AKR.L Regulatory News (AKR)

12 Apr 2005 06:00

Embargoed: 0700hrs 12 April 2005 AKERS BIOSCIENCES, INC. Results for the year ended 31 December, 2004 Akers Biosciences, Inc. ("Akers Biosciences", "Akers" or the "Company"), aleading designer and manufacturer of rapid diagnostic screening and testingproducts, announces its annual results for the year ended 31 December, 2004. Highlights * FDA approval for the Company's rapid test for heparin platelet factor-4 antibodies, important in the management of surgery patients, was received. * Alliance formed with Cardinal Health to distribute the Company's core tests, giving the Company broad access to hospital, physicians' office, and pharmacy markets in the US. * Alliances formed with Helena Laboratories and Corgenix Medical Group to market and distribute the heparin platelet factor-4 test to US hospital and reference laboratories, and to some international markets. * The Company has started to build an internal sales and marketing organization to manage the launch of its own brands of products into the marketplace, initially its tests for heparin platelet factor-4, lithium, cholesterol, and alcohol breathalyzers. * Development of the Biosniffer technology was completed, with initial deployment planned for the continuous monitoring of biowarfare agents such as anthrax. * Appointment of Robert W. Baird as nominated advisor and corporate broker was effected. Prospects * The Company is starting a trial in conjunction with Pfizer Inc. to introduce its cholesterol test to US physicians and consumers, through a program involving Pfizer's cholesterol-lowering drug Lipitor. * A recent alliance with Alco Industries will lead to the company's breathalyzer and cholesterol tests being trialed in US retail markets. * Regulatory clearance (CE mark) has been obtained for the heparin platelet factor-4, lithium, and drugs of abuse tests, and additional clearances are expected, which will allow sales to be started in Europe during 2005. * The Company will introduce its products in the UK and certain EU countries through new alliances with Helena Biosciences Europe and Advanced Rapid Diagnostics Ltd. * Development of the Biosniffer technology will be expanded into hospital-related airborne infections. * The recently announced $2.5 million financing will allow expansion of the Company's production capability and sales force. Ray Akers, Chief Executive Officer of Akers Biosciences, said: "The pieces of the puzzle have all come together. While our alliances with pharmaceutical companies provided the marketing and promotional component of our business model, our new alliances provide the distribution component. Another dimension has been added to our company through our new and expanding sales force, which coupled with the sales forces of our partners, should enable broad market penetration of our products. All of these elements are enhanced when combined with our core development and manufacturing strengths, and our many proprietary platform technologies. We now also have the necessary financial resources to expand our organization, as well as to establish a presence in UK and European markets. We are optimistic about the effect these actions will produce on our revenues for 2005" Ray Akers, Chief Executive Officer of Akers Biosciences, said:"The pieces of the puzzle have all come together. While our alliances withpharmaceutical companies provided the marketing and promotional component ofour business model, our new alliances provide the distribution component.Another dimension has been added to our company through our new and expandingsales force, which coupled with the sales forces of our partners, should enablebroad market penetration of our products. All of these elements are enhancedwhen combined with our core development and manufacturing strengths, and ourmany proprietary platform technologies. We now also have the necessaryfinancial resources to expand our organization, as well as to establish apresence in UK and European markets. We are optimistic about the effect theseactions will produce on our revenues for 2005"Enquiries:Dr. Raymond AkersChief Executive Officer, Akers Biosciences, Inc.020 7917 9476Paul FreedmanChief Financial Officer, Akers Biosciences, Inc. 001 856 848 8698Xaviar de MolRobert W. Baird Ltd.020 7488 1212Emma PrimaroloRobert W. Baird Ltd.020 7488 1212Bill RobertsCTC, Inc.001 937 434 2700Adam Reynolds / Ben SimonsHansard Communications020 7245 1100PRELIMINARY RESULTS STATEMENTIntroductionWe are pleased to announce the preliminary results for Akers Biosciences Inc. for the year ended 31 December 2004. 2004 has been a year ofconsiderable progress for Akers with significant revenue growth, new alliances formed, and a solid foundation now in place for the expansion of the business. Results Revenues for the year ended 31 December 2004 were $1,325,022 comparedwith $1,114,980 during the same period in 2003. The net loss was $4,419,970(2003: $2,891,638). Whilst this growth has produced record annual sales in2004, as the Company announced in January, 2005, problems with the supply ofkey components for the Company's PIFA heparin/platelet factor-4 ("HPF4") testfrom third party suppliers prevented Akers from shipping the anticipated levelsof this product, and negatively impacted 2004 revenues. The Company has sincerectified these problems and has resumed shipping this product. 2004 revenuesreflect initial sales into a small customer base that are now expected tocontribute significantly to future growth.Business ReviewAll of the Company's proprietary technologies provide the platform for high margin niche products, intended for use in specialized market segments. In addition to its ongoing efforts with its strategic partners, the Company has also begun to build its own brands. Early introductions of the company's products were branded by the chosen marketing partner. This included ReliaLab for lithium, WNCK for breathalysers, and VitaRich for cholesterol. Now that the company has the financial resources to start building its own sales and marketing team, it can begin to build its own brands. This strategy has begun to be implemented with lithium, cholesterol and breathalysers for certain markets, and has been in place from the outset with its heparin platelet factor-4 product HPF4. The company continues to focus on four market segments: biotech/pharmaceutical, OTC and doctor's surgeries, government/military, and the developing world.Biotech/PharmaceuticalThe Company continues to believe that the biotech/ pharmaceutical sector holds great potential to build a core and sustainable business. The Company's first entry into this market was the lithium test, for which the Company is realizing steadily increasing sales, although the initial sales cycle was slower to develop than expected. The Company has opened up a new market sector for this product by introducing its own "Lithium Check " brand to the hospital and clinical laboratory market. The test is currentlybeing sold by the Company's sales force and distributed by Cardinal Health.ReliaLab, Inc. of Basking Ridge, NJ, USA, intends to sell the product direct topsychiatrists once the FDA CLIA waiver is obtained, which is expected to happenin 2005.While the Company has experienced significant delays in obtaining approval for its white blood cell tests, the FDA has recently granted expeditedreview status for this product. This status is usually granted for productsperceived to be of a critical medical need. This product will be marketed totwo distinct clinical areas initially; psychiatry, as tests for the sideeffects of the neuropsychiatry drug clozapine, and oncology, as tests for theside effects of chemotherapy and radiation therapy.The rapid HPF4 test has already received FDA approval, and has been introduced into the US market. The Company expects to introduce the product into Europe now that regulatory clearance has been obtained. This is the first rapid test for HPF4 antibodies, and the product is protected by two of the Company's patents, with additional patents pending. After a lengthy validation period in many US hospitallaboratories, the test has been enthusiastically accepted, and productplacement is steadily increasing. The Company's own sales force is working witha number of major hospitals to develop product sales and to solve any initialusage issues. Cardinal Health distributes the product to hospitals andphysicians throughout the US, Helena Laboratories sells and distributes theproduct to hospital laboratories, and Corgenix Medical Group covers referenceand clinical laboratories. As the product becomes more widely accepted in theUS, the Company expects to introduce the product into Europe. The Company and its partner The Medicines Company are also promoting the use of this test as an initial decision point in the course of cardiology and emergency medicine where anti-thrombolytic treatment is indicated. The Medicines Company's drug Angiomax is indicated for certain patients undergoing anti-thrombolytic therapy. The availability of this test could have a significant impact on interventionalcardiology as it relates to the management of anti-coagulant therapies.Moreover, additional potential uses for this product have progressed muchfaster than the Company expected. Over 20 million patients in the US and Europeare given heparin each year during many different surgical and therapeuticprocedures. The clinical market has quickly perceived the value of our test inmany areas in addition to cardiac surgery, which should have a positive impacton sales.OTC and Doctors' SurgeriesWe believe that our collaboration with Pfizer, Inc.,and our alliance with Alco Industries enable the most effective approach intothe OTC and doctor's surgery markets. We have received an order for cholesteroltests which Pfizer will test market to physicians in conjunction with itscholesterol-lowering drug Lipitor. If this trial program is successful, thevolume of demand could be significant. In addition, this program can stimulatethe success of the follow-on retail market, which will be managed by AlcoIndustries. Alco is a major US retailer already in the market with theCompany's alcohol breathalyzers, and is a key partner in the Company's strategyto penetrate the OTC markets. In the nutritional sector of this market,Vitarich Laboratories has been successful in introducing certain products ,although progress has been much slower than expected. The initial product lineof total, HDL, and LDL blood cholesterol and glucose tests has been expanded toinclude six different products, and product development is now complete.Government and MilitaryIn the government/military sector, our alliance with Battelle has led to two initial contracts for the supply of products to support biowarfare agent detection systems. These initial contracts may lead to renewable annual contracts that can expand in volume. The Company continues to progress with the testing and approvals process, but does not have a clearly defined expectation of when shipping can begin. The Company is developing additional tests for both civilian and military biowarfare agent detection, and several pilot programs are providing a near term opportunity. In addition, the Company is continuing to pursue both land and marine-based sales of its alcohol breathalisers. Quest Diagnostics is the Company's primary distributor of Akers' own brand of product, and has steadily increased is sales and customer base.Financial ReviewProfit and Loss For the year ended 31 December 2004, revenues increased by 19%to $1.3M (2003:$1.1M). The net loss was $4,419,970 ($0.10 loss per share),compared to $2,891,638 ($0.07 loss per share) in 2003.Research and developmentexpenses increased to $1,107,628 from $729,940 in the previous year.Sales andgeneral and administrative expenses increased to $3,245,980 from $2,099,998 in2003. A substantial amount of this increase resulted from a greater provisionfor bad debts in 2004 ($809,000 vs. $155,000 in 2003.). In addition, theexpansion of the sales and marketing team with the addition of two seniormanagement personnel and a small field force resulted in expenses notexperienced in prior years.Capital expenditures were negligible in both 2004 and 2003.The Company had46,955,614 common shares in issue at 31 December 2004.Tundra LitigationWithin the footnotes to the financial statements for the year ended 31 December2004 the company described a matter of litigation that it had commenced againstTundra Management LTD. ("Tundra") and Alliance Investment Management LTD.("Alliance".) On February 18, 2005, the United States District Judge presidingover this matter signed a Default Final Judgment against Tundra in the amountof $980,635. This judgment provides for set-off of the damage amount againstthe loan from Tundra, thereby satisfying in full the debt under the loanagreements. Accordingly, all of the agreements which evidence the original loanare therefore paid, fully satisfied and fully performed by the Company, who hasbeen released of any and all further obligations to Tundra. The Company choosesnot to recognize any net realizable value in connection with the amount of thejudgment which exceeds the recorded obligation. As to defendant Alliance,discovery has not yet commenced. No provision for any damages to be recoveredfrom or paid to Alliance has been provided within the financial statements, forthe year ended 31 December 2004.FinancingOn 11 March 2005, the company completed a placement of $2,500,000 of principleamount of promissory notes to an investment group. The notes, which areconvertible into shares of the Company's common stock, have an 18-monthmaturity, and bear simple interest at the annual rate of 6%. The notes may berepaid by the Company or converted into the Company's common stock undercertain terms and conditions. Along with the placement of the notes, thecompany has issued to the investors two different classes of warrants topurchase additional shares of the Company's common stock at specified prices.PeopleIn March 2004, the Company hired Robert McGowan as its Vice-President ofSales and Marketing. In June, 2004, Patrice McMorrow was hired as Director ofMarketing. Mr. McGowan and Ms. McMorrow have more than thirty years of combinedsenior sales and marketing experience in the healthcare field, and have beensuccessful in the launch of a number of products. The Company is pleased to addindividuals of their caliber and expertise to its management team. In addition,the Company has also built a small sales force to sell its core products intothe US hospital and laboratory markets. Product DevelopmentThe Company now offers six different proprietary platform technologies, and has developed products based on these technologies.During 2004, the Company developed the BioSniffer technology, which is designed to continuously monitor airborne bacterial, viral and fungal pathogens. The initial application of this technology is a system that provides real-time information on the probable cause of an atmospheric release of biowarfare agents.The BioSniffer system consists of two components: a portable electronic sniffing and detection device, and a disposable reaction cartridge containing liquid reagents that react in the presence of certain bioagents. Initial development focused aroundBacillus anthracis (anthrax); the company is now focusing on hospital relatedinfections, such as methicillin-resistant streptococcus aureus (MRSA).Current Trading and OutlookThis has been a successful year on many fronts. The Company has successfullyobtained FDA approvals for key products, allied itself with majorpharmaceutical firms, and secured broad distribution channels. The Company hasexpanded its production capabilities, and taken the significant step ofbuilding, and then growing , its own sales force. The Company is todayfinancially stronger. Whilst we experienced shipping delays at the end of 2004,those problems have been overcome. Sales in the first quarter of 2005 exceededthose of the first quarter of 2004, and this positive trend for sales growth isexpected to continue through 2005 and beyond, enabling the company to meetexpectations.David WilbrahamChairmanRaymond AkersChief Executive Officer APPENDIX Akers Biosciences' diagnostic and testing products are designed to bringhealthcare information both rapidly and directly to the doctor or the patientin the clinic or in the field without the need for expensive laboratoryequipment. Our strategy is to become a market leader in rapid testing using ourproprietary technologies to generate products with clear competitive advantagesin targeted markets. These products are intended for professional, consumer,and military markets in both the developed and developing world, and arebrought to market through strategic partnerships with established distributionorganizations.The Company now offers six different proprietary platform technologies, and hasdeveloped products based on these technologies. No longer offering only rapid,manual tests, the Company has developed a line of tests based on inexpensive,portable electronic readers. MinDNA technology allows for the analysis of DNA in one minute, and has been applied in the development of the rapid white blood cell count and absolute neutrophil count assays that monitor a side effect of the Novartis drug clozaril (clozapine). Other applications of MinDNA technologycan result in tests necessary for the safety of the blood supply, specificidentification of parasitic infections, and biowarfare agent detection. MinDNA-based assays can be produced in both rapid manual or electronic readerversions.Synthetic Macrocycle Complex technology is associated with the development of novel macrocyclic organic compounds that determine quantitative levels of therapeutic drugs, such as lithium blood levels, through the use ofelectronic readers. These hand-held readers and their associated proprietaryreagents unlock new potential in both professional and consumer markets,particularly in therapeutic drug monitoring.Our Rapid Enzymatic Metabolite technology platform focuses on the detection of blood and urine metabolites through enzymatic chemistries in quantitative or semi-quantitative formats. These products are primarily intended for pharmaceutical or nutritional markets, and include tests such as total and HDL cholesterol, glucose, cortisol and testosterone.Particle Immuno Filtration Assay (PIFA) technology has beendeveloped with an extensive range of rapid testing products, includingHeparin-platelet factor-4 antibodies, HIV, sexually-transmitted diseases,malaria, prostate cancer, blood typing, and other non-infectious agents. Theserobust products produce results in minutes comparable to laboratory-basedassays. MicroParticle Catalyzed Biosensor (MPC Biosensor)-based products,include the alcohol breathalyzer, which is the only portable breathalyzerapproved by the US Department of Transportation.The Biosniffer technology is designed to continuously monitor airbornebacterial, viral, and fungal agents. The initial application of this technologyis a system that provides real-time information on the probable cause of anatmospheric release of biowarfare agents. Each system is designed to providevisual, auditory and electronic warning signals to indicate that a bioagentrelease event has occurred. Tests are under development for other specificbiowarfare agents, as well as hospital-related airborne infections, such asmethicillin-resisitant streptococcus aureus (MRSA). Akers Biosciences, Inc. Financial Statements 1. Consolidated Balance Sheets as at 31 December 2004 and 2003 2004 2003 $ $Assets Current Assets Cash 182,454 593,394 Trade receivables, net of allowance for doubtful 105,982 481,850accounts of $963,630 and $154,747 in 2004 and 2003, respectively Inventories 619,646 450,151 Prepaid and other current assets 217,109 71,390 ________ ________ Total Current Assets 1,125,191 1,596,785 ________ ________ Property and Equipment, net 221,371 270,857 ________ ________ Other Assets Patent costs, net of accumulated amortization 117,930 132,242 Deferred financing costs, net of accumulated 4,825 7,719amortization Deposits and other assets 12,632 10,767 ________ ________ Total other assets 135,387 150,728 ________ ________ 1,481,949 2,018,370 Liabilities and Stockholders' Deficiency Current Liabilities Accounts payable and accrued expenses 1,601,114 1,762,744 Accrued interest payable 191,336 114,746 Notes payable 1,665,674 1,152,174 Current portion of long-term debt 359,787 857,592 Current portion of obligations under capital leases 5,974 945 ________ ________ Total current liabilities 3,823,885 3,888,201 Long-Term Debt Long-term debt, net of current portion 442,394 517,478 Obligations under capital leases, net of current 10,154 -portion ________ ________ Total long-term debt 452,548 517,478 ________ ________ Stockholders' Deficiency Preferred stock, no par value Authorized 15,000,000 shares, no shares - -issued and outstanding at December 31, 2004 and 2003 Common stock, no par value Authorized 60,000,000 shares 48,366,016 44,353,221issued and outstanding 46,955,614 and 42,674,564 at December 31, 2004 and 2003 Accumulated deficiency (51,160,500) (46,740,530) ________ ________ Total stockholders' deficiency (2,794,484) (2,387,309) ________ ________ Total Liabilities and Stockholders' Deficiency 1,481,949 2,018,370 ======== ========2. Consolidated Statements of Operations for years ended 31 December 2004 and2003 2004 2003 $ $ Revenues 1,325,022 1,114,980 Cost of production 1,495,763 1,119,653 ________ ________ Gross profit(loss) (170,741) (4,673) ________ ________ Sales and general and administrative 3,245,980 2,099,998expenses Research and development expenses 1,107,628 729,940 ________ ________ Total expenses 4,353,608 2,829,938 ________ ________ Loss from operations (4,524,349) (2,834,611) ======== ======== Other income(expense) Interest income 1,333 97 Forgiveness of trade payables - 4,253 Sale of New Jersey NOL's 323,896 224,259 Foreign currency transactions(loss) (377) (389) Interest expense (220,473) (285,247) _________ _________ Total other income (expense) 104,379 (57,027) _________ _________ Net loss (4,419,970) (2,891,638) _________ _________3.Consolidated Statements of Stockholders' Deficit Preferred Preferred Common Common Accumulated Total Stock Stock Stock Stock Deficiency $ Shares Amount Shares Amount $ $ $ Balance, December - - 39,618,395 42,178,577 (43,848,892) (1,670,315)31, 2002 __________ __________ __________ __________ __________ __________ Issuance of stock - - 2,708,531 1,814,630 - 1,814,630 for cash Issuance of - - - 39,688 - 39,688 warrants for products and services Exercise of - - 80,156 60,117 - 60,117 options and warrants Issuance of - - 75,000 75,000 - 75,000 common stock in exchange of debt Issuance of - - 192,482 185,209 - 185,209 common stock in exchange of trade payables Net loss for the - - - - (2,891,638) (2,891,638)year ended December 31, 2003 __________ __________ __________ __________ __________ __________ Balance, December - - 42,674,564 44,353,221 (46,740,530) (2,387,309)31, 2003 __________ __________ __________ __________ __________ __________ Issuance of stock - - 2,632,722 3,281,965 - 3,281,965 for cash Issuance of - - 1,455,000 463,419 - 463,419 common stock in exchange of debt Issuance of - - 193,328 267,411 - 267,411 common stock in exchange of trade payables Net loss for the - - - - (4,419,970) (4,419,970)year ended December 31, 2004 __________ __________ __________ __________ __________ __________ Balance, December - - 46,955,614 48,366,016 (51,160,500) (2,794,484)31, 2004 __________` __________ __________ __________ __________ __________ 4. Statements of Cash Flows for the years ended 31 December 2004 and 2003 2004 2003 Cash Flows From Operating Activities Net loss $ (4,419,970) $ (2,891,638) Adjustments to reconcile net loss to cash used in operating activities: Depreciation and amortization 102,681 110,371 Deferred Interest expense 13,500 - Amortization of deferred finance costs 2,894 2,895 Stock, stock options and warrants 40,000 39,688 issued to employees and non-employees Provisions for bad debt 808,883 154,748 Changes in operating assets and liabilities: (Increase) decrease in: Trade receivables (433,016) (366,407) Inventories (169,495) (249,389) Prepaids and other current assets (145,718) 64,774 Deposits and other assets (1,865) - Increase (decrease) in: Accounts payable and accrued expenses 104,370 661,074 _________ _________ Net cash used in operating activities (4,097,736) (2,473,884) _________ _________ Cash Flows From Investing Activities Purchase of property and equipment (19,383) - _________ __________ Net cash used in investing activities (19,383) - _________ __________ Cash Flows From Financing Activities Proceeds from issuance of stock, net 3,281,965 1,814,630 Proceeds from warrants exercised - 60,117 Proceeds from borrowings 1,120,000 1,575,279 Repayments on officers' and - (105,385) stockholders' borrowings Repayments of capital lease (4,317) (9,899) obligations Repayments on borrowings (691,469) (269,422) _________ _________ Net cash provided by financing 3,706,179 3,065,320 activities _________ _________ Increase (decrease) in cash (410,940) 591,436 Cash, beginning of year 593,394 1,958 ________ _________ Cash end of year $ 182,454 $ 593,394 _________ _________ Consolidated Statements of Cash Flows for the years ended 31 December 2004 and2003 - continued 2004 2003 Supplemental Disclosures of Cash Flow Information: Non-cash investing and financing activities are as follows: Conversion of debt and accrued interest payable to $ 465,419 $ 75,000common stock ========= ========= Conversion of trade payable to common stock $ 189,411 $ 185,209 ========= ========= Cash Paid During the Period for Interest $ 73,441 $ 211,010 _________ __________Summary of Significant Accounting PoliciesThe Summary of Significant Accounting Policies below are integral parts of theaccompanying Consolidated Financial Statements.Description of Business: Akers Biosciences, Inc. and its subsidiaries (the"Company" or "Akers") is a New Jersey Corporation, which was incorporated onMarch 8, 1989. The Company commenced research and development operations inSeptember 1989, and until 2003 had devoted substantially all its efforts toestablish the new business.The Company's financial statements issued in prior years include amounts anddisclosures as required by generally accepted accounting principles in theUnited States of America as it relates to a Development Stage Company. Based onthe current status of the Company, considering the development of products andsales activity, the Company is no longer deemed a Development Stage Company.Patents and Trade Secrets: The Company has developed several diagnostic teststhat can detect the presence of various substances in a person's blood, urineand saliva. Proprietary protection for the Company's products, technology andprocess is important to its competitive position. To date, the Company hasreceived three patents from the United States Patent Office (5,565,366,5,231,035, and 5,827,749). Other patents have been granted through the WorldPatent Cooperation Treaty ("PCT") (WO 92/05440), European Patent Convention (EP0 556 202 B1), and in Japan (516757/91). Patents are in the national phase ofprosecution in many PCT-participating countries. Additional proprietarytechnology consists of eleven different inventions. The Company intends to fileadditional patent applications, where appropriate, relating to new products,technologies and their use in the US, European and Asian markets. Managementintends to protect all other intellectual property (e.g., copyrights,trademarks and trade secrets) using all legal remedies available to theCompany.Principles of Consolidation: The consolidated financial statements include theaccounts of the Company. All significant intercompany balances and transactionsare eliminated. The subsidiaries have been inactive since December 31, 1996 andhave no assets or liabilities.Revenue Recognition: The Company recognizes sales at the time goods areshipped.Trade Receivables: Trade receivables are carried at original invoice amountless an estimate made for doubtful receivables based on a review of alloutstanding amounts on a monthly basis. Management determines the allowance fordoubtful accounts by regularly evaluating individual customer receivables andconsidering a customer's financial condition, credit history, and currenteconomic conditions. Trade receivables are written off when deemeduncollectable. Recoveries of trade receivables previously written off arerecorded when received. Trade receivable is considered to be past due if anyportion of the receivable balance is outstanding for more than 90 days.Management may elect to charge interest on past due trade receivables.Inventories: Inventories are stated at the lower of cost (first-in, first-out)or market, and primarily consist of raw materials used for research anddevelopment and manufacturing.Property and Equipment: Property and equipment are stated at cost. Depreciationand amortization are computed over the estimated useful lives of the respectiveassets using straight-line and accelerated methods. Upon sale or retirement ofassets, the related costs and accumulated depreciation are eliminated from theaccounts and the resulting gain or loss is included in operations. Expendituresfor repairs and maintenance that do not increase the useful lives of the assetsare charged to operations as incurred.Patent Costs: Costs associated with applying for patents are capitalized aspatent costs. Once the patents are approved, the respective costs are amortizedover a period of twelve to seventeen years on a straight-line basis. Patentpending costs for patents that are not approved are charged to operations theyear the patent is rejected. Accumulated amortization related to patents was$113,555 and $99,243 as of December 31, 2004 and 2003, respectively.Amortization expense amounted to $14,311 for each of the years ended December31, 2004 and 2003.Deferred Financing Costs: Costs incurred in connection with long-term financinghave been capitalized and are being amortized on the straight-line basis overthe term of the related debt. As of December 31, 2004 and 2003, accumulatedamortization was $24,123 and $21,228, respectively. Amortization expense foreach of the years ended December 31, 2004 and 2003 was $2,895.Research and Development Costs: Research and development costs are charged tooperations when incurred.Advertising and Promotion: Advertising and promotion costs are charged tocurrent operations when incurred. Advertising and promotion costs for the yearsended December 31, 2004 and 2003 were $7,685 and $1,210, respectively.Stock-Based Compensation: The Company adopted the disclosure-only provisions ofStatement of Financial Accounting Standards ("SFAS") No. 123 "Accounting forStock-Based Compensation," but elected to continue to utilize the "intrinsicvalue" method of accounting for recording stock-based compensation expense foremployees, as provided for in Accounting Principles Board No. 25 "Accountingfor Stock Issued to Employees" ("APB No. 25").Income Taxes: Deferred income taxes are provided on a liability method. Wherebydeferred tax assets are recognized for deductible temporary differences anddeferred tax liabilities are recognized for taxable temporary differences.Temporary differences are the differences between the reported amounts ofassets and liabilities and their tax bases. Deferred tax assets are reduced bya valuation allowance when, in the opinion of management, it is more likelythan not that some portion or all of the deferred tax assets will not berealized. Deferred tax assets and liabilities are adjusted for the effects ofchanges in tax laws and rates on the date of enactment.Stock Options and Warrants: The Company's intention is to issue stock optionsand warrants at no less than fair market value on the date of grant. Oninfrequent occasions, stock options and warrants have been issued at less thanfair market value for services and in connection with financings, and theeffect of these issuances has been recorded as an expense in the period ofissuance of the option or warrant. Previously, the fair market value of commonstock had been determined based on the price that the Company has received forthe issuance of stock to investors during a comparable time period. Since May22, 2002, fair market value is deemed to be the price of the company's sharesas quoted on the Alternative Investment Market of the London Stock Exchange.Use of Estimates: The preparation of financial statements in conformity withaccounting principles generally accepted in the United States of Americarequires management to make estimates and assumptions that affect the reportedamounts of assets and liabilities and disclosure of contingent assets andliabilities at the date of the financial statements and the reported amounts ofrevenues and expenses during the reporting period. Actual results could differfrom those estimates.Loss per share: Basic loss per share has been calculated by dividing the lossfor the year of $4,419,970 (2003; $2,891,638) by the weighted average number ofshares in issue during the period of 45,528,669(2003: 40,239,335).ENDAKERS BIOSCIENCES INC