 19% or 81% in the aggregate, of the Company’s revenue. For the six months ended June 30, 2019, two customers generated 44% and 34%, or 78% in the aggregate, of the Company’s revenue.

 

For the three months ended June 30, 2018, three customers generated 33%, 27%, and 12%, or 72% in aggregate, of the Company’s revenue. For the six months ended June 30, 2018, two customers generated 49% and 17%, or 66% in the aggregate, of the Company’s revenue.

 

Two customers accounted for 53% and 23%, or 76% in the aggregate, of gross trade receivables, before accounting for allowance for doubtful accounts, as of June 30, 2019. As of June 30, 2019, the Company had $458,902 and $201,330 in trade receivables, respectively, from these customers. These concentrations make the Company vulnerable to a near-term severe impact should these relationships be terminated. The largest of these customer balances was fully reserved as of June 30, 2019, and on June 21, 2019, this customer filed suit against the Company (see note 7).

 

Two customers accounted for 59% and 14%, or 73% in the aggregate, of gross trade receivables, before accounting for allowance for doubtful accounts, as of December 31, 2018. As of December 31, 2018, the Company had $458,902 and $111,037 in trade receivables, respectively, from these customers. These concentrations make the Company vulnerable to a near-term severe impact should these relationships be terminated. The largest of these customer balances was fully reserved as of December 31, 2018, and on June 21, 2019, this customer filed suit against the Company (see note 7).

 

To limit such risks, the Company performs ongoing credit evaluations of its customers’ financial condition.

 

Major Suppliers

 

For the three months ended June 30, 2019, two suppliers accounted for 66% and 10%, or 76%, in the aggregate, of the Company’s purchases. For the six months ended June 30, 2019, one supplier accounted for 50%, of the Company’s purchases.

 

For the three months ended June 30, 2018, two suppliers accounted for 13% and 11%, or 24% in the aggregate, of the Company’s purchases. For the six months ended June 30, 2018, no supplier accounted for 10% or more of the Company’s purchases.

 

Three vendors accounted for 70% in the aggregate, of trade payables as of June 30, 2019. As of June 30, 2019, the Company had $180,114, $123,000, and $116,206 in trade payables, respectively, to these vendors.

 

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Notes to Condensed Consolidated Financial Statements

 

Note 2 - Significant Accounting Policies, continued

 

  (j) Property, Plant and Equipment

 

Items of property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses. Costs include expenditures that are directly attributable to the acquisition of the asset.

 

Gains and losses on disposal of an item of property, plant and equipment are determined by comparing the proceeds from disposal with the carrying amount of property, plant and equipment and are recognized within “other income” in the Condensed Consolidated Statement of Operations and Comprehensive Loss.

 

Depreciation is recognized in profit and loss on the accelerated basis over the estimated useful lives of the property, plant and equipment. Leased assets are depreciated over the shorter of the lease term or their useful lives.

 

Depreciation expense totaled $9,542 and $13,675 for the three months ended June 30, 2019 and 2018, respectively and $14,975 and $27,350 for the six months ended June 30, 2019 and 2018, respectively.

 

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Notes to Condensed Consolidated Financial Statements

 

Note 2 - Significant Accounting Policies, continued

 

  (k) 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 our condensed consolidated statements of operations and comprehensive loss.

 

Intangible assets as of June 30, 2019 and December 31, 2018 were $223,407 and $243,411, respectively. Intangible assets at June 30, 2019 consisted of patents, trademarks and customer lists of $3,897,635 net of accumulated amortization and impairment of $3,674,228.

 

Amortization is recognized on a straight-line basis over the estimated useful lives of intangible assets, other than goodwill, from the date that they are available for use. Amortization expense was $10,002 and $42,777 for the three months ended June 30, 2019 and 2018, respectively and $20,004 and $85,553 for the six months ended June 30, 2019 and 2018, respectively.

 

The following is an annual schedule of approximate future amortization of the Company’s intangible assets:

 

Period  Amount 
2019 (six months)  $20,004 
2020   40,008 
2021   40,008 
2022   40,008 
2023   40,008 
Thereafter   43,371 
   $223,407 

 

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Notes to Condensed Consolidated Financial Statements

 

Note 2 - Significant Accounting Policies, continued

 

  (l) Revenue Recognition

 

Beginning on January 1, 2019, the Company recognizes revenue under ASC 606, Revenue from Contracts with Customers. The core principle of the 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 our customer, which generally occurs upon delivery to the customer but can also occur when goods are shipped by the Company, depending on the shipment terms of the contract. The Company’s performance obligations are satisfied at that time.

 

The Company uses the most likely amount approach to determine the variable consideration of the transaction price in order to account for the contractual rebates and incentives that are estimated and adjusted for over time. The Company provides for rebates to its distributors. The Company had accrued for rebates and incentives of $1,000 and $23,179, as of June 30, 2019 and December 31, 2018. Accounts receivable will be reduced when the rebates are applied by the customer. The Company recognized $7,679 and $6,350 during the three months ended June 30, 2019 and 2018 and $16,377 and $43,894 for the six months ended June 30, 2019 and 2018 for rebates, which is included as a reduction of product revenue in the Condensed Consolidated Statement of Operations and Comprehensive Loss.

 

  (m) 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.

 

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Notes to Condensed Consolidated Financial Statements

 

Note 2 - Significant Accounting Policies, continued

 

  (n) Income Taxes, continued

 

Tax benefits are recognized only for tax positions that are more likely than not to be sustained upon examination by tax authorities. The amount recognized is measured as the largest amount of benefit that is greater than 50 percent likely to be realized upon settlement. A liability for “unrecognized tax benefits” is recorded for any tax benefits claimed in the Company’s tax returns that do not meet these recognition and measurement standards. As of June 30, 2019 and December 31, 2018, no liability for unrecognized tax benefits was required to be reported.

 

There is no income tax benefit for the losses for the three and six months ended June 30, 2019 and 2018 since management has determined that the realization of the net deferred assets is not assured and has created a valuation allowance for the entire amount of such tax benefits.

 

The Company’s policy for recording interest and penalties associated with tax audits is to record such items as a component of general and administrative expense. There were no amounts accrued for penalties and interest for the three and six months ended June 30, 2019 and 2018. 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.

 

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Notes to Condensed Consolidated Financial Statements

 

Note 2 - Significant Accounting Policies, continued

 

  (o) Shipping and Handling Fees and Costs

 

The Company charges actual shipping costs plus a handling fee to customers, which amounted to $9,511 and $18,739 for the three months ended June 30, 2019 and 2018 and $21,997 and $32,380 for the six months ended June 30, 2019 and 2018, respectively. These fees are classified as part of product revenue in the Condensed Consolidated Statement of Operations and Comprehensive Loss. Shipping and other related delivery costs, including those for incoming raw materials are classified as product cost of sales, which amounted to $15,660 and $37,993 for the three months ended June 30, 2019 and 2018, respectively and $27,579 and $64,937 for the six months ended June 30, 2019 and 2018, respectively.

 

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

 

Basic earnings per common share is based on the weighted average number of shares outstanding during the periods presented. Diluted earnings per share is computed using the weighted average number of common shares plus dilutive common share equivalents outstanding during the period. Potential common shares that would have the effect of increasing diluted earnings per share are considered anti-dilutive.

 

The calculation of basic and diluted loss per share for the three months ended June 30, 2019 and 2018 was based on the net loss of $794,891 and $2,067,453, respectively and $1,711,849 and $3,927,444 for the six months ended June 30, 2019 and 2018, respectively. The basic and diluted weighted average number of common shares outstanding for the three months ended June 30, 2019 and 2018 was 12,500,923 and 11,656,788, respectively and 12,492,115 and 10,293,569 for the six months ended June 30, 2019 and 2018, respectively.

 

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

 

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

 

   For the Three and Six Months Ended
June 30,
 
   2019   2018 
Stock Options   4,064    25,250 
RSUs   374,481    - 
Warrants   2,110,737    1,416,229 
Total potentially dilutive shares   2,489,282    1,441,479 

 

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Notes to Condensed Consolidated Financial Statements

 

Note 2 - Significant Accounting Policies, continued

 

  (q) Recently Issued Accounting Pronouncements

 

Recently Issued Accounting Pronouncements Adopted

 

As the Company is an emerging growth company (“EGC”), it has elected to adopt recently issued accounting pronouncements based on effective dates applicable to other than public business entities. The Company is expected to lose its EGC status on December 31, 2019 as it is the last day of the fiscal year following the fifth anniversary of the effective date of its registration statement on January 23, 2014.

 

In May 2014 and April 2016, the FASB issued ASU No. 2014-09 and ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606). The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In August 2015, FASB issued ASU 2015-14 which deferred the effective date of Update 2014-09 to annual reporting periods beginning after December 15, 2018 for entities other than public business entities, and to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period for public business entities.

 

The Company has elected to apply the modified retrospective method and the impact was determined to be immaterial on the condensed consolidated financial statements. Accordingly, the new revenue standard was applied prospectively in our condensed consolidated financial statements from January 1, 2019 forward and reported financial information for historical comparable periods will not be revised and will continue to be reported under the accounting standards in effect during those historical periods.

 

The Company has performed an analysis and identified its revenues and costs that are within the scope of the new guidance. The Company has determined that its methods of recognizing revenues will not be significantly impacted by the new guidance.

 

In June 2018, the FASB issued ASU 2018-07, Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, which expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. The guidance is effective for public business entities, certain not-for-profit entities, and certain employee benefit plans for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. For all other entities, ASU 2018-07 is effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted, but no earlier than an entity’s adoption date of Topic 606. The Company early adopted ASC 2018-07 effective January 1, 2019. There was no material impact on the Company’s condensed consolidated financial statements upon this adoption.

 

In July 2018, the FASB issued ASU No. 2018-09, Codification Improvements, to makes changes to a variety of topics to clarify, correct errors in, or make minor improvements to the Accounting Standards Codification. Certain items of the amendments in ASU 2018-09 will be effective for the Company in annual periods beginning after December 15, 2018. The adoption of ASU 2018-09 did not have a material impact on the Company’s condensed consolidated financial statements.

 

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Notes to Condensed Consolidated Financial Statements

 

Note 2 - Significant Accounting Policies, continued

 

  (q) Recently Issued Accounting Pronouncements, continued

 

Recently Issued Accounting Pronouncements Not 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. ASU 2016-02 is effective for annual reporting periods beginning after December 15, 2019, including interim periods within that reporting period, and requires a modified retrospective adoption, with early adoption permitted. The Company is currently evaluating the effect this guidance will have on its condensed consolidated financial statements and related disclosure, and anticipates the guidance to result in increases in its assets and liabilities as most of its operating lease commitments will be subject to the new standard and recognized as right-of-use assets and lease liabilities.

 

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, 2019, including interim periods within that fiscal year. The Company is currently evaluating the effect this guidance will have on its condensed consolidated financial statements and related disclosures.

 

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Notes to Condensed Consolidated Financial Statements

 

Note 3 – Recent Developments and Management’s Plans

 

On December 19, 2018, the Company announced its intent to delist from the AIM Market of the London Stock Exchange. The Company believed that due to the relatively low liquidity in the Company’s common stock, remaining listed on the AIM Market did not merit the ongoing costs and regulatory complexities associated with maintaining the AIM listing. On March 5, 2019, the Company held a special meeting of shareholders who then voted in favor of the Company delisting from the AIM Market. The delisting took effect on March 29, 2019.

 

On November 7, 2018, the Company announced that its board of directors had initiated a process to evaluate strategic alternatives to maximize shareholder value. This process will consider a range of potential strategic alternatives including, but not limited to, business combinations, while simultaneously supporting the Company’s management and employees in the execution of the Company’s current business activities. On November 19, 2018, the Company further announced that in its evaluation of strategic alternatives it will consider a range of potential strategic alternatives including, but not limited to, business combinations in sectors different than that currently engaged in, including cannabis and hemp related industries.

 

By way of a letter dated May 10, 2019, the Listing Qualifications Department of NASDAQ advised the Company that it did not comply with NASDAQ Listing Rule 5550(a)(2) for continued listing, because the Company’s common stock did not meet NASDAQ’s minimum $1.00 bid price requirement (the “Price Requirement”). The Company intends to monitor the closing bid price of the common stock and may, if appropriate, consider implementing available options to regain compliance with the Price Requirement under the NASDAQ Listing Rules.

 

Historically, the Company has relied upon public offerings and private placements of common stock to raise operating capital. As of August 9, 2019, the Company had cash and marketable securities of approximately $3.99 million (excluding restricted cash of $115,094) and working capital of approximately $3.53 million.

 

The Company anticipates that available cash and marketable securities, as well as expected cash from operations, will be sufficient to meet its obligations as they fall due within one year after these financial statements are issued.

 

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Notes to Condensed Consolidated Financial Statements

 

Note 4 – Inventories

 

Inventories are measured at the lower of cost or net realizable value. The cost of inventories is based on the weighted-average principle, and includes expenditures incurred in acquiring the inventories, production or conversion costs and other costs incurred in bringing them to their existing location and condition. In the case of manufactured inventories and work in progress, costs include an appropriate share of production overhead based on normal operating capacity.

 

Inventories consist of the following:

 

   June 30, 2019   December 31, 2018 
         
Raw Materials  $404,094   $542,761 
Sub-Assemblies   686,386    711,181 
Finished Goods   479,457    635,565 
Reserve for Obsolescence   (1,025,696)   (1,304,240)
   $544,241   $585,267 

 

Obsolete inventory charged to cost of goods was $41,849 and $7,477, during the three months ended June 30, 2019 and 2018, and $45,946 and $28,987 during the six months ended June 30, 2019 and 2018, respectively.

 

Note 5 - Trade and Other Payables

 

Trade and other payables consists of the following:

 

   June 30, 2019   December 31, 2018 
         
Trade Payables  $741,875   $686,578 
Accrued Expenses   816,093    1,227,172 
Deferred Compensation   59,750    59,750 
   $1,617,718   $1,973,500 

 

See also Note 9 for related party information.

 

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Notes to Condensed Consolidated Financial Statements

 

Note 6 - Share-based Payments

 

Equity incentive Plans

 

2013 Stock Incentive Plan

 

On January 23, 2014, the Company adopted the 2013 Stock Incentive Plan (“2013 Plan”). The 2013 Plan was amended by the Board on January 9, 2015 and September 30, 2016, and such amendments were ratified by shareholders on December 7, 2018. The 2013 Plan provides for the issuance of up to 103,750 shares of the Company’s common stock. As of June 30, 2019, grants of restricted stock and options to purchase 71,590 shares of Common Stock have been issued pursuant to the 2013 Plan, and 32,160 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 168,750 shares of the Company’s common stock. As of June 30, 2019, grants of restricted stock and options to purchase 62,282 shares of Common Stock have been issued pursuant to the 2017 Plan, and 106,468 shares of Common Stock remain available for issuance.

 

2018 Stock Incentive Plan

 

On December 7, 2018, the shareholders approved and the Company adopted the 2018 Stock Incentive Plan (“2018 Plan”). The 2018 Plan provides for the issuance of up to 1,875,000 shares of the Company’s common stock. As of June 30, 2019, grants of RSUs to purchase 374,481 shares of Common Stock have been issued pursuant to the 2018 Plan, and 1,500,519 shares of Common Stock remain available for issuance.

 

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Notes to Condensed Consolidated Financial Statements

 

Note 6 - Share-based Payments, continued

 

Stock Options

 

The following table summarizes the option activities for the six months ended June 30, 2019:

 

   Number of Shares   Weighted Average Exercise Price   Weighted Average Grant Date Fair Value   Weighted Average Remaining Contractual Term (years)   Aggregate
Intrinsic Value
 
Balance at December 31, 2018   10,502   $30.41   $17.42    1.43   $          - 
Granted   -    -    -    -    - 
Exercised   -    -    -    -    - 
Forfeited   (6,438)   33.79    23.72    0.58    - 
Canceled/Expired   -    -    -    -    - 
Balance at June 30, 2019   4,064   $25.04   $7.46    1.50   $- 
Exercisable as of June 30, 2019   4,064   $25.04   $7.46    1.50   $- 

 

The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the closing stock price of $0.45 for the Company’s common shares on June 30, 2019. As the closing stock price on June 30, 2019 is lower than the exercise price, there is no intrinsic value to disclose.

 

As of June 30, 2019, all of the Company’s outstanding stock options were fully vested and exercisable.

 

During the three months ended June 30, 2019 and 2018, the Company incurred stock option expenses totaling $0 and $2,742, respectively and $0 and $5,454 for the six months ended June 30, 2019 and 2018, respectively.

 

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Notes to Condensed Consolidated Financial Statements

 

Note 6 - Share-based Payments, continued

 

Restricted Stock Units

 

On March 29, 2019, the Compensation Committee of the Board of Directors approved the grant of 124,827 Restricted Stock Units (“RSU”) to each of the three directors. Each RSU had a grant date fair value of $0.97 which shall be 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 shall vest on January 1, 2020, with vesting accelerated upon a change of control. Upon vesting, such RSUs are settled with the issuance of common stock, including on a net of tax basis, at the discretion of the holder.

 

At June 30, 2019, the unamortized value of the RSU’s was $240,863. The unamortized amount will be expensed over the remaining period of six months. A summary of activity related to RSUs for the six months ended June 30, 2019 is presented below:

 

   Number of RSUs   Weighted Average Grant
Date Fair Value
 
Balance at December 31, 2018   -   $- 
Granted   374,481   $0.97 
Exercised   -    - 
Forfeited   -    - 
Canceled/Expired   -    - 
Balance at June 30, 2019   374,481   $0.97 
Exercisable as of June 30, 2019   -    - 

 

During the three and six months ended June 30, 2019, the Company incurred RSU expense of $118,478 and $122,384, respectively.

 

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Notes to Condensed Consolidated Financial Statements

 

Note 6 - Share-based Payments, continued

 

Stock Warrants

 

The table below summarizes the warrant activity for the period ended June 30, 2019:

 

   Number of Warrants   Weighted Average
Exercise Price
   Average Remaining Contractual Term (years)   Aggregate
Intrinsic Value
 
Balance at December 31, 2018   2,110,737   $3.10    4.21   $                - 
Granted   -    -    -    - 
Exercised   -    -    -    - 
Forfeited   -    -    -    - 
Canceled/Expired   -    -    -    - 
Balance at June 30, 2019   2,110,737   $3.10    3.71   $- 
Exercisable as of June 30, 2019   2,110,737   $3.10    3.71   $- 

 

The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the closing stock price of $0.45 for the Company’s common shares on June 30, 2019. All warrants were vested on date of grant.

 

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Notes to Condensed Consolidated Financial Statements

 

Note 7 – Equity

 

During the six months ended June 30, 2019, the Company issued 26,250 shares of Common Stock to Mr. Yeaton pursuant to his employment agreement. These shares had a fair value of $22,444 on the date of grant, of which $4,238 was recorded in trade and other payables in the consolidated balance sheet as of December 31, 2018 and $6,570 and $18,206 were recorded as expense in the condensed consolidated statement of operations and comprehensive loss for the three and six months ended June 30, 2019 and 2018, respectively.

 

Note 8 – Commitments and Contingencies

 

Lease Commitments

 

The Company leases its facility in West Deptford, New Jersey under an operating lease (“Thorofare Lease”) with annual rentals of $132,000 plus common area maintenance (CAM) charges. The lease, which took effect on January 1, 2008, reduced the CAM charges allowing the Company to reach their own agreements with utilities and other maintenance providers. On January 7, 2013, the Company extended its lease agreement for a term of 7 years, expiring December 31, 2019. Rent expense for the Thorofare Lease, including related CAM charges for the three months ended June 30, 2019 and 2018 totaled $40,955 and $40,928, respectively and $82,320 and $83,144 for the six months ended June 30, 2019 and 2018, respectively. The Company entered into a 24-month lease for a satellite office located in Ramsey, New Jersey (“Ramsey Lease”) with annual rents of $25,980 plus common area maintenance (CAM) charges. The lease took effect on June 1, 2017 and ran through May 31, 2019. Rent expenses for the Ramsey Lease, including related CAM charges totaled $6,495 and $6,495 for the three months ended June 30, 2019 and 2018, respectively, and $12,990 and $12,990 for the six months ended June 30, 2019 and 2018, respectively. The Company entered into a 29-month lease for warehouse space located in Pitman, New Jersey (“Pitman Lease”) with annual rents of $40,839. The lease took effect on August 1, 2017 and runs through December 31, 2019. Rent expenses for the Pitman Lease totaled $10,210 and $9,913 for the three months ended June 30, 2019 and 2018, and $20,420 and $19,825 for the six months ended June 30, 2019 and 2018, respectively. A security deposit of $4,950 is included in other assets on the Condensed Consolidated Balance Sheet.

 

The Company entered into a 60-month operating lease for equipment with annual rentals of $6,156 on September 29, 2014. The lease commenced on October 21, 2014 upon the delivery of the equipment.

 

The schedule of lease commitments is as follows:

 

   Thorofare   Pitman   Equipment     
   Lease   Lease   Lease   Total 
Next 6 Months  $66,000   $19,824   $3,078   $88,902 

 

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Notes to Condensed Consolidated Financial Statements

 

Note 8 – Commitments and Contingencies, continued

 

ChubeWorkx

 

On August 17, 2016, pursuant to a Settlement Agreement (the “Settlement Agreement”) with ChubeWorkx Guernsey Limited (“ChubeWorkx”), which settled all pending claims between the Company and ChubeWorkx. Specifically, the Company and ChubeWorkx agreed to voluntarily dismiss (i) the action in the United States Federal Court, District of New Jersey brought by the Company against ChubeWorkx for outstanding amounts due to the Company under a promissory note and (ii) the action in The High Court of Justice, Queen’s Bench Division Commercial Court, Royal Courts of Justice, United Kingdom brought by ChubeWorkx against the Company arising from an exclusive licensing agreement between ChubeWorkx and the Company (“Licensing Agreement”).

 

In return for the Company regaining the full rights to sell breath technology products, under the terms of the Settlement Agreement, ChubeWorkx is entitled to receive a royalty of 5% of the Company’s gross revenues (the “ChubeWorkx Royalty”) until ChubeWorkx has earned an aggregate $5,000,000, after which point ChubeWorkx will no longer be entitled to receive any royalties from the Company and the Company shall have no further obligation to ChubeWorkx. The Settlement Agreement further allows the Company to retain 50% of the ChubeWorkx Royalty until the full $549,609 cash component of the monies owed by ChubeWorkx to the Company as described above has been satisfied. The Company recorded royalty expenses of $23,520 and $27,082 for the three months ended June 30, 2019 and 2018, and $54,804 and $58,771 for the six months ended June 30, 2019 and 2018, respectively, which are included in sales and marketing expenses on the Condensed Consolidated Statement of Operations and Comprehensive Loss. As of June 30, 2019, the Company owed ChubeWorkx royalties of $11,760 which is included in trade and other payables within the condensed consolidated balance sheet.

 

Other terms of the Settlement included: 1) the pledge as security of all earned but unpaid royalties by the Company to ChubeWorkx all Company assets, worthy to satisfy its obligations, including all inventory and receivables, with the exception of (i) distribution contracts of the Company or any of its affiliates, (ii) customer lists, (iii) manufacturing processes (including all intellectual property required to use those processes and exploit products made thereby), and (iv) all equipment required to perform said manufacturing processes and other equipment; 2) the pledge as security of the settlement sum which remains unpaid by the Company to ChubeWorkx all Company (i) distribution contracts of the Company or any of its affiliates, (ii) customer lists, (iii) manufacturing processes (including all intellectual property required to use those processes and exploit products made thereby), and (iv) all equipment required to perform said manufacturing processes and other equipment; and 3) the grant of voting proxy by ChubeWorkx to the Company which allows the Company to vote ChubeWorkx’s shares for corporate formalities under certain conditions.

 

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AKERS BIOSCIENCES, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

 

Note 8 – Commitments and Contingencies, continued

 

ChubeWorkx, continued

 

The pledged assets are only at risk in the event that the Company cannot satisfy any outstanding royalty payment obligations subject to various cure periods and/or through a restructuring and/or liquidation under the United States Bankruptcy laws of the Company in favor of payment of said obligation.

 

Litigation and Settlements

 

Faulkner v. Akers Biosciences, Inc., No. 2:18-cv-10521 (D.N.J.) and Gleason v. Akers Biosciences, Inc., No. 2:18-cv-10805 (D.N.J.)

 

On June 13, 2018, Plaintiff Tim Faulkner filed a class action complaint alleging securities violations against Akers Biosciences, Inc. (“Akers”), John J. Gormally, and Gary M. Rauch (“Individual Defendants”) (together with Akers, “Defendants”) on behalf of all persons and entities who purchased publicly traded Akers securities from May 15, 2017 through June 5, 2018 (the “Faulkner Action”). The complaint alleges violations of Section 10(b) of the Exchange Act and Rule 10b-5 against all Defendants, and violations of Section 20(a) of the Exchange Act against the Individual Defendants. In particular, the complaint alleges that Defendants made false and/or misleading statements and/or failed to disclose in its first, second, and third quarter 2017 10-Qs and its 2017 10-K that: (1) Akers was improperly recognizing revenue for the fiscal year ended December 31, 2017; and, (2) Akers had downplayed weaknesses in its internal controls over financial reporting and failed to disclose the true extent of those weaknesses. On June 20, 2018, Plaintiff David Gleason filed a class action complaint under the caption Gleason v. Akers Biosciences, Inc., No. 2:18-cv-10805 (D.N.J.) based on the same allegations and causes of action (the “Gleason Action”). On November 21, 2018, the Faulkner and Gleason Actions were consolidated under the Faulkner Action docket. The parties conducted a mediation on January 10, 2019 and agreed to a settlement in principle disposing of the consolidated action as to all Defendants, including the Individual Defendants. On March 8, 2019, the parties signed a settlement agreement, subject to approval by the Court, whereby the Company agreed to pay $2,250,000 in exchange for full releases and discharge of all claims against the Company. On the same day, Lead Plaintiffs filed a motion for preliminary approval of the settlement and to establish notice procedures. On July 3, 2019, the Court granted the motion for preliminary approval and scheduled a final settlement hearing for November 8, 2019. On or about July 24, 2019, the Company’s D&O insurer sent the settlement payment of $2,250,000 to the settlement agent for the class.

 

Watts v. Gormally, et al., No. 2:18-15992 (D.N.J.)

 

On November 9, 2018, Plaintiff Cale Watts filed a verified shareholder derivative complaint alleging violations of the Securities Exchange Act of 1934, breach of fiduciary duty, unjust enrichment, and waste of corporate assets based on alleged material weaknesses in controls, management, and documentation (the “Watts Action”). On January 14, 2019, the parties reached an agreement in principle to settle the Watts Action that included corporate reforms and an attorneys’ fees payment of $200,000. The parties finalized a Stipulation of Settlement on March 4, 2019. On March 22, 2019, Plaintiffs filed a motion seeking (a) preliminary approval of the proposed Settlement, (b) approval of the proposed form and method of providing notice of the Settlement, and (c) scheduling a hearing for final approval of the settlement (the “Motion for Preliminary Approval”). On April 1, 2019, Tiffany Chan, Jasmine Henderson, and Don Danesh Wijesekera (the “Proposed Intervenors”) filed an Opposition to the Motion for Preliminary Approval, and a Motion to Intervene and Stay Proceedings (“Motion to Intervene and Stay”). Defendants’ Opposition to the Motion to Intervene and Stay is due August 20, 2019, and its Reply in further support of the Motion for Preliminary Approval is due August 27, 2019. The Motion for Preliminary Approval and the Motion to Intervene and Stay are currently returnable on September 3, 2019.

 

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AKERS BIOSCIENCES, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

 

Note 8 – Commitments and Contingencies, continued

 

Litigation and Settlements, continued

 

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

 

On February 7, 2019, Tiffany Chan, Jasmine Henderson, and Don Danesh filed a verified shareholder derivative complaint alleging violations of Section 14(a) of the Exchange Act and SEC Rule 14a-9, breach of fiduciary duty, unjust enrichment, and waste of corporate assets based on the same circumstances as the Watts Action. The Chan Action further alleges that the Company should not have settled the Watts Action because the Watts Action plaintiffs lacked standing and the settlement would cause irreparable harm to the Company and its shareholders. On April 4, 2019, the Court entered the parties’ stipulation and consent order to extend Defendants’ time to answer, move, or otherwise respond to the Complaint until 20 days after the Court (a) decides the Motion for Preliminary Approval of the Watts Settlement, (b) decides the Motion in Opposition to the Watts Settlement, (c) decides the Motion to Intervene and Stay in the Watts Action, and/or (d) stays the Watts Action.

 

Watts and Chan Matters – Potential Resolution

 

On August 12, 2019, counsel for all parties in the Watts Action and the Chan Action informed the Watts Court that they had agreed in principle to a resolution of both the Watts and Chan Actions, and expected to have finalized paperwork for the Court’s review and approval within 30-45 days. The parties have a follow-up call scheduled with the Court for October 3, 2019.

 

Faulkner, Gleason, Watts and Chan Matters

 

With respect to the Faulkner, Gleason, Watts and Chan matters, the Company maintains D&O liability insurance coverage, with a company retention of $500,000. The D&O liability insurance coverage provides insurance coverage to both the Company and the Directors and Officers for covered defense and indemnification. Through December 31, 2018, the Company recorded a cumulative charge of $500,000, representing the insurance carrier retention requirement. The insurance carrier has provided notice that it has reserved certain rights, and through the date of the filing of this Quarterly Report on Form 10-Q, the Company may incur additional costs related to these matters, the amounts of which are not able to be determined at this time.

 

Typenex Medical, LLC v. Akers Biosciences, Inc., JAMS Ref. No. 1450005929

 

On November 15, 2018, Typenex Medical LLC (“Typenex”), a telemarketing entity with whom the Company had entered into a marketing and commission agreement dated September 30, 2016 (the “Marketing Contract”), filed an arbitration against the Company before JAMS ADR (the “Arbitration”), and an arbiter was appointed to the Arbitration on December 14, 2018. In the Arbitration, Typenex stated that was seeking “at least” $220,500 based on the allegation that the Marketing Contract entitles Typenex to a commission on sales of certain of the Company’s heparin-related products in the period two years from the Marketing Contract’s expiration, and in the alternative, Typenex was seeking relief for breach of the implied covenant of good faith and fair dealing, and/or unjust enrichment.

 

On July 19, 2019, the Company and Typenex executed a settlement agreement. Pursuant to the settlement agreement, the Company agreed to pay Typenex $50,000 in cash and to issue 40,000 shares of the Company’s common stock. As of June 30, 2019, $66,800 is included in accrued expenses within the condensed consolidated balance sheets for this settlement.

 

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

 

On June 21, 2019, the Company received a complaint, filed by Novotek Therapeutics Inc., and Novotek Pharmaceuticals Limited (collectively, “Novotek”), Beijing-based entities, in the United States District Court for the District of New Jersey, alleging, among other things, breach of contract. Novotek is seeking, among other things, damages in the amount of $1,551,562, plus interest, disbursements and attorneys’ fees. The Company vigorously disputes the allegations in the complaint and has retained counsel to defend it. The Company is not yet able to determine the amount of the Company’s exposure, if any.

 

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AKERS BIOSCIENCES, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

 

Note 8 – Commitments and Contingencies, continued

 

Litigation and Settlements, continued

 

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

 

On July 25, 2019, the Company was notified that on July 23, 2019, a complaint was filed by Neelima Varma, against the Company and St. David’s Healthcare Partnership, L.P., LLP (“St. David’s”), in the district court of Travis County, Texas, alleging, among other things, negligence, gross negligence and strict product liability, breach of express warranty, breach of implied warranty and fraudulent misrepresentation and omission, with respect to a medical device which the Company had sold through one its distributors to St. David’s. Ms. Varma is seeking aggregate monetary relief from the Company and St. David’s in excess of $1,000,000. The Company carries product liability insurance. The insurance carrier has provided notice that it has reserved certain rights. The Company and its insurance carrier will contest this complaint vigorously. The Company believes that its product liability insurance coverage will be adequate to cover the potential exposure for this matter.

 

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

 

Douglas Carrara, a former executive, has sued the Company over the termination of his employment. The executive seeks contractual severance pay in the amount of $200,000. The executive asserts that the termination was without cause within the meaning of his employment agreement, which provides for severance of one year’s salary in the event of termination without cause. The executive also seeks indemnification for approximately $8,000 in attorneys’ fees that he contends he incurred in regard to company business. With regard to both claims, the executive seeks to recover his attorneys’ fees under a fee-shifting provision in his employment agreement.

 

The Company’s answer to the complaint is due August 28, 2019. With respect to this matter, the Company believes that the ultimate liability from the resolution of this matter will not be material to the Company’s condensed consolidated financial statements.

 

Other

 

A former executive has threatened to sue the Company over the termination of the executive’s employment. The executive contends that the termination was in retaliation for complaints to the employer protected under the California whistleblower protection laws. The executive also contends that the Company failed to pay a bonus in violation of an employment contract. The Company’s management and legal counsel believes it is too early to determine the probable outcome of this matter.

 

The Company intends to establish a rigorous defense of all claims. All legal fees were expensed as and when incurred.

 

Note 9 – Related Parties

 

CEO and Interim CFO

 

Effective on October 5, 2018, the Board appointed Howard R. Yeaton, to serve as the Chief Executive Officer and interim Chief Financial Officer of the Company. Mr. Yeaton is the managing principal of FCS and the Company’s relationship with FCS shall continue, with FCS continuing to provide accounting services to the Company. FCS is considered to be a related party. During the three and six months ended June 30, 2019, the Company incurred costs of $0 and $23,506 with FCS in connection with these services. As of June 30, 2019, the Company owed FCS $52,913 which is included in trade and other payables on the Condensed Consolidated Balance Sheet.

 

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AKERS BIOSCIENCES, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

 

Note 10 – Revenue Information

 

Revenue by product lines was as follows:

 

   Three Months Ended   Six Months Ended 
   June 30,   June 30, 
Product Line  2019   2018   2019   2018 
MicroParticle Catalyzed Biosensor (“MPC”)  $65,344   $106,680   $88,664   $125,630 
Particle ImmunoFiltration Assay (“PIFA”)   304,658    356,082    880,973    616,066 
Rapid Enzymatic Assay (“REA”)   85,000    45,100    85,000    55,000 
Other   9,511    18,739    21,997    32,380 
Total Revenue  $464,513   $526,601   $1,076,634   $829,076 

 

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

 

   Three Months Ended   Six Months Ended 
   June 30,   June 30, 
Geographic Region  2019   2018   2019   2018 
United States  $447,013   $462,383   $1,059,134   $757,116 
Rest of World   17,500    64,218    17,500    71,960 
Total Revenue  $464,513   $526,601   $1,076,634   $829,076 

 

The Company had long-lived assets totaling $13,097 and $14,294 located in the People’s Republic of China and $278,791 and $312,573 located in the United States as of June 30, 2019 and December 31, 2018, respectively.

 

Note 11 – Employee Benefit Plan

 

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

 

During the three months ended June 30, 2019 and 2018, the Company made matching contributions to the 401(k) Plan of $7,425 and $15,314, respectively and $16,888 and $29,116 for the six months ended June 30, 2019 and 2018, respectively.

 

Note 12 – Subsequent Event

 

Pursuant to an unsecured promissory note dated July 4, 2019, on July 25, 2019 the Company advanced $100,000 to a company in the hemp related industry with which the Company has been considering for a potential business transaction. The loan bears interest at a rate of 8% per annum, and is payable in full on October 2, 2019.

 

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

 

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

 

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

 

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

 

Overview

 

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

 

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

 

Akers believes that low-cost, single-use testing not only saves time and money, but allows for more frequent, near-patient testing which may save lives. We believe that our FDA-cleared rapid diagnostic tests help facilitate targeted diagnoses and real-time treatment.

 

Key Events, Management’s Plans and Basis of Presentation

 

Board’s Evaluation of Strategic Alternatives

 

On November 7, 2018, the Company announced that its Board of Directors had initiated a process to evaluate strategic alternatives to maximize shareholder value. This process is ongoing and is considering a range of potential strategic alternatives including, but not limited to, business combinations, while simultaneously supporting the Company’s management and employees in the execution of the Company’s current business activities. On November 19, 2018, the Company further announced that in its evaluation of strategic alternatives it will consider a range of potential strategic alternatives including, but not limited to, business combinations in sectors different than that currently engaged in, including cannabis and hemp related industries. There can be no assurance that the exploration of strategic alternatives will result in any transaction or other alternative.

 

31
 

 

Further to the Company’s pursuit of strategic alternatives, pursuant to an unsecured promissory note dated July 4, 2019, on July 25, 2019 the Company advanced $100,000 to a company in the hemp related industry with which the Company has been considering a potential business transaction. The loan bears interest at a rate of 8% per annum, and is payable in full on October 2, 2019.

 

Delisting from AIM

 

On December 19, 2018, the Company announced its intent to delist from the AIM Market of the London Stock Exchange. The Company believed that due to the relatively low liquidity in the Company’s common stock, reaming listed does not merit the ongoing costs and regulatory complexities associated with maintaining the AIM listing. On March 5, 2019, the Company held a special meeting of shareholders who then voted in favor of the Company delisting from the AIM Market. The delisting took effect on March 29, 2019.

 

Board Compensation

 

On March 29, 2019, the Compensation Committee of the Board of Directors approved Board compensation, payable as follows. Lump sum of $64,000 to be paid to each of directors Schreiber and White and a lump sum of $56,000 to be paid to director Silverman. Such amounts were paid during April 2019. Beginning for the month of April 2019, each director shall be paid $8,000 per month. Further, each director was granted 124,827 Restricted Stock Units (“RSUs”). Such RSUs shall vest on January 1, 2020, with vesting accelerated upon a change of control. Such RSUs shall be settled in shares of common stock, including on a net of tax basis, at the discretion of the holder.

 

NASDAQ Notice

 

By way of a letter dated May 10, 2019, the Listing Qualifications Department of NASDAQ advised the Company that it did not comply with NASDAQ Listing Rule 5550(a)(2) for continued listing, because the Company’s Common stock did not meet NASDAQ’s minimum $1.00 bid price requirement (the “Price Requirement”). The Company intends to monitor the closing bid price of the Common Stock and may, if appropriate, consider implementing available options to regain compliance with the Price Requirement under the NASDAQ Listing Rules.

 

Summary of Statements of Operations for the Three Months Ended June 30, 2019 and 2018

 

Revenue

 

Akers’ revenue for the three months ended June 30, 2019 totaled $464,513, a 12% decrease from the same period in 2018. The table below summarizes our revenue by product line for the three months ended June 30, 2019 and 2018, as well as the percentage of change year-over-year:

 

 

For the Three Months Ended June 30,

   
Product Lines  2019   2018   Percent Change 
             
Particle ImmunoFiltration Assay (“PIFA”)  $304,658   $356,082    (14)%
MicroParticle Catalyzed Biosensor (“MPC”)   65,344    106,680    (39)%
Rapid Enzymatic Assay (“REA”)   85,000    45,100    88%
Other   9,511    18,739    (49)%
Total Revenue  $464,513   $526,601    (12)%

 

32
 

 

Revenue from the Company’s PIFA products decreased 14% to $304,658 (2018: $356,082) during the three months ended June 30, 2019, as compared to the same period of 2018. The decrease in the 2019 quarter was principally attributable to a larger new customer order in 2018 which was not repeated in the 2019 quarter.

 

Aker’s largest U.S. distribution partners are Cardinal Health and Thermo Fisher Scientific. Domestic net sales for the three months ended June 30, 2019 for these two distributors accounted for $284,714 of the total PIFA related product revenue as compared to $185,263 for the same period of 2018.

 

The Company’s MPC product sales decreased by 39% to $65,344 (2018: $106,680) during the three months ended June 30, 2019. The sales decrease was principally attributable to the loss of a customer who had a large order in the 2018 quarter.

 

The Company’s REA products generated $85,000 (2018: $45,100) during the three months ended June 30, 2019. The increase was attributable to a significant order by a large customer.

 

Other revenue decreased to $9,511 (2018: $18,739) during the three months ended June 30, 2019 due to a decline in shipping/handling revenue. The category is made up principally of shipping and handling charges.

 

Gross Margin

 

The Company’s gross profit percentage improved to 53% (2018: 42%), and the gross margin improved to $244,649 (2018: $223,775) for the three months ended June 30, 2019, principally due to our focus on a more narrowed and higher margin product lineup. Furthermore, improvements in gross margin were attributable to cost reductions, including reduced headcount.

 

Cost of sales for the three months ended June 30, 2019 decreased to $219,864 (2018: $302,826) on account of lower revenues, as well as on account of the aforementioned production efficiencies and headcount reductions.

 

Administrative Expenses

 

Administrative expenses for the three months ended June 30, 2019, totaled $981,309, which was a 37% decrease as compared to $1,565,602 for the three months ended June 30, 2018.

 

The table below summarizes our administrative expenses for the three months ended June 30, 2019 and 2018 as well as the percentage of change year-over-year:

 

  

For the Three Months Ended June 30,

   Percent Change 
Description  2019   2018     
Personnel Costs  $169,960   $192,792    (12)%
Professional Service Costs   345,282    927,812    (63)%
Stock Market & Investor Relations Costs   63,407    145,771    (57)%
Other Administrative Costs   402,660    299,227    35%
Total Administrative Expense  $981,309   $1,565,602    (37)%

 

Personnel expenses decreased by 12% for the three months ended June 30, 2019 as compared to the same period of 2018 on account of a reduction in administrative headcount to four as of June 30, 2019, as compared to five as of June 30, 2018.

 

33
 

 

Professional service costs decreased 63% for the three months ended June 30, 2019 as compared to the same period of 2018, principally on account of reduced legal fees ($368,405 (2018: $605,175)) and a decrease in accounting and audit expenses (($25,160) (2018: $236,042)). The higher costs in 2018 were principally attributable to the investigation and restatement of the financial statements, and certain litigation defense costs.

 

Stock market and investor fees decreased 57% for the three months ended June 30, 2019. The decrease in these fees was principally associated with the Company having delisted from the London Stock Exchange during the first quarter of 2019, and thereafter avoiding the costs associated with a presence on the London Stock Exchange.

 

Other administrative expenses increased by 35%, principally attributable to increased business insurance costs, $128,411 (2018: $52,053) and Director’s fees and expenses $190,478 (2018: $600).

 

Sales and Marketing Expenses

 

Sales and marketing expenses for the three months ended June 30, 2019 totaled $14,139 which was a 97% decrease compared to $469,469 for the three months ended June 30, 2018.

 

The table below summarizes our sales and marketing expenses for the three months ended June 30, 2019 and 2018 as well as the percentage of change year-over-year:

 

   For the Three Months Ended June 30,     
Description  2019   2018   Percent Change 
Personnel Costs  $(114)  $266,889    (100)%
Professional Service Costs   10,712    69,065    (84)%
Royalties and Outside Commission Costs   (2,709)   69,983    (104)%
Other Sales and Marketing Costs   6,250    63,532    (90)%
Total Sales and Marketing Expenses  $14,139   $469,469    (97)%

 

During the first quarter of 2019, as part of our cost savings measures, we eliminated the personnel within the sales and marketing departments, including employees, consultants and third party related representatives.

 

Personnel expenses decreased by 100% for the three months ended June 30, 2019 as compared to the same period of 2018 on account of the reduction in the Sales and Marketing headcount to zero as of June 30, 2019, as compared to five as of June 30, 2018.

 

Professional service costs decreased 84% for the three months ended June 30, 2019, as compared to the same period of 2018, principally on account of reductions in the services provided by third party vendors.

 

Royalties and outside commission costs decreased by 104%, on account of the elimination of independent sales representatives (“ISRs).

 

Other Sales and Marketing Costs declined to $6,250 (2018: $63,532) principally due to the reductions in travel and entertainment for the sales and marketing personnel.

 

Compliance, Research and Development Expenses

 

Compliance, research and development expenses for the three months ended June 30, 2019 totaled $60,909, which was a 76% decrease as compared to $259,124 for the three months ended June 30, 2018.

 

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The table below summarizes our compliance, research and development expenses for the three months ended June 30, 2019 and 2018 as well as the percentage of change year-over-year:

 

   For the Three Months Ended June 30,     
Description  2019   2018   Percent Change 
Personnel Costs  $59,237   $176,202    (66)%
Clinical Trial Costs   -    575    (100)%
Professional Service Costs   1,299    48,620    (97)%
Other Compliance, Research and Development Costs   373    33,727    (99)%
Total Compliance, Research and Development Expenses  $60,909   $259,124    (76)%

 

During the second half of 2018, we eliminated the research and development functions of the company in connection with focusing the business on current products and reducing costs.

 

Personnel expenses decreased by 66% for the three months ended June 30, 2019 as compared to the same period of 2018 due to a reduction in the headcount to three as of June 30, 2019, as compared to ten as of June 30, 2018. With these staff reductions, we eliminated the research & development functions, with the remaining personnel maintaining regulatory and quality assurance (compliance) functions.

 

Professional service costs, principally third party engineering costs, declined by 97% for the three months ended June 30, 2019, as compared to the same period of 2018, principally on account of the elimination of research & development activities.

 

Other compliance, research and development costs declined by 99%, for the three months ended June 30, 2019, as compared to the same period of 2018, principally on account of reduction in research and development activities, as discussed above.

 

Other Income and Expense

 

Other income, net of expense, for the three months ended June 30, 2019 totaled $26,819 as compared to $45,744 for the three months ended June 30, 2018.

 

The table below summarizes our other income and expenses for the three months ended June 30, 2019 and 2018 as well as the percentage of change year-over-year:

 

   For the Three Months Ended June 30,     
Description  2019   2018   Percent Change 
Currency Translation Loss  $(219)  $(3,029)   93%
Realized Gains on Investments   (543)   (4,400)   88%
Interest and Dividend Income   27,581    53,173    (48)%
Total Other Income, Net of Expenses  $26,819   $45,744    (41)%

 

Summary of Statements of Operations for the Six Months Ended June 30, 2019 and 2018

 

Revenue

 

Akers’ revenue for the six months ended June 30, 2019 totaled $1,076,634, a 30% increase from the same period in 2018. The table below summarizes our revenue by product line for the six months ended June 30, 2019 and 2018, as well as the percentage of change year-over-year:

 

   For the Six Months Ended June 30,     
Product Lines  2019   2018   Percent Change 
             
Particle ImmunoFiltration Assay (“PIFA”)  $880,973   $616,066    43%
MicroParticle Catalyzed Biosensor (“MPC”)   88,664    125,630    (29)%
Rapid Enzymatic Assay (“REA”)   85,000    55,000    55%
Other   21,997    32,380    (32)%
Total Revenue  $1,076,634   $829,076    30%

  

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Revenue from the Company’s PIFA products increased 43% to $880,973 (2018: $616,066) during the six months ended June 30, 2019, as compared to the same period of 2018. The increase was attributable to product supply issues encountered in the first two quarters of 2018 that were not experienced in the 2019 periods.

 

Aker’s largest U.S. distribution partners are Cardinal Health and Thermo Fisher Scientific. Domestic net sales for the six months ended June 30, 2019 for these two distributors accounted for $831,989 of the total PIFA related product revenue as compared to $394,734 for the same period of 2018.

 

The Company’s MPC product sales decreased by 29% to $88,664 (2018: $125,630) during the six months ended June 30, 2019. The sales decrease was principally attributable to the loss of a customer who had a large order in the 2018 quarter.

 

The Company’s REA products generated $85,000 (2018: $55,000) during the six months ended June 30, 2019, principally on account of a large order by a customer during the 2019 period.

 

Other revenue decreased to $21,997 (2018: $32,380) during the six months ended June 30, 2019 due to a decline in shipping/handling revenue. The category is made up principally of shipping and handling charges.

 

Gross Margin

 

The Company’s gross profit percentage improved to 57% (2018: 28%), and the gross margin improved to $610,833 (2018: $228,750) for the six months ended June 30, 2019, principally due to our focus on a more narrowed and higher margin product lineup. Furthermore, improvements in gross margin were attributable to cost reductions, including reduced headcount, as well as a higher level of revenues against production fixed costs, such as for rent and supervisory personnel.

 

Cost of sales for the six months ended June 30, 2019 decreased to $465,801 (2018: $600,326) on account of the aforementioned production efficiencies and headcount reductions.

 

Administrative Expenses

 

Administrative expenses for the six months ended June 30, 2019, totaled $1,964,265, which was a 21% decrease as compared to $2,481,134 for the six months ended June 30, 2018.

 

The table below summarizes our administrative expenses for the six months ended June 30, 2019 and 2018 as well as the percentage of change year-over-year:

 

   For the Six Months Ended June 30,   Percent Change 
Description  2019   2018     
Personnel Costs  $377,999   $499,727    (24)%
Professional Service Costs   575,165    1,231,750    (53)%
Stock Market & Investor Relations Costs   277,961    259,937    7%
Other Administrative Costs   733,140    489,720    50%
Total Administrative Expense  $1,964,265   $2,481,134    (21)%

 

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Personnel expenses decreased by 24% for the six months ended June 30, 2019 as compared to the same period of 2018 on account of a reduction in administrative headcount to four as of June 30, 2019, as compared to five as of June 30, 2018.

 

Professional service costs decreased 53% for the six months ended June 30, 2019 as compared to the same period of 2018, principally on account of reduced legal fees ($518,727 (2018: $883,451)) and accounting and audit expenses ($14,881 (2018: $236,042)). The higher costs in 2018 were principally attributable to the investigation and restatement of the financial statements, and certain litigation defense costs.

 

Stock market and investor fees increased 7% for the six months ended June 30, 2019. The increase in these fees was principally associated with the costs incurred in connection with the withdrawal from the London Stock Exchange.

 

Other administrative expenses increased by 50%, principally attributable to business insurance costs, $255,548 (2018: $95,752) and Director’s fees and expenses, including stock-based compensation, of $293,384 (2018: $1,818).

 

Sales and Marketing Expenses

 

Sales and marketing expenses for the six months ended June 30, 2019 totaled $163,979 which was an 83% decrease compared to $969,620 for the six months ended June 30, 2018.

 

The table below summarizes our sales and marketing expenses for the six months ended June 30, 2019 and 2018 as well as the percentage of change year-over-year:

 

   For the Six Months Ended June 30,     
Description  2019   2018   Percent Change 
Personnel Costs  $65,717   $588,598    (89)%
Professional Service Costs   33,103    140,623    (76)%
Royalties and Outside Commission Costs   40,750    97,838    (58)%
Other Sales and Marketing Costs   24,409    142,561    (83)%
Total Sales and Marketing Expenses  $163,979   $969,620    (83)%

 

During the first quarter of 2019, as part of our cost savings measures, we eliminated the personnel within the sales and marketing departments, including employees, consultants and third party related representatives.

 

Personnel expenses decreased by 89% for the six months ended June 30, 2019 as compared to the same period of 2018 on account of the reduction in the Sales and Marketing headcount to zero as of June 30, 2019, as compared to five as of June 30, 2018.

 

Professional service costs decreased by 76% for the six months ended June 30, 2019, as compared to the same period of 2018 primarily on account of reductions in marketing and sales related consultants.

 

Royalties and outside commission costs decreased by 58%, principally on account of ISR costs incurred for approximately two months in 2019 as compared to six months in the 2018 period. An evaluation of the ISR program determined it to be ineffective and, as a result, all ISR’s agreements were terminated effective February 19, 2019.

 

Other Sales and Marketing Costs declined to $24,409 (2018: $142,561) principally due to the reductions in travel and entertainment for the sales and marketing personnel.

 

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Compliance, Research and Development Expenses

 

Compliance, research and development expenses for the six months ended June 30, 2019 totaled $149,300, which was a 79% decrease as compared to $699,094 for the six months ended June 30, 2018.

 

The table below summarizes our compliance, research and development expenses for the six months ended June 30, 2019 and 2018 as well as the percentage of change year-over-year:

 

   For the Six Months Ended June 30,     
Description  2019   2018   Percent Change 
Personnel Costs  $130,403   $475,415    (73)%
Clinical Trial Costs   -    1,480    (100)%
Professional Service Costs   10,043    137,896    (93)%
Other Compliance, Research and Development Costs   8,854    84,303    (89)%
Total Compliance, Research and Development Expenses  $149,300   $699,094    (79)%

 

During the second half of 2018, we eliminated the research and development functions of the company in connection with focusing the business on current products and reducing costs.

 

Personnel expenses decreased by 73% for the six months ended June 30, 2019 as compared to the same period of 2018 due to a reduction in the headcount to three as of June 30, 2019, as compared to ten as of June 30, 2018. These staff reductions eliminated the research & development functions, with the remaining personnel maintaining regulatory and quality assurance (compliance) functions.

 

Professional service costs, principally third party engineering costs, declined by 93% for the six months ended June 30, 2019, as compared to the same period of 2018, principally on account of the elimination of research & development activities.

 

Other compliance, research and development costs declined by 89%, for the six months ended June 30, 2019, as compared to the same period of 2018, principally on account of reduction in research and development activities, as discussed above.

 

Other Income and Expense

 

Other income, net of expense, for the six months ended June 30, 2019 totaled $49,866 as compared to $79,208 for the six months ended June 30, 2018.

 

The table below summarizes our other income and expenses for the six months ended June 30, 2019 and 2018 as well as the percentage of change year-over-year:

 

   For the Six Months Ended June 30,     
Description  2019   2018   Percent Change 
Currency Translation Loss  $(4,878)  $(5,905)   17%
Investment Loss   (4,258)   (4,401)   3%
Interest and Dividend Income   59,002    89,514    (34)%
Total Other Income, Net of Expenses  $49,866   $79,208    (37)%

 

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Liquidity and Capital Resources

 

On November 7, 2018, we announced that our Board of Directors had initiated a process to evaluate strategic alternatives to maximize shareholder value. This process is considering a range of potential strategic alternatives including, but not limited to, business combinations, while simultaneously supporting the Company’s management and employees in the execution of the Company’s current business activities. On November 19, 2018, we further announced that we will consider a range of potential strategic alternatives including, but not limited to, business combinations in alternative sectors including cannabis and hemp related industries. There can be no assurance that these explorations of strategic alternatives will result in any transaction or other alternative.

 

We expect to continue to incur losses from operations for the near-term and these losses could be significant. Furthermore, our investments in pursuit of strategic alternatives will require cash, including, for example, loans and investments, as discussed earlier with respect to the $100,000 loan. We are closely monitoring our cash balances, cash needs and expense levels. The accompanying financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that might result in the possible inability of the Company to continue as a going concern.

 

Capital expenditures for the six months ended June 30, 2019 were $0 (2018: $37,698).

 

Operating Activities

 

Our net cash consumed by operating activities totaled $1,610,352 during the six months ended June 30, 2019. Cash was consumed by the loss of $1,711,849 reduced by non-cash adjustments principally consisting of $3,514 for accrued interest on marketable securities, $34,979 for depreciation and amortization of non-current assets, $4,247 for the allowance of doubtful accounts, $4,258 for loss on sales of securities and $144,828 for share based compensation. For the six months ended June 30, 2019, within changes of assets and liabilities, cash provided consisted of a decrease in inventories of $41,026, a decrease in prepaid expenses of $305,531, a decrease in deposits and other receivables of $9,347, a decrease in other assets of $4,330, off-set by an increase in trade receivables of $94,781 and a decrease in trade and other payables of $355,782.

 

Our net cash consumed by operating activities totaled $3,817,892 during the six months ended June 30, 2018. Cash was consumed by the loss of $3,927,444 reduced by non-cash adjustments of $112,903 for depreciation and amortization of non-current assets, $3,469 for the amortization of deferred compensation, $32,283 for the reserve for obsolete inventory, $97,000 for the reserve for doubtful accounts, $5,454 for share based compensation to employees, $5,175 for share based compensation to directors and $12,545 for share based compensation to non-employees less $16,332 for accrued income on marketable securities. For the six months ended June 30, 2018, primarily related to routine changes in operating activities, cash consumed consisted of an increase in deposits and other receivables of $43,941, an increase in inventories of $99,220, an increase in prepaid expenses of $521,676, off-set by a decrease in trade receivables of $455,048 and an increase in trade and other payables of $66,844.

 

Investing Activities

 

The Company’s net cash provided by investing totaled $1,292,130, as compared to net cash used in investing of $2,999,777 during the six months ended June 30, 2019 and 2018, respectively. Net cash provided by investing activities for the six months ended June 30, 2019 consisted of proceeds from the sale of marketable securities of $1,354,646. During the six months ended June 30, 2018, investing activities consisted of proceeds from the sale of marketable securities of $2,306,675, off-set by purchases of marketable securities of $5,268,754.

 

Financing Activities

 

The Company’s net cash provided by financing activities in 2019 was $0 (2018: $7,155,200). Net cash provided during the 2018 period reflected principally net proceeds from the public and private placements of common and Series B preferred stock and the exercise of warrants for Common Stock, contributing $7,155,200.

 

39
 

 

Liquidity

 

The Company has experienced recurring losses and negative cash flows from operations. Management’s strategic plans include the following:

 

  evaluating strategic alternatives to maximize shareholder value, including the consideration of a range of potential strategic alternatives including, but not limited to, business combinations and
     
  Continuing to monitor and implement cost control initiatives to conserve cash.

 

At June 30, 2019, Akers had cash of $363,533 (including restricted cash of $115,094) and marketable securities of $4,020,498, working capital of $3,631,911, shareholders’ equity of $4,314,134 and an accumulated deficit of $117,406,730. In order to execute on our long-term strategy, including being able to execute upon our pursuit of potential strategic alternatives including but not limited to business combinations, we expect to need to raise additional funds through equity offerings, debt financing or other means. The Company may also issue equity or a portion of the purchase price for acquisitions may be in equity. There are no assurances that we will be able to produce such funds on acceptable terms or at all.

 

Critical Accounting Policies

 

See accounting policies in Note 2 of the condensed consolidated financial statements included in Part I, Item 1 of this report.

 

Off-Balance Sheet Arrangements

 

We have no significant known off balance sheet arrangements.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

We do not hold any derivative instruments and do not engage in any hedging activities.

 

Item 4. Controls and Procedures.

 

(a) Evaluation of Disclosure Controls and Procedures

 

We maintain disclosure controls and procedures (as defined in paragraph (e) of Rules 13a-15 and 15d-15 under the Exchange Act) designed to ensure that the information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified under the rules and forms of the SEC. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that such information is accumulated and communicated to our management, including our Chief Executive Officer, as appropriate to allow timely decisions regarding required disclosures. As required by paragraph (b) of Rules 13a-15 and 15d-15 under the Exchange Act, our Chief Executive Officer (our principal executive officer and principal financial officer) carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of June 30, 2019. Based on this evaluation, our Chief Executive Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of June 30, 2019.

 

(b) Changes in Internal Control over Financial Reporting

 

During the six months ended June 30, 2019, material changes in internal control over financial reporting included the implementation of enhanced monthly inventory control and reconciliation procedures including conducting inventory test counts.

 

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PART II - OTHER INFORMATION

 

Item 1. Legal Proceedings

 

From time to time, we are a party to litigation and subject to claims incident to the ordinary course of business. Future litigation may be necessary to defend ourselves and our customers by determining the scope, enforceability and validity of third party proprietary rights or to establish our proprietary rights.

 

Faulkner v. Akers Biosciences, Inc., No. 2:18-cv-10521 (D.N.J.) and Gleason v. Akers Biosciences, Inc., No. 2:18-cv-10805 (D.N.J.)

 

On June 13, 2018, Plaintiff Tim Faulkner filed a class action complaint alleging securities violations against Akers Biosciences, Inc. (“Akers”), John J. Gormally, and Gary M. Rauch (“Individual Defendants”) (together with Akers, “Defendants”) on behalf of all persons and entities who purchased publicly traded Akers securities from May 15, 2017 through June 5, 2018 (the “Faulkner Action”). The complaint alleges violations of Section 10(b) of the Exchange Act and Rule 10b-5 against all Defendants, and violations of Section 20(a) of the Exchange Act against the Individual Defendants. In particular, the complaint alleges that Defendants made false and/or misleading statements and/or failed to disclose in its first, second, and third quarter 2017 10-Qs and its 2017 10-K that: (1) Akers was improperly recognizing revenue for the fiscal year ended December 31, 2017; and, (2) Akers had downplayed weaknesses in its internal controls over financial reporting and failed to disclose the true extent of those weaknesses. On June 20, 2018, Plaintiff David Gleason filed a class action complaint under the caption Gleason v. Akers Biosciences, Inc., No. 2:18-cv-10805 (D.N.J.) based on the same allegations and causes of action (the “Gleason Action”). On November 21, 2018, the Faulkner and Gleason Actions were consolidated under the Faulkner Action docket. The parties conducted a mediation on January 10, 2019 and agreed to a settlement in principle disposing of the consolidated action as to all Defendants, including the Individual Defendants. On March 8, 2019, the parties signed a settlement agreement, subject to approval by the Court, whereby the Company agreed to pay $2,250,000 in exchange for full releases and discharge of all claims against the Company. On the same day, Lead Plaintiffs filed a motion for preliminary approval of the settlement and to establish notice procedures. On July 3, 2019, the Court granted the motion for preliminary approval and scheduled a final settlement hearing for November 8, 2019. On or about July 24, 2019, the Company’s D&O insurer sent the settlement payment of $2,250,000 to the settlement agent for the class.

 

Watts v. Gormally, et al., No. 2:18-15992 (D.N.J.)

 

On November 9, 2018, Plaintiff Cale Watts filed a verified shareholder derivative complaint alleging violations of the Securities Exchange Act of 1934, breach of fiduciary duty, unjust enrichment, and waste of corporate assets based on alleged material weaknesses in controls, management, and documentation (the “Watts Action”). On January 14, 2019, the parties reached an agreement in principle to settle the Watts Action that included corporate reforms and an attorneys’ fees payment of $200,000. The parties finalized a Stipulation of Settlement on March 4, 2019. On March 22, 2019, Plaintiffs filed a motion seeking (a) preliminary approval of the proposed Settlement, (b) approval of the proposed form and method of providing notice of the Settlement, and (c) scheduling a hearing for final approval of the settlement (the “Motion for Preliminary Approval”). On April 1, 2019, Tiffany Chan, Jasmine Henderson, and Don Danesh Wijesekera (the “Proposed Intervenors”) filed an Opposition to the Motion for Preliminary Approval, and a Motion to Intervene and Stay Proceedings (“Motion to Intervene and Stay”). Defendants’ Opposition to the Motion to Intervene and Stay is due August 20, 2019, and its Reply in further support of the Motion for Preliminary Approval is due August 27, 2019. The Motion for Preliminary Approval and the Motion to Intervene and Stay are currently returnable on September 3, 2019.

 

41
 

 

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

 

On February 7, 2019, Tiffany Chan, Jasmine Henderson, and Don Danesh filed a verified shareholder derivative complaint alleging violations of Section 14(a) of the Exchange Act and SEC Rule 14a-9, breach of fiduciary duty, unjust enrichment, and waste of corporate assets based on the same circumstances as the Watts Action. The Chan Action further alleges that the Company should not have settled the Watts Action because the Watts Action plaintiffs lacked standing and the settlement would cause irreparable harm to the Company and its shareholders. On April 4, 2019, the Court entered the parties’ stipulation and consent order to extend Defendants’ time to answer, move, or otherwise respond to the Complaint until 20 days after the Court (a) decides the Motion for Preliminary Approval of the Watts Settlement, (b) decides the Motion in Opposition to the Watts Settlement, (c) decides the Motion to Intervene and Stay in the Watts Action, and/or (d) stays the Watts Action.

 

Watts and Chan Matters – Potential Resolution

 

On August 12, 2019, counsel for all parties in the Watts Action and the Chan Action informed the Watts Court that they had agreed in principle to a resolution of both the Watts and Chan Actions, and expected to have finalized paperwork for the Court’s review and approval within 30-45 days. The parties have a follow-up call scheduled with the Court for October 3, 2019.

 

Faulkner, Gleason, Watts and Chan Matters

 

With respect to the Faulkner, Gleason, Watts and Chan matters, the Company maintains D&O liability insurance coverage, with a company retention of $500,000. The D&O liability insurance coverage provides insurance coverage to both the Company and the Directors and Officers for covered defense and indemnification. Through December 31, 2018, the Company recorded a cumulative charge of $500,000, representing the insurance carrier retention requirement. The insurance carrier has provided notice that it has reserved certain rights, and through the date of the filing of this Quarterly Report on Form 10-Q, the Company may incur additional costs related to these matters, the amounts of which are not able to be determined at this time.

 

Typenex Medical, LLC v. Akers Biosciences, Inc., JAMS Ref. No. 1450005929

 

On November 15, 2018, Typenex Medical LLC (“Typenex”), a telemarketing entity with whom the Company had entered into a marketing and commission agreement dated September 30, 2016 (the “Marketing Contract”), filed an arbitration against the Company before JAMS ADR (the “Arbitration”), and an arbiter was appointed to the Arbitration on December 14, 2018. In the Arbitration, Typenex stated that was seeking “at least” $220,500 based on the allegation that the Marketing Contract entitles Typenex to a commission on sales of certain of the Company’s heparin-related products in the period two years from the Marketing Contract’s expiration, and in the alternative, Typenex was seeking relief for breach of the implied covenant of good faith and fair dealing, and/or unjust enrichment.

 

On July 19, 2019, the Company and Typenex executed a settlement agreement. Pursuant to the settlement agreement, the Company agreed to pay Typenex $50,000 in cash and to issue 40,000 shares of the Company’s common stock. As of June 30, 2019, $66,800 is included in accrued expenses within the condensed consolidated balance sheets for this settlement.

 

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

 

On June 21, 2019, the Company received a complaint, filed by Novotek Therapeutics Inc., and Novotek Pharmaceuticals Limited (collectively, “Novotek”), Beijing-based entities, in the United States District Court for the District of New Jersey, alleging, among other things, breach of contract. Novotek is seeking, among other things, damages in the amount of $1,551,562, plus interest, disbursements and attorneys’ fees. The Company vigorously disputes the allegations in the complaint and has retained counsel to defend it. The Company is not yet able to determine the amount of the Company’s exposure, if any.

 

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

 

On July 25, 2019, the Company was notified that on July 23, 2019, a complaint was filed by Neelima Varma, against the Company and St. David’s Healthcare Partnership, L.P., LLP (“St. David’s”), in the district court of Travis County, Texas, alleging, among other things, negligence, gross negligence and strict product liability, breach of express warranty, breach of implied warranty and fraudulent misrepresentation and omission, with respect to a medical device which the Company had sold through one its distributors to St. David’s. Ms. Varma is seeking aggregate monetary relief from the Company and St. David’s in excess of $1,000,000. The Company carries product liability insurance. The insurance carrier has provided notice that it has reserved certain rights. The Company and its insurance carrier will contest this complaint vigorously. We believe that our product liability insurance coverage will be adequate to cover the potential exposure for this matter.

 

42
 

 

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

 

Douglas Carrara, a former executive, has sued the Company over the termination of his employment. The executive seeks contractual severance pay in the amount of $200,000. The executive asserts that the termination was without cause within the meaning of his employment agreement, which provides for severance of one year’s salary in the event of termination without cause. The executive also seeks indemnification for approximately $8,000 in attorneys’ fees that he contends he incurred in regard to company business. With regard to both claims, the executive seeks to recover his attorneys’ fees under a fee-shifting provision in his employment agreement.

 

The Company’s answer to the complaint is due August 28, 2019. With respect to this matter, the Company believes that the ultimate liability from the resolution of this matter will not be material to the Company’s condensed consolidated financial statements.

 

Dispute with a Former Executive

 

A former executive has threatened to sue the Company over the termination of the executive’s employment. The executive contends that the termination was in retaliation for complaints to the employer protected under the California whistleblower protection laws. The executive also contends that the Company failed to pay a bonus in violation of an employment contract. The Company’s management and legal counsel believes it is too early to determine the probable outcome of this matter.

 

The Company intends to establish a rigorous defense of all claims. All legal fees were expensed as and when incurred.

 

With the exception of the foregoing, we are not currently involved in any litigation that we believe could have a materially adverse effect on our financial condition or results of operations. There is no action, suit, proceeding, inquiry or investigation before or by any court, public Board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our Company, threatened against or affecting our Company or our Common Stock, in which an adverse decision could have a material adverse effect.

 

43
 

 

Item 1A. Risk Factors

 

There are no additional risk factors other than those discussed in our Annual Report Form 10-K filed on April 1, 2019.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

There were no unregistered sales of the Company’s equity securities during the quarter ended June 30, 2019, other than those previously reported in a Current Report on Form 8-K.

 

Item 3. Defaults Upon Senior Securities

 

There has been no default in the payment of principal, interest, sinking or purchase fund installment, or any other material default, with respect to any indebtedness of the Company.

 

Item 4. Mine Safety Disclosures

 

Not applicable.

 

Item 5. Other Information.

 

Not applicable.

 

Item 6. Exhibits.

 

31.1   Certification by the Principal Executive Officer and Principal Financial Officer of Registrant pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rule 13a-14(a) or Rule 15d-14(a)). *
     
32.1   Certification by the Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *
     
101.INS   XBRL Instance Document
     
101.SCH   XBRL Taxonomy Extension Schema
     
101.CAL   XBRL Taxonomy Extension Calculation Linkbase
     
101.DEF   XBRL Taxonomy Extension Definition Linkbase
     
101.LAB   XBRL Taxonomy Extension Label Linkbase
     
101.PRE   XBRL Taxonomy Extension Presentation Linkbase

 

* Filed herewith

 

44
 

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  AKERS BIOSCIENCES, INC.
   
Date: August 14, 2019 By: /s/ Howard Yeaton
  Name: Howard Yeaton
  Title:

Chief Executive Officer and Interim Chief

Financial Officer

(Principal Executive Officer, Principal Financial

Officer and Principal Accounting Officer)

 

45
 

EX-31.1 2 ex31-1.htm

 

Exhibit 31.1

 

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER

PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 302 OF

THE SARBANES-OXLEY ACT OF 2002

 

I, Howard Yeaton, certify that:

 

  1. I have reviewed this Form 10-Q of Akers Biosciences, Inc.;
     
  2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
     
  3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
     
  4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13-a-15(f) and 15d-15(f)) for the registrant and have:

 

  a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
     
  b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
     
  c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
     
  d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

  5. I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Directors (or persons performing the equivalent functions):

 

  a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
     
  b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: August 14, 2019 By: /s/ Howard Yeaton
    Howard Yeaton
   

Chief Executive Officer and Interim Chief Financial

Officer (Principal Executive Officer, Principal

Financial Officer and Principal Accounting Officer)

    Akers Biosciences, Inc.

 

   
 

 

EX-32.1 3 ex32-1.htm

 

Exhibit 32.1

 

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906 OF

THE SARBANES-OXLEY ACT OF 2002

 

In connection with this Quarterly Report of Akers Biosciences, Inc. (the “Company”), on Form 10-Q for the period ended June 30, 2019, as filed with the U.S. Securities and Exchange Commission on the date hereof, the undersigned, in the capacity and on the date indicated below, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

 

  (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
     
  (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Company.

 

Date: August 14, 2019 By: /s/ Howard Yeaton
    Howard Yeaton
   

Chief Executive Officer and Interim Chief Financial

Officer

(Principal Executive Officer, Principal Financial

Officer and Principal Accounting Officer)

    Akers Biosciences, Inc.

 

   
 

 

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Document and Entity Information - shares
6 Months Ended
Jun. 30, 2019
Aug. 09, 2019
Document And Entity Information [Abstract]    
Entity Registrant Name Akers Biosciences, Inc.  
Entity Central Index Key 0001321834  
Document Type 10-Q  
Document Period End Date Jun. 30, 2019  
Amendment Flag false  
Current Fiscal Year End Date --12-31  
Entity's Reporting Status Current Yes  
Entity Interactive Data Current Yes  
Entity Filer Category Non-accelerated Filer  
Entity Small Business Flag true  
Entity Emerging Growth Company true  
Entity Ex Transition Period false  
Entity Shell Company false  
Entity Common Stock, Shares Outstanding   12,512,708
Document Fiscal Period Focus Q2  
Document Fiscal Year Focus 2019  
XML 11 R2.htm IDEA: XBRL DOCUMENT v3.19.2
Condensed Consolidated Balance Sheets - USD ($)
Jun. 30, 2019
Dec. 31, 2018
Current Assets    
Cash $ 248,439 $ 181,755
Marketable Securities 4,020,498 5,272,998
Trade Receivables, net 266,860 176,326
Deposits and other receivables 9,347
Inventories, net 544,241 585,267
Prepaid expenses 169,591 444,435
Total Current Assets 5,249,629 6,670,128
Non-Current Assets    
Prepaid expenses 267,569 298,256
Restricted Cash 115,094 500,000
Property, Plant and Equipment, net 68,481 83,456
Intangible Assets, net 223,407 243,411
Other Assets 7,672 12,002
Total Non-Current Assets 682,223 1,137,125
Total Assets 5,931,852 7,807,253
Current Liabilities    
Trade and Other Payables 1,617,718 1,973,500
Total Liabilities 1,617,718 1,973,500
Commitments and Contingencies
SHAREHOLDERS' EQUITY    
Convertible Preferred Stock, No par value, 50,000,000 shares authorized, 0 and 0 shares issued and outstanding as of June 30, 2019 and December 31, 2018
Common Stock, No par value, 500,000,000 shares authorized, 12,508,958 and 12,482,708 issued and outstanding as of June 30, 2019 and December 31, 2018 121,699,375 121,554,547
Accumulated Other Comprehensive Income (Loss) 21,489 (25,913)
Accumulated Deficit (117,406,730) (115,694,881)
Total Shareholders' Equity 4,314,134 5,833,753
Total Liabilities and Shareholders' Equity $ 5,931,852 $ 7,807,253
XML 12 R3.htm IDEA: XBRL DOCUMENT v3.19.2
Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares
Jun. 30, 2019
Dec. 31, 2018
Statement of Financial Position [Abstract]    
Convertible preferred stock, no par value
Convertible preferred stock, shares authorized 50,000,000 50,000,000
Convertible preferred stock, shares issued 0 0
Convertible preferred stock, shares outstanding 0 0
Common stock, no par value
Common stock, shares authorized 500,000,000 500,000,000
Common stock, shares issued 12,508,958 12,482,708
Common stock, shares outstanding 12,508,958 12,482,708
XML 13 R4.htm IDEA: XBRL DOCUMENT v3.19.2
Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited) - USD ($)
3 Months Ended 6 Months Ended
Jun. 30, 2019
Jun. 30, 2018
Jun. 30, 2019
Jun. 30, 2018
Income Statement [Abstract]        
Product Revenue $ 464,513 $ 526,601 $ 1,076,634 $ 829,076
Product Cost of Sales (219,864) (302,826) (465,801) (600,326)
Gross Income 244,649 223,775 610,833 228,750
Administrative Expenses 981,309 1,565,602 1,964,265 2,481,134
Sales and Marketing Expenses 14,139 469,469 163,979 969,620
Compliance, Research and Development Expenses 60,909 259,124 149,300 699,094
Litigation Settlement Expenses 75,000
Amortization of Non-Current Assets 10,002 42,777 20,004 85,554
Loss from Operations (821,710) (2,113,197) (1,761,715) (4,006,652)
Other (Income)/Expenses        
Foreign Currency Transaction Loss 219 3,029 4,878 5,905
Loss on Investments 543 4,400 4,258 4,401
Interest and Dividend Income (27,581) (53,173) (59,002) (89,514)
Total Other Income (26,819) (45,744) (49,866) (79,208)
Loss Before Income Taxes (794,891) (2,067,453) (1,711,849) (3,927,444)
Income Tax Benefit
Net Loss (794,891) (2,067,453) (1,711,849) (3,927,444)
Other Comprehensive Gain/(Loss)        
Net Unrealized Gain/(Loss) on Marketable Securities 18,059 4,401 47,402 (12,443)
Total Other Comprehensive Gain/(Loss) 18,059 4,401 47,402 (12,443)
Comprehensive Loss $ (776,832) $ (2,063,052) $ (1,664,447) $ (3,939,887)
Basic and Diluted loss per common share $ (0.06) $ (0.18) $ (0.14) $ (0.38)
Weighted average basic and diluted common shares outstanding 12,500,923 11,656,788 12,492,115 10,293,569
XML 14 R5.htm IDEA: XBRL DOCUMENT v3.19.2
Condensed Consolidated Statements of Changes in Shareholders' Equity (Unaudited) - USD ($)
Preferred Stock [Member]
Common Stock [Member]
Deferred Compensation [Member]
Accumulated Deficit [Member]
Accumulated Other Comprehensive Income/(Loss) [Member]
Total
Balance at Dec. 31, 2017 $ 1,755,000 $ 110,647,169 $ (3,469) $ (104,845,847) $ 7,552,853
Balance, shares at Dec. 31, 2017 1,755 5,534,692        
Net loss (1,859,991) (1,859,991)
Exercise of warrants for common stock $ 5,717,325 5,717,325
Exercise of warrants for common stock, shares 3,811,509        
Conversion of preferred stock to common stock $ (1,755,000) $ 1,755,000
Conversion of preferred stock to common stock, shares (1,755) 1,464,930        
Amortization of deferred compensation 3,469 3,469
Issuance of unrestricted stock to a key employee $ 5,175 5,175
Issuance of unrestricted stock to a key employee, shares 3,125        
Issuance of non-qualified stock options to key employees $ 2,712 2,712
Issuance of restricted stock for services for non-employees $ 12,545 12,545
Issuance of restricted stock for services for non-employees, shares        
Net unrealized gain on marketable securities (16,843) (16,843)
Balance at Mar. 31, 2018 $ 118,139,926 (106,705,838) (16,843) 11,417,245
Balance, shares at Mar. 31, 2018 10,814,256        
Balance at Dec. 31, 2017 $ 1,755,000 $ 110,647,169 (3,469) (104,845,847) 7,552,853
Balance, shares at Dec. 31, 2017 1,755 5,534,692        
Net loss           (3,927,444)
Balance at Jun. 30, 2018 $ 119,580,543 (108,773,291) (12,443) 10,794,809
Balance, shares at Jun. 30, 2018 11,780,762        
Balance at Mar. 31, 2018 $ 118,139,926 (106,705,838) (16,843) 11,417,245
Balance, shares at Mar. 31, 2018 10,814,256        
Net loss (2,067,453) (2,067,453)
Exercise of warrants for common stock $ 1,437,875 1,437,875
Exercise of warrants for common stock, shares 966,506        
Conversion of preferred stock to common stock
Conversion of preferred stock to common stock, shares        
Amortization of deferred compensation
Issuance of unrestricted stock to a key employee
Issuance of unrestricted stock to a key employee, shares          
Issuance of non-qualified stock options to key employees 2,742 2,742
Issuance of restricted stock for services for non-employees
Issuance of restricted stock for services for non-employees, shares        
Net unrealized gain on marketable securities 4,400 4,400
Balance at Jun. 30, 2018 $ 119,580,543 (108,773,291) (12,443) 10,794,809
Balance, shares at Jun. 30, 2018 11,780,762        
Balance at Dec. 31, 2018 $ 121,554,547 (115,694,881) (25,913) 5,833,753
Balance, shares at Dec. 31, 2018 12,482,708        
Net loss (916,958) (916,958)
Issuance of unrestricted stock to a key employee $ 15,874 15,874
Issuance of unrestricted stock to a key employee, shares 15,000        
Issuance of restricted stock units to directors for services $ 3,906 3,906
Issuance of restricted stock units to directors for services, shares        
Net unrealized gain on marketable securities 29,343 29,343
Balance at Mar. 31, 2019 $ 121,574,327 (116,611,839) 3,430 4,965,918
Balance, shares at Mar. 31, 2019 12,497,708        
Balance at Dec. 31, 2018 $ 121,554,547 (115,694,881) (25,913) 5,833,753
Balance, shares at Dec. 31, 2018 12,482,708        
Net loss           (1,711,849)
Balance at Jun. 30, 2019 $ 121,699,375 (117,406,730) 21,489 4,314,134
Balance, shares at Jun. 30, 2019 12,508,958        
Balance at Mar. 31, 2019 $ 121,574,327 (116,611,839) 3,430 4,965,918
Balance, shares at Mar. 31, 2019 12,497,708        
Net loss (794,891) (794,891)
Issuance of unrestricted stock to a key employee $ 6,570 6,570
Issuance of unrestricted stock to a key employee, shares 11,250        
Issuance of restricted stock units to directors for services $ 118,478 118,478
Issuance of restricted stock units to directors for services, shares        
Net unrealized gain on marketable securities 18,059 18,059
Balance at Jun. 30, 2019 $ 121,699,375 $ (117,406,730) $ 21,489 $ 4,314,134
Balance, shares at Jun. 30, 2019 12,508,958        
XML 15 R6.htm IDEA: XBRL DOCUMENT v3.19.2
Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($)
6 Months Ended
Jun. 30, 2019
Jun. 30, 2018
Cash flows from operating activities    
Net loss $ (1,711,849) $ (3,927,444)
Adjustments to reconcile net loss to net cash used in operating activities:    
Accrued income on marketable securities 3,514 (16,332)
Depreciation and amortization 34,979 112,903
Reserve for obsolete inventory 32,283
Reserve for doubtful accounts 4,247 97,000
Loss on sales of securities 4,258
Amortization of deferred compensation 3,469
Share based compensation to employees - options 5,454
Share based compensation to an employee 22,444
Share based compensation to directors - restricted stock units 122,384 5,175
Share based compensation to non-employees - restricted stock 12,545
Changes in assets and liabilities:    
(Increase)/decrease in trade receivables (94,781) 455,048
(Increase)/decrease in deposits and other receivables 9,347 (43,941)
(Increase)/decrease in inventories 41,026 (99,220)
(Increase)/decrease in prepaid expenses 305,531 (521,676)
Decrease in other assets 4,330
Increase/(decrease) in trade and other payables (355,782) 66,844
Net cash used in operating activities (1,610,352) (3,817,892)
Cash flows from investing activities    
Purchases of property, plant and equipment (37,698)
Purchases of marketable securities (62,516) (5,268,754)
Proceeds from sale of marketable securities 1,354,646 2,306,675
Net cash provided by/(used in) investing activities 1,292,130 (2,999,777)
Cash flows from financing activities    
Net proceeds from exercise of warrants for common stock 7,155,200
Net cash provided by financing activities 7,155,200
Net increase/(decrease) in cash and restricted cash (318,222) 337,531
Cash and restricted cash at beginning of period 681,755 438,432
Cash and restricted cash at end of period 363,533 775,963
Cash paid for:    
Interest
Income Taxes
Supplemental Schedule of Non-Cash Financing and Investing Activities    
Net unrealized gains/(losses) on marketable securities 47,402 (12,443)
Conversion of Series B Preferred Stock to common shares $ 1,755,000
XML 16 R7.htm IDEA: XBRL DOCUMENT v3.19.2
Organization and Description of Business
6 Months Ended
Jun. 30, 2019
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Organization and Description of Business

Note 1 – Organization and Description of Business

 

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

 

On November 7, 2018, the Company announced its intention to explore strategic alternatives in order to maximize shareholder value. As announced, this process will consider a range of potential strategic alternatives including, but not limited to, business combinations, while simultaneously supporting the Company’s management and employees in the execution of the Company’s current business activities.

 

Furthermore, the Company has undertaken steps to reduce its expenses, including reducing the number of personnel, reducing its office footprint, eliminating services from non-critical vendors and has withdrawn its shares from registration on the AIM exchange in the United Kingdom.

 

The Company’s medical device business has as its current focus the production and sale of disposable diagnostic testing devices that can be performed in minutes, to facilitate time sensitive therapeutic decisions. The Company’s principal products are a rapid test detecting the antibody causing an allergic reaction to Heparin, breath alcohol detectors used for health and safety and a consumer product used to screen for levels of cholesterols.

XML 17 R8.htm IDEA: XBRL DOCUMENT v3.19.2
Significant Accounting Policies
6 Months Ended
Jun. 30, 2019
Accounting Policies [Abstract]  
Significant Accounting Policies

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, 2018 and 2017 included in the Company’s 2018 Form 10-K, as filed on April 1, 2019. In the opinion of the management, these condensed consolidated financial statements include all adjustments, consisting of only normal recurring nature, necessary for a fair statement of the financial position of the Company as of June 30, 2019 and its results of operations and cash flows for the three and six months ended June 30, 2019 and 2018. The results of operations for the three and six months ended June 30, 2019 are not necessarily indicative of the results to be expected for the full fiscal year ending December 31, 2019.

 

The Company is an emerging growth company as the term is used in The Jumpstart Our Business Startups Act enacted on April 5, 2012 and has elected to comply with certain reduced public company reporting requirements.

 

  (b) Use of Estimates and Judgments

 

The preparation of financial statements in conformity with US GAAP requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected. Information about significant areas of estimation, uncertainty and critical judgments in applying accounting policies that have the most significant effect on the amounts recognized in the financial statements is included in the following notes for revenue recognition, allowances for doubtful accounts, inventory write-downs, impairment of intangible assets and valuation of share-based payments.

 

  (c) Functional and Presentation Currency

 

These condensed consolidated financial statements are presented in U.S. Dollars, which is the Company’s functional currency. All financial information presented in U.S. Dollars has been rounded to the nearest dollar. Foreign Currency Transaction Gains or Losses, resulting from 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 3 months from date of deposit) that are not restricted as to withdrawal date or use, to be cash equivalents.

 

  (f) Restricted Cash

 

At June 30, 2019, restricted cash included in non-current assets on the Company’s consolidated balance sheet was $115,094 representing cash in trust for the purpose of funding legal fees for certain litigations.

 

  (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.

 

Following is a description of the valuation methodologies used for assets measured at fair value as of June 30, 2019 and December 31, 2018.

 

U.S. Agency Securities: Valued using pricing models maximizing the use of observable inputs for similar securities. This includes basing value on yields currently available on comparable securities of issuers with similar credit ratings.

 

   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) 
Marketable securities at June 30, 2019  $                -   $4,020,498   $                      - 
                
Marketable securities at December 31, 2018  $-   $5,272,998   $- 

 

Marketable securities include U.S. agency securities, which are classified as available for sale. The securities are valued at fair market value. Maturities of the securities are less than one year. Unrealized gains and losses relating to the available for sale investment securities were recorded in the Condensed Consolidated Statement of Changes in Shareholders’ Equity as comprehensive (loss) income. These amounts were $18,059 and $47,402 in unrealized gain for the three and six months ended June 30, 2019 and a decrease of $4,401 and an increase of $12,443 in unrealized loss for the three and six months ended June 30, 2018, respectively.

 

Gains and losses resulting from the sales of marketable securities were a loss of $543 and $4,400 for the three months ended June 30, 2019 and 2018, and a loss of $4,258 and $4,401 for the six months ended June 30, 2019 and 2018, respectively.

 

Proceeds from the sale of marketable securities in the three and six months ended June 30, 2019 were $502,126 and $1,354,646, respectively and in the three and six months ended June 30, 2018 were $2,004,580 and $2,306,675, respectively.

 

  (h) Trade Receivables and Allowance for Doubtful Accounts

 

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

 

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

 

As of June 30, 2019 and December 31, 2018, allowances for doubtful accounts for trade receivables were $605,848 and $606,835. Bad debt expenses for trade receivables were $0 and $125,500 for the three months ended June 30, 2019 and 2018, respectively and $4,247 and $125,500 for the six months ended June 30, 2019 and 2018, respectively.

 

  (i) Concentrations

 

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

 

Major Customers

 

For the three months ended June 30, 2019, three customers generated 42%, 20%, and 19% or 81% in the aggregate, of the Company’s revenue. For the six months ended June 30, 2019, two customers generated 44% and 34%, or 78% in the aggregate, of the Company’s revenue.

 

For the three months ended June 30, 2018, three customers generated 33%, 27%, and 12%, or 72% in aggregate, of the Company’s revenue. For the six months ended June 30, 2018, two customers generated 49% and 17%, or 66% in the aggregate, of the Company’s revenue.

 

Two customers accounted for 53% and 23%, or 76% in the aggregate, of gross trade receivables, before accounting for allowance for doubtful accounts, as of June 30, 2019. As of June 30, 2019, the Company had $458,902 and $201,330 in trade receivables, respectively, from these customers. These concentrations make the Company vulnerable to a near-term severe impact should these relationships be terminated. The largest of these customer balances was fully reserved as of June 30, 2019, and on June 21, 2019, this customer filed suit against the Company (see note 7).

 

Two customers accounted for 59% and 14%, or 73% in the aggregate, of gross trade receivables, before accounting for allowance for doubtful accounts, as of December 31, 2018. As of December 31, 2018, the Company had $458,902 and $111,037 in trade receivables, respectively, from these customers. These concentrations make the Company vulnerable to a near-term severe impact should these relationships be terminated. The largest of these customer balances was fully reserved as of December 31, 2018, and on June 21, 2019, this customer filed suit against the Company (see note 7).

 

To limit such risks, the Company performs ongoing credit evaluations of its customers’ financial condition.

 

Major Suppliers

 

For the three months ended June 30, 2019, two suppliers accounted for 66% and 10%, or 76%, in the aggregate, of the Company’s purchases. For the six months ended June 30, 2019, one supplier accounted for 50%, of the Company’s purchases.

 

For the three months ended June 30, 2018, two suppliers accounted for 13% and 11%, or 24% in the aggregate, of the Company’s purchases. For the six months ended June 30, 2018, no supplier accounted for 10% or more of the Company’s purchases.

 

Three vendors accounted for 70% in the aggregate, of trade payables as of June 30, 2019. As of June 30, 2019, the Company had $180,114, $123,000, and $116,206 in trade payables, respectively, to these vendors.

 

  (j) Property, Plant and Equipment

 

Items of property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses. Costs include expenditures that are directly attributable to the acquisition of the asset.

 

Gains and losses on disposal of an item of property, plant and equipment are determined by comparing the proceeds from disposal with the carrying amount of property, plant and equipment and are recognized within “other income” in the Condensed Consolidated Statement of Operations and Comprehensive Loss.

 

Depreciation is recognized in profit and loss on the accelerated basis over the estimated useful lives of the property, plant and equipment. Leased assets are depreciated over the shorter of the lease term or their useful lives.

 

Depreciation expense totaled $9,542 and $13,675 for the three months ended June 30, 2019 and 2018, respectively and $14,975 and $27,350 for the six months ended June 30, 2019 and 2018, respectively.

 

  (k) 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 our condensed consolidated statements of operations and comprehensive loss.

 

Intangible assets as of June 30, 2019 and December 31, 2018 were $223,407 and $243,411, respectively. Intangible assets at June 30, 2019 consisted of patents, trademarks and customer lists of $3,897,635 net of accumulated amortization and impairment of $3,674,228.

 

Amortization is recognized on a straight-line basis over the estimated useful lives of intangible assets, other than goodwill, from the date that they are available for use. Amortization expense was $10,002 and $42,777 for the three months ended June 30, 2019 and 2018, respectively and $20,004 and $85,553 for the six months ended June 30, 2019 and 2018, respectively.

 

The following is an annual schedule of approximate future amortization of the Company’s intangible assets:

 

Period  Amount 
2019 (six months)  $20,004 
2020   40,008 
2021   40,008 
2022   40,008 
2023   40,008 
Thereafter   43,371 
   $223,407 

 

  (l) Revenue Recognition

 

Beginning on January 1, 2019, the Company recognizes revenue under ASC 606, Revenue from Contracts with Customers. The core principle of the 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 our customer, which generally occurs upon delivery to the customer but can also occur when goods are shipped by the Company, depending on the shipment terms of the contract. The Company’s performance obligations are satisfied at that time.

 

The Company uses the most likely amount approach to determine the variable consideration of the transaction price in order to account for the contractual rebates and incentives that are estimated and adjusted for over time. The Company provides for rebates to its distributors. The Company had accrued for rebates and incentives of $1,000 and $23,179, as of June 30, 2019 and December 31, 2018. Accounts receivable will be reduced when the rebates are applied by the customer. The Company recognized $7,679 and $6,350 during the three months ended June 30, 2019 and 2018 and $16,377 and $43,894 for the six months ended June 30, 2019 and 2018 for rebates, which is included as a reduction of product revenue in the Condensed Consolidated Statement of Operations and Comprehensive Loss.

 

  (m) Income Taxes

 

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

 

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

 

Tax benefits are recognized only for tax positions that are more likely than not to be sustained upon examination by tax authorities. The amount recognized is measured as the largest amount of benefit that is greater than 50 percent likely to be realized upon settlement. A liability for “unrecognized tax benefits” is recorded for any tax benefits claimed in the Company’s tax returns that do not meet these recognition and measurement standards. As of June 30, 2019 and December 31, 2018, no liability for unrecognized tax benefits was required to be reported.

 

There is no income tax benefit for the losses for the three and six months ended June 30, 2019 and 2018 since management has determined that the realization of the net deferred assets is not assured and has created a valuation allowance for the entire amount of such tax benefits.

 

The Company’s policy for recording interest and penalties associated with tax audits is to record such items as a component of general and administrative expense. There were no amounts accrued for penalties and interest for the three and six months ended June 30, 2019 and 2018. 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.

 

  (o) Shipping and Handling Fees and Costs

 

The Company charges actual shipping costs plus a handling fee to customers, which amounted to $9,511 and $18,739 for the three months ended June 30, 2019 and 2018 and $21,997 and $32,380 for the six months ended June 30, 2019 and 2018, respectively. These fees are classified as part of product revenue in the Condensed Consolidated Statement of Operations and Comprehensive Loss. Shipping and other related delivery costs, including those for incoming raw materials are classified as product cost of sales, which amounted to $15,660 and $37,993 for the three months ended June 30, 2019 and 2018, respectively and $27,579 and $64,937 for the six months ended June 30, 2019 and 2018, respectively.

 

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

 

Basic earnings per common share is based on the weighted average number of shares outstanding during the periods presented. Diluted earnings per share is computed using the weighted average number of common shares plus dilutive common share equivalents outstanding during the period. Potential common shares that would have the effect of increasing diluted earnings per share are considered anti-dilutive.

 

The calculation of basic and diluted loss per share for the three months ended June 30, 2019 and 2018 was based on the net loss of $794,891 and $2,067,453, respectively and $1,711,849 and $3,927,444 for the six months ended June 30, 2019 and 2018, respectively. The basic and diluted weighted average number of common shares outstanding for the three months ended June 30, 2019 and 2018 was 12,500,923 and 11,656,788, respectively and 12,492,115 and 10,293,569 for the six months ended June 30, 2019 and 2018, respectively.

 

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

 

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

 

   For the Three and Six Months Ended
June 30,
 
   2019   2018 
Stock Options   4,064    25,250 
RSUs   374,481    - 
Warrants   2,110,737    1,416,229 
Total potentially dilutive shares   2,489,282    1,441,479 

 

  (q) Recently Issued Accounting Pronouncements

 

Recently Issued Accounting Pronouncements Adopted

 

As the Company is an emerging growth company (“EGC”), it has elected to adopt recently issued accounting pronouncements based on effective dates applicable to other than public business entities. The Company is expected to lose its EGC status on December 31, 2019 as it is the last day of the fiscal year following the fifth anniversary of the effective date of its registration statement on January 23, 2014.

 

In May 2014 and April 2016, the FASB issued ASU No. 2014-09 and ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606). The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In August 2015, FASB issued ASU 2015-14 which deferred the effective date of Update 2014-09 to annual reporting periods beginning after December 15, 2018 for entities other than public business entities, and to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period for public business entities.

 

The Company has elected to apply the modified retrospective method and the impact was determined to be immaterial on the condensed consolidated financial statements. Accordingly, the new revenue standard was applied prospectively in our condensed consolidated financial statements from January 1, 2019 forward and reported financial information for historical comparable periods will not be revised and will continue to be reported under the accounting standards in effect during those historical periods.

 

The Company has performed an analysis and identified its revenues and costs that are within the scope of the new guidance. The Company has determined that its methods of recognizing revenues will not be significantly impacted by the new guidance.

 

In June 2018, the FASB issued ASU 2018-07, Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, which expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. The guidance is effective for public business entities, certain not-for-profit entities, and certain employee benefit plans for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. For all other entities, ASU 2018-07 is effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted, but no earlier than an entity’s adoption date of Topic 606. The Company early adopted ASC 2018-07 effective January 1, 2019. There was no material impact on the Company’s condensed consolidated financial statements upon this adoption.

 

In July 2018, the FASB issued ASU No. 2018-09, Codification Improvements, to makes changes to a variety of topics to clarify, correct errors in, or make minor improvements to the Accounting Standards Codification. Certain items of the amendments in ASU 2018-09 will be effective for the Company in annual periods beginning after December 15, 2018. The adoption of ASU 2018-09 did not have a material impact on the Company’s condensed consolidated financial statements.

 

Recently Issued Accounting Pronouncements Not 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. ASU 2016-02 is effective for annual reporting periods beginning after December 15, 2019, including interim periods within that reporting period, and requires a modified retrospective adoption, with early adoption permitted. The Company is currently evaluating the effect this guidance will have on its condensed consolidated financial statements and related disclosure, and anticipates the guidance to result in increases in its assets and liabilities as most of its operating lease commitments will be subject to the new standard and recognized as right-of-use assets and lease liabilities.

 

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, 2019, including interim periods within that fiscal year. The Company is currently evaluating the effect this guidance will have on its condensed consolidated financial statements and related disclosures.

XML 18 R9.htm IDEA: XBRL DOCUMENT v3.19.2
Recent Developments and Management's Plans
6 Months Ended
Jun. 30, 2019
Expenses Related Public Offering [Domain]  
Recent Developments and Management's Plans

Note 3 – Recent Developments and Management’s Plans

 

On December 19, 2018, the Company announced its intent to delist from the AIM Market of the London Stock Exchange. The Company believed that due to the relatively low liquidity in the Company’s common stock, remaining listed on the AIM Market did not merit the ongoing costs and regulatory complexities associated with maintaining the AIM listing. On March 5, 2019, the Company held a special meeting of shareholders who then voted in favor of the Company delisting from the AIM Market. The delisting took effect on March 29, 2019.

 

On November 7, 2018, the Company announced that its board of directors had initiated a process to evaluate strategic alternatives to maximize shareholder value. This process will consider a range of potential strategic alternatives including, but not limited to, business combinations, while simultaneously supporting the Company’s management and employees in the execution of the Company’s current business activities. On November 19, 2018, the Company further announced that in its evaluation of strategic alternatives it will consider a range of potential strategic alternatives including, but not limited to, business combinations in sectors different than that currently engaged in, including cannabis and hemp related industries.

 

By way of a letter dated May 10, 2019, the Listing Qualifications Department of NASDAQ advised the Company that it did not comply with NASDAQ Listing Rule 5550(a)(2) for continued listing, because the Company’s common stock did not meet NASDAQ’s minimum $1.00 bid price requirement (the “Price Requirement”). The Company intends to monitor the closing bid price of the common stock and may, if appropriate, consider implementing available options to regain compliance with the Price Requirement under the NASDAQ Listing Rules.

 

Historically, the Company has relied upon public offerings and private placements of common stock to raise operating capital. As of August 9, 2019, the Company had cash and marketable securities of approximately $3.99 million (excluding restricted cash of $115,094) and working capital of approximately $3.53 million.

 

The Company anticipates that available cash and marketable securities, as well as expected cash from operations, will be sufficient to meet its obligations as they fall due within one year after these financial statements are issued.

XML 19 R10.htm IDEA: XBRL DOCUMENT v3.19.2
Inventories
6 Months Ended
Jun. 30, 2019
Inventory Disclosure [Abstract]  
Inventories

Note 4 – Inventories

 

Inventories are measured at the lower of cost or net realizable value. The cost of inventories is based on the weighted-average principle, and includes expenditures incurred in acquiring the inventories, production or conversion costs and other costs incurred in bringing them to their existing location and condition. In the case of manufactured inventories and work in progress, costs include an appropriate share of production overhead based on normal operating capacity.

 

Inventories consist of the following:

 

   June 30, 2019   December 31, 2018 
         
Raw Materials  $404,094   $542,761 
Sub-Assemblies   686,386    711,181 
Finished Goods   479,457    635,565 
Reserve for Obsolescence   (1,025,696)   (1,304,240)
   $544,241   $585,267 

 

Obsolete inventory charged to cost of goods was $41,849 and $7,477, during the three months ended June 30, 2019 and 2018, and $45,946 and $28,987 during the six months ended June 30, 2019 and 2018, respectively.

XML 20 R11.htm IDEA: XBRL DOCUMENT v3.19.2
Trade and Other Payables
6 Months Ended
Jun. 30, 2019
Payables and Accruals [Abstract]  
Trade and Other Payables

Note 5 - Trade and Other Payables

 

Trade and other payables consists of the following:

 

   June 30, 2019   December 31, 2018 
         
Trade Payables  $741,875   $686,578 
Accrued Expenses   816,093    1,227,172 
Deferred Compensation   59,750    59,750 
   $1,617,718   $1,973,500 

 

See also Note 9 for related party information.

XML 21 R12.htm IDEA: XBRL DOCUMENT v3.19.2
Share-based Payments
6 Months Ended
Jun. 30, 2019
Share-based Payment Arrangement [Abstract]  
Share-based Payments

Note 6 - Share-based Payments

 

Equity incentive Plans

 

2013 Stock Incentive Plan

 

On January 23, 2014, the Company adopted the 2013 Stock Incentive Plan (“2013 Plan”). The 2013 Plan was amended by the Board on January 9, 2015 and September 30, 2016, and such amendments were ratified by shareholders on December 7, 2018. The 2013 Plan provides for the issuance of up to 103,750 shares of the Company’s common stock. As of June 30, 2019, grants of restricted stock and options to purchase 71,590 shares of Common Stock have been issued pursuant to the 2013 Plan, and 32,160 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 168,750 shares of the Company’s common stock. As of June 30, 2019, grants of restricted stock and options to purchase 62,282 shares of Common Stock have been issued pursuant to the 2017 Plan, and 106,468 shares of Common Stock remain available for issuance.

 

2018 Stock Incentive Plan

 

On December 7, 2018, the shareholders approved and the Company adopted the 2018 Stock Incentive Plan (“2018 Plan”). The 2018 Plan provides for the issuance of up to 1,875,000 shares of the Company’s common stock. As of June 30, 2019, grants of RSUs to purchase 374,481 shares of Common Stock have been issued pursuant to the 2018 Plan, and 1,500,519 shares of Common Stock remain available for issuance.

 

Stock Options

 

The following table summarizes the option activities for the six months ended June 30, 2019:

 

   Number of Shares   Weighted Average Exercise Price   Weighted Average Grant Date Fair Value   Weighted Average Remaining Contractual Term (years)   Aggregate
Intrinsic Value
 
Balance at December 31, 2018   10,502   $30.41   $17.42    1.43   $          - 
Granted   -    -    -    -    - 
Exercised   -    -    -    -    - 
Forfeited   (6,438)   33.79    23.72    0.58    - 
Canceled/Expired   -    -    -    -    - 
Balance at June 30, 2019   4,064   $25.04   $7.46    1.50   $- 
Exercisable as of June 30, 2019   4,064   $25.04   $7.46    1.50   $- 

 

The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the closing stock price of $0.45 for the Company’s common shares on June 30, 2019. As the closing stock price on June 30, 2019 is lower than the exercise price, there is no intrinsic value to disclose.

 

As of June 30, 2019, all of the Company’s outstanding stock options were fully vested and exercisable.

 

During the three months ended June 30, 2019 and 2018, the Company incurred stock option expenses totaling $0 and $2,742, respectively and $0 and $5,454 for the six months ended June 30, 2019 and 2018, respectively.

 

Restricted Stock Units

 

On March 29, 2019, the Compensation Committee of the Board of Directors approved the grant of 124,827 Restricted Stock Units (“RSU”) to each of the three directors. Each RSU had a grant date fair value of $0.97 which shall be 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 shall vest on January 1, 2020, with vesting accelerated upon a change of control. Upon vesting, such RSUs are settled with the issuance of common stock, including on a net of tax basis, at the discretion of the holder.

 

At June 30, 2019, the unamortized value of the RSU’s was $240,863. The unamortized amount will be expensed over the remaining period of six months. A summary of activity related to RSUs for the six months ended June 30, 2019 is presented below:

 

   Number of RSUs   Weighted Average Grant
Date Fair Value
 
Balance at December 31, 2018   -   $- 
Granted   374,481   $0.97 
Exercised   -    - 
Forfeited   -    - 
Canceled/Expired   -    - 
Balance at June 30, 2019   374,481   $0.97 
Exercisable as of June 30, 2019   -    - 

 

During the three and six months ended June 30, 2019, the Company incurred RSU expense of $118,478 and $122,384, respectively.

 

Stock Warrants

 

The table below summarizes the warrant activity for the period ended June 30, 2019:

 

   Number of Warrants   Weighted Average
Exercise Price
   Average Remaining Contractual Term (years)   Aggregate
Intrinsic Value
 
Balance at December 31, 2018   2,110,737   $3.10    4.21   $                - 
Granted   -    -    -    - 
Exercised   -    -    -    - 
Forfeited   -    -    -    - 
Canceled/Expired   -    -    -    - 
Balance at June 30, 2019   2,110,737   $3.10    3.71   $- 
Exercisable as of June 30, 2019   2,110,737   $3.10    3.71   $- 

 

The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the closing stock price of $0.45 for the Company’s common shares on June 30, 2019. All warrants were vested on date of grant.

XML 22 R13.htm IDEA: XBRL DOCUMENT v3.19.2
Equity
6 Months Ended
Jun. 30, 2019
Equity [Abstract]  
Equity

Note 7 – Equity

 

During the six months ended June 30, 2019, the Company issued 26,250 shares of Common Stock to Mr. Yeaton pursuant to his employment agreement. These shares had a fair value of $22,444 on the date of grant, of which $4,238 was recorded in trade and other payables in the consolidated balance sheet as of December 31, 2018 and $6,570 and $18,206 were recorded as expense in the condensed consolidated statement of operations and comprehensive loss for the three and six months ended June 30, 2019 and 2018, respectively.

XML 23 R14.htm IDEA: XBRL DOCUMENT v3.19.2
Commitments and Contingencies
6 Months Ended
Jun. 30, 2019
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies

Note 8 – Commitments and Contingencies

 

Lease Commitments

 

The Company leases its facility in West Deptford, New Jersey under an operating lease (“Thorofare Lease”) with annual rentals of $132,000 plus common area maintenance (CAM) charges. The lease, which took effect on January 1, 2008, reduced the CAM charges allowing the Company to reach their own agreements with utilities and other maintenance providers. On January 7, 2013, the Company extended its lease agreement for a term of 7 years, expiring December 31, 2019. Rent expense for the Thorofare Lease, including related CAM charges for the three months ended June 30, 2019 and 2018 totaled $40,955 and $40,928, respectively and $82,320 and $83,144 for the six months ended June 30, 2019 and 2018, respectively. The Company entered into a 24-month lease for a satellite office located in Ramsey, New Jersey (“Ramsey Lease”) with annual rents of $25,980 plus common area maintenance (CAM) charges. The lease took effect on June 1, 2017 and ran through May 31, 2019. Rent expenses for the Ramsey Lease, including related CAM charges totaled $6,495 and $6,495 for the three months ended June 30, 2019 and 2018, respectively, and $12,990 and $12,990 for the six months ended June 30, 2019 and 2018, respectively. The Company entered into a 29-month lease for warehouse space located in Pitman, New Jersey (“Pitman Lease”) with annual rents of $40,839. The lease took effect on August 1, 2017 and runs through December 31, 2019. Rent expenses for the Pitman Lease totaled $10,210 and $9,913 for the three months ended June 30, 2019 and 2018, and $20,420 and $19,825 for the six months ended June 30, 2019 and 2018, respectively. A security deposit of $4,950 is included in other assets on the Condensed Consolidated Balance Sheet.

 

The Company entered into a 60-month operating lease for equipment with annual rentals of $6,156 on September 29, 2014. The lease commenced on October 21, 2014 upon the delivery of the equipment.

 

The schedule of lease commitments is as follows:

 

   Thorofare   Pitman   Equipment     
   Lease   Lease   Lease   Total 
Next 6 Months  $66,000   $19,824   $3,078   $88,902 

 

ChubeWorkx

 

On August 17, 2016, pursuant to a Settlement Agreement (the “Settlement Agreement”) with ChubeWorkx Guernsey Limited (“ChubeWorkx”), which settled all pending claims between the Company and ChubeWorkx. Specifically, the Company and ChubeWorkx agreed to voluntarily dismiss (i) the action in the United States Federal Court, District of New Jersey brought by the Company against ChubeWorkx for outstanding amounts due to the Company under a promissory note and (ii) the action in The High Court of Justice, Queen’s Bench Division Commercial Court, Royal Courts of Justice, United Kingdom brought by ChubeWorkx against the Company arising from an exclusive licensing agreement between ChubeWorkx and the Company (“Licensing Agreement”).

 

In return for the Company regaining the full rights to sell breath technology products, under the terms of the Settlement Agreement, ChubeWorkx is entitled to receive a royalty of 5% of the Company’s gross revenues (the “ChubeWorkx Royalty”) until ChubeWorkx has earned an aggregate $5,000,000, after which point ChubeWorkx will no longer be entitled to receive any royalties from the Company and the Company shall have no further obligation to ChubeWorkx. The Settlement Agreement further allows the Company to retain 50% of the ChubeWorkx Royalty until the full $549,609 cash component of the monies owed by ChubeWorkx to the Company as described above has been satisfied. The Company recorded royalty expenses of $23,520 and $27,082 for the three months ended June 30, 2019 and 2018, and $54,804 and $58,771 for the six months ended June 30, 2019 and 2018, respectively, which are included in sales and marketing expenses on the Condensed Consolidated Statement of Operations and Comprehensive Loss. As of June 30, 2019, the Company owed ChubeWorkx royalties of $11,760 which is included in trade and other payables within the condensed consolidated balance sheet.

 

Other terms of the Settlement included: 1) the pledge as security of all earned but unpaid royalties by the Company to ChubeWorkx all Company assets, worthy to satisfy its obligations, including all inventory and receivables, with the exception of (i) distribution contracts of the Company or any of its affiliates, (ii) customer lists, (iii) manufacturing processes (including all intellectual property required to use those processes and exploit products made thereby), and (iv) all equipment required to perform said manufacturing processes and other equipment; 2) the pledge as security of the settlement sum which remains unpaid by the Company to ChubeWorkx all Company (i) distribution contracts of the Company or any of its affiliates, (ii) customer lists, (iii) manufacturing processes (including all intellectual property required to use those processes and exploit products made thereby), and (iv) all equipment required to perform said manufacturing processes and other equipment; and 3) the grant of voting proxy by ChubeWorkx to the Company which allows the Company to vote ChubeWorkx’s shares for corporate formalities under certain conditions.

 

The pledged assets are only at risk in the event that the Company cannot satisfy any outstanding royalty payment obligations subject to various cure periods and/or through a restructuring and/or liquidation under the United States Bankruptcy laws of the Company in favor of payment of said obligation.

 

Litigation and Settlements

 

Faulkner v. Akers Biosciences, Inc., No. 2:18-cv-10521 (D.N.J.) and Gleason v. Akers Biosciences, Inc., No. 2:18-cv-10805 (D.N.J.)

 

On June 13, 2018, Plaintiff Tim Faulkner filed a class action complaint alleging securities violations against Akers Biosciences, Inc. (“Akers”), John J. Gormally, and Gary M. Rauch (“Individual Defendants”) (together with Akers, “Defendants”) on behalf of all persons and entities who purchased publicly traded Akers securities from May 15, 2017 through June 5, 2018 (the “Faulkner Action”). The complaint alleges violations of Section 10(b) of the Exchange Act and Rule 10b-5 against all Defendants, and violations of Section 20(a) of the Exchange Act against the Individual Defendants. In particular, the complaint alleges that Defendants made false and/or misleading statements and/or failed to disclose in its first, second, and third quarter 2017 10-Qs and its 2017 10-K that: (1) Akers was improperly recognizing revenue for the fiscal year ended December 31, 2017; and, (2) Akers had downplayed weaknesses in its internal controls over financial reporting and failed to disclose the true extent of those weaknesses. On June 20, 2018, Plaintiff David Gleason filed a class action complaint under the caption Gleason v. Akers Biosciences, Inc., No. 2:18-cv-10805 (D.N.J.) based on the same allegations and causes of action (the “Gleason Action”). On November 21, 2018, the Faulkner and Gleason Actions were consolidated under the Faulkner Action docket. The parties conducted a mediation on January 10, 2019 and agreed to a settlement in principle disposing of the consolidated action as to all Defendants, including the Individual Defendants. On March 8, 2019, the parties signed a settlement agreement, subject to approval by the Court, whereby the Company agreed to pay $2,250,000 in exchange for full releases and discharge of all claims against the Company. On the same day, Lead Plaintiffs filed a motion for preliminary approval of the settlement and to establish notice procedures. On July 3, 2019, the Court granted the motion for preliminary approval and scheduled a final settlement hearing for November 8, 2019. On or about July 24, 2019, the Company’s D&O insurer sent the settlement payment of $2,250,000 to the settlement agent for the class.

 

Watts v. Gormally, et al., No. 2:18-15992 (D.N.J.)

 

On November 9, 2018, Plaintiff Cale Watts filed a verified shareholder derivative complaint alleging violations of the Securities Exchange Act of 1934, breach of fiduciary duty, unjust enrichment, and waste of corporate assets based on alleged material weaknesses in controls, management, and documentation (the “Watts Action”). On January 14, 2019, the parties reached an agreement in principle to settle the Watts Action that included corporate reforms and an attorneys’ fees payment of $200,000. The parties finalized a Stipulation of Settlement on March 4, 2019. On March 22, 2019, Plaintiffs filed a motion seeking (a) preliminary approval of the proposed Settlement, (b) approval of the proposed form and method of providing notice of the Settlement, and (c) scheduling a hearing for final approval of the settlement (the “Motion for Preliminary Approval”). On April 1, 2019, Tiffany Chan, Jasmine Henderson, and Don Danesh Wijesekera (the “Proposed Intervenors”) filed an Opposition to the Motion for Preliminary Approval, and a Motion to Intervene and Stay Proceedings (“Motion to Intervene and Stay”). Defendants’ Opposition to the Motion to Intervene and Stay is due August 20, 2019, and its Reply in further support of the Motion for Preliminary Approval is due August 27, 2019. The Motion for Preliminary Approval and the Motion to Intervene and Stay are currently returnable on September 3, 2019.

 

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

 

On February 7, 2019, Tiffany Chan, Jasmine Henderson, and Don Danesh filed a verified shareholder derivative complaint alleging violations of Section 14(a) of the Exchange Act and SEC Rule 14a-9, breach of fiduciary duty, unjust enrichment, and waste of corporate assets based on the same circumstances as the Watts Action. The Chan Action further alleges that the Company should not have settled the Watts Action because the Watts Action plaintiffs lacked standing and the settlement would cause irreparable harm to the Company and its shareholders. On April 4, 2019, the Court entered the parties’ stipulation and consent order to extend Defendants’ time to answer, move, or otherwise respond to the Complaint until 20 days after the Court (a) decides the Motion for Preliminary Approval of the Watts Settlement, (b) decides the Motion in Opposition to the Watts Settlement, (c) decides the Motion to Intervene and Stay in the Watts Action, and/or (d) stays the Watts Action.

 

Watts and Chan Matters – Potential Resolution

 

On August 12, 2019, counsel for all parties in the Watts Action and the Chan Action informed the Watts Court that they had agreed in principle to a resolution of both the Watts and Chan Actions, and expected to have finalized paperwork for the Court’s review and approval within 30-45 days. The parties have a follow-up call scheduled with the Court for October 3, 2019.

 

Faulkner, Gleason, Watts and Chan Matters

 

With respect to the Faulkner, Gleason, Watts and Chan matters, the Company maintains D&O liability insurance coverage, with a company retention of $500,000. The D&O liability insurance coverage provides insurance coverage to both the Company and the Directors and Officers for covered defense and indemnification. Through December 31, 2018, the Company recorded a cumulative charge of $500,000, representing the insurance carrier retention requirement. The insurance carrier has provided notice that it has reserved certain rights, and through the date of the filing of this Quarterly Report on Form 10-Q, the Company may incur additional costs related to these matters, the amounts of which are not able to be determined at this time.

 

Typenex Medical, LLC v. Akers Biosciences, Inc., JAMS Ref. No. 1450005929

 

On November 15, 2018, Typenex Medical LLC (“Typenex”), a telemarketing entity with whom the Company had entered into a marketing and commission agreement dated September 30, 2016 (the “Marketing Contract”), filed an arbitration against the Company before JAMS ADR (the “Arbitration”), and an arbiter was appointed to the Arbitration on December 14, 2018. In the Arbitration, Typenex stated that was seeking “at least” $220,500 based on the allegation that the Marketing Contract entitles Typenex to a commission on sales of certain of the Company’s heparin-related products in the period two years from the Marketing Contract’s expiration, and in the alternative, Typenex was seeking relief for breach of the implied covenant of good faith and fair dealing, and/or unjust enrichment.

 

On July 19, 2019, the Company and Typenex executed a settlement agreement. Pursuant to the settlement agreement, the Company agreed to pay Typenex $50,000 in cash and to issue 40,000 shares of the Company’s common stock. As of June 30, 2019, $66,800 is included in accrued expenses within the condensed consolidated balance sheets for this settlement.

 

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

 

On June 21, 2019, the Company received a complaint, filed by Novotek Therapeutics Inc., and Novotek Pharmaceuticals Limited (collectively, “Novotek”), Beijing-based entities, in the United States District Court for the District of New Jersey, alleging, among other things, breach of contract. Novotek is seeking, among other things, damages in the amount of $1,551,562, plus interest, disbursements and attorneys’ fees. The Company vigorously disputes the allegations in the complaint and has retained counsel to defend it. The Company is not yet able to determine the amount of the Company’s exposure, if any.

 

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

 

On July 25, 2019, the Company was notified that on July 23, 2019, a complaint was filed by Neelima Varma, against the Company and St. David’s Healthcare Partnership, L.P., LLP (“St. David’s”), in the district court of Travis County, Texas, alleging, among other things, negligence, gross negligence and strict product liability, breach of express warranty, breach of implied warranty and fraudulent misrepresentation and omission, with respect to a medical device which the Company had sold through one its distributors to St. David’s. Ms. Varma is seeking aggregate monetary relief from the Company and St. David’s in excess of $1,000,000. The Company carries product liability insurance. The insurance carrier has provided notice that it has reserved certain rights. The Company and its insurance carrier will contest this complaint vigorously. The Company believes that its product liability insurance coverage will be adequate to cover the potential exposure for this matter.

 

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

 

Douglas Carrara, a former executive, has sued the Company over the termination of his employment. The executive seeks contractual severance pay in the amount of $200,000. The executive asserts that the termination was without cause within the meaning of his employment agreement, which provides for severance of one year’s salary in the event of termination without cause. The executive also seeks indemnification for approximately $8,000 in attorneys’ fees that he contends he incurred in regard to company business. With regard to both claims, the executive seeks to recover his attorneys’ fees under a fee-shifting provision in his employment agreement.

 

The Company’s answer to the complaint is due August 28, 2019. With respect to this matter, the Company believes that the ultimate liability from the resolution of this matter will not be material to the Company’s condensed consolidated financial statements.

 

Other

 

A former executive has threatened to sue the Company over the termination of the executive’s employment. The executive contends that the termination was in retaliation for complaints to the employer protected under the California whistleblower protection laws. The executive also contends that the Company failed to pay a bonus in violation of an employment contract. The Company’s management and legal counsel believes it is too early to determine the probable outcome of this matter.

 

The Company intends to establish a rigorous defense of all claims. All legal fees were expensed as and when incurred.

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Related Parties
6 Months Ended
Jun. 30, 2019
Related Party Transactions [Abstract]  
Related Parties

Note 9 – Related Parties

 

CEO and Interim CFO

 

Effective on October 5, 2018, the Board appointed Howard R. Yeaton, to serve as the Chief Executive Officer and interim Chief Financial Officer of the Company. Mr. Yeaton is the managing principal of FCS and the Company’s relationship with FCS shall continue, with FCS continuing to provide accounting services to the Company. FCS is considered to be a related party. During the three and six months ended June 30, 2019, the Company incurred costs of $0 and $23,506 with FCS in connection with these services. As of June 30, 2019, the Company owed FCS $52,913 which is included in trade and other payables on the Condensed Consolidated Balance Sheet.

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Revenue Information
6 Months Ended
Jun. 30, 2019
Segment Reporting [Abstract]  
Revenue Information

Note 10 – Revenue Information

 

Revenue by product lines was as follows:

 

   Three Months Ended   Six Months Ended 
   June 30,   June 30, 
Product Line  2019   2018   2019   2018 
MicroParticle Catalyzed Biosensor (“MPC”)  $65,344   $106,680   $88,664   $125,630 
Particle ImmunoFiltration Assay (“PIFA”)   304,658    356,082    880,973    616,066 
Rapid Enzymatic Assay (“REA”)   85,000    45,100    85,000    55,000 
Other   9,511    18,739    21,997    32,380 
Total Revenue  $464,513   $526,601   $1,076,634   $829,076 

 

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

 

   Three Months Ended   Six Months Ended 
   June 30,   June 30, 
Geographic Region  2019   2018   2019   2018 
United States  $447,013   $462,383   $1,059,134   $757,116 
Rest of World   17,500    64,218    17,500    71,960 
Total Revenue  $464,513   $526,601   $1,076,634   $829,076 

 

The Company had long-lived assets totaling $13,097 and $14,294 located in the People’s Republic of China and $278,791 and $312,573 located in the United States as of June 30, 2019 and December 31, 2018, respectively.

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Employee Benefit Plan
6 Months Ended
Jun. 30, 2019
Retirement Benefits [Abstract]  
Employee Benefit Plan

Note 11 – Employee Benefit Plan

 

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

 

During the three months ended June 30, 2019 and 2018, the Company made matching contributions to the 401(k) Plan of $7,425 and $15,314, respectively and $16,888 and $29,116 for the six months ended June 30, 2019 and 2018, respectively.

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Subsequent Event
6 Months Ended
Jun. 30, 2019
Subsequent Events [Abstract]  
Subsequent Event

Note 12 – Subsequent Event

 

Pursuant to an unsecured promissory note dated July 4, 2019, on July 25, 2019 the Company advanced $100,000 to a company in the hemp related industry with which the Company has been considering for a potential business transaction. The loan bears interest at a rate of 8% per annum, and is payable in full on October 2, 2019.

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Significant Accounting Policies (Policies)
6 Months Ended
Jun. 30, 2019
Accounting Policies [Abstract]  
Basis of Presentation
(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, 2018 and 2017 included in the Company’s 2018 Form 10-K, as filed on April 1, 2019. In the opinion of the management, these condensed consolidated financial statements include all adjustments, consisting of only normal recurring nature, necessary for a fair statement of the financial position of the Company as of June 30, 2019 and its results of operations and cash flows for the three and six months ended June 30, 2019 and 2018. The results of operations for the three and six months ended June 30, 2019 are not necessarily indicative of the results to be expected for the full fiscal year ending December 31, 2019.

 

The Company is an emerging growth company as the term is used in The Jumpstart Our Business Startups Act enacted on April 5, 2012 and has elected to comply with certain reduced public company reporting requirements.

Use of Estimates and Judgments
(b) Use of Estimates and Judgments

 

The preparation of financial statements in conformity with US GAAP requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected. Information about significant areas of estimation, uncertainty and critical judgments in applying accounting policies that have the most significant effect on the amounts recognized in the financial statements is included in the following notes for revenue recognition, allowances for doubtful accounts, inventory write-downs, impairment of intangible assets and valuation of share-based payments.

Functional and Presentation Currency
(c) Functional and Presentation Currency

 

These condensed consolidated financial statements are presented in U.S. Dollars, which is the Company’s functional currency. All financial information presented in U.S. Dollars has been rounded to the nearest dollar. Foreign Currency Transaction Gains or Losses, resulting from cash balances denominated in Foreign Currencies, are recorded in the Condensed Consolidated Statements of Operations and Comprehensive Loss.

Comprehensive Income (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.

Cash and Cash Equivalents
(e) Cash and Cash Equivalents

 

The Company considers all highly liquid investments, which include short-term bank deposits (up to 3 months from date of deposit) that are not restricted as to withdrawal date or use, to be cash equivalents.

Restricted Cash
(f) Restricted Cash

 

At June 30, 2019, restricted cash included in non-current assets on the Company’s consolidated balance sheet was $115,094 representing cash in trust for the purpose of funding legal fees for certain litigations.

 

Fair Value of Financial Instruments
(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.

 Following is a description of the valuation methodologies used for assets measured at fair value as of June 30, 2019 and December 31, 2018.

 

U.S. Agency Securities: Valued using pricing models maximizing the use of observable inputs for similar securities. This includes basing value on yields currently available on comparable securities of issuers with similar credit ratings.

 

   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) 
Marketable securities at June 30, 2019  $                -   $4,020,498   $                      - 
                
Marketable securities at December 31, 2018  $-   $5,272,998   $- 

 

Marketable securities include U.S. agency securities, which are classified as available for sale. The securities are valued at fair market value. Maturities of the securities are less than one year. Unrealized gains and losses relating to the available for sale investment securities were recorded in the Condensed Consolidated Statement of Changes in Shareholders’ Equity as comprehensive (loss) income. These amounts were $18,059 and $47,402 in unrealized gain for the three and six months ended June 30, 2019 and a decrease of $4,401 and an increase of $12,443 in unrealized loss for the three and six months ended June 30, 2018, respectively.

 

Gains and losses resulting from the sales of marketable securities were a loss of $543 and $4,400 for the three months ended June 30, 2019 and 2018, and a loss of $4,258 and $4,401 for the six months ended June 30, 2019 and 2018, respectively.

 

Proceeds from the sale of marketable securities in the three and six months ended June 30, 2019 were $502,126 and $1,354,646, respectively and in the three and six months ended June 30, 2018 were $2,004,580 and $2,306,675, respectively.

Trade Receivables and Allowance for Doubtful Accounts
(h) Trade Receivables and Allowance for Doubtful Accounts

 

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

 

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

 

As of June 30, 2019 and December 31, 2018, allowances for doubtful accounts for trade receivables were $605,848 and $606,835. Bad debt expenses for trade receivables were $0 and $125,500 for the three months ended June 30, 2019 and 2018, respectively and $4,247 and $125,500 for the six months ended June 30, 2019 and 2018, respectively.

Concentrations
(i) Concentrations

 

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

 

Major Customers

 

For the three months ended June 30, 2019, three customers generated 42%, 20%, and 19% or 81% in the aggregate, of the Company’s revenue. For the six months ended June 30, 2019, two customers generated 44% and 34%, or 78% in the aggregate, of the Company’s revenue.

 

For the three months ended June 30, 2018, three customers generated 33%, 27%, and 12%, or 72% in aggregate, of the Company’s revenue. For the six months ended June 30, 2018, two customers generated 49% and 17%, or 66% in the aggregate, of the Company’s revenue.

 

Two customers accounted for 53% and 23%, or 76% in the aggregate, of gross trade receivables, before accounting for allowance for doubtful accounts, as of June 30, 2019. As of June 30, 2019, the Company had $458,902 and $201,330 in trade receivables, respectively, from these customers. These concentrations make the Company vulnerable to a near-term severe impact should these relationships be terminated. The largest of these customer balances was fully reserved as of June 30, 2019, and on June 21, 2019, this customer filed suit against the Company (see note 7).

 

Two customers accounted for 59% and 14%, or 73% in the aggregate, of gross trade receivables, before accounting for allowance for doubtful accounts, as of December 31, 2018. As of December 31, 2018, the Company had $458,902 and $111,037 in trade receivables, respectively, from these customers. These concentrations make the Company vulnerable to a near-term severe impact should these relationships be terminated. The largest of these customer balances was fully reserved as of December 31, 2018, and on June 21, 2019, this customer filed suit against the Company (see note 7).

 

To limit such risks, the Company performs ongoing credit evaluations of its customers’ financial condition.

 

Major Suppliers

 

For the three months ended June 30, 2019, two suppliers accounted for 66% and 10%, or 76%, in the aggregate, of the Company’s purchases. For the six months ended June 30, 2019, one supplier accounted for 50%, of the Company’s purchases.

 

For the three months ended June 30, 2018, two suppliers accounted for 13% and 11%, or 24% in the aggregate, of the Company’s purchases. For the six months ended June 30, 2018, no supplier accounted for 10% or more of the Company’s purchases.

 

Three vendors accounted for 70% in the aggregate, of trade payables as of June 30, 2019. As of June 30, 2019, the Company had $180,114, $123,000, and $116,206 in trade payables, respectively, to these vendors.

Property, Plant and Equipment
(j) Property, Plant and Equipment

 

Items of property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses. Costs include expenditures that are directly attributable to the acquisition of the asset.

 

Gains and losses on disposal of an item of property, plant and equipment are determined by comparing the proceeds from disposal with the carrying amount of property, plant and equipment and are recognized within “other income” in the Condensed Consolidated Statement of Operations and Comprehensive Loss.

 

Depreciation is recognized in profit and loss on the accelerated basis over the estimated useful lives of the property, plant and equipment. Leased assets are depreciated over the shorter of the lease term or their useful lives.

 

Depreciation expense totaled $9,542 and $13,675 for the three months ended June 30, 2019 and 2018, respectively and $14,975 and $27,350 for the six months ended June 30, 2019 and 2018, respectively.

Intangible Assets
(k) 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 our condensed consolidated statements of operations and comprehensive loss.

 

Intangible assets as of June 30, 2019 and December 31, 2018 were $223,407 and $243,411, respectively. Intangible assets at June 30, 2019 consisted of patents, trademarks and customer lists of $3,897,635 net of accumulated amortization and impairment of $3,674,228.

 

Amortization is recognized on a straight-line basis over the estimated useful lives of intangible assets, other than goodwill, from the date that they are available for use. Amortization expense was $10,002 and $42,777 for the three months ended June 30, 2019 and 2018, respectively and $20,004 and $85,553 for the six months ended June 30, 2019 and 2018, respectively.

 

The following is an annual schedule of approximate future amortization of the Company’s intangible assets:

 

Period  Amount 
2019 (six months)  $20,004 
2020   40,008 
2021   40,008 
2022   40,008 
2023   40,008 
Thereafter   43,371 
   $223,407 
Revenue Recognition
(l) Revenue Recognition

 

Beginning on January 1, 2019, the Company recognizes revenue under ASC 606, Revenue from Contracts with Customers. The core principle of the 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 our customer, which generally occurs upon delivery to the customer but can also occur when goods are shipped by the Company, depending on the shipment terms of the contract. The Company’s performance obligations are satisfied at that time.

 

The Company uses the most likely amount approach to determine the variable consideration of the transaction price in order to account for the contractual rebates and incentives that are estimated and adjusted for over time. The Company provides for rebates to its distributors. The Company had accrued for rebates and incentives of $1,000 and $23,179, as of June 30, 2019 and December 31, 2018. Accounts receivable will be reduced when the rebates are applied by the customer. The Company recognized $7,679 and $6,350 during the three months ended June 30, 2019 and 2018 and $16,377 and $43,894 for the six months ended June 30, 2019 and 2018 for rebates, which is included as a reduction of product revenue in the Condensed Consolidated Statement of Operations and Comprehensive Loss.

Income Taxes
(m) Income Taxes

 

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

 

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

 

Tax benefits are recognized only for tax positions that are more likely than not to be sustained upon examination by tax authorities. The amount recognized is measured as the largest amount of benefit that is greater than 50 percent likely to be realized upon settlement. A liability for “unrecognized tax benefits” is recorded for any tax benefits claimed in the Company’s tax returns that do not meet these recognition and measurement standards. As of June 30, 2019 and December 31, 2018, no liability for unrecognized tax benefits was required to be reported.

 

There is no income tax benefit for the losses for the three and six months ended June 30, 2019 and 2018 since management has determined that the realization of the net deferred assets is not assured and has created a valuation allowance for the entire amount of such tax benefits.

 

The Company’s policy for recording interest and penalties associated with tax audits is to record such items as a component of general and administrative expense. There were no amounts accrued for penalties and interest for the three and six months ended June 30, 2019 and 2018. 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.

Shipping and Handling Fees and Costs
(o) Shipping and Handling Fees and Costs

 

The Company charges actual shipping costs plus a handling fee to customers, which amounted to $9,511 and $18,739 for the three months ended June 30, 2019 and 2018 and $21,997 and $32,380 for the six months ended June 30, 2019 and 2018, respectively. These fees are classified as part of product revenue in the Condensed Consolidated Statement of Operations and Comprehensive Loss. Shipping and other related delivery costs, including those for incoming raw materials are classified as product cost of sales, which amounted to $15,660 and $37,993 for the three months ended June 30, 2019 and 2018, respectively and $27,579 and $64,937 for the six months ended June 30, 2019 and 2018, respectively.

 

Basic and Diluted Earnings Per Share of Common Stock
(p) Basic and Diluted Earnings per Share of Common Stock

 

Basic earnings per common share is based on the weighted average number of shares outstanding during the periods presented. Diluted earnings per share is computed using the weighted average number of common shares plus dilutive common share equivalents outstanding during the period. Potential common shares that would have the effect of increasing diluted earnings per share are considered anti-dilutive.

 

The calculation of basic and diluted loss per share for the three months ended June 30, 2019 and 2018 was based on the net loss of $794,891 and $2,067,453, respectively and $1,711,849 and $3,927,444 for the six months ended June 30, 2019 and 2018, respectively. The basic and diluted weighted average number of common shares outstanding for the three months ended June 30, 2019 and 2018 was 12,500,923 and 11,656,788, respectively and 12,492,115 and 10,293,569 for the six months ended June 30, 2019 and 2018, respectively.

 

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

 

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

 

   For the Three and Six Months Ended
June 30,
 
   2019   2018 
Stock Options   4,064    25,250 
RSUs   374,481    - 
Warrants   2,110,737    1,416,229 
Total potentially dilutive shares   2,489,282    1,441,479 
Recently Issued Accounting Pronouncements
(q) Recently Issued Accounting Pronouncements

 

Recently Issued Accounting Pronouncements Adopted

 

As the Company is an emerging growth company (“EGC”), it has elected to adopt recently issued accounting pronouncements based on effective dates applicable to other than public business entities. The Company is expected to lose its EGC status on December 31, 2019 as it is the last day of the fiscal year following the fifth anniversary of the effective date of its registration statement on January 23, 2014.

 

In May 2014 and April 2016, the FASB issued ASU No. 2014-09 and ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606). The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In August 2015, FASB issued ASU 2015-14 which deferred the effective date of Update 2014-09 to annual reporting periods beginning after December 15, 2018 for entities other than public business entities, and to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period for public business entities.

 

The Company has elected to apply the modified retrospective method and the impact was determined to be immaterial on the condensed consolidated financial statements. Accordingly, the new revenue standard was applied prospectively in our condensed consolidated financial statements from January 1, 2019 forward and reported financial information for historical comparable periods will not be revised and will continue to be reported under the accounting standards in effect during those historical periods.

 

The Company has performed an analysis and identified its revenues and costs that are within the scope of the new guidance. The Company has determined that its methods of recognizing revenues will not be significantly impacted by the new guidance.

 

In June 2018, the FASB issued ASU 2018-07, Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, which expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. The guidance is effective for public business entities, certain not-for-profit entities, and certain employee benefit plans for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. For all other entities, ASU 2018-07 is effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted, but no earlier than an entity’s adoption date of Topic 606. The Company early adopted ASC 2018-07 effective January 1, 2019. There was no material impact on the Company’s condensed consolidated financial statements upon this adoption.

 

In July 2018, the FASB issued ASU No. 2018-09, Codification Improvements, to makes changes to a variety of topics to clarify, correct errors in, or make minor improvements to the Accounting Standards Codification. Certain items of the amendments in ASU 2018-09 will be effective for the Company in annual periods beginning after December 15, 2018. The adoption of ASU 2018-09 did not have a material impact on the Company’s condensed consolidated financial statements.

 

Recently Issued Accounting Pronouncements Not 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. ASU 2016-02 is effective for annual reporting periods beginning after December 15, 2019, including interim periods within that reporting period, and requires a modified retrospective adoption, with early adoption permitted. The Company is currently evaluating the effect this guidance will have on its condensed consolidated financial statements and related disclosure, and anticipates the guidance to result in increases in its assets and liabilities as most of its operating lease commitments will be subject to the new standard and recognized as right-of-use assets and lease liabilities.

 

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, 2019, including interim periods within that fiscal year. The Company is currently evaluating the effect this guidance will have on its condensed consolidated financial statements and related disclosures.

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Significant Accounting Policies (Tables)
6 Months Ended
Jun. 30, 2019
Accounting Policies [Abstract]  
Schedule of Marketable Securities

This includes basing value on yields currently available on comparable securities of issuers with similar credit ratings.

 

   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) 
Marketable securities at June 30, 2019  $                -   $4,020,498   $                      - 
                
Marketable securities at December 31, 2018  $-   $5,272,998   $- 
Schedule of Future Amortization Expense of Intangible Assets

The following is an annual schedule of approximate future amortization of the Company’s intangible assets:

 

Period  Amount 
2019 (six months)  $20,004 
2020   40,008 
2021   40,008 
2022   40,008 
2023   40,008 
Thereafter   43,371 
   $223,407 
Schedule of Anti-dilutive Securities Excluded from Computation of Earnings Per Share

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

 

   For the Three and Six Months Ended
June 30,
 
   2019   2018 
Stock Options   4,064    25,250 
RSUs   374,481    - 
Warrants   2,110,737    1,416,229 
Total potentially dilutive shares   2,489,282    1,441,479 
XML 30 R21.htm IDEA: XBRL DOCUMENT v3.19.2
Inventories (Tables)
6 Months Ended
Jun. 30, 2019
Inventory Disclosure [Abstract]  
Schedule of Inventories

Inventories consist of the following:

 

   June 30, 2019   December 31, 2018 
         
Raw Materials  $404,094   $542,761 
Sub-Assemblies   686,386    711,181 
Finished Goods   479,457    635,565 
Reserve for Obsolescence   (1,025,696)   (1,304,240)
   $544,241   $585,267 
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Trade and Other Payables (Tables)
6 Months Ended
Jun. 30, 2019
Payables and Accruals [Abstract]  
Schedule of Trade and Other Payables

Trade and other payables consists of the following:

 

   June 30, 2019   December 31, 2018 
         
Trade Payables  $741,875   $686,578 
Accrued Expenses   816,093    1,227,172 
Deferred Compensation   59,750    59,750 
   $1,617,718   $1,973,500 
XML 32 R23.htm IDEA: XBRL DOCUMENT v3.19.2
Share-based Payments (Tables)
6 Months Ended
Jun. 30, 2019
Share-based Payment Arrangement [Abstract]  
Summary of Stock Options Activity

The following table summarizes the option activities for the six months ended June 30, 2019:

 

   Number of Shares   Weighted Average Exercise Price   Weighted Average Grant Date Fair Value   Weighted Average Remaining Contractual Term (years)   Aggregate
Intrinsic Value
 
Balance at December 31, 2018   10,502   $30.41   $17.42    1.43   $          - 
Granted   -    -    -    -    - 
Exercised   -    -    -    -    - 
Forfeited   (6,438)   33.79    23.72    0.58    - 
Canceled/Expired   -    -    -    -    - 
Balance at June 30, 2019   4,064   $25.04   $7.46    1.50   $- 
Exercisable as of June 30, 2019   4,064   $25.04   $7.46    1.50   $- 
Summary of Restricted Stock Units Activity

A summary of activity related to RSUs for the three months ended June 30, 2019 is presented below:

 

   Number of RSUs   Weighted Average Grant
Date Fair Value
 
Balance at December 31, 2018   -   $- 
Granted   374,481   $0.97 
Exercised   -    - 
Forfeited   -    - 
Canceled/Expired   -    - 
Balance at June 30, 2019   374,481   $0.97 
Exercisable as of June 30, 2019   -    - 
Summary of Warrant Activity

The table below summarizes the warrant activity for the period ended June 30, 2019:

 

   Number of Warrants   Weighted Average
Exercise Price
   Average Remaining Contractual Term (years)   Aggregate
Intrinsic Value
 
Balance at December 31, 2018   2,110,737   $3.10    4.21   $                - 
Granted   -    -    -    - 
Exercised   -    -    -    - 
Forfeited   -    -    -    - 
Canceled/Expired   -    -    -    - 
Balance at June 30, 2019   2,110,737   $3.10    3.71   $- 
Exercisable as of June 30, 2019   2,110,737   $3.10    3.71   $- 
XML 33 R24.htm IDEA: XBRL DOCUMENT v3.19.2
Commitments and Contingencies (Tables)
6 Months Ended
Jun. 30, 2019
Commitments and Contingencies Disclosure [Abstract]  
Schedule of Lease Commitments

The schedule of lease commitments is as follows:

 

   Thorofare   Pitman   Equipment     
   Lease   Lease   Lease   Total 
Next 6 Months  $66,000   $19,824   $3,078   $88,902 
XML 34 R25.htm IDEA: XBRL DOCUMENT v3.19.2
Revenue Information (Tables)
6 Months Ended
Jun. 30, 2019
Segment Reporting [Abstract]  
Schedule of Revenue by Product Lines

Revenue by product lines was as follows:

 

   Three Months Ended   Six Months Ended 
   June 30,   June 30, 
Product Line  2019   2018   2019   2018 
MicroParticle Catalyzed Biosensor (“MPC”)  $65,344   $106,680   $88,664   $125,630 
Particle ImmunoFiltration Assay (“PIFA”)   304,658    356,082    880,973    616,066 
Rapid Enzymatic Assay (“REA”)   85,000    45,100    85,000    55,000 
Other   9,511    18,739    21,997    32,380 
Total Revenue  $464,513   $526,601   $1,076,634   $829,076 
Schedule of Revenue by Geographic Area Determined Based On Location of Customers

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

 

   Three Months Ended   Six Months Ended 
   June 30,   June 30, 
Geographic Region  2019   2018   2019   2018 
United States  $447,013   $462,383   $1,059,134   $757,116 
Rest of World   17,500    64,218    17,500    71,960 
Total Revenue  $464,513   $526,601   $1,076,634   $829,076 
XML 35 R26.htm IDEA: XBRL DOCUMENT v3.19.2
Significant Accounting Policies (Details Narrative)
3 Months Ended 6 Months Ended 12 Months Ended
Jun. 30, 2019
USD ($)
Breathalyzers
shares
Jun. 30, 2018
USD ($)
Breathalyzers
shares
Jun. 30, 2019
USD ($)
Breathalyzers
shares
Jun. 30, 2018
USD ($)
Breathalyzers
shares
Dec. 31, 2018
USD ($)
Breathalyzers
Restricted cash $ 115,094   $ 115,094   $ 500,000
Maturities of securities     less than one year    
Unrealized gain on securities 18,059   $ 47,402    
Unrealized loss on securities   $ (4,401)   $ 12,443  
Marketable securities, loss 543 4,400 (4,258)  
Proceeds from sale of marketable securities 502,126 2,004,580 1,354,646 2,306,675  
Allowances for doubtful accounts for trade receivables 605,848   605,848   606,835
Bad debt expenses 0 125,500 4,247 125,500  
Trade receivables 266,860   266,860   176,326
Depreciation expense 9,542 13,675 14,975 27,350  
Intangible assets, net 223,407   223,407   243,411
Amortization expense 10,002 42,777 20,004 85,553  
Accrued liabilities 1,000   1,000   23,179
Rebates recognized during period 7,679 16,377 $ 6,350 43,894  
Income tax examination, likelihood percentage     The amount recognized is measured as the largest amount of benefit that is greater than 50 percent likely to be realized upon settlement.    
Unrecognized tax benefits    
Income tax benefit  
Accrued for penalties and interest  
Product cost of sales 219,864 302,826 465,801 600,326  
Cost of net revenue 15,660 37,993 27,579 64,937  
Net loss attributable to common shareholders $ 794,891 $ 2,067,453 $ 1,711,849 $ 3,927,444  
Weighted average basic and diluted common shares outstanding | shares 12,500,923 11,656,788 12,492,115 10,293,569  
Shipping and Handling [Member]          
Product cost of sales $ 9,511 $ 18,739 $ 21,997 $ 13,641  
Patents, Trademarks and Customer Lists [Member]          
Intangible assets, net 3,897,635   3,897,635    
Intangible assets, accumulated amortization $ 3,674,228   $ 3,674,228    
Sales Revenue, Net [Member]          
Concentration risk percentage 81.00% 72.00% 78.00% 66.00%  
Concentration risk, number of customer | Breathalyzers 3   3 2  
Sales Revenue, Net [Member] | Customer One [Member]          
Concentration risk percentage 42.00% 33.00% 45.00% 49.00%  
Sales Revenue, Net [Member] | Customer Two [Member]          
Concentration risk percentage 20.00% 27.00% 44.00% 17.00%  
Sales Revenue, Net [Member] | Customer Three [Member]          
Concentration risk percentage 19.00% 12.00%      
Trade Receivable [Member]          
Concentration risk percentage     76.00%   73.00%
Concentration risk, number of customer | Breathalyzers     2   2
Trade Receivable [Member] | Customer One [Member]          
Concentration risk percentage     53.00%   59.00%
Trade receivables $ 458,902   $ 458,902   $ 458,902
Trade Receivable [Member] | Customer Two [Member]          
Concentration risk percentage     23.00%   14.00%
Trade receivables $ 201,330   $ 201,330   $ 111,037
Cost of Goods [Member]          
Concentration risk percentage 76.00% 24.00% 50.00%    
Concentration risk, number of supplier | Breathalyzers 2 2 1    
Cost of Goods [Member] | Supplier Two [Member]          
Concentration risk percentage 66.00% 11.00%      
Cost of Goods [Member] | Supplier One [Member]          
Concentration risk percentage 0.00% 13.00%      
Trade Payables [Member] | Three Vendors [Member]          
Concentration risk percentage     70.00%    
Concentration risk, number of supplier | Breathalyzers     2    
Trade Payables [Member] | Vendor One [Member]          
Trade receivables $ 180,114   $ 180,114    
Trade Payables [Member] | Vendor Two [Member]          
Trade receivables 123,000   123,000    
Trade Payables [Member] | Vendor Three [Member]          
Trade receivables $ 116,206   $ 116,206    
Minimum [Member]          
Normal credit terms extended to customers     30 days    
Minimum [Member] | Cost of Goods [Member] | One Supplier [Member]          
Concentration risk percentage        
Concentration risk, number of supplier | Breathalyzers        
Maximum [Member]          
Normal credit terms extended to customers     90 days    
XML 36 R27.htm IDEA: XBRL DOCUMENT v3.19.2
Significant Accounting Policies - Schedule of Marketable Securities (Details) - USD ($)
Jun. 30, 2019
Dec. 31, 2018
Level 1 [Member]    
Marketable securities
Level 2 [Member]    
Marketable securities 4,020,498 5,272,998
Level 3 [Member]    
Marketable securities
XML 37 R28.htm IDEA: XBRL DOCUMENT v3.19.2
Significant Accounting Policies - Schedule of Future Amortization Expense of Intangible Assets (Details) - USD ($)
Jun. 30, 2019
Dec. 31, 2018
Accounting Policies [Abstract]    
2019 (nine months) $ 20,004  
2020 40,008  
2021 40,008  
2022 40,008  
2023 40,008  
Thereafter 43,371  
Intangible assets, net $ 223,407 $ 243,411
XML 38 R29.htm IDEA: XBRL DOCUMENT v3.19.2
Significant Accounting Policies - Schedule of Anti-dilutive Securities Excluded from Computation of Earnings Per Share (Details) - shares
6 Months Ended
Jun. 30, 2019
Jun. 30, 2018
Total potentially dilutive shares 2,489,282 1,441,479
Stock Options [Member]    
Total potentially dilutive shares 4,064 25,250
Restricted Stock Units (RSUs) [Member]    
Total potentially dilutive shares 374,481
Warrants [Member]    
Total potentially dilutive shares 2,110,737 1,416,229
XML 39 R30.htm IDEA: XBRL DOCUMENT v3.19.2
Recent Developments and Management's Plans (Details Narrative) - USD ($)
Aug. 09, 2019
May 10, 2019
Nasdaq minimum bid price requirement   $ 1.00
Subsequent Event [Member]    
Cash and marketable securities $ 3,990,000  
Restricted cash 115,094  
Working capital $ 3,530,000  
XML 40 R31.htm IDEA: XBRL DOCUMENT v3.19.2
Inventories (Details Narrative) - USD ($)
3 Months Ended 6 Months Ended
Jun. 30, 2019
Jun. 30, 2018
Jun. 30, 2019
Jun. 30, 2018
Inventory Disclosure [Abstract]        
Cost of goods sold for obsolete inventory $ 41,849 $ 7,477 $ 32,283
XML 41 R32.htm IDEA: XBRL DOCUMENT v3.19.2
Inventories - Schedule of Inventories (Details) - USD ($)
Jun. 30, 2019
Dec. 31, 2018
Inventory Disclosure [Abstract]    
Raw Materials $ 404,094 $ 542,761
Sub-Assemblies 686,386 711,181
Finished Goods 479,457 635,565
Reserve for Obsolescence (1,025,696) (1,304,240)
Total Inventory, Net $ 544,241 $ 585,267
XML 42 R33.htm IDEA: XBRL DOCUMENT v3.19.2
Trade and Other Payables - Schedule of Trade and Other Payables (Details) - USD ($)
Jun. 30, 2019
Dec. 31, 2018
Payables and Accruals [Abstract]    
Trade Payables $ 741,875 $ 686,578
Accrued Expenses 816,093 1,227,172
Deferred Compensation 59,750 59,750
Trade and Other Payables, Total $ 1,617,718 $ 1,973,500
XML 43 R34.htm IDEA: XBRL DOCUMENT v3.19.2
Share-based Payments (Details Narrative) - USD ($)
3 Months Ended 6 Months Ended
Jun. 30, 2019
Jun. 30, 2018
Jun. 30, 2019
Jun. 30, 2018
Mar. 29, 2019
Dec. 31, 2018
Dec. 07, 2018
Aug. 07, 2017
Jan. 23, 2014
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]                  
Closing stock price of common stock $ 0.45   $ 0.45            
Aggregate intrinsic value            
Stock options expenses $ 0 $ 2,742 $ 5,454          
Warrants [Member]                  
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]                  
Closing stock price of common stock $ 0.45   $ 0.45            
Restricted Stock Units (RSUs) [Member]                  
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]                  
Grant date fair value $ 0.97   $ 0.97          
Restricted stock unit expense $ 118,478   $ 122,384            
Restricted Stock Units (RSUs) [Member] | Three Directors [Member]                  
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]                  
Number of shares authorized during period         124,827        
Grant date fair value         $ 0.97        
Unamortized value $ 240,863   $ 240,863            
Weighted average period     6 months            
2013 Stock Incentive Plan [Member]                  
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]                  
Number of shares authorized during period                 103,750
Amended Plan [Member]                  
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]                  
Number of available for grants 32,160   32,160            
Amended Plan [Member] | Restricted Stock [Member]                  
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]                  
Number of stock option to purchase shares of common stock     71,590            
2017 Stock Incentive Plan [Member]                  
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]                  
Number of shares authorized during period               168,750  
Number of available for grants 106,468   106,468            
2017 Stock Incentive Plan [Member] | Restricted Stock [Member]                  
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]                  
Number of stock option to purchase shares of common stock     62,282            
2018 Stock Incentive Plan [Member]                  
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]                  
Number of shares authorized during period             1,875,000    
Number of available for grants 1,500,519   1,500,519            
2018 Stock Incentive Plan [Member] | Restricted Stock [Member]                  
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]                  
Number of stock option to purchase shares of common stock     374,481            
XML 44 R35.htm IDEA: XBRL DOCUMENT v3.19.2
Share-based Payments - Summary of Stock Options Activity (Details)
6 Months Ended
Jun. 30, 2019
USD ($)
$ / shares
shares
Share-based Payment Arrangement [Abstract]  
Number of Shares, Beginning Balance | shares 10,502
Number of Shares, Granted | shares
Number of Shares, Exercised | shares
Number of Shares, Forfeited | shares (6,438)
Number of Shares, Cancelled/Expired | shares
Number of Shares, Ending Balance | shares 4,064
Number of Shares, Exercisable | shares 4,064
Weighted Average Exercise Price, Beginning Balance $ 30.41
Weighted Average Exercise Price, Granted
Weighted Average Exercise Price, Exercised
Weighted Average Exercise Price, Forfeited 33.79
Weighted Average Exercise Price, Cancelled/Expired
Weighted Average Exercise Price, Ending Balance 25.04
Weighted Average Exercise Price, Exercisable 25.04
Weighted Average Grant Date Fair Value, Beginning 17.42
Weighted Average Grant Date Fair Value, Granted
Weighted Average Grant Date Fair Value, Exercised
Weighted Average Grant Date Fair Value, Forfeited 23.72
Weighted Average Grant Date Fair Value, Cancelled/Expired
Weighted Average Grant Date Fair Value, Ending 7.46
Weighted Average Grant Date Fair Value, Exercisable $ 7.46
Weighted Average Remaining Contractual Term (Years), Beginning 1 year 5 months 5 days
Weighted Average Remaining Contractual Term (Years), Granted 0 years
Weighted Average Remaining Contractual Term (Years), Exercised 0 years
Weighted Average Remaining Contractual Term (Years), Forfeited 6 months 29 days
Weighted Average Remaining Contractual Term (Years), Cancelled/Expired 0 years
Weighted Average Remaining Contractual Term (Years), Ending 1 year 6 months
Weighted Average Remaining Contractual Term (Years), Exercisable 1 year 6 months
Aggregate Intrinsic Value, Beginning Balance | $
Aggregate Intrinsic Value, Ending Balance | $
Aggregate Intrinsic Value, Exercisable | $
XML 45 R36.htm IDEA: XBRL DOCUMENT v3.19.2
Share-based Payments - Summary of Restricted Stock Units Activity (Details) - Restricted Stock Units (RSUs) [Member]
6 Months Ended
Jun. 30, 2019
$ / shares
shares
Number of RSUs, Beginning Balance | shares
Number of RSUs, Granted | shares 374,481
Number of RSUs, Exercised | shares
Number of RSUs, Forfeited | shares
Number of RSUs, Cancelled/Expired | shares
Number of RSUs, Ending Balance | shares 374,481
Number of RSUs, Exercisable | shares
Weighted Average Grant Date Fair Value, Beginning Balance | $ / shares
Weighted Average Grant Date Fair Value, Granted | $ / shares 0.97
Weighted Average Grant Date Fair Value, Exercised | $ / shares
Weighted Average Grant Date Fair Value, Forfeited | $ / shares
Weighted Average Grant Date Fair Value, Cancelled/Expired | $ / shares
Weighted Average Grant Date Fair Value, Ending Balance | $ / shares 0.97
Weighted Average Grant Date Fair Value, Exercisable | $ / shares
XML 46 R37.htm IDEA: XBRL DOCUMENT v3.19.2
Share-based Payments - Summary of Warrant Activity (Details) - Warrants [Member]
6 Months Ended
Jun. 30, 2019
USD ($)
$ / shares
shares
Number of Warrants, Beginning Balance | shares 2,110,737
Number of Warrants, Granted | shares
Number of Warrants, Exercised | shares
Number of Warrants, Forfeited | shares
Number of Warrants, Cancelled/Expired | shares
Number of Warrants, Ending Balance | shares 2,110,737
Number of Warrants, Exercisable | shares 2,110,737
Weighted Average Exercise Price, Beginning Balance | $ / shares $ 3.10
Weighted Average Exercise Price, Granted | $ / shares
Weighted Average Exercise Price, Exercised | $ / shares
Weighted Average Exercise Price, Forfeited | $ / shares
Weighted Average Exercise Price, Cancelled/Expired | $ / shares
Weighted Average Exercise Price, Ending Balance | $ / shares 3.10
Weighted Average Exercise Price, Exercisable | $ / shares $ 3.10
Weighted Average Remaining Contractual Term (years), Beginning 4 years 2 months 16 days
Weighted Average Remaining Contractual Term (years), Ending 3 years 8 months 16 days
Weighted Average Remaining Contractual Term (years), Exercisable 3 years 8 months 16 days
Aggregate Intrinsic Value, Beginning | $
Aggregate Intrinsic Value, Ending | $
Aggregate Intrinsic Value, Exercisable | $
XML 47 R38.htm IDEA: XBRL DOCUMENT v3.19.2
Equity (Details Narrative) - USD ($)
3 Months Ended 6 Months Ended
Jun. 30, 2019
Jun. 30, 2018
Jun. 30, 2019
Jun. 30, 2018
Dec. 31, 2018
Trade and other payables $ 1,617,718   $ 1,617,718   $ 1,973,500
Share based compensation expense     22,444  
Mr. Yeaton [Member] | Employment Agreement [Member]          
Number of common stock issued     26,250    
Fair value of shares based on share price on date of grant     22,444    
Trade and other payables         $ 4,238
Share based compensation expense $ 6,570 $ 18,206 $ 6,570 $ 18,206  
XML 48 R39.htm IDEA: XBRL DOCUMENT v3.19.2
Commitments and Contingencies (Details Narrative) - USD ($)
3 Months Ended 6 Months Ended 12 Months Ended
Jul. 24, 2019
Jul. 19, 2019
Mar. 08, 2019
Jan. 25, 2019
Jan. 21, 2019
Jan. 14, 2019
Nov. 15, 2018
Sep. 29, 2014
Jan. 07, 2013
Jun. 30, 2019
Jun. 30, 2018
Jun. 30, 2019
Jun. 30, 2018
Dec. 31, 2018
Sep. 24, 2014
Royalty expenses                   $ 23,250 $ 27,082 $ 54,804 $ 58,771    
Accrued expenses                   1,000   1,000   $ 23,179  
Douglas Carrara [Member] | Severence Pay [Member]                              
Loss Contingency, Damages Sought, Value                       200,000      
Douglas Carrara [Member] | Attorneys' Fees [Member]                              
Loss Contingency, Damages Sought, Value                       8,000      
Novotek Therapeutics Inc., and NovoTek Pharmaceuticals Limited [Member]                              
Loss Contingency, Damages Sought, Value         $ 1,551,562                    
Neelima Varma and St.David's [Member]                              
Loss contingency, seeking description       On July 25, 2019, the Company was notified that on July 23, 2019, a complaint was filed by Neelima Varma, against the Company and St. David's Healthcare Partnership, L.P., LLP ("St. David's"), in the district court of Travis County, Texas, alleging, among other things, negligence, gross negligence and strict product liability, breach of express warranty, breach of implied warranty and fraudulent misrepresentation and omission, with respect to a medical device which the Company had sold through one its distributors to St. David's. Ms. Varma is seeking aggregate monetary relief from the Company and St. David's in excess of $1,000,000.                      
St.David's [Member]                              
Loss contingency, seeking excess value       $ 1,000,000                      
ChubeWorkx [Member]                              
Royalty expenses                       11,760      
Thorofare Lease [Member]                              
Operating lease with annual rentals including common area maintenance                       132,000      
Lease agreement, extended term                 7 years            
Lease agreement, expiration date                 Dec. 31, 2019            
Rent expense                   40,955 40,298 82,320 83,144    
Ramsey Lease [Member]                              
Operating lease with annual rentals including common area maintenance                       25,980      
Rent expense                   $ 6,495 6,495 $ 12,990 12,990    
Lease, term of agreement                   24 months   24 months      
Lease agreement, term description                       The lease took effect on June 1, 2017 and ran through May 31, 2019.      
Pitman Lease [Member]                              
Operating lease with annual rentals including common area maintenance                       $ 40,839      
Rent expense               $ 6,156   $ 10,210 $ 9,913 $ 20,420 $ 19,825    
Lease, term of agreement                   29 months   29 months     60 months
Lease agreement, term description                       The lease took effect on August 1, 2017 and runs through December 31, 2019.      
Security deposit                   $ 4,950   $ 4,950      
Settlement Agreement [Member]                              
Settlement agreed amount     $ 2,250,000                        
Insurance coverage amount                           500,000  
Loss Contingency, Damages Sought, Value                           $ 500,000  
Settlement Agreement [Member] | Watts Action [Member]                              
Payment of attorney' fees           $ 200,000                  
Settlement Agreement [Member] | Subsequent Event [Member]                              
Settlement payment $ 2,250,000                            
Loss Contingency, Damages Sought, Value   $ 50,000                          
Stock to be issued for settlement during the period   40,000                          
Accrued expenses   $ 66,800                          
Settlement Agreement [Member] | ChubeWorkx [Member]                              
Percentage of royalty received                       5.00%      
Percentage of royalty retain                       50.00%      
Due to related parties owned                   $ 549,609   $ 549,609      
Settlement Agreement [Member] | ChubeWorkx [Member] | Royalty [Member]                              
Royalty revenue                       $ 5,000,000      
Marketing Contract [Member]                              
Allegations, description             On November 15, 2018, Typenex Medical LLC ("Typenex"), a telemarketing entity with whom the Company had entered into a marketing and commission agreement dated September 30, 2016 (the "Marketing Contract"), filed an arbitration against the Company before JAMS ADR (the "Arbitration"), and an arbiter was appointed to the Arbitration on December 14, 2018. In the Arbitration, Typenex has stated that it seeks "at least" $220,500 based on the allegation that the Marketing Contract entitles Typenex to a commission on sales of certain of the Company's heparin-related products in the period two years from the Marketing Contract's expiration                
Marketing Contract [Member] | Minimum [Member]                              
Loss Contingency, Damages Sought, Value             $ 220,500                
XML 49 R40.htm IDEA: XBRL DOCUMENT v3.19.2
Commitments and Contingencies - Schedule of Lease Commitments (Details)
Jun. 30, 2019
USD ($)
Lease commitments, Next 6 Months $ 88,902
Thorofare Lease [Member]  
Lease commitments, Next 6 Months 66,000
Pitman Lease [Member]  
Lease commitments, Next 6 Months 19,824
Equipment Operating Lease [Member]  
Lease commitments, Next 6 Months $ 3,078
XML 50 R41.htm IDEA: XBRL DOCUMENT v3.19.2
Related Parties (Details Narrative) - Financial Consulting Strategies LLC [Member]
3 Months Ended 6 Months Ended
Jun. 30, 2019
USD ($)
Jun. 30, 2019
USD ($)
Paid to related party $ 0 $ 23,506
Trade and other payables - related Party $ 52,913 $ 52,913
XML 51 R42.htm IDEA: XBRL DOCUMENT v3.19.2
Revenue Information (Details Narrative) - USD ($)
Jun. 30, 2019
Dec. 31, 2018
People's Republic of China [Member]    
Long-lived assets $ 13,097 $ 14,294
United States [Member]    
Long-lived assets $ 278,791 $ 312,573
XML 52 R43.htm IDEA: XBRL DOCUMENT v3.19.2
Revenue Information - Schedule of Revenue by Product Lines (Details) - USD ($)
3 Months Ended 6 Months Ended
Jun. 30, 2019
Jun. 30, 2018
Jun. 30, 2019
Jun. 30, 2018
Total product Revenues $ 464,513 $ 526,601 $ 1,076,634 $ 829,076
MicroParticle Catalyzed Biosensor ("MPC") [Member]        
Total product Revenues 65,344 106,680 88,664 125,630
Particle ImmunoFiltration Assay ("PIFA") [Member]        
Total product Revenues 304,658 356,082 880,973 616,066
Rapid Enzymatic Assay ("REA") [Member]        
Total product Revenues 85,000 45,100 85,000 55,000
Other [Member]        
Total product Revenues $ 9,511 $ 18,739 $ 21,997 $ 32,380
XML 53 R44.htm IDEA: XBRL DOCUMENT v3.19.2
Revenue Information - Schedule of Revenue by Geographic Area Determined Based On Location of Customers (Details) - USD ($)
3 Months Ended 6 Months Ended
Jun. 30, 2019
Jun. 30, 2018
Jun. 30, 2019
Jun. 30, 2018
Total Revenues $ 464,513 $ 526,601 $ 1,076,634 $ 829,076
United States [Member]        
Total Revenues 447,013 462,383 1,059,134 757,116
Rest of World [Member]        
Total Revenues $ 17,500 $ 64,218 $ 17,500 $ 71,960
XML 54 R45.htm IDEA: XBRL DOCUMENT v3.19.2
Employee Benefit Plan (Details Narrative) - USD ($)
3 Months Ended 6 Months Ended
Jun. 30, 2019
Jun. 30, 2018
Jun. 30, 2019
Jun. 30, 2018
Percentage of matching contribution     100.00%  
Percentage of employers contribution based upon employee's pay     3.00%  
Employer contribution amount $ 7,425 $ 15,314 $ 16,888 $ 29,116
401 K Plan Matches 50% [Member]        
Percentage of matching contribution     50.00%  
Percentage of employers contribution based upon employee's pay     3.00%  
401 K Plan Maximum 5% [Member]        
Percentage of matching contribution      
Percentage of employers contribution based upon employee's pay     5.00%  
XML 55 R46.htm IDEA: XBRL DOCUMENT v3.19.2
Subsequent Event (Details Narrative) - Subsequent Event [Member] - Unsecured Promissory Note [Member]
Jul. 25, 2019
USD ($)
Advances to related party $ 100,000
Interest rate 8.00%
Maturity date Oct. 02, 2019
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