AKR.L Regulatory News (AKR)

7 Apr 2008 07:01

Akers Biosciences, Inc.07 April 2008 Embargoed: 0700hrs, 7 April 2008 AKERS BIOSCIENCES, INC. ("ABI" or "the Company"), Annual Results for the year ended 31 December, 2007 Akers Biosciences, Inc. a leading designer and manufacturer of rapid diagnosticscreening and testing products, announces its annual results for the year ended31 December, 2007. 2007 Highlights • Revenues of $5.5 million (2006: - $1.0 million) are the highest in the Company's history • First positive EBITDA of $1.4 million (2006: negative EBITDA of $7.8 million) • Maiden positive cash flow from operations • Significant orders from United States military departments received and shipped • $4.5 million in fixed convertible debt financing completed during the period to enhance stability of capital structure • Acquisition completed of 'Bout Time Marketing, LLC, a distributor of breathalyzer product, providing a direct channel to the US Military for BreathScan(R) resulting in increased margins. • New distribution arrangement signed for Tier 1 status with Cardinal Health, a distributor to over 4,000 US hospitals, resulted in a significant increase in sales of the PIFA Heparin/Platelet Factor-4 Rapid Assay. Thomas A. Nicolette, Chief Executive Officer of ABI, commented: "In early 2007 we set about to effect a bold and immediate transition. Ourstrategy has been to transform the significant investment in our patentedplatform technologies over the past decade into real value by establishingroutes to markets of our core products leading to profitable revenue generation.In 2007 we achieved that with the highest sales in the Company's history, itsfirst positive EBITDA from operations and the establishment of significantrecurring revenue streams. These are the foundation blocks upon which we intend to build our core productline sales both domestically and abroad and bring forward new and mass marketpotential diagnostic products." Enquiries: Thomas A. NicolettePresident and CEOTel. +44 (0)20 7917 9476 Ben Simons or Eleanor WilliamsonM:CommunicationsTel. +44 (0)20 7153 1540 Alasdair YounieArbuthnot Securities LimitedTel. +44 (0)20 7012 2139 CHAIRMAN'S STATEMENT I am pleased to present on behalf of the Board the annual financial results ofABI for the 12 months ended 31 December 2007. Financial Performance Revenues in 2007 of $5.5 million (2006: $1.0 million) are the highest in theCompany's history. Positive EBITDA of $1.4 million (2006: negative EBITDA of$7.8 million) represents the company's maiden positive operating cash flow. Revenues in 2007 were primarily driven by: • sales of Breath Alcohol(R) and BreathScan(R) Alcohol Breathalyzers - most importantly to the US Military; • ramp up sales of Heparin/Platelet Factor-4 antibodies test into a small hospital customer base which, with very satisfactory product acceptance by clinicians, is expected to contribute significantly to future growth; and • initial sales of Battlefield Blood Transfusion Card to the US Military. Business Review All of the Company's proprietary technologies provide the platform for highmargin niche products, intended for use in specialized market segments. Thesemarket segments include: clinical laboratories, homeland security, military,OTC, industrial and consumer safety, doctor's surgeries, and clinical research.The Company's key signature products are detailed below. PIFA(R) Heparin Platelet Factor 4 Rapid Assay (HPF4) The Company's rapid HPF4 test is sold into the US clinical laboratory marketthrough Cardinal Health and Corgenix Medical Group under the Company's brand "PIFA Heparin/PF-4 Rapid Assay." This is the first rapid test for HPF4antibodies, and the product is protected by two of the Company's patents, withadditional patents pending. The market response clearly indicates a significantclinical need for the product, and several studies have been presented atscientific meetings indicating that the Company's test may be more accurate thanany competitor on the market. In 2007 Cardinal Health signed a new distribution contract with the Company thatguarantees that the product will remain in Cardinal's highest focus of productsat least through 2008, and that the Company will be in the highest tier ofsupplier relationships. We are exploring additional ways to rapidly increasemarket penetration of this product. Heparin is the most widely used intravenous anticoagulant, and is commonly usedfor the prophylaxis and treatment of thromboembolic disease, as well as numerousother applications including certain types of lung and heart disorders, andduring or after a variety of surgeries including open heart, bypass, dialysisand orthopedic procedures. Patients with recent exposure to heparin are at amuch greater risk for developing Heparin-Induced Thrombocytopenia ("HIT"), thanare those not having previously been given the drug. The Company's test detectsthe presence of Heparin/PF-4 antibody, which is associated with patients at riskfor HIT, and is rapidly becoming a standard of care in hematology andcardiology. The Company and its partners have initially promoted the use of the test as areplacement for current laboratory tests used in the detection of a heparin "allergy" or other serious thrombolytic reaction resulting from heparintreatment. The Company's product has significant advantages both in terms ofcost and time to result. The Company's test takes minutes to perform, while thecurrent laboratory tests take hours to perform on complex instrumentation. HITcan rapidly progress in minutes or hours, and can result in death ordismemberment. The Company's product is the only test available on the marketthat can provide real-time information that can be useful in formulating aclinical diagnosis. In 2006, over 3.5 million tests were performed (in the US?)using current laboratory tests to confirm a potential "heparin allergy" or HIT,primarily in cardiology and emergency medicine patients. There are compellingmedical and economical reasons for replacing all of these annual laboratorytests with the Akers HPF4 rapid assay. In 2007 new distribution relationships were established in the UK and Europe forthis test and EU expansion is a core objective of the Company in the currentyear. Breath Alcohol (R) and BreathScan(R) Alcohol Breathalyzers The Company is the only manufacturer of portable, disposable alcoholbreathalyzers in the US, offering both its own Breath Alcohol (R) brand and therecently acquired BreathScan(R). Sales are generated through a rapidlyexpanding distributor network, as well as through direct sales. In January 2007 the Company acquired certain assets of 'Bout Time Marketing("BTM"), and now owns the Legal Limit product line, and BTM's customer base. The Company has already benefited from increased margins and distributionchannels, and received contracts with the US Military in 2007. ABI believesthat a stable, recurring business will be achieved in the near term, seeded bythese initial contracts. Moreover, a patent was granted by the US patent andTrademark Office protecting certain features of the Legal Limit product, furtherstrengthening this product line. In addition to being earnings enhancing from the outset, the acquisitions theCompany has made in 2006 and 2007 have established the Company as the premierforce in portable alcohol breathalyzers in the US These acquisitions alsorepresent initial steps in the Company's strategy to transform the portablealcohol breathalyzer industry. The Company has positioned its breathalyzers assecurity and safety devices by enhancing the technology through the developmentof electronic readers. Additional applications of the breathalyzer product line include a program tocurb driving under the influence of alcohol. Also, the Company has introducedits DOT approved breathalyzer product to the transportation and maritime safetyindustries. TriCholesterol (R) The Tri-Cholesterol Test Kit is the only FDA-approved rapid assay that providesa complete cholesterol profile of the patient, with semi-quantitativedeterminations of high-density lipoprotein (HDL) cholesterol, low-densitylipoprotein (LDL) cholesterol, and total cholesterol levels in whole bloodobtained from a finger stick. The Company plans to re-launch this productthrough new distribution channels currently being evaluated. Battlefield Blood Transfusion Card The ABO Blood Group was the first to be identified and is the most significantfor transfusion practice. Accurate testing of donor and recipient blood for ABO/D compatibility is essential for the prevention of hemolytic transfusionreactions. To respond to the unpredictable demands of battlefield transfusionsupport, the U.S. Military may use "the walking blood bank" as its blood supply.This requires on site identification of the donor and recipient blood types.The Battlefield Blood Transfusion Card can accomplish this task using only thecard, a drop of blood, and a drop of a rinse reagent. Following several successful clinical trials, the Company has received smallorders from the US Military for this product. The demand for the product isexpected to grow significantly since over 40% of blood transfusions in themilitary theatre of operations are performed under field conditions, and thereis currently no other rapid test competition. The Company is in discussionswith the US Military to expand the use of the product under field conditions. Financial Review Share Issues During 2007, the Company's independent directors received an aggregate of960,320 shares of the Company's common stock as payment for director's fees andother fees owing to them at the time of issuance in the amount of $191,850 Also during the period Brittany Capital converted $730,000 of Convertible Notesand $175,595 of accrued interest into 2,276,504 shares of the Company's commonstock. In addition the Company also issued 250,000 shares of common stockvalued at $79,132 in conjunction with the $4.5 million convertible note payabledated 31 May 2007. Income Tax Benefit The Company was able to continue to take advantage of a program in the State ofNew Jersey wherein companies that incur net operating losses are able to selltheir state NOL's at a nominal discount to their implied value. The benefitrecognized for 2007 was $0.6 million vs. $0.5 million for 2006. Liquidity and Cash Resources During May, 2007, the Company refinanced the variable Convertible Notes due toBrittany Capital at 31 December 2006. Brittany issued new fixed ConvertibleNotes which extend the maturity of the 2006 and 2007 Notes until 31 December2008. The Company utilized the new debenture to borrow an additional $2.5million from Brittany Capital. This facility, and a continuation of higherlevels of revenues, should provide the liquidity the Company needs to meet itsfuture obligations... Senior Management In line with our objectives to move ABI into its commercial phase there havebeen a number of important adjustments to the senior management. Post the periodend ABI announced the appointment of a very experienced executive, Thomas A.Nicolette, as Chief Executive Officer. He joined the company as President andChief Financial Officer in February, 2007. The Board of Directors is pleasedwith the progress the Company has made under his leadership, Dr. Raymond F.Akers Jr. now holds the position of Executive Vice Chairman of the Board, andwill continue to lead the development of new products and technical support ofABI's existing product portfolio. Robert J. Paratore, who has served as asenior member of the finance department of ABI for 6 years, has been promoted toChief Financial Officer. Product Development During 2007, the Company focused on 1) the expansion of its HPF4 product line; 2) the development of a free radical test to be used in conjunction withnutraceutical therapy; 3) the development of several different versions of its Battlefield BloodTransfusion Card for different uses in the US Military and hospital emergencyroom markets; and 4) the development of inexpensive electronic readers for its line ofMicroParticle-Catalyzed Biosensor breathalyzers. The Company has developed and received FDA approval for accessory products thatwill enable new customers to evaluate the HPF4 test more efficiently, and bringthe test on-line faster. In addition, ABI plans to release a next generationtest early in 2008. The Company has also completed development of its test for free radicals,naturally occurring substances that are implicated in numerous diseaseprocesses, including cancer, cardiovascular disease, and arthritis. This testis designed to be used to determine the precise course of nutraceutical therapy,and is now being field tested. The US Military has requested that the Company add certain features to itsBattlefield Blood Transfusion Card for certain field uses. In addition, the USMilitary is interested in adding several additional tests to the Card to affecta more comprehensive testing panel. The Company has also identified a market inhospital emergency rooms for a version of this Card in the detection of certainblood groups important in complications of pregnancy and birth defects. The Company has also developed several inexpensive electronic readers designedto provide objective results reporting for its entire line of alcoholbreathalyzer products, and the free radical test. These readers coupled withalcohol breathalyzers will be particularly useful in law enforcement, maritimeand educational markets. The free radical test reader will be used to monitorefficacy and dosing requirements of anti-oxidant nutraceuticals. Current Trading and Outlook During the first quarter of the current year the Company had been delivering thebalance of the BreathScan(R) orders received in 2007 to the US Army. With thatfulfillment now complete, our attention is turned toward supporting the USMilitary Safety Programs and pursuing new private sector initiatives forBreathScan(R). As a result of the unprecedented publicity created since Februaryby the recall of Heparin from the US and other markets by the largestmanufacturer, interest in our PIFA(R) Heparin Platelet Factor 4 Rapid Assay ishigh. We intend to use this opportunity to grow sales of this test domesticallyand abroad in 2008 and beyond. David WilbrahamChairman Akers Biosciences, Inc. and SubsidiariesFinancial Statements Consolidated Balance SheetsAs of 31 December Note 2007 2006 $ $ASSETSNon current assetsProperty plant and equipment 8 193,692 224,464Intangible assets, net 9 2,779,143 740,444Deferred financing costs 49,978 31,847Other assets 12,633 12,633 Total non-current assets 3,035,446 1,009,388 Current assetsInventories 10 697,498 1,106,941Trade and other receivables 11 1,922,067 617,036Cash and cash equivalents 1,306,706 41,142Other assets 93,920 228,458 Total current assets 4,020,191 1,993,577 Total assets 7,055,637 3,002,965 EQUITY (DEFICIT)Share capital 12 66,543,545 62,593,546Accumulated deficit (66,986,923) (65,262,085) Total equity (deficit) (443,378) (2,668,539) LIABILITIESNon-current liabilitiesBorrowings 14 346,097 384,699Obligations under finance leases - 1,845 Total non-current liabilities 346,097 386,544 Current liabilitiesTrade and other payables 1,692,160 1,817,063Borrowings 14 5,335,347 3,281,062Obligations under financial leases - 12,829Accrued interest payable 125,411 174,006 Total current liabilities 7,152,918 5,284,960 Total liabilities 7,499,015 5,671,504 Total equity and liabilities 7,055,637 3,002,965 Consolidated Statement of OperationsFor the years ended 31 December Note 2007 2006 $ $ Revenue 5,519,961 1,019,629Cost of sales (2,014,389) (2,464,000) Gross profit (loss) 3,505,572 (1,444,371) Other income 17,279 - Administrative expenses 5,100,403 6,596,770Research and development expenses 163,393 786,676 Loss from operations (1,740,945) (8,827,817) Interest expense 624,822 1,256,227 Loss before income taxes (2,365,767) (10,084,044) Income tax benefit 7 640,929 489,070 Loss for the year (1,724,838) (9,594,974) Basic and diluted loss per share 13 (0.03) (0.17) Weighted average basic & diluted common sharesoutstanding 62,264,974 56,787,413 Consolidated Statements of Changes in Equity (Deficit)For the years ended 31 December $ $ $ $ Share capital Capital Accumulated Total Equity reserves deficit Balance at 31 December 2005 58,790,850 - (55,667,111) 3,123,739 Loss for the year (9,594,974) (9,594,974) Total recognized income and expense for theperiod 58,790,850 - (65,262,085) (6,471,235) Issue of ordinary shares for products andservices 256,484 256,484 Issue of ordinary shares in exchange ofdebt 3,397,847 3,397,847 Issue of ordinary shares for acquisition 148,365 148,365 Balance at 31 December 2006 62,593,546 - (65,262,085) (2,668,539) Changes in equity (deficit) for 2007 Loss for the year (1,724,838) (1,724,838) Total recognized income and expense for theperiod 62,593,546 - (66,986,923) (4,393,377) Recognition of share based payments 1,662,630 1,662,630Issuance of shares for board of directorfees 191,850 191,850 Issuance of shares for the conversion ofdebt and accrued interest 905,595 905,595 Issuance of warrants in connection withconvertible notes 264,163 264,163 Sale of ordinary shares 266,376 266,376Issuance of shares as consideration for therefinancing of convertible notes 79,132 79,132Exercise of warrants and stock options 8,235 8,235Issuance of warrants for purchase ofintangible assets 572,018 572,018 Balance at 31 December 2007 66,543,545 - (66,986,923) (443,378) Consolidated Cash Flow StatementsFor the years ended 31 December 2007 2006 $ $Cash flow from operating activitiesLoss for the year (1,724,838) (9,594,974)Adjustments for:Provision for bad debts 86,129 2,804,149Interest expense recognized in statement ofoperations 624,822 1,256,227Noncash share based compensation 1,854,480 111,472Provision for (reversal of) bifurcation chargesrelated to convertible debt (230,000) 230,000Depreciation and amortization of non-currentassets 460,083 199,095 Movements in working capital(Increase)/decrease in trade and otherreceivables (1,391,160) (217,408)(Increase)/decrease in inventories 409,443 112,334(Increase)/decrease in other assets 195,539 (81,125)Increase in trade and other payables 106,753 50,017 1,070,676 (4,994,031) Income taxes paid - -Interest paid (209,058) (175,280) Net cash provided by (used in) operations 182,193 (5,305,493) Cash flows from investing activitiesPurchase of property plant and equipment (20,922) (64,629)Capitalized development costs (375,000) -Purchase of intangible assets (1,500,000) (607,310) Net cash used in investing activities (1,895,992) (671,399) Cash flows from financing activitiesProceeds from issuance of ordinary shares 274,611 -Proceeds from new borrowings 2,758,028 4,532,145Repayments of borrowings (38,602) (1,638,506)Repayments of obligations under finance leases (14,674) (11,235)Deferred financing costs - (36,847) Net cash from financing activities 2,979,363 2,845,557 Net increase/(decrease) in cash and cashequivalents 1,265,564 (3,131,875)Cash and cash equivalents at beginning of year 41,142 3,173,017 Cash and cash equivalents at end of year 1,306,706 41,142 Supplemental Disclosure of Cash Flow Information:Non-cash investing and financing activities: Conversion of debt and accrued interest payableinto common stock 905,595 3,397,847 Issuance of stock for acquisition - 148,365 Issue of warrants for purchase of intangibleassets 572,018 - Issuance of shares in connection with debtrefinancing 79,132 - Conversion of accounts payable to notes payable 90,000 - Summary of Significant Accounting Policies Reporting Entity Akers Biosciences, Inc. and Subsidiaries (the "Company") is a companydomiciled in the United States of America. The address of the Company'sregistered office is 201 Grove Road, Thorofare, New Jersey, 08086. TheCompany's parent company is incorporated in the United States of America underthe laws of the State of New Jersey. The Company commenced research anddevelopment operations in September 1989 and until 2005 had devotedsubstantially all its efforts to establishing the new business. The Company's primary focus is the development and sale of disposablediagnostic testing devices that can be performed in minutes, to facilitate time-sensitive therapeutic decisions. The Company's main product is a disposablebreathalyzer test that measures the blood alcohol content of the user. Liquidity The accompanying financial statements have been prepared on a going-concernbasis, which contemplates the continuation of operations, realization of assetsand liquidation of liabilities in the ordinary course of business. For the yearended 31 December 2007, the Company generated a net loss of $(1,724,838). As of31 December 2007, the Company has an accumulated deficit of $ (66,986,923) andhad cash and cash equivalents totaling $ 1,306,706. In addition, a substantialamount of the Company's outstanding debt is due on or before 31 December 2008.These conditions raise substantial doubt about the Company's ability to continueas a going concern. Management' plan with regard to this uncertainty is to raisecapital through additional equity offerings and continue to increase sales ofexisting and future products through existing customers and distributionnetworks. There can be no assurance that the Company will be successful inobtaining financing at the level needed or on terms acceptable to the Company.The accompanying financial statements do not include any adjustments that mightresult from the outcome of this uncertainty. Basis of Presentation Statement of complianceThe consolidated financial statements of Akers Biosciences, Inc. ("Akers" or the"Company") are prepared in US dollars and in accordance with InternationalFinancial Reporting Standards ("IFRS"). The consolidated financial statements ofAkers were prepared under the historical cost convention, except as disclosed inthe accounting policies below. On April 2, 2008, the Board of Directorsauthorized the financial statements for issue. Basis of measurement The consolidated financial statements have been prepared on the historical costbasis except for the following: • Acquired intangible assets are measured at estimated fair values on thedate of acquisition • Share-based payment arrangements are measured at fair value. • Equity based instruments issued in connection with debt obligations arerecorded based on estimated fair valueThe methods used to measure fair values are discussed further in note 5. Functional and presentation currency These consolidated financial statements are presented in U.S. Dollars, which isthe Company's functional currency. All financial information presented in U.S.Dollars has been rounded to the nearest dollar. Use of estimates and judgments The preparation of financial statements in conformity with IFRSs requiresmanagement to make judgments, estimates and assumptions that affect theapplication 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 recognised in the period in which the estimates arerevised and in any future periods affected. In particular, information aboutsignificant areas of estimation, uncertainty and critical judgments in applyingaccounting policies that have the most significant effect on the amountsrecognised in the financial statements is included in the following notes forwarrants and employee share based payments. Transition to International Financial Reporting Standards These consolidated financial statements are the first consolidated financialstatements for the company prepared using International Financial ReportingStandards (IFRS) as issued by the International Accounting Standards Board. Forthe purposes of these consolidated financial statements, the date of transitionto IFRS is 1 January 2006. Previously, the Company prepared its consolidatedfinancial statements in conformity with generally accepted accounting principlesin the United States (US GAAP). The Company's most recent consolidatedfinancial statements issued under US GAAP were for the year ended 31December 2006. Certain amounts have been reclassified as of 31 December 2006 and for the yearthen ended to conform to presentation under IFRS. The impact of the adoptionof IFRS as of 1 January 2006 was not material to shareholders' equity as of thatdate. In addition, there were no significant differences between the statementsof operations for the year ended 31 December 2006 under US GAAP and IFRS. Significant Accounting Policies The accounting policies set out below have been applied consistently to allperiods presented in these consolidated financial statements, and have beenapplied consistently by the Company's subsidiaries. Basis of consolidation SubsidiariesSubsidiaries are entities controlled by the Company. Control exists when theCompany owns, directly or indirectly through subsidiaries, more than half of thevoting power of the entity. Control also exists when the Company owns half orless of the voting power when there is power to govern the financial andoperating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that currently are exercisable are taken into account. The financial statements of subsidiaries are included in theconsolidatedfinancial statements from the date that control commences until the date that control ceases. The accounting policies of subsidiaries have been changed when necessary to align them with the policies adopted by the Company. Transactions eliminated on consolidationIntra-Company balances and transactions, and any unrealised income andexpenses arising from intra-Company transactions, are eliminated in preparingthe consolidated financial statements. Intangible assets Patents and Trade SecretsThe Company has developed or acquired several diagnostic tests that can detectthe presence of various substances in a person's breath, blood, urine andsaliva. Proprietary protection for the Company's products, technology andprocess is important to its competitive position. To date, the Company hasreceived four patents from the United States Patent Office (5,565,366,5,231,035, 5,827,749, and D368045). Other patents have been granted through theWorld Patent Cooperation Treaty ("PCT") (WO 92/05440, US2005/027822,US2005/015875, US91/06870, and US2005/036109), European Patent Convention (EP 0556 202 B1), and in Japan (516757/91). Patents are in the national phase ofprosecution in many PCT-participating countries. Additional proprietarytechnology consists of numerous different inventions. The Company intends tofile additional patent applications, where appropriate, relating to newproducts, technologies and their use in the US, European and Asian markets.Management intends to protect all other intellectual property (e.g., copyrights,trademarks and trade secrets) using all legal remedies available to the Company. Patent Costs Costs associated with applying for patents are capitalized as patent costs. Oncethe patents are approved; the respective costs are amortized over a period oftwelve to seventeen years on a straight-line basis. Patent pending costs forpatents that are not approved are charged to operations the year the patent isrejected. In addition, patents may be purchased from third parties. The costs of acquiringthe patent are capitalised as patent costs if it represents a future economicbenefit to the Company. Once a patent is acquired it is amortised over itsremaining life. Research and development Expenditure on research activities, undertaken with the prospect of gaining newscientific or technical knowledge and understanding, is recognised in profit orloss when incurred. Development activities involve a plan or design for the production of new orsubstantially improved products and processes. Development expenditure iscapitalised only if development costs can be measured reliably, the product orprocess is technically and commercially feasible, future economic benefits areprobable and the Company intends to and has sufficient resources to completedevelopment and to use or sell the asset. The expenditure capitalised includesthe cost of materials, direct labour and overhead costs that are directlyattributable to preparing the asset for its intended use. Borrowing costsrelated to the development of qualifying assets are recognised in profit or lossas incurred. Other development expenditure is recognised in profit or loss asincurred. Capitalised development expenditure is measured at cost less accumulatedamortisation and accumulated impairment losses. Other intangible assets Other intangible assets that are acquired by the Company, which have finiteuseful lives, are measured at cost less accumulated amortisation and accumulatedimpairment losses. Subsequent expenditure Subsequent expenditure is capitalised only when it increases the future economicbenefits embodied in the specific asset to which it relates. All otherexpenditure,including expenditure on internally generated goodwill and brands, is recognised in profit or loss as incurred. Amortisation Amortisation is recognised in profit or loss on a straight-line basis over theestimated useful lives of intangible assets, other than goodwill, from the datethat they are available for use. The estimated useful lives for the current andcomparative periods are as follows: • patents and trademarks 12-17 years• customer lists 5 years• development costs 10 years Inventories Inventories are measured at the lower of cost and net realisable value. The costof inventories is based on the first-in first-out principle, and includesexpenditure incurred in acquiring the inventories, production or conversioncosts and other costs incurred in bringing them to their existing location andcondition. In the case of manufactured inventories and work in progress, costincludes an appropriate share of production overheads based on normal operatingcapacity. Inventories are written down to net realisable value by item. Net realisablevalue is the estimated selling price in the ordinary course of business, lessthe estimated costs of completion and selling expenses. In subsequent periods,when the circumstances that previously caused inventories to be written downbelow cost no longer exist or when there is clear evidence of an increase in netrealisable value because of changed economic circumstances, the amount of theinventory write-down is reversed. Revenue Goods sold Revenue from the sale of goods is measured at the fair value of theconsideration received or receivable, net of returns, trade discounts and volumerebates. Revenue is recognised when the significant risks and rewards ofownership have been transferred to the buyer, recovery of the consideration isprobable, the associated costs and possible return of goods can be estimatedreliably, there is no continuing management involvement with the goods, and theamount of revenue can be measured reliably. Transfers of risks and rewards vary depending on the individual terms of thecontract of sale. For sales of goods to components of the U.S. Government (i.e.Army, Navy, etc.), transfer usually occurs when the product is received at thecustomer's warehouse; however, for some shipments, transfer occurs uponloading the goods onto the relevant carrier. Lease payments Payments made under operating leases are recognised in profit or loss on astraight-line basis over the term of the lease. Lease incentives received arerecognised as an integral part of the total lease expense, over the term of thelease. Finance income and expenses Finance income comprises interest income on funds invested. Finance expensescomprise interest expense on borrowings. Earnings per share The Company presents basic and diluted earnings per share (EPS) data for itsordinary shares. Basic EPS is calculated by dividing the profit or lossattributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the period. Diluted EPS isdetermined by adjusting the profit or loss attributable to ordinary shareholdersand the weighted average number of ordinary shares outstanding for the effectsof all dilutive potential ordinary shares, which comprise convertible notes andshare options granted to employees. Intangible assets acquired The fair value of purchased patents and trademarks is based on the discountedestimated royalty payments that have been avoided as a result of the patent ortrademark being owned. The fair value of other intangible assets is based on thediscounted cash flows expected to be derived from the use and eventual sale ofthe assets. Trade and other receivables The fair value of trade and other receivables is estimated as the present valueof future cash flows, discounted at the market rate of interest at the reportingdate. Non-derivative financial liabilities Fair value, which is determined for disclosure purposes, is calculated based onthe present value of future principal and interest cash flows, discounted at themarket rate of interest at the reporting date. In respect of the liabilitycomponent of convertible notes, the market rate of interest is determined byreference to similar liabilities that do not have a conversion option. Forfinance leases the market rate of interest is determined by reference to similarlease agreements. Share-based payment transactions The fair value of employee stock options is measured using the Black-Scholesformula. Measurement inputs include share price on measurement date, exerciseprice of the instrument, expected volatility (based on weighted average historicvolatility adjusted for expected changes), weighted average expected life of theinstruments (based on historical experience and general option holderbehaviour),expected dividends, and the risk-free interest rate (based ongovernment bonds). Service and non-market performance conditions attached to thetransactions are not taken into account in determining fair value. Income Tax Expense During 2007 and 2006, the Company was approved by the State of New Jersey tosell a portion of its state tax benefits pursuant to the Technology TaxCertificate Transfer Program. The Company received net proceeds of $650,083 and$483,086 in 2007 and 2006, respectively, as a result of the sale of the taxbenefits,which has been included when received as an income tax benefit in theconsolidated Statement of Operations. Also, included in the net t state taxbenefit for 2007 and 2006 are other minimum state taxes and benefits. The Company has had recurring tax losses and the Company has determined that itis not probable that the Company will be able to utilize its net operating losscarryforwards and other tax attributes in the future. Accordingly, the Companyhas not recorded any deferred tax assets as of 31 December 2007 and 31 December2006. Intangible Assets On February 27, 2006, the Company completed the acquisition of certainintangible assets of its then largest distributor of its disposable alcoholbreathalyzers. The total consideration for the transaction, including asubsequent payment later in 2006, was $756,238, consisting of $607,873 in cashand the issuance of 125,000 shares of the Company's stock. On January 23, 2007, the Company completed the acquisition of certain assets,including a patent pending for a key component of a product of significantpotential sales value of disposable alcohol breathalyzer tests to the U.S.military. Subsequent to this transaction, the Company filed for and was awardeda patent for this technology in the U.S. Additionally, the Company acquired a trademark and contracts to deliver the above products to the U.S. militarypursuant to specific appropriations in the 2006 and 2007 appropriation bills.Prior to this transaction, the seller of the assets was the Company'sdistributor of product to the U.S. military. The Company paid $2,072,000 intotal consideration for the acquired intangibles, as follows: • $1,500,000 in cash, to be paid to the seller through withholdings ofamounts that would normally have been remitted to the Company under itsdistribution agreement. • Warrants for up to 1,500,000 shares of the Company's stock were grantedto the owner of the business from whom we purchased these assets. Thesewarrants were determined to have an estimated fair value of $572,000,which was calculated using the Black Scholes option pricing model. • Additionally, the seller will receive a 7% royalty on sales in excess of$6,500,000. The total consideration paid was allocated to the patent and trademark based ontheir relative fair values. Fair values for the patent and the trademark wereestimated with the assistance of a specialist based on the discounted royaltypayments that have been avoided as a result of both assets being owned. Inventories Inventories as at 31 December 2007 of $697,498 (2006: $1,106,941) consistprimarily of finished goods. In 2007 changes in finished goods recognised as cost of sales amounted to$765,830 (2006: $380,975). In 2007 the write-down of inventories to net realisable value amounted to $5,000(2006: $472,000). The write-down is included in cost of sales. There were nowrite-ups to inventory during the years ended 31 December 2007 and 2006. Capital At 31 December 2007 the authorised share capital comprised 200,000,000 ordinaryshares (2006: 80,000,000) and 15,000,000 preference shares (2006: 15,000,000).At 31 December 2007 there were 66,928,063 ordinary shares issued andoutstanding 2006: 60,347,578 and no preference shares issued and outstanding(2006: nil). The ordinary and preference shares have no par value. All issuedshares are fully paid. The holders of ordinary shares are entitled to one vote per share at meetings ofthe Company. Holders of preference shares do not carry the right to vote. During the year ended 31 December 2007, the Company issued 960,320 shares tomembers of the Board of Directors in compensation for their service as boardmembers. Total expense recognized related to these Board of Directors fees were191,850 and were included in general and administrative expense. In 2007, the Company also issued 2,276,504 shares of capital for the conversionof $730,000 and $175,595 of convertible notes and accrued interest,respectively. The Company also issued 250,000 shares to extend the convertible notes payable.The value of the shares issued amounted to $79,132 and was recorded as deferredfinancing fees. Loss Per Share Basic and Diluted Net Loss Per ShareThe calculation of basic and diluted loss per share at 31 December 2007 wasbased on the loss attributable to ordinary shareholders of $1,724,838(2006: 9,594,974). The weighted average number of ordinary shares outstandingfor 2007 and 2006 was 62,264,974 and 56,787,413, respectively. Diluted net loss per share is computed using the weighted average number ofcommon and dilutive potential common shares outstanding during the period.Potential common shares consist of stock options, non-vested stock and warrants.Diluted net loss per common share was the same as basic net loss per commonshare for the years ended 31 December 2007 and 2006 since the effect of stockoptions, non-vested stock and warrants was anti-dilutive for all years.Instruments excluded from dilutive earnings per share, because their inclusion would be antidilutive,were as follows: employee and consulting stock options - 3,170,800; warrants - 13,626,351; shares issued for the conversion ofconvertible notes payable - 20,825,000. Convertible Notes Between January and May 2007, the Company sold additional Convertible Notestotaling $925,000 to Brittany Capital. On 31 May 2007, the Company entered intoa new facility with Brittany Capital for up to $4,500,000 of financing. Theremaining balance on the Convertible Notes owing Brittany at 31 December 2006,as well as the $925,000 borrowed during the first 5 months of 2007, were rolledinto this facility with an additional $675,000, which includes a premium earnedby Brittany on conversion of the Convertible notes in the amount of $213,864,accrued interest of $74,900 and an additional borrowing of $386,236. From thedate of this refinancing through the end of 2007, Brittany Capital madeadditional loans of $1,250,000 to the Company. In addition, during 2007 BrittanyCapital also elected to convert $730,000 and $238,706 in principle and accruedinterest into shares of capital. During 2006, the Company recorded a bifurcationcharge of $230,000 related to the variable conversion feature on the convertiblenotes, which was added to the carrying amount of the convertible notes. In theMay refinancing, the conversion feature was fixed and as a result, thebifurcationwas reversed. As compensation for the total facility, the Company issued 250,000 shares of theCompany's common stock as a closing fee. The value of the shares of stockissued was $79,132, and was recorded as deferred financing fees, which areincluded in other assets. The Notes are convertible into the Company's common stock at any time, at 10pence per share and may be redeemed by the Company at 105% during the first 6months and 110% thereafter. Brittany may convert within 3 days of receipt of anyredemption notice from the Company. The Notes, if not converted, will matureon December 31, 2008 and bear interest at 10% per annum. In conjunction with the re-financing of the convertible notes, all of Brittany'sexisting warrants to purchase up to 1,365,000 were modified to lower theexercise price to 30 pence per share. The Company calculated the differencebetween the modified warrants and the existing warrants immediately prior to themodification and determined that there was $193,969 in incremental fair valueresulting from the modification. This amount was recorded as additional discounton the notes and will be recognized through interest expense over the remainingterm of the notes. In addition, the Company issued warrants to purchase commonshares with Convertible Notes issued during the year, which were valued at$70,194. The value of these warrants was initially recorded as a discount to theConvertible Notes payable. When these notes were refinanced in May 2007, thisvalue was recorded in full as interest expense. During 2007, the Company also converted accounts payable of $90,000 to anunsecured loan. Share-based payments Stock WarrantsThe Company has issued warrants to various employees and consultants of theCompany for their services either in connection with the Company's ongoingefforts to raise capital or the development of the Company's products. Inaddition, the Company has granted warrants to lenders in connection with theissuance of debt. Each warrant granted may be exchanged for a prescribednumber of shares of common stock. The warrants expire at various dates throughJuly 2013. The Company has adopted two option plans that permit the granting of options topurchase shares of common stock. The plans provide for the granting of bothincentive stock options ("Incentive Stock Plan"), as defined in Section 422 ofthe U.S. Internal Revenue Code (the "Code"), and options defined by Section 422of the Code ("Non-qualified options"). The plans are administered by a Compensation Committee, which is appointed bythe Board of Directors, who grants all options and determines their terms.Options are non-transferable and are only granted to employees, officers anddirectors, and advisors or consultants who agree to be employed or to provideservices to the Company for a period of at least one year after the grant date.The maximum term of any option under the plans is ten years, and generally vestover 3 years. Commitments Operating LeasesThe Company leases office space in Thorofare, New Jersey under anoncancellable-operating lease with annual rentals of $152,004 plus common areamaintenance (CAM) charges. The Company's lease term expires 31 December2012, but the Company may terminate early on or after July 1, 2010 for nopenalty. Rent expense including related CAM charges for the years ended 31 December2007 and 2006 were $284,017 and $247,892 respectively. Provision On 11 April 2005, CTS Distributing, Inc. ("CTS"), a former distributor for theCompany, commenced an action against the Company in the District Court ofHarris County, Texas. CTS's claims include breach of contract and fraud. TheCompany and its counsel believe these claims to be completely without merit. Discovery in this matter has begun and a trial was expected during the priorsummer. The Company has not provided for any contingent liability within thesefinancial statements. On 07 January 2008, the Company settled an action brought by CTS Distributing,Inc. The settlement consisted of a payment of $50,000 and the issue of 500,000common shares of the Company. Subsequent Events On 14 January 2008, the Company issued 1,171,060 common shares to satisfypayment to respect of a promissory note due 22 November 2007. The outstandingbalance of that loan as at 31 December 2007 was $175,000 This information is provided by RNS The company news service from the London Stock Exchange