TIDMAKR
RNS Number : 6656U
Akers Biosciences, Inc.
16 July 2018
July 16, 2018
The announcement contains inside information
Akers Biosciences, Inc.
Correction: Final Results 2017 (Restated)
This Amendment No. 1 on Form 10-K/A (this "Form 10-K/A") amends
and restates certain items noted below in the Annual Report on Form
10-K of Akers Biosciences, Inc. (the "Company") for the fiscal year
ended December 31, 2017, as originally filed with the Securities
and Exchange Commission on April 3, 2018 (the "Original Filing")
and announced in summary through RNS on April 3, 2018 with RNS
Number: 6126J, under the heading "Final Results". This Form 10-K/A
amends the Original Filing to reflect the correction of
misstatements in the previously reported fiscal year 2017 financial
statements related to the Company's revenue, certain obligations
and the value of certain inventory items. See Note 2 to the
Consolidated Financial Statements included in Item 8 for additional
information and a reconciliation of the previously reported amounts
to the restated amounts.
For the convenience of the reader, this Form 10-K/A sets forth
the Original Filing, as amended, in its entirety; however, this
Form 10-K/A amends and restates only the following financial
statements and disclosures that were impacted from the correction
of the misstatements:
-- Part I, Item 1A - Risk Factors
-- Part II, Item 7 - Management's Discussion and Analysis of Financial Condition and Results
of Operations
-- Part II, Item 8 - Financial Statements and Supplementary Data
-- Part II, Item 9A - Controls and Procedures
In addition, the Company's Chief Executive Officer and Chief
Financial Officer have provided new certifications dated as of the
date of this filing in connection with this Form 10-K/A (Exhibits
31.1, 31.2, 32.1 and 32.2), and the Company has provided its
revised audited consolidated financial statements formatted in
Extensible Business Reporting Language (XBRL) in Exhibit 101.
Except as described above, no other changes have been made to
the Original Filing. This Form 10-K/A speaks as of the date of the
Original Filing and does not reflect events that may have occurred
after the date of the Original Filing, or modify or update any
disclosures that may have been affected by subsequent events.
The Company is also concurrently filing amended Quarterly
Reports on Form 10-Q for the quarterly periods ended June 30, 2017
and September 30, 2017 to restate the previously issued interim
financial statements due to the accounting misstatements described
above.
This Form 10-K/A ("Annual Report") is available on the Company's
website at www.akersbio.com and will shortly be mailed to all
shareholders and holders of Depository Interests.
About Akers Biosciences, Inc.
Akers Bio develops, manufactures, and supplies rapid screening
and testing products designed to deliver quicker and more
cost-effective healthcare information to healthcare providers and
consumers. The Company has advanced the science of diagnostics
while responding to major shifts in healthcare through the
development of several proprietary platform technologies. The
Company's state-of-the-art rapid diagnostic assays can be performed
virtually anywhere in minutes when time is of the essence. The
Company has aligned with major healthcare companies and high volume
medical product distributors to maximize product offerings, and to
be a major worldwide competitor in diagnostics.
Additional information on the Company and its products can be
found at www.akersbio.com. Follow us on Twitter @AkersBio.
Enquiries:
Akers Biosciences, Inc.
John J. Gormally, Chief Executive Officer
Tel. +1 856 848 8698
finnCap (UK Nominated Adviser and Broker)
Adrian Hargrave / Scott Mathieson (Corporate Finance)
Steve Norcross (Broking)
Tel. +44 (0)20 7220 0500
Vigo Communications (Global Public Relations)
Ben Simons / Fiona Henson
Tel. +44 (0)20 7390 0234
Email: akers@vigocomms.com
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
(Amendment No. 1)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended: December 31, 2017
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
AKERS BIOSCIENCES, INC.
(Exact name of registrant as specified in its charter)
New Jersey 001-36268 22-2983783
(State or other jurisdiction of (Commission (I.R.S. Employer
incorporation or organization) File Number) Identification Number)
201 Grove Road
Thorofare, New Jersey USA 08086
(Address of principal executive offices, including zip code)
(856) 848-8698
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, no par value
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 the Securities Act. Yes [ ]
No [X]
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the Act. Yes [ ]
No [X]
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 preceding 12 months (or
for such shorter period that the registrant was required to file
such reports) and (2) has been subject to such filing requirements
for the last 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant
to Rule 405 of Regulation S-T (--232.405 of this chapter) during
the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes [X] No
[ ]
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K (--229.405 of this chapter)
is not contained herein, and will not be contained, to the best of
registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form
10-K/A or any amendment to this Form 10-K/A. [ ]
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer,
or a smaller reporting company. See definition of "large
accelerated filer," "accelerated filer" and "smaller reporting
company" in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer [ ] Accelerated Filer [ ]
Non-Accelerated Filer [ ] 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. [
]
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
The aggregate market value of the voting and non-voting common
equity held by non-affiliates of the registrant on June 30, 2017,
based on a closing price of $1.25 was $10,201,326. As of March 15,
2018, the registrant had 81,973,964 shares of its common stock, no
par value per share, outstanding.
Documents Incorporated By Reference: None.
Explanatory Note
This Amendment No. 1 on Form 10-K/A (this "Form 10-K/A") amends
and restates certain items noted below in the Annual Report on Form
10-K of Akers Biosciences, Inc. (the "Company") for the fiscal year
ended December 31, 2017, as originally filed with the Securities
and Exchange Commission on April 3, 2018 (the "Original Filing").
This Form 10-K/A amends the Original Filing to reflect the
correction of misstatements in the previously reported fiscal year
2017 financial statements related to the Company's revenue, certain
obligations and the value of certain inventory items. See Note 2 to
the Consolidated Financial Statements included in Item 8 for
additional information and a reconciliation of the previously
reported amounts to the restated amounts.
For the convenience of the reader, this Form 10-K/A sets forth
the Original Filing, as amended, in its entirety; however, this
Form 10-K/A amends and restates only the following financial
statements and disclosures that were impacted from the correction
of the misstatements:
-- Part I, Item 1A - Risk Factors
-- Part II, Item 7 - Management's Discussion and Analysis of Financial Condition and Results
of Operations
-- Part II, Item 8 - Financial Statements and Supplementary Data
-- Part II, Item 9A - Controls and Procedures
In addition, the Company's Chief Executive Officer and Chief
Financial Officer have provided new certifications dated as of the
date of this filing in connection with this Form 10-K/A (Exhibits
31.1, 31.2, 32.1 and 32.2), and the Company has provided its
revised audited consolidated financial statements formatted in
Extensible Business Reporting Language (XBRL) in Exhibit 101.
Except as described above, no other changes have been made to
the Original Filing. This Form 10-K/A speaks as of the date of the
Original Filing and does not reflect events that may have occurred
after the date of the Original Filing, or modify or update any
disclosures that may have been affected by subsequent events.
The Company is also concurrently filing amended Quarterly
Reports on Form 10-Q for the quarterly periods ended June 30, 2017
and September 30, 2017 to restate the previously issued interim
financial statements due to the accounting misstatements described
above.
AKERS BIOSCIENCES, INC.
FOR THE FISCAL YEARED
DECEMBER 31, 2017
FORWARD LOOKING STATEMENTS
This Report and the documents we have filed with the Securities
and Exchange Commission (which we refer to herein as the SEC) that
are incorporated by reference herein contain forward-looking
statements, within the meaning of Section 27A of the Securities Act
of 1933, as amended (the "Securities Act") and Section 21E of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"),
that involve significant risks and uncertainties. Any statements
contained, or incorporated by reference, in this Report that are
not statements of historical fact may be forward-looking
statements. When we use the words "anticipate," "believe," "could,"
"estimate," "expect," "intend," "may," "plan," "predict,"
"project," "will" and other similar terms and phrases, including
references to assumptions, we are identifying forward-looking
statements. Forward-looking statements involve risks and
uncertainties which may cause our actual results, performance or
achievements to be materially different from those expressed or
implied by forward-looking statements. Our actual results could
differ materially from those anticipated in forward-looking
statements as a result of certain factors, including matters
described in the section titled "Risk Factors." Moreover, new risks
regularly emerge and it is not possible for our management to
predict all risks, nor can we assess the impact of all risks on our
business or the extent to which any risk, or combination of risks,
may cause actual results to differ from those contained in any
forward-looking statements. All forward-looking statements included
in this Report are based on information available to us on the date
hereof. Except to the extent required by applicable laws or rules,
we undertake no obligation to publicly update or revise any
forward-looking statement, whether as a result of new information,
future events or otherwise. All subsequent written and oral
forward-looking statements attributable to us or persons acting on
our behalf are expressly qualified in their entirety by the
cautionary statements contained throughout this Report and the
documents we have filed with the SEC.
PART I
Item 1. Business.
Overview
Akers Biosciences, Inc. ("Akers," "we" or the "Company")
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 time- and cost-efficient
manner. Akers believes it has advanced the science of diagnostics
through the development of several innovative proprietary platform
technologies that provide product development flexibility.
All of Akers' rapid, single-use tests are performed in vitro
(outside the body) and are designed to enhance patient well-being
and reduce total outcome costs of healthcare. The Company's current
product offerings and pipeline products focus on delivering
diagnostic assistance in a wide variety of healthcare
fields/specialties, including cardiology/emergency medicine,
metabolism/nutrition, diabetes, respiratory disease and infectious
disease detection, as well as for on and off-the-job alcohol safety
initiatives.
Akers believes that low-cost, unit-use testing not only saves
time and money, but also allows for more frequent, near-patient
testing which may save lives. We believe that Akers' FDA-cleared
rapid diagnostic tests help facilitate targeted diagnoses and
real-time treatment. We also believe that Akers' rapid diagnostic
tests surpass most other current diagnostic products with their
flexibility, speed, ease-of-use, readability, low cost and
accuracy. In minutes, detection of disease states and medical
conditions can be performed from single-patient specimens, without
sacrificing accuracy.
We believe the use of rapid tests, which can be performed at the
point-of-care when and where the patient is being consulted, can
allow for immediate diagnostic decisions and subsequent treatment
regimens and is an important development in the practice of
medicine. Point-of-care testing addresses today's challenges in the
healthcare industry, such as:
-- cost pressures/efficiency of healthcare delivery;
-- need for fast, easy to use, accurate at-home tests for individuals to monitor their personal
health and wellness;
-- need for affordable mass screening tests for key infectious diseases, cardiac conditions,
and metabolic markers; and
-- public health needs in developing countries lacking basic health infrastructure.
Recently, the Company has developed tests for non-medical use
within the health and wellness industry. These tests will monitor
general markers of health and wellness as they relate to diet,
nutrition and exercise programs.
Market Overview
Worldwide, healthcare professionals use laboratory tests to
support their clinical diagnosis and treatment decisions. According
to a Markets and Markets report, In-Vitro Diagnostic (IVD) Market
(Applications, End-users & Types) Trends & Global Forecasts
(Major & Emerging Markets - G7, Japan & BRIC) (2011 - 2016)
, published in January 2012 (the "IVD Market Report"), the use of
such tests continues to grow as a result of increased patient
awareness, patient self-testing and the aging baby boomer
population across the globe. Other major drivers for the growth of
the in vitro diagnostic ("IVD") industry is a rise in the number of
diseases like respiratory and hospital-acquired infections and a
rise in the chronic diseases such as diabetes, hypertension,
cardiovascular diseases, and cancer. Both an increasing
understanding of the molecular processes underlying many disease
states and the opportunity for clinicians to quickly incorporate
that targeted information into treatment decisions (e.g. companion
testing). According to an article published on in vitro diagnostics
by Medical Device and Diagnostic Industry ("MDDI") online in March
2013, in the past, the in vitro diagnostics industry has focused on
developing tests that require significant time, skill, and often
costly, specialized equipment. Patient specimens often had to be
collected remotely and processed in a central laboratory with test
results sent to a physician at a later date. This general protocol
is not particularly well-adapted to the practice of medicine in a
cost-effective, timely manner. The pressures on public health
budgets and falling profits among third party payors such as
insurers, necessitates an alternative approach to disease
management. In addition, there has been steady growth of the retail
health clinic and urgent care center markets.
According to the IVD Market Report, outside of the United
States, socialized medicine and/or a general atmosphere of
cost-containment and healthcare efficiency are driving the need for
diagnostic testing solutions that are fast, affordable, accurate,
simple-to-perform and help enable early diagnosis and treatment of
medical conditions or provide an assessment of a person's health
status.
Akers designed its products based on single-use assay platforms
with straightforward test procedures that can be completed in
minutes. In the healthcare setting, the Company's clinical
laboratory products can be utilized near or at the point-of-care
and do not require the use of expensive equipment or a highly
trained or specialized staff. As a result, an individual's test
results can immediately be incorporated into diagnostic and
treatment decisions, improving the overall efficiency of the
healthcare experience for the patient, and ultimately the payor. In
addition, in the developing world, the portability and ease-of-use
of such point-of-care tests can serve to drastically improve the
level of disease screening and subsequent patient care. We believe
the benefits of our technology platforms are therefore well-suited
to the diagnostic demands of developing countries that seek to
deliver modern medical diagnosis with limited medical
infrastructure. In addition, some of our products have received FDA
clearance for over-the-counter use and others that do not fall
within the oversight of regulatory authorities have the added
benefit of being self-tests that deliver personal health
information on-demand. Akers believes that the products that emerge
from its technology platforms address the needs of the evolving
healthcare delivery system that is moving patient care closer to or
in the home.
In a June 6, 2013 article, "Global In Vitro Diagnostics Markets
Outpace Pharma Industry Growth" by Frost & Sullivan the global
IVD market was estimated $45 billion, with forecasted revenue
expected to reach $64 billion in 2017. While the U.S. and Western
Europe are the largest IVD markets, the Asian-Pacific and Eastern
Europe regions are projected to be the fastest growing by Frost
& Sullivan . The Company's main presence is in the U.S., but
the Company has also initiated its strategic move into the China
and European Union marketplaces by executing joint venture,
distribution and licensing agreements.
Strategy
Akers' strategy is to target carefully chosen, high margin
market segments within the diagnostics industry where (i) existing
tests do not meet clinical requirements, or (ii) where an emerging,
unfulfilled need has been identified. The Company seeks to develop
tests for applications based on their ability to compliment a
particular treatment, lifestyle or testing regimen that requires a
time and cost-efficient diagnostic alternative or solution. Akers
utilizes its existing platform technologies to internally develop
its new products as the Company's proprietary methods.
Akers has established and will continue to pursue distribution
relationships with high volume, medical and health & wellness
product marketers to maximize its revenue potential, and to be a
worldwide competitor in specialized markets within the diagnostics
industry.
Akers has developed and continues to develop key strategic
relationships with established companies with well-trained
technical sales forces and strong distribution networks in the
following key market segments:
-- Clinical Laboratories;
-- Physicians' Office and Urgent Care Clinics;
-- Retail;
-- Nutraceutical Suppliers; and
-- Health and Fitness.
The Company plans to target other markets, such as aid
organizations seeking rapid infectious disease tests. Additionally,
we plan to target biotechnology companies or pharmaceutical
manufacturers that may require companion tests to promote patient
compliance with a medication regimen or facilitate initial
screenings to qualify patients for a particular therapy.
Technology Overview
Akers' proprietary platform technologies merge scientific
innovation with user-friendly formats to deliver cost-effective and
time-efficient testing and sample preparation solutions where and
when they are needed.
Testing Platform Technologies
MPC Biosensor Technology
MicroParticle Catalyzed Biosensor ("MPC Biosensor") Technology
permits the rapid identification of medical conditions through
biomarkers in exhaled breath. MPC Biosensor-based products contain
microparticles that change color to indicate a positive test
result. The microparticles are coated with recently discovered
agents that both decrease the time to result and exhibit a more
defined color change when appropriate. MPC Biosensor-based products
are packaged in small, disposable cartridges through which test
subjects can easily blow for several seconds. Breath KetoChek has
one U.S. and two international patents granted. In addition, Akers
also holds three US, three Australian and three European Community
Design patents for Color Comparison Card technology that users can
utilize to interpret detector results.
Particle ImmunoFiltration Assay (PIFA (R) ) Technology
PIFA (R) technology is an accurate, rapid, immunoassay ( a
procedure for detecting or measuring specific proteins or other
substances through their properties as antigens or antibodies )
method based on the selective filtration of dyed microparticles
coated with antigen or antibody. The microparticles are combined
with a test sample (whole blood, serum, urine or saliva) within a
self-contained device. If a patient tests positive for the antibody
or antigen, a binding event will occur and the dyed microparticles
will be trapped by a filter within the device. As a result, the
test window will be void of any color. Conversely, if the patient
tests negative, the dyed microparticles will flow freely into the
test window. Specific to the PIFA Heparin tests, the Company has
two international patents and one US patent granted in force.
SMC Technology
Synthetic Macrocycle Complex ("SMC") Technology is a
colorimetric testing methodology that pairs a proprietary reagent (
a substance or mixture for use in chemical analysis or other
reactions) with a hand-held, photometric reader that determines the
quantitative level of a therapeutic drug in a patient's blood
sample. The technology also permits the use of whole blood samples
collected from a simple finger stick, making products that use this
technology extremely flexible within the healthcare delivery
system.
Rapid Enzymatic Assay
Rapid Enzymatic Assay ("REA") technology enables the rapid
detection of metabolites in blood and urine in assay formats that
are easy-to-use and deliver quantitative or semi-quantitative
results. Products that employ REA technology are primarily intended
for pharmaceutical, nutritional and over-the-counter ("OTC")
markets. Akers has three U.S. patents for this technology covering
our Tri-Cholesterol "Check" test.
Sample Preparation Technology
Rapid Blood Cell Separation Technology
Akers' Rapid Blood Cell Separation ("Separator") Technology,
marketed under the brand name seraSTAT (R) , further accelerates
the rate at which a test result is obtained as the often-required
sample preparation step is abbreviated drastically. Conventional
methods of blood cell separation are labor-intensive and
time-consuming, typically involving blood collection and laboratory
personnel, as well as electrically-powered centrifuges and other
specialized equipment. The disposable Separator device requires
only a small-volume blood sample obtained from a time and
cost-efficient finger stick procedure or through a venous blood
draw. Akers has obtained the appropriate US FDA regulatory
clearances for seraSTAT (R) as a stand-alone device and the
technology is currently integrated into PIFA PLUSS PF4 devices, and
will be utilized in the infectious disease products currently under
development. The seraSTAT (R) Rapid Blood Cell Separation
Technology is currently protected by two U.S. patents and three
international patents.
Product Portfolio
Akers is positioned as a provider of rapid diagnostic solutions
that encompass the totality of the point-of-care testing process,
from sample preparation to immediate test result. In addition, we
believe we are a pioneer in disposable breath condensate
technology, a testing format that has significant potential given
the variety of wellness-and disease-predicting biomarkers present
in an exhaled breath sample.
At present, Akers' commercialized and emerging product portfolio
incorporates four of the Company's six proprietary platform testing
technologies: PIFA (R) , MPC Biosensor, REA and Rapid Blood Cell
Separation Technology. Directly below, is a discussion of the
products within our current and emerging portfolio that will be
segmented by platform.
Akers designed its products based on single-use assay platforms
with straightforward test procedures that can be completed in
minutes. In the U.S. some of the Company's clinical laboratory
products and those with medical intended uses generally require
"prescription use" Federal Drug Administration ("FDA") 510(k)
clearance prior to product marketing given that they will be
ordered or used by medical practitioners in the course of his or
her professional practice. Despite this categorization, Akers'
professional use products are still designed for ease of use, can
be utilized near or at the point-of-care, and do not require the
use of expensive equipment or a highly trained or specialized
staff. As a result, an individual's current health status can
rapidly be incorporated into diagnostic and treatment decisions,
improving the overall efficiency of the healthcare experience for
the patient, and ultimately the payor. In addition, in the
developing world, the portability and ease-of-use of such
point-of-care tests can serve to drastically improve the level of
disease screening and subsequent patient care. We believe the
benefits of our technology platforms are therefore well-suited to
the diagnostic demands of countries in the developing world that
seek to deliver modern medical diagnosis with limited medical
infrastructure. In addition, some of our products have received FDA
510(k) clearance for over-the-counter ("OTC") use. Other self-tests
deliver personal health information of a non-medical nature,
on-demand, and are not FDA regulated; these products are still
manufactured in compliance with its ISO 13485 quality management
system ("QMS-Compliant"). Akers believes that all its technology
platforms and products address the needs of the evolving healthcare
delivery system that is moving patient care closer to or in the
home.
The following table sets forth our marketed and current pipeline
products, identifies the appropriate "prescription use" or "OTC"
designation and whether the required clearance has been obtained or
is still needed prior to product marketing.
Our marketed and emerging products include:
Not FDA- FDA Clearance
regulated; Required FDA Clearance
Marketed/Pipe QMS- Compliant Prescription Status
Product Platform line Only Use/OTC Obtained/Needed Description
-------------- -------- --------------- -------------- -------------- --------------- --------------
BreathScan MPC Marketed OTC Obtained Disposable
(TM) breath alcohol
detector
BreathScan (R) MPC Marketed OTC Obtained Quantitative
PRO breath alcohol
detection
system
Breath MPC Pipeline Prescription Needed Disposable
Diabetic Use breath ketone
Ketoacidosis device for
(R) diabetic
monitoring
METRON (R) MPC Marketed Health and n/a Disposable
wellness breath ketone
device to
monitor
ketosis
Breath MPC Pipeline Prescription Needed A suite of
PulmoHealth Use breath tests
"Check" (R) for biomarkers
indicating
asthma,
chronic
obstructive
pulmonary
disease
(COPD), and
lung cancer
Lync MPC Marketed Health and n/a Non-invasive,
wellness quantitative
measurement of
biological
markers for
health and
wellness
Not FDA- FDA Clearance
regulated; Required FDA Clearance
Market/Pipe QMS- Compliant Prescription Status
Product Platform line Only Use/OTC Obtained/Needed Description
--------------- -------- -------------- -------------- -------------- --------------- --------------
PIFA (R) PIFA Marketed Prescription Obtained Rapid tests
Heparin/PF4 & Use for
PIFA PLUSS (R) Heparin/PF4
PF4 antibodies to
detect an
allergy to the
widely used
blood thinner,
Heparin
PIFA PLUSS (R) PIFA Pipeline Prescription Needed Rapid tests
Chlamydia Use for the most
prevalent
sexually
transmitted
disease
seraSTAT (R) seraStat Marketed Prescription Obtained Rapid Blood
Use Cell
Separator,
marketed under
the brand name
seraSTAT (R) ,
further
accelerates
the rate at
which a test
result is
obtained as
the
often-required
sample
preparation
step
is abbreviated
drastically.
Tri-Cholesterol REA Marketed OTC Obtained Rapid test for
"Check" (R) Total and high
density
lipoprotein
cholesterol
and estimates
low density
lipo
protein
BreathScan MPC Marketed Health and n/a Breath test
OxiCHek wellness for oxidative
stress using
the Lync
reader and
digital app
BreathScan MPC Pipeline Health and n/a Breath test
KetoChek wellness for ketosis
using the Lync
reader and
digital app
MPC Biosensor Technology
The Company's MPC Biosensor breath condensate testing platform
forms the basis of a number of Akers' marketed and pipeline
products.
Breath Alcohol Franchise
BreathScan (R) originated the disposable breath alcohol detector
category and was the first single-use breathalyzer to obtain the
FDA 510(k) clearance in 2006 for Over-the-Counter use required to
facilitate sales to U.S. consumers; CE certification is not
required to market the product in the EU because BreathScan (R)
results are not used to diagnose any medical conditions. The
Company's breath alcohol detector technology was granted an
Australian Standard certification trademark, which cleared the
commercial pathway for product sales in Australia, New Zealand, and
South Africa.
The Company's disposable breath alcohol detectors are available
in versions designed to detect .02%, .04%, .05% and .08% blood
alcohol concentrations ("BACs") and provide users with a test
result in two minutes. If the crystals in the interior of the
device change from yellow to aqua, the user has tested positive for
the specific alcohol level. Should the crystals remain yellow, the
result is negative.
The Company's proprietary breath alcohol detection technology is
paired with the quantitative precision of an electronic analyzer in
the BreathScan (R) PRO alcohol detection system. As with all
BreathScan (R) products, the test subject exhales into a specially
calibrated, BreathScan (R) PRO detector. The testing coordinator
then inserts the used detector into the BreathScan (R) PRO Digital
Analyzer (the "Analyzer"). After two minutes, the Analyzer's
sophisticated optics calculate the subject's BAC; the detectable
range spans from 0.00% to .15% BAC. Unlike other electronic
breathalyzers, BreathScan (R) PRO never requires recalibration so
it is in "ready" mode at all times. In 2011, the Company received
FDA over-the-counter clearance for the system, providing a
commercialization path in the U.S. for use by trained
professionals, including those in civil and military law
enforcement, and the general public; in addition, the CE-Mark was
affixed to the alcohol detection system for professional use.
Finally, the .02 Breath Alcohol Detection System has been approved
to the Conforming Products List by the U.S. Department of
Transportation, and may be sold as a compliance tool to the
transportation industry.
Since the appropriate regulatory clearances have been obtained
in the U.S. and other major markets requiring specific
certifications for specific devices (i.e., Australia for the
Company's single-use detectors for these products), the Company
does not anticipate needing to fund additional clinical trials to
facilitate or initiate product marketing in other international
regions at this time.
Other Emerging MPC Platform Products
The Company's MPC Biosensor technology is being applied to the
development of products that serve the nutraceutical, fitness, and
weight loss marketplaces. As a category, these disposable screening
tests are exempt from FDA 510(k) premarket clearances. Biomarkers
related to various metabolic processes can be measured in breath
condensate. As a result, Akers has used its proprietary,
easy-to-use platform to design disposable breath devices that
measure ketone (acid) production associated with fat-burning
(METRON (R) and KetoChek) and oxidative stress levels that relate
to cellular damage and the development of many preventable diseases
(OxiChek). The Company believes that personalized health and
wellness - and eventually personalized medicine - will become an
increasingly significant market. The Company is positioning its
tests for fitness, weight loss and oxidative stress for this market
by designing a more consumer-focused reagent device, and linking
this device to an application for smartphones and tablets that can
not only produce a result, but also track progress over time.
Initial marketing activities have commenced for these products and
the Company is preparing for commercialization. The Company is
currently assessing distribution opportunities with companies
specializing in weight loss and/or mass distribution through
health-related multilevel marketing organizations. Since devices
with claims related to weight loss or nutrition are exempt from FDA
oversight, a clinical program to support a 510(k) submission is not
required for any of these products. Given the non-medical intended
use, the Company does not believe products will be required to hold
a CE-mark prior to marketing in the EU.
Akers is continuing its clinical development of the BreathScan
Diabetic Ketoacidosis "Check" disposable breath tube for the
diagnosis of ketoacidosis in diabetics. Breath DKA "Check" is being
designed to provide real-time information that allows diabetics to
determine if they have a more severe level of ketone (acid) build
up in their body that can cause a life-threatening medical
emergency called ketoacidosis. The estimated 28.5 million Type I
(insulin-dependent) diabetics worldwide are at particular risk for
ketoacidosis and require routine monitoring of their ketone levels.
To date, the medical industry relies on blood and urine-based
ketone testing methods, which are invasive and/or inconvenient.
Since breath and blood ketone levels are closely correlated, the
Breath DKA "Check" is designed to offer healthcare professionals
and their patients a convenient, accurate method, which can be
completed anytime, anywhere, to quickly determine if an
individual's ketone level is approaching a dangerous threshold
requiring medical attention. Since this product requires FDA 510(k)
clearance, the Company continues to develop its technical file and
complete required clinical studies to complete the regulatory
submission.
The Company is also devoting resources to the research and
development of the Breath PulmoHealth "Check" suite of assays.
These disposable detectors are being designed to signal the
detection of various biomarkers related to pulmonary health, namely
asthma, chronic obstructive pulmonary disease ("COPD") and lung
cancer, through convenient, rapid analysis of an individual's
breath sample. Akers has chosen to target this trio of conditions
due to their significant impact on global health:
-- over 300 million people worldwide are living with asthma and up to 18% of a country's population
are undiagnosed asthmatics;
-- 210 million individuals are being treated for COPD but each of the 1 billion smokers worldwide
are at risk for the disease; and
-- more than 1.6 million people worldwide receive the diagnosis of lung cancer annually with
many more victims expected as 80% of all lung cancers can be attributed to smoking.
Akers believes these statistics suggest that pulmonary
conditions are under-diagnosed and under-treated and will continue
to pose a chronic strain on worldwide public health. Currently,
diagnostic methods used for the detection of lung-related diseases
and illnesses are often costly as specialized medical personnel
must facilitate analysis and testing, and radiologic exams or
invasive surgical procedures may be required. While Akers does not
presume Breath PulmoHealth "Check" products to be replacements for
such tests in all markets, it does however have ambitions for the
devices to become effective, highly cost-efficient, primary
screening tools. Their ease-of-use, portability and non-invasive
nature provide healthcare professionals and public health officials
with a testing platform that can be deployed in high volume, and
even in regions of the developing world. At present, the Company's
primary development efforts are focused on configuring the clinical
dossier for the asthma product.
The Breath KetoChek and the Breath PulmoHealth "Check" suite of
products will require the development of individual clinical trial
programs to facilitate eventual FDA 510(k) submissions. The Company
has self-certified Breath KetoChek as compliant with the CE
requirements in the EU, and intends to pursue the same designation
for each product in the Breath PulmoHealth "Check" trio once the
appropriate technical file is assembled.
MPC Biosensor technology is currently protected by one United
States patents (8,871,521).
PIFA (R) Technology
The core products marketed under the PIFA (R) platform are the
PIFA (R) Heparin/PF4 Rapid Assay, and the PIFA PLUSS (R) PF4.
PIFA (R) Heparin/PF4 Rapid Assay and PIFA PLUSS (R) PF4 remain
the only FDA-cleared rapid manual assays that quickly determine if
a patient being treated with the blood thinner Heparin may be
developing a drug allergy. This clinical syndrome, referred to as
Heparin-Induced Thrombocytopenia ("HIT"), reverses the Heparin's
intended therapeutic effect and transforms it into a clotting
agent. Patients with HIT are at risk of developing limb- and
life-threatening complications, so the timely test result provided
by Akers' Heparin/PF4 devices is paramount to effective clinical
decision making. In the U.S. alone, approximately 12 million
patients are exposed to Heparin annually and 1% to 5% of those
patients receive a HIT diagnosis. The largest at-risk populations
are patients undergoing major cardiac or orthopedic surgical
procedures. It is estimated that up to 50% of cardiac surgery
patients develop HIT-antibodies. Given the size of the aging baby
boomer market segment and the prevalence of cardiac disease,
surgeries within this category is expected to increase, as would
the potential demand for the Company's convenient, rapid tests.
The PIFA (R) Heparin/PF4 Rapid Assay improves the standard of
care in HIT-testing with its result delivered in less than five
minutes after the patient sample has been prepared. Traditional
methods required the use of expensive equipment, specialized
laboratory personnel and hours of technician time to complete the
20+ assay test procedure in-house. Clinicians were subjected to a
24-to-72 hour turnaround time if the HIT-antibody determination was
outsourced to a reference laboratory. Especially in the latter
scenario, the patient information obtained is retrospective in
nature as the HIT-antibody result cannot be factored into
time-sensitive diagnostic and treatment decisions.
The Company has also introduced PIFA PLUSS (R) PF4 to U.S.
hospitals to further improve the rate at which healthcare
professionals can obtain a HIT-antibody result. This PIFA (R) line
extension merges the ease-of-use of the PIFA testing platform with
Akers' recently patented Rapid Blood Cell Separation Technology,
marketed under the brand name seraSTAT (R) . The marriage of these
two technologies condenses the sample preparation and analysis
procedures as the precise micro-volume of a seraSTAT (R) -prepared
patient specimen is delivered directly into the PIFA (R) cassette
for immediate testing. This eliminates an additional one-hour of
sample processing time and the need for healthcare personnel to
have access to a centrifuge to separate the liquid fraction of
blood from the cellular fraction. As a result, HIT-testing can be
initiated and completed at or near the point-of-care, especially in
emergency and critical care departments where time-efficient
diagnostic results can drastically improve patient outcomes.
Since the appropriate regulatory clearances have been obtained
in the United States for these products, the Company does not
anticipate needing to fund additional clinical trials to facilitate
product marketing domestically. In addition, the current technical
file that has been assembled for seraSTAT (R) and PIFA PLUSS PF4
(R) will also be used to support Akers' CE-marking
self-certification process to initiate product sales in the EU; the
PIFA Heparin/PF4 Rapid Assay is already CE-marked. The Company's
strategy in other foreign jurisdictions that may require additional
clinical trials to support regulatory clearance is to partner with
a distributor that will fund the required clinical program in
exchange for some degree of marketing exclusivity.
Other PIFA (R) Platform Assays in development
The Company can quickly apply the PIFA PLUSS (R) methodology to
its infectious disease and emergency-related testing products to
further consolidate the test result turn-around time and eliminate
the need for any specialized sample preparation personnel or
equipment. To date, the Company's custom reagent work has focused
on a variety of infectious diseases, markers of cardiovascular
disease, and blood typing tests including the following:
-- Chlamydia
-- Troponin I
-- ABOD Battlefield Blood Transfusion Card
REA Technology
Akers' Tri-Cholesterol "Check" test is initiated with an
easy-to-obtain finger stick blood sample, and provides users with
an estimate of both their total and high-density lipoprotein
("HDL") cholesterol levels, and by a simple calculation,
approximates their low density lipoprotein ("LDL") level. We
believe that there is global demand for this category of disposable
tests given healthcare trends that identify cardiovascular disease,
and related risk factors like high cholesterol, diabetes and high
blood pressure. These complications are particularly on the rise in
developing nations that have gained access to the dietary habits of
the west. In fact, studies reported by Middle East Health Magazine
recently conducted in various medical centers throughout Saudi
Arabia and the United Arab Emirates ("UAE") categorized the
cardiovascular health risk as being on the edge of a potentially
serious epidemic. In addition, the research revealed that half the
subjects were undiagnosed prior to participating in the study that
may be indicative of insufficient healthcare resources. This
regional case study has global application as cardiovascular
disease is the leading cause of death worldwide and access to
healthcare remains a challenge to much of the aggregate population.
This drives home the need for rapid, straightforward screening
tests that are easily accessible to individuals for routine
monitoring.
Tri-Cholesterol "Check" has the appropriate U.S. FDA market
clearances and is also CE-marked for sale in the European Union. At
present, the Company's Tri-Cholesterol "Check" business strategy is
to focus on distribution activities to the OTC and walk-in clinic
markets in the U.S. and Europe through strategic alliances, such as
Alere in the U.S.
The REA Technology is currently protected by three United States
patents (8,808,639; 8,003,061; 8,425,859).
Sample Preparation Technology
Rapid Blood Cell Separation Technology
In addition to the Company's testing platforms, Akers' recently
patented Rapid Blood Cell Separation ("Separator") Technology,
marketed under the brand name seraSTAT (R) , further accelerates
the rate at which a test result is obtained as the often-required
sample preparation step is abbreviated drastically. Conventional
methods of blood cell separation are labor-intensive and
time-consuming, typically involving blood collection and laboratory
personnel, as well as electrically-powered centrifuges and other
specialized equipment. The Separator device requires only a
small-volume blood sample obtained from a time- and cost-efficient
finger stick procedure.
The required micro-volume specimen of serum or plasma is
immediately extracted and introduced into a rapid assay device for
real-time analysis. The savings afforded by the Separator device
can be measured in time and cost given its quick turn-around-time
and straightforward, easy-to-master procedure.
Since the appropriate regulatory clearances have been obtained
in the United States for seraSTAT (R) as a stand-alone device, the
Company does not anticipate needing to fund additional clinical
trials to expand product marketing domestically. Currently,
seraSTAT (R) is integrated into PIFA PLUSS PF4 devices, and will be
utilized in the infectious disease products currently under
development. Akers may consider partnerships with other medical
device companies, functioning as an Original Equipment Manufacturer
("OEM"), as the benefits of the seraSTAT (R) Rapid Blood Cell
Separation Technology can be integrated into other assay platforms.
Also, the current technical file that has been assembled for
seraSTAT (R) will be used to support Akers' CE-marking
self-certification process to initiate product sales in the EU. The
Company's strategy in foreign jurisdictions that may require
additional clinical trials to support regulatory clearance is to
partner with a distributor that will fund the required clinical
program in exchange for some degree of marketing exclusivity.
The seraSTAT (R) Rapid Blood Cell Separation Technologies
currently protected by two United States patents (7,896,167;
8,097,171) and one international patent (JP 4,885,134).
Competition
Competitors of Akers include other companies developing and
marketing rapid, point-of-care diagnostic devices and companies
with dedicated laboratory instruments and/or automated test
systems. We face intense competition from companies with dominant
market positions within the in vitro diagnostic testing market such
as Abbott, ACON Laboratories, Inc., Alere, Diagnostica Stago, SA.,
Immucor, Inc., OraSure Technologies, Inc., and Quidel
Corporation.
The Company believes the primary criteria for determining
competitiveness within the rapid point-of-care sector are cost,
ease-of-use, speed, readability, accuracy and flexibility. The time
required by Akers to develop a working prototype test ready for
clinical trials typically ranges from eight to twelve weeks from
inception. We believe that competitors' laboratory tests normally
require at least a year to develop to a similar point.
However, our competitors have significantly greater financial,
technical, marketing and other resources than we have and may be
better able to:
-- respond to new technologies or technical standards;
-- devote resources to the development, production, promotion, support and sale of products;
-- acquire other companies to gain new technologies or products that may displace our product
lines;
-- react to changing customer requirements and expectations;
-- manufacture, market and sell products; and
-- deliver a broad range of competitive products at lower prices.
Our principal competitors are able to leverage their broader
product portfolios and dominant market positions in some segments
by, for example, bundling their products into specially priced
packages that create strong financial incentives for their
customers to purchase their products. These practices may negate
savings customers would gain from buying select products from Akers
and may deter such customers from buying Akers' products. We expect
competition in the markets in which we participate to continue to
increase as existing competitors improve or expand their product
offerings.
How we Generate Revenue
The majority of our revenue comes from selling rapid, screening
and testing products, largely through our distribution networks.
Some of our assays are used in the clinical laboratory to
ultimately help healthcare professionals to diagnose a medical
condition or complication that may require treatment. Other
products can be sold over-the-counter, to the general public, to
help assess an individual's status as it relates to his/her blood
alcohol or cholesterol level, to help monitor his/her progress on a
specific wellness regimen, and/or to screen for a biomarker that
may be indicative of an individual's general level of health. Some
of our revenue is associated with licensing payments that may
relate to exclusive access to specific markets.
Our Current Target Markets
Regarding the Company's test for the heparin drug allergy, the
testing market largely resides within the clinical hospital
laboratories of medical facilities. In the U.S., the Company
accesses decision makers within these institutions through
profiling by its highly trained technical sales team and
collaborative prospecting with distributor sales representatives.
Internationally, Akers provides comprehensive training to its
distributor partners which will enable them to implement the same
selling and technical training strategies.
The markets for alcohol breathalyzers are reached through a
network of large and small distributors. These markets include
industrial safety, education, law enforcement, social
responsibility and retail.
The health and wellness markets include MLM nutraceutical
companies, fitness centers and diet and weight loss centers.
Manufacturing and Suppliers
We are a vertically integrated manufacturer, producing
substantially all of our devices in-house. The vast majority of our
products start out as high quality, medical grade polymers and exit
our facilities as fully manufactured and packaged medical devices.
As a result, we have a short supply line between our raw materials
and finished goods which gives us greater control over our product
quality. The downside of our in-house manufacturing is the
requirements for facilities, power, and equipment. This approach
also requires mid-to-long-term planning and the ability to predict
future needs. Many of our processes are unique to us, but the
Company's flexible manufacturing capabilities and unused current
capacity generally translate into relatively short production
timelines. As demand for our products increase, additional
capacities may be required to advance our evolving needs.
We use a diverse and broad range of raw materials in the
manufacturing of our products. We purchase all of our raw materials
and select items, such as packaging, from external suppliers. In
addition, we purchase some supplies from single sources for reasons
of proprietary know-how, quality assurance, sole source
availability, or due to regulatory qualification requirements. U.S.
medical device manufacturers must establish and follow quality
systems to help ensure that their products consistently meet
applicable requirements and specifications. The quality systems for
FDA-regulated products are known as current good manufacturing
practices ("cGMP's"). cGMP requirements for devices in part 820 (21
CFR part 820) were first authorized by section 520(f) of the
Federal Food, Drug, and Cosmetic Act. We work closely with our
suppliers to ensure continuity of supply while maintaining high
quality and reliability. To date, we have not experienced any
significant difficulty locating and obtaining the materials
necessary to fulfill our production requirements.
On February 4, 2015, the Company's quality management system was
certified as compliant with the International Standards
Organization's ("ISO") 13485:2003 requirements for the design,
manufacture and distribution of medical devices including in vitro
diagnostic products.
Distribution
We distribute our products through direct and indirect channels
of distribution. We have well-developed indirect distribution
channels in the U.S. with, among others, Cardinal Health 200, Inc.
("Cardinal Health"), Fisher Healthcare, a Division of Fisher
Scientific Company L.L.C. ("Fisher Healthcare") and Typenex Medical
L.L.C. ("Typenex") for the Company's PIFA Heparin/PF4 assays. The
relationships with Cardinal Health and Fisher Healthcare provide us
with access to most U.S. hospitals.
With respect to the Company's breath alcohol franchise,
historically Akers focused its commercial attention within the
on-the-job safety/human resources sector. Access was and currently
is largely achieved through designated BreathScan (R) distributors
and limited arrangements in which the Company serves in an OEM
capacity.
Our dedicated technical sales force works in tandem with
distributor sales representatives to uncover opportunities in the
clinical laboratory marketplace. The Company facilitates direct
sales for hospitals that prefer to purchase direct from the
manufacturer.
Since 2012, the Company has also had a distribution relationship
with Novotek Therapeutics Inc. ("Novotek"), a Beijing-based
pharmaceutical and in vitro diagnostic business development
corporation. The multi-year distribution agreement assigns
exclusive sales and marketing rights to Novotek to make Akers'
Particle ImmunoFiltration Assay ("PIFA") products available in
Mainland China and that market clearance has now been obtained.
In select European countries and Australia, we have distribution
relationships with specialized sales and marketing organizations
for some of our products. We do not have a strong presence in many
emerging markets, but are seeking to enter into agreements to
enable us to enter other international markets in the current
fiscal year.
During the year ended December 31, 2017 sales to Cardinal
Health, Novotek, and Fisher Healthcare accounted for a significant
part of the Company's product revenue. This concentration makes the
Company vulnerable to a near-term severe impact should the
relationships be terminated.
Joint Venture
On October 24, 2014, the Company entered into a Joint Venture
Agreement (the "Joint Venture Agreement") by and among the Company,
Hainan Savy Investment Management Ltd. ("Hainan") and Mr. Thomas
Knox, a member of the Board at that time, to research, develop,
produce and sell certain Akers rapid diagnostic screening and
testing products in China (the "Joint Venture"). The Joint Venture
is located in Shenzhen, China, and is incorporated as Hainan Savy
Akers Biosciences, Ltd ("HSAB").
Intellectual Property
We rely on a combination of patent, trademark and trade secret
laws in the U.S. and other jurisdictions to protect our proprietary
platform technologies and our brands. We also rely on
confidentiality procedures and agreements with key employees and
distribution/business partners where appropriate, and contractual
provisions to achieve the same. We do not pursue patent protection
where the possibility for meaningful enforcement is limited.
The Akers logo is a registered trademark in the U.S. Other
registered trademarks/service marks include: BreathScan (R) , PIFA
(R) , PIFA PLUSS (R) , seraSTAT (R) , HealthTest (R) , and Be a
Hero, Get Their Keys (R) , and METRON (R) .
The following table summarizes the U.S. and international
utility patents that currently protect Akers intellectual property;
the core and emerging products to which they relate are also
noted:
Utility Type of Protection Expiration Date Product(s) To
Patent No. Which
Description Jurisdiction They Relate
----------------- -------------- ------------- ------------------- --------------- ----------------
breath ketone US 8,871,521 Manufacture 3/8/2031 Breath KetoChek
detector (R)
breath ketone Japan 6023906 Manufacture 3/8/2032 Breath KetoChek
detector (R)
breath ketone European Union 2684025 Manufacture 3/8/2032 Breath KetoChek
detector (R)
blood separator US 7,896,167 Manufacture 9/7/2026 seraSTAT (R) ;
and method of PIFA PLUSS (R)
separating fluid PF4; PIFA PLUSS
fraction from (R) Infectious
whole blood Diseases Rapid
Assays
blood separator US 8,097,171 Manufacture 8/5/2025 seraSTAT (R) ;
and method of rapid blood cell
separating fluid separator also
fraction from integrated into
whole blood PIFA PLUSS (R)
PF4 and PIFA
PLUSS (R)
Infectious
Diseases Rapid
Assays
blood separator Japan 4,885,134 Manufacture 8/5/2025 seraSTAT (R) ;
and method of rapid blood cell
separating fluid separator also
fraction from integrated into
whole blood PIFA PLUSS (R)
PF4 and PIFA
PLUSS (R)
Infectious
Diseases Rapid
Assays
blood cell European Union 1793906 Manufacture 8/5/2025 seraSTAT (R) ;
separator rapid blood cell
separator also
integrated into
PIFA PLUSS (R)
PF4 and PIFA
PLUSS (R)
Infectious
Diseases Rapid
Assays
Utility Product(s) To
Description Jurisdiction Patent No. Type of Protection Expiration Date Which They Relate
----------------- ------------ ------------- -------------------- --------------- -----------------
blood cell Hong Kong 11004006 Manufacture 8/5/2025 seraSTAT (R) ;
separator rapid blood cell
separator also
integrated into
PIFA PLUSS (R)
PF4 and PIFA
PLUSS (R)
Infectious
Diseases Rapid
Assays
methods for US 9,383,368 Manufacture 10/4/2024 PIFA (R)
detecting heparin Heparin/PF4 Rapid
platelet factor 4 Assay; PIFA PLUSS
(R) PF4
methods and kits Japan 4,931,821 Manufacture 10/4/2025 PIFA (R)
for detecting Heparin/PF4 Rapid
heparin/platelet Assay; PIFA PLUSS
factor 4 (R) PF4
antibodies
Methods and kits Japan 577579 Manufacture 10/4/2025 PIFA (R)
for detecting Heparin/PF4 Rapid
heparin platelet Assay; PIFA PLUSS
factor 4 (R) PF4
antibodies
test strip card US 8,003,061 Manufacture 5/6/2024 Tri-Cholesterol
"Check" (R)
test strip card US 8,425,859 Manufacture 5/6/2024 Tri-Cholesterol
"Check" (R)
test strip card US 8,808,639 Manufacture 5/6/2024 Tri-Cholesterol
"Check" (R)
Circumstances outside our control could pose a threat to our
intellectual property. For example, effective intellectual property
protection may not be available in every country in which our
products are distributed. Also, the efforts we have taken to
protect our proprietary rights may not be sufficient or effective.
Any significant impairment of our intellectual property rights is
costly and time consuming. Any increase in unauthorized use of our
intellectual property could make it more expensive to do business
and harm our operating results.
Akers' Tri-Cholesterol "Check", PIFA Heparin/PF4 Rapid Assay,
BreathScan PRO alcohol detection system, and the Breath KetoChek
are CE-marked for sale in the EU for professional use. The CE-mark
must be affixed to a product that is intended, by the manufacturer,
to be used for a medical purpose and will be sold into EU member
states as well as Iceland, Norway and Liechtenstein. For Akers'
current and proposed "medical-purpose" products, the CE-marking
process is facilitated by self-certification, as a manufacturer
must carry out a conformity assessment, perform any appropriate
electromagnetic testing, create a technical file with supporting
documentation, and sign an EC declaration of conformity. The
documentation is verified by the Company's authorized
representative in the EU and must be made available to authorities
upon request.
Government Regulations
FDA Approval/Clearance Requirements
Unless an exemption applies, each medical device that we wish to
market in the U.S. must receive 510(k) clearance. It has been the
Company's experience thus far, that the FDA's 510(k) clearance
process usually takes from four to twelve months, but can last
significantly longer. We cannot be sure that a 510(k) clearance
will ever be obtained for any product we propose to market. We have
obtained the required FDA clearance for all of our current products
that require such clearance.
The FDA decides whether a device line must undergo either the
510(k) clearance or Premarket approval ("PMA"). PMA is the FDA
process of scientific and regulatory review to evaluate the safety
and effectiveness of Class III medical devices. Class III devices
are those that support or sustain human life, are of substantial
importance in preventing impairment of human health, or which
present a potential, unreasonable risk of illness or injury. The
PMA approval process is based on statutory criteria. These criteria
include the level of risk that the agency perceives is associated
with the device and a determination whether the product is a type
of device that is similar to devices that are already legally
marketed. Devices deemed to pose relatively less risk are placed in
either Class I or II, which requires the manufacturer to submit a
premarket notification ("PMN") requesting a 510(k) clearance,
unless an exemption applies. The PMN must demonstrate that the
proposed device is "substantially equivalent" in intended use and
in safety and effectiveness to a legally marketed predicate device,
which is a pre-existing medical device to which equivalence can be
drawn, that is either in Class I, Class II, or is a Class III
device that was in commercial distribution before May 28, 1976, for
which the FDA has not yet called for submission of a PMA
application.
Class I devices are those for which safety and effectiveness can
be assured by adherence to the FDA's general regulatory controls
for medical devices, or the General Controls, which include
compliance with the applicable portions of the FDA's quality system
regulations, facility registration and product listing, reporting
of adverse medical events, and appropriate, truthful and
non-misleading labeling, advertising, and promotional materials.
Some Class I devices also require premarket clearance by the FDA
through the 510(k) PMN process described below. A small number of
our products are Class I devices.
Class II devices are subject to the FDA's General Controls, and
any other special controls as deemed necessary by the FDA to ensure
the safety and effectiveness of the device. Premarket review and
clearance by the FDA for Class II devices is accomplished through
the 510(k) PMN procedure. Pursuant to the Medical Device User Fee
and Modernization Act of 2002, or MDUFMA, as of October 2002 unless
a specific exemption applies, 510(k) PMN submissions are subject to
user fees. Certain Class II devices are exempt from this premarket
review process. A majority of our products, encompassing all of our
significant product lines, are Class II devices.
Class III devices are those devices which have a new intended
use, or use advanced technology that is not substantially
equivalent to that of a legally marketed device. The safety and
effectiveness of Class III devices cannot be assured solely by the
General Controls and the other requirements described above. These
devices almost always require formal clinical studies to
demonstrate safety and effectiveness and must be approved through
the premarket approval process described below. Premarket approval
applications (and supplemental premarket approval applications) are
subject to significantly higher user fees under MDUFMA than are
510(k) PMNs. None of our products are Class III devices.
A clinical trial may be required in support of a 510(k)
submission. These trials generally require an Investigational
Device Exemption, or IDE, application approved in advance by the
FDA for a specified number of patients, unless the product is
deemed a non-significant risk device eligible for more abbreviated
IDE requirements. The IDE application must be supported by
appropriate data, such as animal and laboratory testing results.
Clinical trials may begin if the IDE application is approved by the
FDA and the appropriate institutional review boards at the clinical
trial sites.
Pervasive and Continuing FDA Regulation
A host of regulatory requirements apply to our marketed devices,
including the quality system regulation (which requires
manufacturers to follow elaborate design, testing, control,
documentation and other quality assurance procedures), the Medical
Reporting Regulations ("MDR") regulations (which require that
manufacturers report to the FDA specified types of adverse events
involving their products), labeling regulations, and the FDA's
general prohibition against promoting products for unapproved or
"off-label" uses. Class II devices also can have special controls
such as performance standards, post-market surveillance, patient
registries and FDA guidelines that do not apply to class I devices.
Unanticipated changes in existing regulatory requirements or
adoption of new cGMP requirements could hurt our business,
financial condition and results of operations.
Health Care Fraud and Abuse
In the United States, there are federal and state anti-kickback
laws that generally prohibit the payment or receipt of kickbacks,
bribes or other remuneration in exchange for the referral of
patients or other health-related business. For example, the Federal
Health Care Programs' Anti-Kickback Law (42 U.S.C. --1320a-7b(b))
prohibits anyone from, among other things, knowingly and willfully
offering, paying, soliciting or receiving any bribe, kickback or
other remuneration intended to induce the referral of patients for,
or the purchase, order or recommendation of, health care products
and services reimbursed by a federal health care program (including
Medicare and Medicaid). Recognizing that the federal anti-kickback
law is broad and potentially applicable to many commonplace
arrangements, the Office of Inspector General within the Department
of Health and Human Services, or OIG, has issued regulations, known
as the safe harbors, which identify permissible practices. If all
of the requirements of an applicable safe harbor are met, an
arrangement will not be prosecuted under this law. Safe harbors
exist for a number of arrangements relevant to our business,
including, among other things, payments to bona fide employees,
certain discount arrangements, and certain payment arrangements
involving GPOs. The failure of an arrangement to fit precisely
within one or more safe harbors does not necessarily mean that it
is illegal. However, conduct that does not fully satisfy each
requirement of an applicable safe harbor may result in increased
scrutiny by government enforcement authorities, such as the OIG or
the Department of Justice. Violations of this federal law can
result in significant penalties, including imprisonment, monetary
fines and assessments, and exclusion from Medicare, Medicaid and
other federal health care programs. Exclusion of a manufacturer
would preclude any federal health care program from paying for its
products. In addition to the federal anti-kickback law, many states
have their own kickback laws. Often, these state laws closely
follow the language of the federal law. Some state anti-kickback
laws apply regardless of whether a federal health care program
payment is involved. Federal and state anti-kickback laws may
affect our sales, marketing and promotional activities, and
relationship with health care providers or laboratory professionals
by limiting the kinds of arrangements we may have with hospitals
and others in a position to purchase or recommend our products.
Federal and state false claims laws prohibit anyone from
presenting, or causing to be presented, claims for payment to
third-party payors that are false or fraudulent. For example, the
federal Civil False Claims Act (31 U.S.C. --3729 et seq.) imposes
liability on any person or entity who, among other things,
knowingly presents, or causes to be presented, a false or
fraudulent claim for payment by a federal health care program
(including Medicaid and Medicare). Manufacturers, like us, can be
held liable under false claims laws, even if they do not submit
claims to the government, where they are found to have caused
submission of false claims by, among other things, providing
incorrect coding or billing advice about their products to
customers that file claims, or by engaging in kickback arrangements
with customers that file claims. A number of states also have false
claims laws, and some of these laws may apply to claims for items
or services reimbursed under Medicaid and/or commercial insurance.
Sanctions under these federal and state laws may include civil
monetary penalties, exclusion of a manufacturer's products from
reimbursement under government programs, and imprisonment.
The Health Insurance Portability and Accountability Act of 1996,
or HIPAA, created two new federal crimes: health care fraud and
false statements related to healthcare matters. The health care
fraud statute prohibits knowingly and willingly executing a scheme
to defraud any health care benefit program, including private
payors. A violation of this statute is a felony and may result in
fines, imprisonment or exclusion from government sponsored
programs. The false statements statute prohibits knowingly and
willfully falsifying, concealing or covering up a material fact or
making any materially false, fictitious or fraudulent statement in
connection with the delivery of or payment for health care
benefits, items or services. A violation of this statute is a
felony and may result in fines or imprisonment.
Due to the breadth of some of these laws, it is possible that
some of our current or future practices might be challenged under
one or more of these laws. In addition, there can be no assurance
that we would not be required to alter one or more of our practices
to be in compliance with these laws. Evolving interpretations of
current laws or the adoption of new federal or state laws or
regulations could adversely affect many of the arrangements we have
with customers and physicians. Our risk of being found in violation
of these laws is increased by the fact that some of these laws are
open to a variety of interpretations. If our past or present
operations are found to be in violation of any of these laws, we
could be subject to civil and criminal penalties, which could hurt
our business, results of operations and financial condition.
Foreign Regulation
Many foreign countries in which we market or may market our
products have regulatory bodies and restrictions similar to those
of the FDA. International sales are subject to foreign government
regulation, the requirements of which vary substantially from
country to country. The time required to obtain approval by a
foreign country may be longer or shorter than that required for FDA
approval and the requirements may differ. Companies are now
required to obtain a CE Mark, which shows conformance with the
requirements of applicable European Conformity directives, prior to
sale of some medical devices within the European Union. Some of our
current products that require CE Markings have them and it is
anticipated that additional and future products may require them as
well. As of the date of this filing, the Company has received CE
marks for eight for of its commercialized products/product
components: PIFA Heparin/PF4 Rapid Assay; Heparin/PF4 Serum Panels;
Tri-Cholesterol "Check" and BreathScan PRO Detectors, Analyzer
Field Kit, Starter Kit and Blow Bags.
Third-Party Reimbursement
Health care providers, including hospitals, that purchase our
products generally rely on third-party payors, including the
Medicare and Medicaid programs, and private payors, such as
indemnity insurers and managed care plans, to cover and reimburse
all or part of the cost of the products and the procedures in which
they are used. As a result, demand for our products is dependent in
part on the coverage and reimbursement policies of these
payors.
CMS, the federal agency responsible for administering the
Medicare program, along with its contractors establishes coverage
and reimbursement policies for the Medicare program. In addition,
private payors often follow the coverage and reimbursement policies
of Medicare. We cannot assure you that government or private
third-party payors will cover and reimburse the procedures using
our products in whole or in part in the future or that payment
rates will be adequate.
In general, Medicare will cover a medical product or procedure
when the product or procedure is reasonable and necessary for the
diagnosis or treatment of an illness or injury. Even if the medical
product or procedure is considered medically necessary and coverage
is available, Medicare may place restrictions on the circumstances
where it provides coverage. For some of our products, our success
in non-U.S. markets may depend upon the availability of coverage
and reimbursement from the third-party payors through which health
care providers are paid in those markets. Health care payment
systems in non-U.S. markets vary significantly by country, and
include single-payor, government managed systems as well as systems
in which private payors and government-managed systems exist,
side-by-side. For some of our products, our ability to achieve
market acceptance or significant sales volume in international
markets may be dependent on the availability of reimbursement for
our products under health care payment systems in such markets.
There can be no assurance that reimbursement for our products, will
be obtained or that such reimbursement will be adequate.
Other U.S. Regulation
We must also comply with numerous federal, state and local laws
relating to matters such as environmental protection, safe working
conditions, manufacturing practices, fire hazard control and, among
other things, the generation, handling, transportation and disposal
of hazardous substances.
Available information
Our website address is www.akersbio.com. We do not intend our
website address to be an active link or to otherwise incorporate by
reference the contents of the website into this Report. The public
may read and copy any materials the Company files with the U.S.
Securities and Exchange Commission (the "SEC") at the SEC's Public
Reference Room at 100 F Street, NE, Washington, DC 20549. The
public may obtain information on the operation of the Public
Reference Room by calling the SEC at 1-800-SEC-0030. The SEC
maintains an Internet website (http://www.sec.gov) that contains
reports, proxy and information statements and other information
regarding issuers that file electronically with the SEC.
Employees
We currently employ 32 full-time equivalent employees,
contractors or consultants, which include 12 in research and
development, 6 in general and administrative, 5 in sales and
marketing and 9 in direct and indirect manufacturing. None of our
employees are represented by a labor union or are a party to a
collective bargaining agreement. We believe that we have good
relations with our employees.
Item 1A. Risk Factors.
You should carefully consider the risks described below,
together with all of the other information included in this report,
in considering our business and prospects. The risks and
uncertainties described below are not the only ones facing the
Company. Additional risks and uncertainties not presently known to
us or that we currently deem immaterial also may impair our
business operations. The occurrence of any of the following risks
could harm our business, financial condition or results of
operations.
Risks Related to the Company and Our Business
We have a history of operating losses and we cannot guarantee
that we can ever achieve sustained profitability.
We have recorded a net loss attributable to common shareholders
in most reporting periods since our inception. Our net loss for the
years ended December 31, 2017 and 2016 were $7,366,310 and
$3,303,538, respectively. Our accumulated deficit at December 31,
2017 was $104,845,847. The Company's go-to-market strategy has been
developed to guide the Company to profitability in the near term.
We believe Akers Biosciences is properly funded and positioned to
realize this goal. There are however no guarantees based on
unforeseen market conditions or other factors that could compromise
the Company's projected outcomes.
Our operating expenses will increase as we make further
expenditures to enhance and expand our operations in order to
support additional growth in our business and public company
reporting and compliance obligations.
Historically, we limited our investment in infrastructure;
however, we expect our infrastructure investments to increase
substantially to support our anticipated growth and as a result of
our becoming a public reporting company in the United States. We
intend to make additional investments in automated manufacturing
systems and personnel in order to expand our operations to support
anticipated growth in our business. In addition, to be competitive
and take advantage of market opportunities, we may need to make
changes to our sales model in the future. These changes may result
in higher selling, general and administrative expenses as a
percentage of our revenue. We also expect to incur ongoing
operating costs of being a public reporting company. As a result of
these factors, we expect our operating expenses to increase.
Due to our dependence on a limited number of customers and the
loss of any such customer would have a material adverse effect on
our operating results and prospects.
As of December 31, 2017, we had two principal U.S. customers;
Cardinal Health, Inc. ("Cardinal Health") and Fisher Healthcare
("Fisher") each has the non-exclusive right to distribute PIFA
Heparin/PF4 Rapid Assays within the U.S. NovoTek Pharmaceuticals
Ltd ("NovoTek") has exclusive distribution rights to PIFA
Heparin/PF4 Rapid Assays in the Peoples Republic of China.
For the year ended December 31, 2017, Cardinal Health, Fisher
and NovoTek accounted for approximately 62% of the Company's
product revenue.
Because of our dependence on a limited number of key customers,
the loss of a major customer (or loss of a key program with a major
customer), or any significant reduction in orders by a major
customer or termination of the any of their distribution agreements
would materially affect our business, our results of operations and
our financial condition. We expect that sales to relatively few
customers will continue to account for a significant percentage of
our net sales for the foreseeable future, however there can be no
assurance that any of these customers or any of our other customers
will continue to utilize our products or our services at current
levels.
Due to our dependence on a limited number of customers, we are
subject to a concentration of credit risk.
As of December 31, 2017, three customers accounted for 72% of
our trade receivables as compared to the fiscal year ended December
31, 2016 where 15% of trade receivables are attributed to these
customers. In the case of insolvency by one of our significant
customers, a trade receivable with respect to that customer might
not be collectible, might not be fully collectible, or might be
collectible over longer than normal terms, each of which could
adversely affect our financial position.
The Company's business would suffer if the Company were unable
to acquire adequate sources of supply.
We use a diverse and broad range of raw materials in the
manufacturing of our products. We purchase all of our raw materials
and select items, such as packaging, from external suppliers. In
addition, we purchase some supplies from single sources for reasons
of proprietary know-how, quality assurance, sole source
availability, or due to regulatory qualification requirements and
disruption of these sources could have, at a minimum, a temporary
adverse effect on shipments and the financial results of the
Company. We work closely with our suppliers to ensure continuity of
supply while maintaining high quality and reliability. To date, we
have not experienced any significant difficulty locating and
obtaining the materials necessary to fulfill our production
requirements. Any prolonged inability to obtain certain materials
or components could have an adverse effect on the Company's
financial condition or results of operations and could result in
damage to its relationships with its customers and, accordingly,
adversely affect the Company's business.
We may require additional capital in the future to develop new
products and otherwise support our operations. If we do not obtain
any such additional financing, if required, our business prospects,
financial condition and results of operations will be adversely
affected.
We intend to invest significantly in our business; therefore, we
expect cash flows from operations to be inadequate to cover our
anticipated expenses. We believe we have sufficient capital to
satisfy our needs for at least the next twelve months. We may need
to obtain significant additional financing, both in the short and
long-term, to make planned capital expenditures, to cover operating
expenses, upgrades to our manufacturing operations, our ongoing
product development and to fund to potential acquisitions, if any.
We may not be able to secure adequate additional financing when
needed on acceptable terms, or at all. To execute our business
strategy, we may issue additional equity securities in public or
private offerings. If we cannot secure sufficient additional
funding we may be forced to forego strategic opportunities and/or
delay, scale back or eliminate future product development which
would harm our business and our ability to generate positive cash
flow in the future.
Because we may not be able to obtain necessary regulatory
clearances or approvals for some of our products, we may not
generate revenue in the amounts we expect, or in the amounts
necessary to continue our business.
All of our proposed and existing products are subject to
regulation in the U.S. by the U.S. Food and Drug Administration
and/or other domestic and international governmental, public health
agencies, regulatory bodies or non-governmental organizations. In
particular, we are subject to strict governmental controls on the
development, manufacture, labeling, distribution and marketing of
our products. The process of obtaining required approvals or
clearances varies according to the nature of and uses for, a
specific product. These processes can involve lengthy and detailed
laboratory testing, human clinical trials, sampling activities, and
other costly, time-consuming procedures. The submission of an
application to a regulatory authority does not guarantee that the
authority will grant an approval or clearance for product. Each
authority may impose its own requirements and can delay or refuse
to grant approval or clearance, even though a product has been
approved in another country.
The time taken to obtain approval or clearance varies depending
on the nature of the application and may result in the passage of a
significant period of time from the date of submission of the
application. Delays in the approval or clearance processes increase
the risk that we will not succeed in introducing or selling the
subject products, and we may be required to abandon a proposed
product after devoting substantial time and resources to its
development.
Changes in domestic and foreign government regulations could
increase our costs and could require us to undergo additional
trials or procedures, or could make it impractical or impossible
for us to market our products for certain uses, in certain markets,
or at all.
Changes in government regulations may adversely affect our
financial condition and results of operations because we may have
to incur additional expenses if we are required to change or
implement new testing, manufacturing and control procedures. If we
are required to devote resources to develop such new procedures, we
may not have sufficient resources to devote to research and
development, marketing, or other activities that are critical to
our business.
We are subject to regulations of various government agencies and
if we are unable to comply with such regulations it would
materially affect our business.
We can manufacture and sell our products only if we comply with
certain regulations of government agencies. As a U.S. manufacturer,
we must operate our production facility in accordance with the
requirements established by the FDA under the Federal Food, Drug,
and Cosmetic Act (FD&C Act). As such, we have implemented a
quality system that is intended to comply with applicable
regulations. Our manufacturing plant is subject to periodic
inspections by the FDA, and at last inspection, the facility was
found to be in substantial compliance with current good
manufacturing practice (cGMP) requirements. Although the Company is
dedicated to remaining in compliance with such practices, the cGMP
requirements could change and negatively impact our ability to
manufacture our products without modifications to our operating
procedures or changes to our equipment or human resource
allocations which may materially affect our business.
The commercial success of our products will depend upon the
degree of market acceptance by physicians, hospitals, third-party
payors, and others in the medical community.
Ultimately, none of our current products or products in
development, even if they receive approval, may ever gain market
acceptance by physicians, hospitals, third-party payors or others
in the medical community. If these products do not achieve an
adequate level of acceptance, we may not generate significant
product revenue and we may not become profitable. The degree of
market acceptance of our products, if approved for commercial sale,
will depend on a number of factors, including:
-- the efficacy and potential advantages over alternative treatments;
-- the ability to offer our products for sale at competitive prices;
-- the willingness of the target population to accept and adopt our products;
-- the strength of marketing and distribution support and the timing of market introduction of
competitive products; and
-- Publicity concerning our products or competing products and treatments.
Even if a potential product displays a favorable profile, market
acceptance of the product will not be known until after it is
launched. Our efforts to educate the medical community and
third-party payors on the benefits of our products may require
significant resources and may never be successful. Such efforts to
educate the marketplace may require more resources than are
required by conventional technologies marketed by our
competitors.
If we fail to obtain regulatory approval in foreign
jurisdictions, then we cannot market our products in those
jurisdictions.
We plan to market some of our products in foreign jurisdictions,
initially in China and the European Union ("EU"). Many foreign
countries in which we market or may market our products have
regulatory bodies and restrictions similar to those of the FDA.
International sales are subject to foreign government regulation,
the requirements of which vary substantially from country to
country. The time required to obtain approval by a foreign country
may be longer or shorter than that required for FDA approval and
the requirements may differ. Companies are now required to obtain a
CE Mark, which shows conformance with the requirements of
applicable European Conformity directives, prior to the sale of
some medical devices within the European Union. Some of our current
products that require CE Markings have them and it is anticipated
that additional and future products may require them as well. We
may be required to conduct additional testing or to provide
additional information, resulting in additional expenses, to obtain
necessary approvals. If we fail to obtain approval in such foreign
jurisdictions, we would not be able to sell our products in such
jurisdictions, thereby reducing the potential revenue from the sale
of our products.
We may be unable to market our products outside the United
States if our products cannot meet certain requirements of the
Federal Food, Drug and Cosmetic Act requirements for exporting
medical devices.
Any medical device that is legally marketed in the U.S. may be
exported anywhere in the world without prior FDA notification or
approval. Medical devices that are not FDA-cleared for marketing
legally in the U.S. may be exported under section 801(e)(1) of the
FD&C Act, provided that they are intended for export only, they
are class I or class II devices, and they are:
-- In accordance with the specifications of the foreign purchaser;
-- Not in conflict with the laws of the country to which they are intended for export;
-- Labeled on the outside of the shipping package that they are intended for export; and
-- Not sold or distributed in the U.S.
We cannot guarantee that certain current and future products
will meet all of the aforementioned specifications for export which
could adversely impact our ability to market our products outside
the U.S.
We may be unable to market our products outside the United
States if our products cannot meet regulatory requirements of
certain countries.
In the European Union, a product that meets the definition of an
In Vitro Diagnostic Medical Device ("IVD") in accordance with the
European Directive (98/79/EC) must receive a regulatory approval
known as a CE mark. The letters "CE" are the abbreviation of the
French phrase "Conforme Européene," which means "European
conformity." As such, export of these products to the European
Union, and possibly other jurisdictions, without the CE mark is not
possible. Although obtaining a CE Mark is often a
self-certification process, preparation and submission of the
technical file to an Authorized Representative in the EU, and their
verification of a company's compliance with the Directive, can be a
lengthy process. Some of the Company's current and future products
may fall within the IVD categorization. As of the date of this
filing, the Company has received CE marks for eight of its
commercialized products and product components: PIFA Heparin/PF4
Rapid Assay; Heparin/PF4 Serum Panels; Tri-Cholesterol "Check" and
BreathScan PRO Detectors, Analyzer Field Kit, Starter Kit and Blow
Bags. An earlier version of the Breath KetoChek also bears a
CE-Mark.
Further, some foreign countries, such as Canada and India,
require that a medical device company's manufacturing facility be
certified for compliance with the ISO 13485, an international
standard for quality systems management. The International
Organization for Standardization ("ISO") is the world's largest
developer of standards with 148 member countries. The Company's
quality management system received a certification of compliance
with the ISO 13485:2003 requirements on February 4, 2015. The
Company's quality management system has been re-certified under the
annual requirements. The failure by the Company to maintain this
certification may limit Akers' ability to obtain foreign regulatory
approval on a timely basis, if at all and to do so may cause Akers
to incur additional costs or prevent Akers from marketing its
products in foreign countries, which may have a material adverse
effect on its business and results of operations.
Our products may not be able to compete with new diagnostic
products or existing products developed by well-established
competitors, which would negatively affect our business.
According to "In Vitro Diagnostic Tests Come out of the Lab and
Into the Home", an article published by MDDI online in March 2013,
the diagnostic industry is focused on the testing of biological
specimens in a laboratory or at the point-of-care and is highly
competitive and rapidly changing. Several companies produce
diagnostic tests that compete directly with our testing product
line, including but not limited to, Abbott, ACON Laboratories,
Inc., Alere, Diagnostica Stago, SA, Immucor, Inc., OraSure
Technologies, Inc., and Quidel Corporation. Many of these
competitors have substantially greater financial, technical,
marketing and other resources than we do and enjoy other
competitive advantages, including, greater name recognition;
established relationships with health care professionals, companies
and consumers; additional lines of products and the ability to
offer rebates or higher discounts and incentives. As new products
enter the market, our products may become obsolete or a
competitor's products may be more effective or more effectively
marketed and sold than ours. Although we have no specific knowledge
of any competitor's product that will render our products obsolete,
if we fail to maintain and enhance our competitive position or fail
to introduce new products and product features, our customers may
decide to use products developed by our competitors, which could
result in a loss of revenue and cash flow.
In addition, the point-of-care diagnostics industry is
undergoing rapid technological changes, with frequent introductions
of new technology-driven products and services, some of which focus
on automated systems to provide rapid results. As new technologies
become introduced into the point-of-care diagnostic testing market,
we may be required to commit considerable additional efforts, time
and resources to enhance our current product portfolio or develop
new products. We may not have the available time and resources to
accomplish this and many of our competitors have substantially
greater financial and other resources to invest in technological
improvements. We may not be able to effectively implement new
technology-driven products and services or be successful in
marketing these products and services to our customers, especially
if rapid, manual testing products become secondary, in large
markets, to automated point-of-care systems. If these potential
developments come to fruition our operating results could be
materially harmed.
Clinical trials that may be required to support regulatory
submissions in the United States and in international markets are
expensive. We cannot assure that we will be able to complete any
required clinical trial programs successfully within any specific
time period, and if such clinical trials take longer to complete
than we project, our ability to execute our current business
strategy will be adversely affected.
Conducting clinical trials is a lengthy, time-consuming and
expensive process. Before obtaining regulatory approvals for the
commercial sale of any products, we must demonstrate through
clinical trials the safety and effectiveness of our products. We
have incurred, and we will continue to incur, substantial expense
for, and devote a significant amount of time to, product
development, pilot trial testing, clinical trials and regulated,
compliant manufacturing processes. During the year ended December
31, 2017 research and development expense totaled $1,260,378.
Even if completed, we do not know if these trials will produce
statistically significant or clinically meaningful results
sufficient to support an application for marketing approval. If and
how quickly we complete clinical trials is dependent in part upon
the rate at which we are able to advance the rate of patient
enrollment, and the rate to collect, clean, lock and analyze the
clinical trial database.
Patient enrollment in trials is a function of many factors.
These include the design of the protocol; the size of the patient
population; the proximity of patients to and availability of
clinical sites; the eligibility criteria for the study; the
perceived risks and benefits of the product candidate under study;
the medical investigators' efforts to facilitate timely enrollment
in clinical trials; the patient referral practices of local
physicians; the existence of competitive clinical trials; and
whether other investigational, existing or new products are
available or approved for the indication. If we experience delays
in patient enrollment and/or completion of our clinical trial
programs, we may incur additional costs and delays in our
development programs, and may not be able to complete our clinical
trials on a cost-effective or timely basis. Accordingly, we may not
be able to complete the clinical trials within an acceptable time
frame, if at all. If we fail to enroll and maintain the number of
patients for which the clinical trial was designed, the statistical
power of that clinical trial may be reduced, which would make it
harder to demonstrate that the product candidate being tested in
such clinical trial is safe and effective. Further, if we or any
third party have difficulty enrolling a sufficient number of
patients in a timely or cost-effective manner to conduct clinical
trials as planned, or if enrolled patients do not complete the
trial as planned, we or a third party may need to delay or
terminate ongoing clinical trials, which could negatively affect
our business.
The results of our clinical trials may not support either
further clinical development or the commercialization of our
product candidates.
Even if our clinical trials are completed as planned, their
results may not support either the further clinical development or
the commercialization of our product candidates. The FDA or
government authorities may not agree with our conclusions regarding
the results of our clinical trials. Success in preclinical testing
and early clinical trials does not ensure that later clinical
trials will be successful, and the results from any later clinical
trials may not replicate the results of prior clinical trials and
pre-clinical testing. The clinical trial process may fail to
demonstrate that our product candidates are safe and effective for
indicated uses. This failure would cause us to abandon a product
candidate and may delay development of other product candidates.
Any delay in, or termination of, our clinical trials will delay the
filing of our 510(k)'s and, ultimately, our ability to
commercialize our product candidates and generate product revenue.
Each medical device marketed in the U.S. must receive a 510(k)
clearance from the FDA. A 510(k) is a premarket submission made to
FDA to demonstrate that the device to be marketed is at least as
safe and effective, that is, substantially equivalent ("SE"), to a
legally marketed device. Companies must compare their device to one
or more similar legally marketed devices, commonly known as
"predicates", and make and support their substantial equivalency
claims. The submitting company may not proceed with product
marketing until it receives an order from the FDA declaring a
device substantially equivalent. The substantially equivalent
determination is usually made within 90 days, based on the
information submitted by the applicant.
In addition, we or the FDA may suspend our clinical trials at
any time if it appears that we are exposing participants to
unacceptable health risks or if the FDA finds deficiencies in the
conduct of these trials. A number of companies in the biotechnology
industry have suffered significant setbacks in advanced clinical
trials despite promising results in earlier trials. In the end, we
may be unable to develop marketable products.
Modifications to our devices may require additional FDA approval
which could force us to cease marketing and/or recall the modified
device until we obtain new approvals.
After a device receives a 510(k) clearance, any modification
that could significantly affect its safety or effectiveness, or
that would constitute a major change in its intended use, requires
a new 510(k) clearance or could require a Premarket approval
("PMA"). PMA is the FDA process of scientific and regulatory review
to evaluate the safety and effectiveness of Class III medical
devices. Class III devices are those that support or sustain human
life, are of substantial importance in preventing impairment of
human health, or which present a potential, unreasonable risk of
illness or injury. Currently the Company does not market devices
within this Class III category nor does it intend to in the
foreseeable future. However, the FDA requires each manufacturer to
make this determination in the first instance, but the FDA can
review any decision. If the FDA disagrees with a manufacturer's
decision not to seek a new 510(k) clearance, the agency may
retroactively require the manufacturer to seek 510(k) clearance or
PMA approval. The FDA also can require the manufacturer to cease
marketing and/or recall the modified devices until 510(k) clearance
or PMA approval is obtained. We have modified one of our
prescription use, 510(k)-cleared devices, specifically the PIFA
Heparin/PF4 Rapid Assay to include our seraSTAT Separator. However,
we determined that, in our view, based on FDA guidance as to when
to submit a 510(k) notification for changes to a cleared device,
new 510(k) clearances or PMA approvals are not required. We cannot
assure you that the FDA would agree with any of our decisions not
to seek 510(k) clearance or PMA approval. If the FDA requires us to
seek 510(k) clearance or PMA approval for any modification, we also
may be required to cease marketing and/or recall the modified
device until we obtain a new 510(k) clearance or PMA approval.
We are subject to inspection and market surveillance by the FDA
to determine compliance with regulatory requirements. If the FDA
finds that we have failed to comply, the agency can institute a
wide variety of enforcement actions which may materially affect our
business operations.
We are subject to inspection and market surveillance by the FDA
to determine compliance with regulatory requirements. If the FDA
finds that we have failed to comply, the agency can institute a
wide variety of enforcement actions, ranging from a public warning
letter to more severe sanctions such as:
-- fines, injunctions and civil penalties;
-- recall, detention or seizure of our products;
-- the issuance of public notices or warnings;
-- operating restrictions, partial suspension or total shutdown of production;
-- refusing our requests for a 510(k) clearance of new products;
-- withdrawing a 510(k) clearance already granted; and
-- criminal prosecution.
The FDA also has the authority to request repair, replacement or
refund of the cost of any medical device manufactured or
distributed by us. Our failure to comply with applicable
requirements could lead to an enforcement action that may have an
adverse effect on our financial condition and results of
operations.
We may not have sufficient resources to effectively introduce
and market our products, which could materially harm our operating
results.
Achieving market acceptance for our existing products such as
our direct-to-consumer offerings (disposable breathalyzers) and
clinical laboratory testing solutions (Particle Immuno Filtration
Assay ("PIFA") based heparin-induced thrombocytopenia and
infectious disease rapid tests) and introducing new products
(breath condensate detectors for the health & wellness
categories) require substantial marketing efforts and will require
our sales account executives, contract partners, outside sales
agents and distributors to make significant expenditures of time
and money. In some instances, we will be significantly or totally
reliant on the marketing efforts and expenditures of our contract
partners, outside sales agents and distributors. The Company has
aligned its sales resources with the regional sales segmentation of
our clinical products distributors. Although this has positively
impacted sales, the large account executive territories may prove
to be inefficient as we commercialize products and may hinder our
revenue growth.
Because we currently have very limited marketing resources and
sales capabilities, commercialization of our products, some of
which require regulatory clearance prior to market entrance, we
must either expand our own marketing and sales capabilities or
consider collaborating with additional third parties to perform
these functions. We may, in some instances, rely significantly on
sales, marketing and distribution arrangements with collaborative
partners and other third parties. In these instances, our future
revenue will be materially dependent upon the success of the
efforts of these third parties.
Should we determine that expanding our own marketing and sales
capabilities is required, we may not be able to attract and retain
qualified personnel to serve in our sales and marketing
organization, to develop an effective distribution network or to
otherwise effectively support our commercialization activities. The
cost of establishing and maintaining a more comprehensive sales and
marketing organization may exceed its cost effectiveness. If we
fail to further develop our sales and marketing capabilities, if
sales efforts are not effective or if costs of increasing sales and
marketing capabilities exceed their cost effectiveness, our
business, results of operations and financial condition would be
materially adversely affected.
We may not have the resources to conduct clinical protocols
sufficient to yield data suitable for publication in peer-reviewed
journals and our inability to do so in the future could have an
adverse effect on marketing our products effectively.
In order for our products targeted for use by hospital
laboratory professionals and healthcare providers to be widely
adopted, clinical protocols that are designed to yield data
suitable for publication in peer-reviewed journals should be
carried out. These studies are often time-consuming,
labor-intensive and expensive to execute. The Company has not had
the resources to effectively implement such clinical programs
within its clinical development activities and may not be able to
do so in the future. In addition, if a protocol is initiated, the
results of which may ultimately not support the anticipated
positioning and benefit proposition for the product. Either of
these scenarios could hinder our ability to market our products and
revenue may decline.
Our future performance will depend largely on the success of
products we have not developed yet.
Technology is an important component of our business and growth
strategy, and our success depends to a significant extent on the
development, implementation and acceptance of new products.
Commitments to develop new products must be made well in advance of
any resulting sales, and technologies and standards may change
during development, potentially rendering our products outdated or
uncompetitive before their introduction. Our ability to develop
products to meet evolving industry requirements and at prices
acceptable to our customers will be dependent on a number of
factors including, funding availability to complete development
efforts, our ability to test and refine products, successfully
conduct clinical trials and seek to obtain required FDA clearance
or foreign approval/certification for products that require such
regulatory authorizations. Physician patients and third-party
payors and the medical community may be slow to adopt any of our
products. Moreover, there can be no assurance that the products
that we are developing will receive FDA clearance, work effectively
in the marketplace or gain market acceptance. We may expend
considerable funds and other resources on the development of
next-generation products without any guarantee that these products
will be successful.
If we are not successful in bringing new products to market,
whether because we fail to address marketplace demand, fail to
develop viable technologies or otherwise, our revenue may decline
and our results of operations could be seriously harmed.
If we fail to establish, maintain and expand relationships with
distributors, sales of our products would decline.
The Company does not control the efforts of its distributors and
its distributors are not prohibited from selling competing
products. Our ability to sell our products depends largely on the
Company's relationships with such distributors. Accordingly, we are
subject to the risk that they may not commit the financial and
other resources to market and sell our products to our level of
expectation, they may experience financial hardship or they may
otherwise terminate our relationship on short notice. In the U.S.
clinical laboratory marketplace, many of our existing and potential
customers purchase our products through our two national
distributors, Cardinal Health and Fisher Health. Our sales account
executives work in tandem with the distributor's sales
representatives to gain access to decision makers within the
majority of U.S. medical facilities. In addition, the Company
relies on its distribution network to negotiate pricing
arrangements and contracts with Group Purchasing Organizations and
their affiliated hospitals and other members. For the years ended
December 31, 2017 and 2016, 67% and 87%, respectively of total
product revenue from the sale of the Company's Heparin/PF4 Assay
products was generated through our U.S. distributors' purchases,
with Cardinal Health and Fisher accounting for 85% and 63% of such
sales for each year ended December 31, 2017 and 2016. In the
future, if we are unable to maintain existing relationships and/or
grow to be recognized as a prominent medical device supplier within
these organizations, and/or develop new relationships with
additional U.S. and international distributors, our competitive
position would likely suffer and our business would be harmed.
We have just begun to develop formal business relationships with
foreign distributors for all of our in-line products. We will
therefore be dependent upon the financial health of these
organizations to further grow our business internationally. If a
distributor were to go out of business, it would take substantial
time, cost and resources to find a suitable replacement and the
product registrations and certifications held by such distributor
may not be returned to us or to a subsequent distributor in a
timely manner or at all. Any failure to produce foreign sales may
negatively affect our profitability in the short and long-term.
Since some of our products have CE-Marks and/or are earmarked for
sale in Europe where healthcare regulation and reimbursement for
medical devices vary significantly from country to country, this
changing environment could adversely affect our ability to sell our
products in some European countries. In addition, the Company is
working with its joint venture partner in mainland China to
register several of its products for eventual sale. Since
additional clinical studies must be performed by our joint venture
partner within Chinese healthcare facilities as part of their
regulatory submission, there is no guarantee that the results of
their protocol will support the successful registration of the
products and permit sales activity. Failure to gain product
registration in China will hinder the Company's ability to increase
its revenue.
Our business is vulnerable to the availability of raw materials,
our ability to forecast customer demand and our ability to manage
production capacity.
Our ability to meet customer demand depends, in part, on our
production capacity and on obtaining supplies, a number of which
can only be obtained from a single supplier or a limited number of
suppliers. A reduction or disruption in our production capacity or
our supplies could delay products and fulfillment of orders and
otherwise negatively impact our business.
We must accurately predict both the demand for our products and
the lead times required to obtain the necessary components and
materials. If we overestimate demand, we may experience
underutilized capacity and excess inventory levels. If we
underestimate demand, we may miss delivery deadlines and sales
opportunities and incur additional costs for labor overtime,
equipment overuse and logistical complexities. Additionally, our
production capacity could be affected by manufacturing problems.
Difficulties in the production process could reduce yields or
interrupt production, and, as a result, we may not be able to
deliver products on time or in a cost-effective, competitive
manner. Our failure to adequately manage our capacity could have a
material adverse effect on our business, financial condition and
results of operations.
Our ability to meet customer demand also depends on our ability
to obtain timely and adequate delivery of materials, parts and
components from our suppliers. We generally do not maintain
contracts with any of our key suppliers. From time to time,
suppliers may extend lead times, limit the amounts supplied to us
or increase prices due to capacity constraints or other factors.
Supply disruptions may also occur due to shortages in critical
materials. In addition, a number of our raw materials are obtained
from a single supplier. Many of our suppliers must undertake a
time-consuming qualification process before we can incorporate
their raw materials into our production process. If we are unable
to obtain materials from a qualified supplier, it can take up to a
year to qualify a new supplier, assuming an alternative source of
supply is available. A reduction or interruption in supplies or a
significant increase in the price of one or more supplies could
have a material adverse effect on our business, financial condition
and results of operations.
Our manufacturing facility is vulnerable to natural disasters
and other unexpected losses, and we may not have adequate insurance
to cover such losses.
We have one manufacturing facility, located in Thorofare, New
Jersey, for production of all of our finished goods production. Our
facility is susceptible to damage from fire, floods, loss of power
or water supply, telecommunications failures and similar events.
Since some of our raw materials and finished goods are
temperature-sensitive and our facility currently does not have a
back-up generator, a moderate-to-severe disruption in power may
render various levels of our inventories unusable or unsalable,
resulting in a sufficient write off of inventory and may
immediately impact our ability to generate revenue.
Any natural disaster could significantly disrupt our operations.
In the event that our facility was affected by a natural or
man-made disaster, we would be forced to rely on third-party
manufacturers. Our insurance for damage to our property and the
disruption of our business from casualties may not be sufficient to
cover all of our potential losses and may not continue to be
available to us on acceptable terms, or at all. If we are forced to
seek alternative facilities, we may incur additional transition
costs and we may experience a disruption in the supply of our
products until the new facility is available and operating. In
addition, much of the machinery we use in our production process is
custom-made. If such machinery is damaged, we may experience a long
lead-time before this unique machinery is replaced or rebuilt and
we are able to resume production.
Our manufacturing and distribution operations are highly
dependent on our information technology systems and we do not
currently have a redundant data center. In the event of a failure
of our primary data center, our manufacturing and distribution
operations will be disrupted which will adversely affect our
business.
In addition, any disruption, delay, transition or expansion of
our manufacturing operations could impair our ability to meet the
demand of our customers and our customers may cancel orders or
purchase products from our competitors, which could adversely
affect our business, financial condition and results of
operations.
Some of our finished goods, including our PIFA products and
control materials related to PIFA Heparin/PF4 assays, are
temperature-sensitive.
Proper packaging and time in transit are critical to the
stability of some of our clinical laboratory products when they are
en route to our distributors or end users. If certain specialized
packaging materials cannot be obtained, and/or if our contracted
common carriers, or those of our distributors, cannot meet
product-specific delivery requirements, our products may not
perform as intended and may lead to requests for product
replacement. If such issues become widespread it could hurt our
reputation and we could potentially lose customers which would
adversely affect our business.
Also, given the issue of temperature sensitivity, time in
transit may limit our ability to service potential markets outside
of the U.S. for those products, especially those with geographies
that do not allow for shipment and customs clearance within four
business days. This could adversely affect our potential to
generate revenue for some products on an international level.
We are subject to environmental, health and safety laws, which
could increase our costs and restrict our operations in the
future.
Our operations are subject to environmental, health and safety
laws and regulations in each of the jurisdictions in which we
operate. These laws and regulations concern, among other things,
the generation, handling, transportation and disposal of hazardous
substances or wastes, the clean-up of hazardous substance releases,
and the emission or discharge of materials into the air or water.
Although we currently incur limited expenditures in connection with
these environmental health and safety laws and regulations, if we
fail to comply with the requirements of such laws and regulations
or if such laws changes significantly in the future, we could incur
substantial additional costs to alter our manufacturing processes
and/or adjust our supply chain management. Such changes could also
result in significant inventory obsolescence. Compliance with
environmental, health and safety requirements could also restrict
our ability to expand our facilities in the future.
Our business is vulnerable to inflation.
We are limited in our ability to raise prices for some products,
particularly in the clinical laboratory marketplace where
cost-containment pressures are significant. As a result, increases
in our raw materials, production and transportation costs may have
a material adverse impact on our results of operations.
Demands of third-party payors, cost reduction pressures among
our customers and restrictive reimbursement practices may adversely
affect our revenue.
Our ability to negotiate favorable contracts with
non-governmental payors, including managed-care plans or Group
Purchasing Organizations ("GPOs"), even if facilitated by our
distributors, may significantly affect revenue and operating
results. Our customers continue to face cost reduction pressures
that may cause them to curtail their use of, or reimbursement for
some of our products, to negotiate reduced fees or other
concessions or to delay payment. Furthermore, the increasing
leverage of organized buying groups among non-governmental payors
may reduce market prices for our products and services, thereby
reducing our profitability. Reductions in price increases or the
amounts received from current customers or lower pricing for our
products to new customers could have a material adverse effect on
the financial position, cash flows and results of operations.
Failure to obtain medical reimbursement for our products under
development, as well as a changing regulatory and reimbursement
environment, may impact our business.
The U.S. healthcare regulatory environment may change in a way
that restricts our ability to market our products due to medical
coverage or reimbursement limits. Sales of our diagnostic tests
will depend in part on the extent to which the costs of such tests
are covered by health maintenance, managed care, and similar
healthcare management organizations, or reimbursed by government
health payor administration authorities, private health coverage
insurers and other third-party payors. These healthcare payors are
increasingly challenging the prices charged for medical products
and services. The containment of healthcare costs has become a
priority of federal and state governments. Accordingly, our
potential products may not be considered to be cost effective, and
reimbursement may not be available or sufficient to allow us to
sell our products on a competitive basis. Legislation and
regulations affecting reimbursement for our products may change at
any time and in ways that are difficult to predict and these
changes may have an adverse effect to us.
CMS, the federal agency responsible for administering the
Medicare program, along with its contractors establishes coverage
and reimbursement policies for the Medicare program. In addition,
private payors often follow the coverage and reimbursement policies
of Medicare. We cannot assure you that government or private
third-party payors will cover and reimburse the procedures using
our products in whole or in part in the future or that payment
rates will be adequate.
For some of our products, our success in non-U.S. markets may
depend upon the availability of coverage and reimbursement from the
third-party payors through which health care providers are paid in
those markets. Health care payment systems in non-U.S. markets vary
significantly by country, and include single-payor, government
managed systems as well as systems in which private payors and
government-managed systems exist, side-by-side. For some of our
products, our ability to achieve market acceptance or significant
sales volume in international markets may be dependent on the
availability of reimbursement for our products under health care
payment systems in such markets. There can be no assurance that
reimbursement for our products, will be obtained or that such
reimbursement will be adequate.
Health care legislation, including the Patient Protection and
Affordable Care Act and the Health Insurance Portability and
Accountability Act of 1996, may have a material adverse effect on
us.
The Patient Protection and Affordable Care Act ("PPACA")
substantially changes the way healthcare is financed by government
and private insurers, encourages improvements in healthcare
quality, and impacts the medical device industry. The PPACA
includes an excise tax on entities that manufacture or import
medical devices offered for sale in the United States; a new
Patient-Centered Outcomes Research Institute to conduct comparative
effectiveness research; and payment system reforms.
The PPACA also imposes new reporting and disclosure requirements
on device and drug manufacturers for any payment or transfer of
value made or distributed to physicians or teaching hospitals.
Under these provisions, known as the Physician Payment Sunshine
Act, affected device and drug manufacturers need to begin data
collection on August 1, 2013, with the first reports due in 2014.
These provisions require, among other things, extensive tracking
and maintenance of databases regarding the disclosure of
relationships and payments to physicians and teaching hospitals. In
addition, certain states have passed or are considering legislation
restricting our interactions with health care providers and/or
requiring disclosure of many payments to them. Failure to comply
with these tracking and reporting laws could subject us to
significant civil monetary penalties.
The Health Insurance Portability and Accountability Act of 1996
("HIPAA") created new federal statutes to prevent healthcare fraud
and false statements relating to healthcare matters. The healthcare
fraud statute prohibits knowingly and willfully executing a scheme
to defraud any healthcare benefit program, including private
payors. A violation of this statute is a felony and may result in
fines, imprisonment or exclusion from government sponsored programs
such as the Medicare and Medicaid programs. The false statements
statute prohibits knowingly and willfully falsifying, concealing or
covering up a material fact or making any materially false,
fictitious or fraudulent statement in connection with the delivery
of or payment for healthcare benefits, items or services. A
violation of this statute is a felony and may result in fines or
imprisonment or exclusion from government sponsored programs. HIPAA
also established uniform standards governing the conduct of certain
electronic healthcare transactions and protecting the security and
privacy of individually identifiable health information maintained
or transmitted by healthcare providers, health plans and healthcare
clearinghouses.
Both federal and state government agencies are continuing
heightened and coordinated civil and criminal enforcement efforts.
As part of announced enforcement agency work plans, the federal
government will continue to scrutinize, among other things, the
billing practices of hospitals and other providers of healthcare
services. The federal government also has increased funding to
fight healthcare fraud, and it is coordinating its enforcement
efforts among various agencies, such as the U.S. Department of
Justice, the Office of Inspector General and state Medicaid fraud
control units. We believe that the healthcare industry will
continue to be subject to increased government scrutiny and
investigations.
We may fail to recruit and retain qualified personnel.
We expect to rapidly expand our operations and grow our sales,
development and administrative operations. This expansion is
expected to place a significant strain on our management and will
require hiring a number of qualified personnel. Accordingly,
recruiting and retaining such personnel in the future will be
critical to our success. There is intense competition from other
companies for qualified personnel in the areas of our activities,
particularly sales, marketing and research & development. If we
fail to identify, attract, retain and motivate these highly skilled
personnel, we may be unable to continue our marketing and
development activities, and this could have a material adverse
effect on the Company's business, financial condition, results of
operations and future prospects.
We may face risks in connection with potential acquisitions.
We may look to acquire businesses that complement or expand our
operations as part of our business strategy going forward. We may
not be able to successfully identify attractive acquisition
candidates or negotiate favorable terms in the future. Furthermore,
our ability to effectively integrate any future acquisitions will
depend on, among other things, the adequacy of our implementation
plans, the ability of our management to oversee and operate
effectively the combined operations and our ability to achieve
desired operational efficiencies. If we are unable to successfully
integrate the operations of any businesses that we may acquire in
the future, our business, financial position, results of operations
or cash flows could be adversely affected.
We rely on key executive officers, and their knowledge of our
business and technical expertise would be difficult to replace.
We are dependent on the management team of Akers Bio to execute
against its business plan. Failure could result in delays in
product development, loss of customers and sales and diversion of
management resources, which could adversely affect our operating
results.
We may need to obtain additional licenses to patents or other
proprietary rights from other parties.
To facilitate development and commercialization of a proprietary
technology base, we may need to obtain additional licenses to
patents or other proprietary rights from other parties. Obtaining
and maintaining these licenses, which may not be available, may
require the payment of up-front fees and royalties. In addition, if
we are unable to obtain these types of licenses, our product
development and commercialization efforts may be delayed or
precluded.
We may not be able to protect or enforce our intellectual
property rights, which could impair our competitive position.
Our success depends significantly on our ability to protect our
rights to the patents, trademarks, trade secrets, copyrights and
all other intellectual property rights used in our products.
Protecting our intellectual property rights is costly and time
consuming. We rely primarily on patent protection and trade
secrets, as well as a combination of copyright and trademark laws
and nondisclosure and confidentiality agreements to protect our
technology and intellectual property rights. However, these legal
means afford only limited protection and may not adequately protect
our rights or permit us to gain or maintain any competitive
advantage. Despite our intellectual property rights practices, it
may be possible for a third party to copy or otherwise obtain and
use our technology without authorization, develop similar
technology independently or design around our patents.
We cannot be assured that any of our pending patent applications
will result in the issuance of a patent to us. The U.S. Patent and
Trademark Office, or USPTO, may deny or require significant
narrowing of claims in our pending patent applications, and patents
issued as a result of the pending patent applications, if any, may
not provide us with significant commercial protection or be issued
in a form that is advantageous to us. We could also incur
substantial costs in proceedings before the USPTO. Our issued and
licensed patents and those that may be issued or licensed in the
future may expire or may be challenged, invalidated or
circumvented, which could limit our ability to stop competitors
from marketing related technologies. Upon expiration of our issued
or licensed patents, we may lose some of our rights to exclude
others from making, using, selling or importing products using the
technology based on the expired patents. There is no assurance that
competitors will not be able to design around our patents. We also
rely on unpatented proprietary technology. We cannot assure you
that we can meaningfully protect all our rights in our unpatented
proprietary technology or that others will not independently
develop substantially equivalent proprietary products or processes
or otherwise gain access to our unpatented proprietary technology.
Further, we may not be able to obtain patent protection or secure
other intellectual property rights in all the countries in which we
operate, and under the laws of such countries, patents and other
intellectual property rights may be unavailable or limited in
scope. If any of our patents fail to protect our technology, it
would make it easier for our competitors to offer similar products.
Our trade secrets may be vulnerable to disclosure or
misappropriation by employees, contractors and other persons. Any
inability on our part to adequately protect our intellectual
property may have a material adverse effect on our business,
financial condition and results of operations.
Expenses incurred with respect to monitoring, protecting, and
defending our intellectual property rights could adversely affect
our business.
Competitors and others may infringe on our intellectual property
rights, or may allege that we have infringed on theirs. Monitoring
infringement and misappropriation of intellectual property can be
difficult and expensive, and we may not be able to detect
infringement or misappropriation of our proprietary rights.
We may incur substantial costs as a result of litigation or
other proceedings relating to patent and other intellectual
property rights and we may be unable to protect our rights to, or
use of, our technology.
Some or all of our patent applications may not result in the
issue of patents, or the claims of any issued patents may not
afford meaningful protection for our technologies or products. In
addition, patents issued to us or our licensors, if any, may be
challenged and subsequently narrowed, invalidated, found
unenforceable or circumvented. Patent litigation is widespread in
the biotechnology industry and could harm our business. Litigation
might be necessary to protect our patent position. Patentability,
invalidity, freedom-to-operate or other opinions may be required to
determine the scope and validity of third-party proprietary rights.
If we choose to go to court to stop a third party from using the
inventions protected by our patent, that third party would have the
right to ask the court to rule that such patents are invalid and/or
should not be enforced against that third party. These lawsuits are
expensive and we may not have the required resources to pursue such
litigation or to protect our patent rights. In addition, there is a
risk that the court will decide that our patents are not valid or
that we cannot stop the other party from using their inventions.
There is also the risk that, even if the validity of these patents
is upheld, the court will find that the third party's activities do
not infringe our rights in these patents.
Furthermore, a third party may claim that we are infringing the
third party's patent rights and may go to court to stop us from
engaging in our normal operations and activities, including making
or selling our product candidates. These lawsuits are costly and
could affect our results of operations and divert the attention of
managerial and technical personnel. There is a risk that a court
would decide that we are infringing the third party's patents and
would order us to stop the activities covered by the patents. In
addition, there is a risk that a court will order us to pay the
other party's treble damages or attorneys' fees for having violated
the other party's patents. The biotechnology industry has produced
a proliferation of patents, and it is not always clear to industry
participants, including us, which patents cover various types of
products or methods of use. The coverage of patents is subject to
interpretation by the courts, and the interpretation is not always
uniform. If we are sued for patent infringement, we would need to
demonstrate that our products or methods of use either do not
infringe the claims of the relevant patent and/or that the
third-party patent claims are invalid, and we may not be able to do
this. Proving invalidity in the United Sates is difficult since it
requires a showing of clear and convincing evidence to overcome the
presumption of validity enjoyed by issued patents.
In addition, changes in either patent laws or in interpretations
of patent laws in the United States and other countries may
materially diminish the value of our intellectual property or
narrow the scope of our patent protection. In September 2011, the
U.S. Congress passed the Leahy-Smith America Invents Act ("AIA")
which became effective in March 2013. The AIA reforms United States
patent law in part by changing the standard for patent approval for
certain patents from a "first to invent" standard to a "first to
file" standard and developing a post-grant review system. It is too
early to determine what the effect or impact the AIA will have on
the operation of our business and the protection and enforcement of
our intellectual property. However, the AIA and its implementation
could increase the uncertainties and costs surrounding the
prosecution of our patent applications and the enforcement or
defense of our issued patents, all of which could have a material
adverse effect on our business and financial condition. Because
some patent applications in the United States may be maintained in
secrecy until the patents are issued, patent applications in the
United States and many foreign jurisdictions are typically not
published until eighteen months after filing, and publications in
the scientific literature often lag behind actual discoveries. We
cannot be certain that others have not filed patent applications
for technology covered by our issued patents or our pending
applications or that we were the first to invent the technology
(pre-AIA) or first to file (post-AIA). Our competitors may have
filed, and may in the future file, patent applications covering
technology similar or the same as ours. Any such patent application
may have priority over our patent application and could further
require us to obtain rights to such technologies in order to carry
on our business. If another party has filed a U.S. patent
application on inventions similar or the same as ours, we may have
to participate in an interference or other proceeding in the U.S.
Patent and Trademark Office, or the USPTO, or a court to determine
priority of invention in the United States, for pre-AIA
applications and patents. The costs of these proceedings could be
substantial, and it is possible that such efforts would be
unsuccessful, resulting in a loss of our U.S. patent position with
respect to such inventions. Some of our competitors may be able to
sustain the costs of complex patent litigation more effectively
than we can because they have substantially greater resources.
Our failure to secure trademark registrations could adversely
affect our ability to market our product candidates and our
business.
Our trademark applications in the United States and any other
jurisdictions where we may file may not be allowed registration,
and we may not be able to maintain or enforce our registered
trademarks. During trademark registration proceedings, we may
receive rejections. Although we are given an opportunity to respond
to those rejections, we may be unable to overcome such rejections.
In addition, in the USPTO and in corresponding foreign agencies,
third parties are given an opportunity to oppose pending trademark
applications and to seek to cancel registered trademarks.
Opposition or cancellation proceedings may be filed against our
applications and/or registrations, and our applications and/or
registrations may not survive such proceedings. Failure to secure
such trademark registrations in the United States and in foreign
jurisdictions could adversely affect our ability to market our
product candidates and our business.
We may be subject to claims that our employees have wrongfully
used or disclosed alleged trade secrets of their former
employers.
As is common in the biotechnology and pharmaceutical industry,
we employ individuals who were previously employed at other
biotechnology or pharmaceutical companies, including our
competitors or potential competitors. Although the Company has no
knowledge of any claims against us, we may be subject to claims
that these employees or the Company have inadvertently or otherwise
used or disclosed trade secrets or other proprietary information of
their former employers. Litigation may be necessary to defend
against these claims. Even if we are successful in defending
against these claims, litigation could result in substantial costs
and be a distraction to management. To date, none of our employees
have been subject to such claims.
We may not be able to adequately protect our intellectual
property outside of the United States.
The laws in some foreign jurisdictions may not provide
protection for our trade secrets and other intellectual property.
If our trade secrets or other intellectual property are
misappropriated in foreign jurisdictions, we may be without
adequate remedies to address these issues. Additionally, we also
rely on confidentiality and assignment of invention agreements to
protect our intellectual property. These agreements may provide for
contractual remedies in the event of misappropriation. We do not
know to what extent, if any, these agreements and any remedies for
their breach, will be enforced by a foreign or domestic court. In
the event our intellectual property is misappropriated or infringed
upon and an adequate remedy is not available, our future prospects
will likely diminish.
Additionally, prosecuting and maintaining intellectual property,
particularly patent rights, are very costly endeavors. We do not
know whether legal and government fees will increase substantially
and therefore are unable to predict whether cost may factor into
our intellectual property strategy.
If we deliver products with defects, we may be subject to
product recalls or negative publicity, our credibility may be
harmed, market acceptance of our products may decrease and we may
be exposed to liability.
The manufacturing and marketing of professional and consumer
diagnostics involve an inherent risk of product liability claims.
For example, a defect in one of our diagnostic products could lead
to a false positive or false negative result, affecting the
eventual diagnosis. Our product development and production are
extremely complex and could expose our products to defects.
Manufacturing and design defects could lead to recalls, either
voluntary or required by the FDA or other government authorities,
and could result in the removal of a product from the market.
Defects in our products could also harm our reputation, lead to
product liability claims, claims that inaccurate test results lead
to death or injury, negative publicity and decrease sales of our
products. We have obtained $10,000,000 of product liability
insurance and we have never received a product liability claim, and
have generally not seen product liability claims for screening
tests that are accompanied by appropriate disclaimers. However, in
the event there is a claim, this insurance may not fully cover our
potential liabilities. In addition, as we attempt to bring new
products to market, we may need to increase our product liability
coverage which would be a significant additional expense that we
may not be able to afford. If we are unable to obtain sufficient
insurance coverage at an acceptable cost to protect us, we may be
forced to abandon efforts to commercialize our products or those of
our strategic partners, which would reduce our revenue.
If our estimates relating to our critical accounting policies
are based on assumptions or judgments that change or prove to be
incorrect, our operating results could fall below expectations of
financial analysts and investors, resulting in a decline in our
stock price.
The preparation of financial statements in conformity with U.S.
GAAP requires our management to make estimates, assumptions and
judgments that affect the amounts reported in the financial
statements and accompanying notes. We base our estimates on
historical experience and on various other assumptions that we
believe to be reasonable under the circumstances, the results of
which form the basis for making judgments about the carrying values
of assets, liabilities, equity, revenue and expenses that are not
readily apparent from other sources. Our operating results may be
adversely affected if our assumptions change or if actual
circumstances differ from those in our assumptions, which could
cause our operating results to fall below the expectations of
financial analysts and investors, resulting in a decline in our
stock price. Significant assumptions and estimates used in
preparing our financial statements include those related to revenue
recognition, inventory, product warranties, allowances for doubtful
accounts, stock-based compensation expense and income taxes.
As an emerging growth company within the meaning of the
Securities Act, we will utilize certain modified disclosure
requirements, and we cannot be certain if these reduced
requirements will make our common stock less attractive to
investors.
We are an emerging growth company within the meaning of the
rules under the Securities Act. We have utilized, and we plan in
future filings with the SEC to continue to utilize, the modified
disclosure requirements available to emerging growth companies,
including reduced disclosure about our executive compensation and
omission of compensation discussion and analysis, and an exemption
from the requirement of holding a nonbinding advisory vote on
executive compensation. In addition, we will not be subject to
certain requirements of Section 404 of the Sarbanes-Oxley Act,
including the additional testing of our internal control over
financial reporting as may occur when outside auditors attest as to
our internal control over financial reporting, and we have elected
to delay adoption of new or revised accounting standards applicable
to public companies. As a result, our shareholders may not have
access to certain information they may deem important.
In addition, Section 107 of the JOBS Act also provides that an
emerging growth company can utilize the extended transition period
provided in Section 7(a)(2)(B) of the Securities Act which allows
us to delay the adoption of compliance with new or revised
accounting standards. Thus, an emerging growth company can delay
the adoption of certain accounting standards until those standards
would otherwise apply to private companies. We have elected to
utilize this extended transition period. Our financial statements
may therefore not be comparable to those of companies that comply
with such new or revised accounting standards as they become
applicable to public companies. We cannot predict if investors will
find our common stock less attractive because we will rely on these
exemptions. If some investors find our common stock less attractive
as a result, there may be a less active trading market for our
common stock and our stock price may be more volatile.
We will remain an emerging growth company until the earliest of
(i) December 31, 2019 (the end of the fiscal year in which the
fifth anniversary of our initial public offering in the U.S.
occurred), (ii) the last day of the first fiscal year in which our
annual gross revenue exceed $1.07 billion, (iii) the date that we
become a "large accelerated filer" as defined in Rule 12b-2 under
the Exchange Act, which would occur if the market value of our
common stock that is held by non-affiliates exceeds $700 million as
of the last business day of our most recently completed second
fiscal quarter or (iv) the date on which we have issued more than
$1 billion in non-convertible debt during the preceding three-year
period.
We have not engaged our independent registered public accounting
firm to perform an audit of our internal control over financial
reporting as of any balance sheet date or for any period reported
in our financial statements. Had our independent registered public
accounting firm performed an audit of our internal control over
financial reporting, material weaknesses may have been identified.
For so long as we qualify as an "emerging growth company" under the
JOBS Act, we will not have to provide an auditor's attestation
report on our internal controls in future annual reports on Form
10-K as otherwise required by Section 404(b) of the Sarbanes-Oxley
Act. During the course of the evaluation, documentation or
attestation, our independent registered public accounting firm may
identify weaknesses and deficiencies that we may not otherwise
identify in a timely manner or at all as a result of the deferred
implementation of this additional level of review.
Regulatory restrictions in the People's Republic of China for
foreign exchange could adversely affect our ability to transact
business with our trade partners.
China maintains a 'closed' capital account, meaning companies,
banks and individuals cannot move money in or out of the country
except in accordance with strict rules. Difficulty making payments
to key vendors or in receiving payment from trade partners could
have material adverse effects on the Company's business, financial
condition and results of operations.
Risks Related to the Market
Recent global economic trends could adversely affect our
business, liquidity and financial results.
Recent global economic conditions, including a disruption of
financial markets, could adversely affect us, primarily through
limiting our access to capital. In addition, the continuation or
worsening of general market conditions in economies important to
our businesses may adversely affect our clients' level of spending
and ability to obtain financing, leading to us being unable to
generate the levels of sales that we require. Current and continued
disruption of financial markets could have a material adverse
effect on the Company's business, financial condition, results of
operations and future prospects.
Risks Relating to our Common Stock
If we fail to continue to meet all applicable NASDAQ
requirements and NASDAQ determines to delist our common stock, the
delisting could adversely affect the market liquidity of our common
stock and the market price of our common stock could decrease.
Our common stock is listed on NASDAQ. In order to maintain our
listing, we must meet minimum financial and other requirements,
including requirements for a minimum amount of capital and a
minimum price per share. On November 28, 2017, we received a notice
from the staff (the "Staff") of NASDAQ that, for a period of thirty
(30) consecutive business days, the bid price of our common stock
had closed below the minimum $1.00 per share requirement for
continued inclusion under NASDAQ Rule 5550(a)(2) (the "Bid Price
Rule"). The notification had no immediate effect on the listing or
trading of the common stock on NASDAQ.
NASDAQ stated in its letter that in accordance with the NASDAQ
Listing Rules we have been provided an initial period of 180
calendar days, or until May 29, 2018, to regain compliance. The
letter states that the Staff will provide written notification that
we have achieved compliance with the minimum bid price listing
requirement if at any time before May 29, 2018, the bid price of
the common stock closes at $1.00 per share or more for a minimum of
ten (10) consecutive business days.
If we are unable to regain compliance by May 29, 2018, we may be
eligible for an additional 180 calendar day compliance period to
demonstrate compliance with the bid price requirement. To qualify,
we will be required to meet the continued listing requirement for
market value of publicly held shares set forth in Market Place Rule
5550(a) and all other initial listing standards for NASDAQ set
forth in Marketplace Rule 5505, with the exception of the bid price
requirement, and will need to provide written notice to NASDAQ of
its intention to cure the deficiency during the second compliance
period, by effecting a reverse stock split, if necessary. If we do
not qualify for the second compliance period or fails to regain
compliance during the second 180-day period, then NASDAQ will
notify us of its determination to delist the common stock, at which
point we would have an opportunity to appeal the delisting
determination to a Hearings Panel.
We intend to monitor the closing bid price of the common stock
and may, if appropriate, consider implementing available options to
regain compliance with the minimum bid price requirement under the
NASDAQ Listing Rules. If we fail to continue to meet all applicable
NASDAQ requirements, NASDAQ may determine to delist our common
stock. If our common stock is delisted for any reason, it could
reduce the value of our common stock and its liquidity.
If our common stock is delisted as a result of our failure to
comply with the Bid Price Rule or any other NASDAQ continued
listing requirement, we would expect our common stock to be traded
in the over-the-counter market, which could adversely affect the
liquidity of our common stock. Additionally, delisting would
substantially impair our ability to raise additional funds to fund
our operations, to meaningfully advance the development of our
products, and we could face other significant material adverse
consequences, including:
-- a limited availability of market quotations for our common stock;
-- a reduced amount of news and analyst coverage for us;
-- reduced liquidity for our shareholders;
-- potential loss of confidence by employees and potential future partners or collaborators;
and
-- loss of institutional investor interest and fewer business development opportunities.
Negotiations are underway with multiple customers for the
Company's products and are anticipated to be completed in the near
term, but a significant delay will impact revenue projections.
The Company is awaiting a 510(k) approval from the United States
Food & Drug Administration ("FDA") for its PIFA Chlamydia
product. An extended delay in receipt of this approval will
negatively impact revenue projections.
The Company is actively working with the FDA's examiner to
insure requests for additional data and responses to questions are
completed as quickly as possible.
The market price of our common stock is likely to be highly
volatile and subject to wide fluctuations, and you may be unable to
resell your shares at or above the price at which you acquired
them.
The market price of our common stock is likely to be highly
volatile and could be subject to wide fluctuations in response to a
number of factors that are beyond our control, including, but not
limited to:
-- variations in our revenue and operating expenses;
-- actual or anticipated changes in the estimates of our operating results or changes in stock
market analyst recommendations regarding our ordinary shares, other comparable companies or
our industry generally;
-- market conditions in our industry and the economy as a whole;
-- developments in the financial markets and worldwide or regional economies;
-- announcements of innovations or new products or services by us or our competitors;
-- announcements by the government relating to regulations that govern our industry;
-- sales of our common stock or other securities by us or in the open market; and
-- changes in the market valuations of other comparable companies.
In addition, if the market for biotech stocks or the stock
market in general experiences loss of investor confidence, the
trading price of our common stock could decline for reasons
unrelated to our business, financial condition or operating
results. The trading price of our shares might also decline in
reaction to events that affect other companies in our industry,
even if these events do not directly affect us. Each of these
factors, among others, could harm the value of your investment in
our common stock. In the past, following periods of volatility in
the market, securities class-action litigation has often been
instituted against companies. Such litigation, if instituted
against us, could result in substantial costs and diversion of
management's attention and resources, which could materially and
adversely affect our business, operating results and financial
condition.
Our common stock is listed on two separate stock markets and
investors seeking to take advantage of price differences between
such markets may create unexpected volatility in our share price;
in addition, investors may not be able to easily move shares for
trading between such markets.
Our common stock is already admitted to trading on AIM and the
NASDAQ Capital Market. Price levels for our ordinary shares could
fluctuate significantly on either market, independent of our share
price on the other market. Investors could seek to sell or buy our
shares to take advantage of any price differences between the two
markets through a practice referred to as arbitrage. Any arbitrage
activity could create unexpected volatility on either exchange with
respect to both our share price and the volume of shares available
for trading. In addition, holders of shares in either jurisdiction
will not be immediately able to transfer such shares for trading on
the other market without effecting necessary procedures with our
transfer agent. This could result in time delays and additional
cost for our shareholders. Further, if we are unable to continue to
meet the regulatory requirements for listing on AIM or NASDAQ, we
may lose our listing on AIM or NASDAQ, which could impair the
liquidity of our shares.
Future sales of our common stock, or the perception that future
sales may occur, may cause the market price of our common stock to
decline, even if our business is doing well.
Sales by our shareholders of a substantial number of shares of
our common stock in the public market could occur in the future.
These sales, or the perception in the market that the holders of a
large number of shares of common stock intend to sell shares, could
reduce the market price of our common stock.
Exercise of options or warrants or conversion of convertible
securities may have a dilutive effect on your percentage ownership
and may result in a dilution of your voting power and an increase
in the number of shares of common stock eligible for future resale
in the public market, which may negatively impact the trading price
of our shares of common stock.
The exercise or conversion of some or all of our outstanding
options, warrants, or convertible securities could result in
significant dilution in the percentage ownership interest of
investors in this offering and in the percentage ownership interest
of our existing common shareholders and in a significant dilution
of voting rights and earnings per share.
As of March 16, 2018, we had outstanding warrants to purchase up
to 23,308,805 shares of our common stock at a weighted exercise
price of $0.27 per share.
Additionally, the issuance of up to 255,000 shares of our common
stock upon exercise of stock options outstanding under our stock
incentive plans will further dilute our shareholders' voting
interests. To the extent options and/or warrants and/or conversion
rights are exercised (including with respect to the warrants),
additional shares of common stock will be issued, and such issuance
will dilute shareholders.
Our stock price could fall and we could be delisted from the
NASDAQ in which case U.S. broker-dealers may be discouraged from
effecting transactions in shares of our common stock because they
may be considered penny stocks and thus be subject to the penny
stock rules.
The SEC has adopted a number of rules to regulate "penny stock"
that restricts transactions involving stock which is deemed to be
penny stock. Such rules include Rules 3a51-1, 15g-1, 15g-2, 15g-3,
15g-4, 15g-5, 15g-6, 15g-7, and 15g-9 under the Securities and
Exchange Act of 1934, as amended. These rules may have the effect
of reducing the liquidity of penny stocks. "Penny stocks" generally
are equity securities with a price of less than $5.00 per share
(other than securities registered on certain national securities
exchanges or quoted on the NASDAQ Stock Market if current price and
volume information with respect to transactions in such securities
is provided by the exchange or system). Our securities have in the
past constituted, and may again in the future constitute, "penny
stock" within the meaning of the rules. The additional sales
practice and disclosure requirements imposed upon U.S.
broker-dealers may discourage such broker-dealers from effecting
transactions in shares of our common stock, which could severely
limit the market liquidity of such shares and impede their sale in
the secondary market.
A U.S. broker-dealer selling penny stock to anyone other than an
established customer or "accredited investor" (generally, an
individual with net worth in excess of $1,000,000 or an annual
income exceeding $200,000, or $300,000 together with his or her
spouse) must make a special suitability determination for the
purchaser and must receive the purchaser's written consent to the
transaction prior to sale, unless the broker-dealer or the
transaction is otherwise exempt. In addition, the "penny stock"
regulations require the U.S. broker-dealer to deliver, prior to any
transaction involving a "penny stock", a disclosure schedule
prepared in accordance with SEC standards relating to the "penny
stock" market, unless the broker-dealer or the transaction is
otherwise exempt. A U.S. broker-dealer is also required to disclose
commissions payable to the U.S. broker-dealer and the registered
representative and current quotations for the securities. Finally,
a U.S. broker-dealer is required to submit monthly statements
disclosing recent price information with respect to the "penny
stock" held in a customer's account and information with respect to
the limited market in "penny stocks".
Shareholders should be aware that, according to SEC, the market
for "penny stocks" has suffered in recent years from patterns of
fraud and abuse. Such patterns include (i) control of the market
for the security by one or a few broker-dealers that are often
related to the promoter or issuer; (ii) manipulation of prices
through prearranged matching of purchases and sales and false and
misleading press releases; (iii) "boiler room" practices involving
high-pressure sales tactics and unrealistic price projections by
inexperienced sales persons; (iv) excessive and undisclosed bid-ask
differentials and markups by selling broker-dealers; and (v) the
wholesale dumping of the same securities by promoters and
broker-dealers after prices have been manipulated to a desired
level, resulting in investor losses. Our management is aware of the
abuses that have occurred historically in the penny stock market.
Although we do not expect to be in a position to dictate the
behavior of the market or of broker-dealers who participate in the
market, management will strive within the confines of practical
limitations to prevent the described patterns from being
established with respect to our securities.
We have not paid dividends in the past and do not expect to pay
dividends for the foreseeable future, and any return on investment
may be limited to potential future appreciation on the value of our
common stock.
We currently intend to retain any future earnings to support the
development and expansion of our business and do not anticipate
paying cash dividends in the foreseeable future. Our payment of any
future dividends will be at the discretion of our board of
directors after taking into account various factors, including
without limitation, our financial condition, operating results,
cash needs, growth plans and the terms of any credit agreements
that we may be a party to at the time. To the extent we do not pay
dividends, our stock may be less valuable because a return on
investment will only occur if and to the extent our stock price
appreciates, which may never occur. In addition, investors must
rely on sales of their common stock after price appreciation as the
only way to realize their investment, and if the price of our stock
does not appreciate, then there will be no return on investment.
Investors seeking cash dividends should not purchase our common
stock.
Non-U.S. investors may have difficulty effecting service of
process against us or enforcing judgments against us in courts of
non-U.S. jurisdictions.
We are a company incorporated under the laws of the State of New
Jersey. All of our directors and officers reside in the United
States. It may not be possible for non-U.S. investors to effect
service of process within their own jurisdictions upon our company
and our directors and officers. In addition, it may not be possible
for non-U.S. investors to collect from our company, its directors
and officers, judgments obtained in courts in such non-U.S.
jurisdictions predicated on non-U.S. legislation.
If securities or industry analysts do not publish or cease
publishing research or reports about us, our business or our
market, or if they change their recommendations regarding our stock
adversely, our stock price and trading volume could decline.
The trading market for our common stock will be influenced by
the research and reports that industry or securities analysts may
publish about us, our business, our market or our competitors. If
any of the analysts who may cover us change their recommendation
regarding our stock adversely, or provide more favorable relative
recommendations about our competitors, our stock price would likely
decline. If any analyst who may cover us were to cease coverage of
our company or fail to regularly publish reports on us, we could
lose visibility in the financial markets, which in turn could cause
our stock price or trading volume to decline.
If we fail to establish and maintain an effective system of
internal control, we may not be able to report our financial
results accurately or prevent fraud. Any inability to report and
file our financial results accurately and timely could harm our
reputation and adversely impact the trading price of our common
stock.
Effective internal control is necessary for us to provide
reliable financial reports and prevent fraud. If we cannot provide
reliable financial reports or prevent fraud, we may not be able to
manage our business as effectively as we would if an effective
control environment existed, and our business and reputation with
investors may be harmed. As a result, our small size and any
current internal control deficiencies may adversely affect our
financial condition, results of operations and access to
capital.
The requirements of being a U.S. public company may strain our
resources and divert management's attention.
As a U.S. public company, we will be or become subject to the
reporting requirements of the Securities Exchange Act of 1934, as
amended ("Exchange Act"), the Sarbanes-Oxley Act, the Dodd-Frank
Act, the listing requirements of NASDAQ, and other applicable
securities rules and regulations. Compliance with these rules and
regulations will increase our legal and financial compliance costs,
make some activities more difficult, time-consuming, or costly, and
increase demand on our systems and resources. The Exchange Act
requires, among other things, that we file annual and current
reports with respect to our business and operating results.
There are significant corporate governance and executive
compensation-related provisions in the Dodd-Frank Act that
expressly authorized or required the SEC to adopt additional rules
in these areas, such as an advisory shareholder vote to approve of
our executives' compensation (or Say on Pay), proxy access, and an
advisory shareholder vote on how often we should include a Say on
Pay proposal in our proxy materials for future annual shareholder
meetings or any special shareholder meeting for which we must
include executive compensation information in the proxy statement
for that meeting. Our efforts to comply with these requirements are
likely to result in an increase in expenses which is difficult to
quantify at this time.
As a result of disclosure in filings required of a public
company, our business and financial condition will become more
visible, which we believe may result in threatened or actual
litigation, including by competitors and other third parties. If
such claims are successful, our business and operating results
could be harmed, and even if the claims do not result in litigation
or are resolved in our favor, these claims, and the time and
resources necessary to resolve them, could divert resources of our
management and harm our business and operating results.
We will incur significant costs as a result of being a publicly
traded company and such costs may increase when we cease to be an
emerging growth company.
As a publicly traded company, we will incur legal, accounting
and other expenses estimated to range from $250,000 to $350,000 per
year, including costs associated with the periodic reporting
requirements applicable to a company whose securities are
registered under the Exchange, as well as additional corporate
governance requirements, including applicable requirements under
the Sarbanes-Oxley Act and other rules implemented by the SEC. The
expenses incurred by public companies generally for reporting and
corporate governance purposes have been increasing. We expect
compliance with these public reporting requirements and associated
rules and regulations to increase our legal and financial costs,
particularly after we are no longer an emerging growth company, and
to make some activities more time-consuming and costly, although we
are currently unable to estimate these costs with any degree of
certainty. These laws and regulations could also make it more
difficult or costly for us to obtain certain types of insurance,
including director and officer liability insurance, and we may be
forced to accept reduced policy limits and coverage or incur
substantially higher costs to obtain the same or similar coverage.
These laws and regulations could also make it more difficult for us
to attract and retain qualified persons to serve on our board of
directors, our board committees or as our executive officers.
Further, if we are unable to satisfy our obligations as a public
company, we could be subject to delisting of our common stock,
fines, sanctions and other regulatory action and, potentially,
civil litigation.
The recently enacted JOBS Act reduces certain disclosure
requirements for emerging growth companies, thereby decreasing
related regulatory compliance costs. We qualify as an emerging
growth company. However, when we cease to be an emerging growth
company, we will be unable to take advantage of the reduced
regulatory requirements and any associated cost savings.
Efforts to comply with the applicable provisions of Section 404
of the Sarbanes-Oxley Act will involve significant expenditures,
and non-compliance with Section 404 of the Sarbanes-Oxley Act may
adversely affect us and the market price of our common stock.
Under current SEC rules, beginning with our fiscal year ending
December 31, 2014, we will be required to report on our internal
control over financial reporting pursuant to Section 404 of the
Sarbanes-Oxley Act, and related rules and regulations of the SEC;
although, as an emerging growth company, we are exempt from the
requirement to provide an auditor attestation to management's
assessment of its internal controls as required by Section 404(b)
of the Sarbanes-Oxley Act. We will be required to review on an
annual basis our internal control over financial reporting, and on
a quarterly and annual basis to evaluate and disclose changes in
our internal control over financial reporting. As a result, we
expect to incur additional expenses in the near term that may
negatively impact our financial performance and our ability to make
distributions. This process also will result in a diversion of
management's time and attention. We cannot be certain as to the
timing of completion of our evaluation, testing and remediation
actions or the impact of the same on our operations, and we may not
be able to ensure that the process is effective or that our
internal control over financial reporting is or will be effective
in a timely manner. In the event that we are unable to maintain or
achieve compliance with the applicable provisions of Section 404 of
the Sarbanes-Oxley Act and related rules, we and the market price
of our common stock may be adversely affected.
Item 1B. Unresolved Staff Comments.
Not applicable.
Item 2. Property.
Our corporate headquarters which houses our research and
development, engineering, manufacturing, operations and support
personnel, is located in Thorofare, New Jersey, in an office
consisting of a total of 12,500 square feet. For the past eleven
years, the Company has leased this facility at this location. The
current lease term is effective from January 1, 2013 through
December 31, 2019 with an annual rent of $132,000.
The Company executed a lease for a satellite office in Ramsey,
New Jersey on June 23, 2017 which is effective through May 31,
2019. The satellite office supports members of executive management
and the sales and marketing team with convenient access to
resources in the metro New York area.
The Company executed a lease for warehouse space in Pitman, New
Jersey on September 19, 2017 which is effective through December
31, 2019. The warehouse will be utilized for the storage of
materials utilized in the production of the Company's products. The
addition of the warehouse enables the Company to repurpose a
portion of the Thorofare facility to support its expanding
operations.
We believe our current facilities are sufficient for our current
needs and will be adequate, or that suitable additional or
substitute space will be available on commercially reasonable
terms, for the foreseeable future.
Item 3. 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.
On August 17, 2016, the Company entered into a Settlement Deed
(the "Settlement Agreement") by and among the Company, ChubeWorkx
Guernsey Limited ("Chube"), Thirty Six Strategies, LLC ("36S"),
Gavin Moran ("Mr. Moran") and Frank Runge ("Mr. Runge") (each, a
"Party" and, collectively, the "Parties") to resolve disputes
related to (i) the Company's claims brought against Chube in United
States District Court, District of New Jersey for outstanding
amounts due to the Company pursuant to that certain promissory note
(the "Note") issued in favor of Chube on December 31, 2014
("Dispute 1"); (ii) various claims brought by Chube against the
Company brought in The High Court of Justice, Queen's Bench
Division Commercial Court, Royal Courts of Justice, United Kingdom
arising out that certain Licensing and Supply agreement, as amended
(the "License Agreement"), pursuant to which Chube was granted a
worldwide, exclusive license to import, offer for sale, sell,
distribute, use, promote or label certain products using the
Company's intellectual property in a suit brought in The High Court
of Justice, Queen's Bench Division Commercial Court, Royal Courts
of Justice, United Kingdom ("Dispute 2") and (iii) various claims
brought by the Company against 36S, Mr. Moran and Mr. Runge in the
United States District Court, District of New Jersey, related to
that certain Distribution Agreement entered into by and between the
Company and 36S on October 5, 2015 ("Dispute 3" and, together with
Dispute 1 and Dispute 2, the "Disputes").
Pursuant to the Settlement Agreement, all of the Disputes have
been settled and all of the proceedings related to such have been
dismissed. Under the terms of the Settlement Agreement, the Company
recovered the full outstanding principal amount of the Note during
the 2016 fiscal year in the form of $750,000 worth of BreathScan(R)
Alcohol Detector stock to inventory (which the Company intends to
subsequently sell) and $500,000 in prepaid royalty (the "Cash
Payment"). In addition, the Settlement Agreement also allows the
Company to market and sell all of the Company's breath technology
tests worldwide, unencumbered by any past and/or future claims by
Chube under the Licensing Agreement. Pursuant to the Settlement
Agreement, Chube no longer holds any rights pertaining to the
Company's BreathScan(R) technology.
In return for the Company regaining the full rights to sell its
breath technology products, among other things, Chube will receive
a royalty of 5% of the Company's gross revenues (the "Chube
Royalty") totaling $5,000,000, after which Chube will no longer be
entitled to receive any royalties and the Company shall have no
further obligations to Chube. The Settlement Agreement further
allows the Company to retain 50% of the Chube Royalty until the
Cash Payment has been made.
In connection with the Settlement Agreement, on August 17, 2016,
the Company and Chube entered into a Security Agreement pledging
all of the Company's assets including all inventory and receivables
(but excluding the specific assets referred to in the Settlement
Agreement) in order to secure the Chube Royalty and the pledge as
security of the settlement sum which remains unpaid by the Company
to Chube 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. Upon payment of the Chube Royalty to Chube the
Security Agreement is terminated and the Company's assets become
unencumbered.
On October 17, 2016 the Company was served with a notice that
Pulse Health LLC ("Pulse") filed a lawsuit against the Company on
September 30, 2016 in United States Federal District Court,
District of Oregon, alleging a breach of contract under the
Settlement Agreement entered into by the Company and Pulse on April
8, 2011 which settled all claims and disputes between the Company
and Pulse arising from a previously executed Technology Development
Agreement entered into by the Company and Pulse and damages
resulting from said alleged breach. Additionally, Pulse alleges
false advertising and unlawful trade practices in connection with
the Company's sales activities of the Company's OxiChek products.
The Company disputes such allegations. The lawsuit is in an early
stage and the Company intends to vigorously defend against all
claims.
The Company filed a series of motions with the Court seeking (1)
to dismiss the Pulse complaint for lack of jurisdiction or, in the
alternative, transfer the matter to the District Court for the
District of New Jersey, Camden Vicinage and (2) to dismiss the
unfair competition claims for failure to state a claim - on which
relief could be granted.
The Company filed a series of motions with the Court seeking (1)
to dismiss the Pulse complaint for lack of jurisdiction or, in the
alternative, transfer the matter to the District Court for the
District of New Jersey, Camden Vicinage and (2) to dismiss the
unfair competition claims for failure to state a claim on which
relief could be granted. Oral arguments on these motions were heard
by the Court on March 10, 2017.
The Court decided by order dated April 14, 2017 in favor of the
Company and has dismissed with prejudice the claims brought by
Pulse for unfair competition (both federal and state counts). The
court decided against the Company in its motions for transfer of
venue and for lack of jurisdiction. As such, the case shall proceed
in the District Court of Oregon.
Pulse subsequently filed an Amended Complaint, in which Pulse
seeks not less than $500,000 in damages and, among other items, an
injunction prohibiting the Company from manufacture, use and sale
of the OxiChek product. The Company answered the Amended Complaint
on May 11, 2017. Discovery concluded on January 22, 2018. The Court
has received the Company's summary judgment motion. A trial date
may be set if Pulse's last remaining claim for breach of contract
survives the motion.
The Company intends to establish a rigorous defense of all
claims. The Company is unable to assess the potential outcome, so
no accrual for losses was made as of December 31, 2017. 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.
Item 4. Mine Safety Disclosures.
Not applicable.
PART II
Item 5. Market for Registrant's Common Equity, Related
Shareholder Matters and Issuer Purchases of Equity Securities.
(a) Market Information
We began trading on The NASDAQ Capital Market on January 23,
2014 and have not been previously listed on any other U.S. market.
However, our shares are currently listed on AIM under the symbol
"AKR.L". Our shares began trading on AIM in May 2002.
The following table shows the high and low market prices on
NASDAQ, for our shares since for each fiscal quarter for the two
most recent fiscal years. Market prices for our shares have
fluctuated significantly since they were listed on NASDAQ and
trading volume on NASDAQ have been very small in relation to the
number of our total outstanding shares.
Quarter ended Low Price High Price
----------------------- ----------- ------------
Through March 16, 2018 $ 0.12 $ 0.88
December 31, 2017 0.12 1.82
September 30, 2017 0.70 1.30
June 30, 2017 1.15 2.10
March 30, 2017 1.15 2.90
December 31, 2016 1.55 3.60
September 30, 2016 2.47 3.70
June 30, 2016 1.43 3.50
March 31, 2016 1.08 2.47
December 31, 2015 1.12 3.73
September 30, 2015 2.27 4.54
June 30, 2015 3.65 5.28
March 31, 2015 3.08 4.85
The following table shows the high and low market prices per
share of our common stock on AIM for each fiscal quarter for the
two most recent fiscal years. Market prices for our shares have
fluctuated significantly since they were listed on AIM and trading
volume on AIM have been very small in relation to the number of our
total outstanding shares.
Low Price High Price Exchange
----------------- ----------------
Quarter Ended GBP USD GBP USD Rate
----------------------- ---------- ----- --------- ----- --------
Through March 16, 2018 GBP 0.15 $0.21 GBP 0.60 $0.83 1.3880
December 31, 2017 0.15 0.20 0.85 1.12 1.3227
September 30, 2017 0.65 0.85 1.02 1.34 1.3092
June 30, 2017 0.90 1.15 1.50 1.92 1.2788
March 30, 2017 0.86 1.07 1.90 2.35 1.2388
December 31, 2016 1.45 1.80 2.55 3.17 1.2429
September 30, 2016 1.94 2.55 2.55 3.35 1.3127
June 30, 2016 1.05 1.51 2.15 3.08 1.4344
March 31, 2016 0.79 1.13 1.50 2.15 1.4324
December 31, 2015 0.83 1.26 2.09 3.17 1.5173
September 30, 2015 1.41 2.18 2.83 4.38 1.5492
June 30, 2015 2.60 3.98 3.30 5.06 1.5320
March 31, 2015 2.10 3.18 2.83 4.29 1.5146
* The Company's stock is listed on the AIM where stock prices are in pounds. All shares prices
in the table above are reflected in dollars after having been converted according to the periods
average exchange rates.
(b) Holders
As of March 16, 2018, there were approximately 16,500 holders of
record of our common stock. This figure does not include those
shareholders whose certificates are held in the name of
broker-dealers or other nominees.
(c) Dividends
We have never paid any cash dividends on our common shares, and
we do not anticipate that we will pay any dividends with respect to
those securities in the foreseeable future. Our current business
plan is to retain any future earnings to finance the expansion
development of our business.
(d) Securities Authorized for Issuance under Equity Compensation
Plan
The following table shows information with respect this plan as
of the fiscal year ended December 31, 2017.
Equity Compensation Plan Information
Number of
securities
remaining
available
for
Number of future
securities to Weighted- issuance
be issued average under
upon Exercise equity
exercise price compensation
of of plans
outstanding outstanding (excluding
options, options, securities
warrants warrants reflected in
and and column (a))
Plan category rights (a) rights (b) (c)
----------------------------------------------------- --------------- -------------- -------------
Equity compensation plans approved by security holders - $ - 1,054,893
Equity compensation plans not approved by security
holders 255,000 $ 4.25 7,292
-------------- --- --------- -------------
Total 255,000 $ 4.25 1,062,185
-------------- --- --------- -------------
Transfer Agent
Our transfer agent is VStock Transfer LLC, 18 Lafayette Place
Woodmere, NY 11598.
Recent Sales of Unregistered Securities
During the year ended December 31, 2017, we have not issued any
securities which were not registered under the Securities Act and
not previously disclosed in the Company's Quarterly Reports on Form
10-Q or Current Reports on Form 8-K.
Rule 10B-18 Transactions
During the year ended December 31, 2017, there were no
repurchases of the Company's common stock by the Company.
Item 6. Selected Financial Data.
Not applicable.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
THE FOLLOWING DISCUSSION OF OUR PLAN OF OPERATION AND RESULTS OF
OPERATIONS SHOULD BE READ IN CONJUNCTION WITH THE FINANCIAL
STATEMENTS AND RELATED NOTES TO THE FINANCIAL STATEMENTS INCLUDED
ELSEWHERE IN THIS REPORT. THIS DISCUSSION CONTAINS FORWARD-LOOKING
STATEMENTS THAT RELATE TO FUTURE EVENTS OR OUR FUTURE FINANCIAL
PERFORMANCE. THESE STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS,
UNCERTAINTIES AND OTHER FACTORS THAT MAY CAUSE OUR ACTUAL RESULTS,
LEVELS OF ACTIVITY, PERFORMANCE OR ACHIEVEMENTS TO BE MATERIALLY
DIFFERENT FROM ANY FUTURE RESULTS, LEVELS OF ACTIVITY, PERFORMANCE
OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY THESE FORWARD-LOOKING
STATEMENTS. THESE RISKS AND OTHER FACTORS INCLUDE, AMONG OTHERS,
THOSE LISTED UNDER "FORWARD-LOOKING STATEMENTS" AND "RISK FACTORS"
AND THOSE INCLUDED ELSEWHERE IN THIS REPORT.
Restatement of Previously Issued Financial Statements
As previously disclosed, we determined that certain revenue
transactions did not qualify for revenue recognition under
generally accepted accounting principles. In the process of this
determination, we discovered information that existed at December
31, 2017 which affected the revenue, certain obligations and the
value of certain inventory items reported in the year ended
December 31, 2017. We concluded that the impact of applying
corrections for these errors and misstatements on the consolidated
financial statements as of and for the year ended December 31, 2017
is material. As a result, we are restating our consolidated
financial statements as of and for the year ended December 31,
2017. See Note 2 to the Consolidated Financial Statements included
in Item 8 for additional information and a reconciliation of the
previously reported amounts to the restated amounts.
Results of Operations
Management's Plans and Basis of Presentation
To date, the Company has in large part relied on equity
financing to fund its operations, raising $23,562,181, net of
expenses, in public and private offerings since the Company's
initial public offering on the NASDAQ Stock Exchange in 2014. The
Company continues to experience recurring losses and negative cash
flows from operations. Management's strategic plans include the
following:
-- continuing to advance the development and commercialization of the Company's products, especially
those that utilize MPC Biosensor, PIFA and seraSTAT technologies;
-- Build strategic partnerships within our health and wellness product platform within the multi-level
marketing segment;
-- continuing to strengthen and forge domestic and international relationships with well-established
sales organizations with strong distribution channels in specific target markets for both
our currently marketed and emerging products;
-- establishing clinical protocols that support regulatory submissions and publication of data
within peer-reviewed journals; and
-- continuing to monitor and implement cost control initiatives to preserve our cash position.
Despite our plans, the Company expects to continue to incur
losses from operations for the near-term:
-- the Company continues to incur expenses related to the initial commercialization and marketing
activities for its Wellness products, and product development (research, clinical trials,
regulatory tasks) costs for its emerging products, Breath PulmoHealth "Check" rapid assays
and PIFA PLUSS(R) Infectious Disease point-of-care tests); and
-- to expand the use of its clinical laboratory products, the Company may need to invest in additional
marketing and sales support programs to increase brand awareness.
At December 31, 2017, Akers had cash of $438,432, working
capital of $5,990,862, shareholders' equity of $7,552,853 and an
accumulated deficit of $104,845,847. The Company believes that its
current working capital position will be sufficient to meet its
estimated cash needs for at least the next twelve months.
The fair value of the Company's investments in marketable
securities as of December 31, 2017 was $5,011,607 (2016: $50,001).
The Company restricts its investments to Level I and Level II
securities and maturities generally range up to three years.
Securities are evaluated with an emphasis on minimizing risk while
achieving reasonable rates of return on the investment. These
marketable securities are a key component of the Company's cash
management strategy and as such are monitored regularly.
Revenue
The Company's total revenue for the year ended December 31, 2017
was $3,354,712 a 13% increase compared to the same period in 2016.
The table below presents a summary of our sales by product
line:
Year Ended Year Ended Percent
Product Line December 31, 2017 December 31, 2016 Change
------------------------------------------ ------------------- ------------------- -------
(restated)
Particle ImmunoFiltration Assay ("PIFA") $ 2,232,684 $ 2,577,148 (13)%
MicroParticle Catalyzed Biosensor ("MPC") 381,228 282,516 35%
Rapid Enzymatic Assay ("REA") 133,848 - -%
Other 556,952 97,498 471%
--------------- --------------- -------
Product Revenue Total $ 3,304,712 $ 2,957,162 12%
License & Service Fees 50,000 3,750 1,233%
--------------- --------------- -------
Total Revenue $ 3,354,712 $ 2,960,912 13%
=============== =============== =======
Product revenue increased by 12% to $3,304,712 (2016:
$2,957,162) during the year ended December 31, 2017. The Company's
PIFA Heparin/PF4 Rapid Assay products generated the majority of the
product revenue but the growth was driven primarily by sales of
BreathScan Alcohol Breathalyzers, BreathScan OxiChek(TM) and the
Company's re-introduced Tri-Cholesterol products. License and
service fees increased to $50,000 (2016: $3,750), the result a fee
from a potential customer for the Company's BreathScan OxiChek(TM)
products in exchange for the use of equipment, access to product
documentation and data, technical support and to restrict the
Company from actively pursuing another commercial partner in a
specific market segment.
Revenue from the Company's PIFA Heparin/PF4 Rapid Assay products
decreased 13% to $2,232,684 (2016: $2,577,148) during the year
ended December 31, 2017 over the same period of 2016. Additional
revenue from PIFA -related components, totaling $500,000, during
the year ended December 31, 2017 is included in other revenue. The
Company is taking steps to improve its market presence including
the use of specialized Independent Sales Representatives and a
program to educate the marketplace through the preparation and
publication of additional clinical studies and physician seminars
on the risks associated with heparin induced thrombocytopenia.
The Company's dedicated technical sales account executives are
supporting over 300 sales representatives of Akers' U.S.
distribution partners, Cardinal Health ("Cardinal Health"), Fisher
HealthCare ("Fisher Healthcare") and Typenex Medical, LLC
("Typenex"). The Company's relationship-building initiative with
our partners has delivered a measurable increase in product trials
and adoptions. Domestic sales for the year ended December 31, 2017
of our distributors, Cardinal Health and Fisher HealthCare,
accounted for $1,902,606 of the total PIFA Heparin/PF4 Rapid Assay
sales as compared to $1,820,186 for the same period of 2016.
During the year ended December 31, 2017 the Company recognized
$- (2016: $505,380) in PIFA revenue from the Company's distribution
partner in the People's Republic of China ("PRC"). During the year
ended December 31, 2017, NovoTek purchased PIFA components totaling
$500,000 which is included in other revenue. NovoTek will utilize
these components along with additional materials to be purchased in
a future period to assemble PIFA Heparin/PF4 products in either the
PRC or Poland.
The Company's MPC product sales increased by 35% to $381,228
(2016: $282,516) during the year ended December 31, 2017. New
distributors for the Company's BreathScan Alcohol Breathalyzer
products in Australia, New Zealand and Sri Lanka and the Company's
new BreathScan Lync(TM) and BreathScan OxiChek(TM) products
contributed to the increase for the year ended December 31,
2017.
Demand for the BreathScan Breath Alcohol products is beginning
to re-emerge in Western Europe, Australia and the Far East through
the efforts of our Independent Manufacturing Representative ("IMR")
in Italy working in conjunction with our Corporate staff. The
Company expects this trend to continue as the distribution partners
in these areas continue to expand their markets.
The Company's re-introduction of its Tri-Cholesterol test
generated $133,848 (2016: $-) during the year ended December 31,
2017. The first shipment of this product occurred in September with
follow-on shipments in December of 2017.
Revenue from other product lines increased by 471% to $556,952
(2016: $97,498) for the year ended December 31, 2017. The product
group consists of fees received for shipping and handling and the
sale of components. The significant increase resulted from an
initial order, as explained above, for manufacturing components
from NovoTek totaling $500,000.
License and service fee revenue increased to $50,000 (2016:
$3,750) during the year ended December 31, 2017. The Company
received a non-refundable $50,000 fee from a potential customer for
the Company's BreathScan OxiChek(TM) products in exchange for the
use of equipment, access to product documentation and data,
technical support and to restrict the Company from actively
pursuing another commercial partner in a specific market
segment.
The table below summarizes our revenue by geographic region for
the years ended December 31, 2017 and 2016 as well as the
percentage of change year-over-year:
Percent
Geographic Region Year Ended December 31, 2017 Year Ended December 31, 2016 Change
--------------------------- ------------------------------ ------------------------------ -------
(restated)
United States $ 2,679,549 $ 2,330,723 15%
People's Republic of China 502,131 502,998 -%
Rest of World 173,032 127,191 36%
--- ------------------------- --- ------------------------- -------
Total Revenue $ 3,354,712 $ 2,960,912 13%
=== ========================= === ========================= =======
Domestic sales represent the most significant portion of the
Company's revenue, contributing 80% (2016: 79%). The primary sales
and marketing efforts are concentrated on expanding the Company's
domestic market share in the rapid clinical diagnostic and health
and wellness segments and the recent introduction of the
Tri-Cholesterol test has allowed the Company to re-enter the retail
market.
Revenue from China continues to be highly unpredictable. NovoTek
Pharmaceuticals ("NovoTek"), our distribution partner for the PIFA
Heparin/PF4 Rapid Assay products, continues to pursue approvals for
reimbursement rates from the various Provinces and although they
anticipate receipt of these approvals, their timing is unknown.
Over the past several years, NovoTek has created significant
product demand by identifying and working with the key opinion
leaders and seeding the marketplace with sample products. As a
result, they anticipate strong demand for the PIFA Heparin/PF4
Rapid Assay product once reimbursement rates are approved.
Revenue from the rest of the world consists mostly of the
BreathScan Alcohol Breathalyzer products being distributed in
Western Europe and Australia.
Cost of sales for the year ended December 31, 2017 totaled
$2,406,132 (2016: $1,083,087). Direct cost of sales increased to
19% (2016: 15%) and indirect cost of sales increased to 54% (2016:
21%) of product revenue for year ended December 31, 2017. Overall,
cost of sales, as a percentage of product revenue, increased to 73%
for the years ended December 31, 2017 and 2016.
Direct costs of sales for the year ended December 31, 2017 were
$612,828 (2016: $448,240). Other cost of sales for the year ended
December 31, 2017 were $1,793,304 (2016: $634,848).
The initial commercial production of the Company's
Tri-Cholesterol product contributed to the increase in direct
costs. One-time costs associated with the transition from Research
and Development to Manufacturing as the production plans were
implemented and adjusted included engineering, raw material waste
as processes were fine-tuned to meet commercial production levels,
training of the production staff and increased quality review and
testing. The inclusion of several of the Research and Development
department's professional staff as part of the initial production
team significantly increased direct labor costs.
Indirect costs were significantly affected by management's
decision to establish a reserve for obsolescence of $1,182,400 for
breathalyzer materials produced for the French market during 2013
and 2014 and most of the materials re-acquired as part of the
ChubeWorkx settlement agreement in August 2016. The Company has
determined that the market for this configuration of the BreathScan
Breathalyzer is limited and that existing inventory levels are
excessive given the products expiry and projected run rate.
The Company's gross margin was 28% (2016: 63%) for the year
ended December 31, 2017.
General and Administrative Expenses
General and administrative expenses in the year ended December
31, 2017 totaled $4,082,313, which was a 36% increase as compared
to $3,008,811 for the year ended December 31, 2016. The table below
summarizes our general and administrative expenses for the years
ended December 31, 2017 and 2016 as well as the percentage of
change year-over-year:
Year Ended Year Ended Percent
Description December 31, 2017 December 31, 2016 Change
---------------------------------------- ------------------- ------------------- -------
Personnel Costs $ 1,173,964 $ 886,294 32%
Professional Service Costs 1,358,354 885,746 53%
Stock Market & Investor Relations Costs 435,937 441,453 (1)%
Other General and Administrative Costs 1,114,058 795,318 40%
--------------- --------------- -------
Total General and Administrative Costs $ 4,082,313 $ 3,008,811 36%
=============== =============== =======
Personnel costs rose 32% to $1,173,964 (2016: $886,294) for the
year ended December 31, 2017. The increase is the result of changes
to compensation for the Chief Executive Officer and Vice President
of Finance, including base salaries, bonus and equity, and the
establishment of a Financial Controller position to support daily
operations and assist in the implementation of revised internal and
disclosure controls.
Professional service costs increased by 53% for the year ended
December 31, 2017 as compared to the same period of 2016. A
significant increase in accounting and audit ($258,578 (2016:
$182,396)), personnel recruitment ($43,298 (2016: $409)),
engineering ($94,472 (2016: $73,405)), legal fees ($899,032 (2016:
$613,159)) and general consulting services ($62,975 (2016:
$10,138)) accounted for the change.
The Company recognized a small cost savings of 1% for the year
ended December 31, 2017 from its stock market and investor
relations categories. These include consulting, investor relations,
stock exchange fees and transfer agent fees.
The Company's other general and administrative expenses
increased by 40% for the year ended December 31, 2017 as compared
to the same period of 2016. The Company recognized $494,436 (2016:
$146,196) for uncollectable accounts during the year ended December
31, 2017 which were offset by continued efforts to reduce costs
resulting in savings across several expense categories, the most
significant of which resulted from a reduction in travel expenses
for the executive and administrative staff totaled $49,155 (2016:
$118,980).
Sales and Marketing Expenses
Sales and marketing expenses in the year ended December 31, 2017
totaled $2,048,571, which was a 4% decrease as compared to
$2,137,282 for the year ended 2016. The table below summarizes our
sales and marketing expenses for the years ended December 31, 2017
and 2016 as well as the percentage of change year-over-year:
Year Ended Year Ended Percent
Description December 31, 2017 December 31, 2016 Change
-------------------------------- ------------------- ------------------- -------
Personnel Costs $ 1,106,313 $ 1,129,722 (2)%
Professional Service Costs 256,611 441,632 (42)%
Royalties and Commission Costs 323,817 225,159 44%
Other Sales and Marketing Costs 361,830 340,769 6%
--------------- ---------------
Total Sales and Marketing Costs $ 2,048,571 $ 2,137,282 (4)%
=============== ===============
Personnel costs decreased 2% in the year ended December 31, 2017
as compared to the same period of 2016. The Company has reduced its
sales and marketing staff from 10 members on January 1, 2016 to 5
as of December 31, 2017. The new sales and marketing strategy
targets large integrated delivery networks instead of individual
facilities. This strategy requires fewer, but more experienced and
technically knowledgeable sales personnel to interact with
executive management, laboratory and medical directors.
The Company renegotiated or eliminated several consulting
arrangements during the years ended December 31 2017 and 2016. The
result is a reduction of 42% in professional service fees. General
consulting services ($256,450 (2016: $390,386)) and marketing
services ($161 (2016: $51,246)) accounted for the savings for the
year ended December 31, 2017.
The legal settlement with ChubeWorkx Guernsey, Ltd
("ChubeWorkx"), signed on August 11, 2016, requires the Company to
pay a 5% royalty on adjusted gross sales to ChubeWorkx on a
quarterly basis. During the year ended December 31, 2017, this
royalty totaled $202,126 (2016: $153,854).
The Company has launched an awareness campaign directed at
surgeons, pathologists and laboratory and medical directors
regarding the risks associated with heparin induced
thrombocytopenia ("HIT") and a campaign directed at health and
wellness professionals to introduce the BreathScan Lync(TM) and
OxiChek(TM) products. In support of the health and wellness
project, the Company produced an infomercial in coordination with
Balancing Act that aired on May 8, 2017. Expenses related to the
production, which occurred in February 2017, totaled $54,700.
Research and Development
Research and development expenses in the year ended December 31,
2017 totaled $1,260,378, which was a 6% increase as compared to
$1,188,868 for the year ended 2016. The table below summarizes our
research and development expenses for the years ended December 31,
2017 and 2016 as well as the percentage of change
year-over-year:
Year Ended Year Ended Percent
Description December 31, 2017 December 31, 2016 Change
------------------------------------- ------------------- ------------------- -------
Personnel Costs $ 954,632 $ 745,326 28%
Professional Service Costs 123,942 113,807 9%
Clinical Trial Costs 2,453 160,405 (98)%
Other Research and Development Costs 179,351 169,330 6%
--------------- ---------------
Total Research and Development Costs $ 1,260,378 $ 1,188,868 6%
=============== ===============
Personnel costs increased 28% during the year ended December 31,
2017 as compared to the same period of 2016. The increase is the
result of changes to the compensation for the Chief Scientific
Director as he assumed his new expanded responsibilities for the
Company.
Clinical trial costs decreased 98% during the year ended
December 31, 2017 as compared to the same period of 2016. The
Company performed two clinical trials during the year ended
December 31, 2016, one to test the effectiveness of the PIFA
Chlamydia assay and one for Breath DKA. The trials collected data
to support submissions to the U.S. Food and Drug Administration for
510(k) approvals and to support the clinical effectiveness of the
products.
A reduction in general consulting services ($39,503 (2016:
$71,844)) was offset by an increase in engineering and product
design fees ($78,779 (2016: $41,962)) for the year ended December
31, 2017 resulting in a 9% increase in professional service
fees.
Moderate decreases in several expense categories were offset by
increases in internal resource utilization ($19,176 (2016: $8,595))
and travel expenses ($40,799 (2016 $29,561)) to account for the 6%
increase in other research and development expenses.
The following table illustrates research and development costs
by project for the years ended December 31, 2017 and 2016,
respectively.
2017 2016
---------- ----------
Asthma/pH $ 52,368 $ -
BreathScan 6,885 1,483
Chlamydia Trachomatis 235,803 35,808
H/PF4 67,487 104,436
Diabetic Ketoacidosis 7,154 3,098
KetoChek / OxiChek 461,116 584,585
Metron 1,098 5,832
Other Projects 60,280 149,673
Pulmo Health 11,361 22,069
SeraSTAT 5,610 -
Tri Cholesterol 351,216 281,884
--------- ---------
Total R&D Expenses: $1,260,378 $1,188,868
========= =========
(Reversal of Allowance for) Bad Debt Expense - Related Party
The Company established an allowance for doubtful accounts for
$1,299,609 for a note receivable - related party as a result of an
internal assessment indicating a high level of risk of
collectability as of December 31, 2015. In August 2016, the two
companies reached a settlement agreement which included recovery
for the value of the note receivable. As a result, the allowance
for doubtful accounts was reversed during the year ended December
31, 2016.
Other Income and Expense
Other income decreased 51% to $12,412 (2016: $25,097) and other
expenses totaled $764,932 (2016: $-) for the year ended December
31, 2017. The table below summarizes our other income and expenses
for the years ended December 31, 2017 and 2016 as well as the
percentage of change year-over-year:
Year Ended Year Ended Percent
Description December 31, 2017 December 31, 2016 Change
--------------------------------- ------------------- ------------------- -------
Currency Translation Gain $ (1,659) $ (3,398) (51)%
Investment (Gain)/Loss (3,375) 85 4,071%
Interest and Dividends (7,378) (21,784) (66)%
Warrant Modification Expenses 764,932 - -%
--- -------------- --- --------------
Total Other (Income) and Expense $ 752,520 $ (25,097) (3,098)%
=== ============== === ==============
Gains and losses associated with foreign currency transactions
decreased by 51% during the year ended December 31, 2017 as
compared to the same period of 2016, primarily a result of the
increased strength of the British Pound compared to the US Dollar
during 2017.
Realized gains, interest and dividend income declined to $10,753
(2016: $21,699). The Company's available capital for investment
activities was limited during the year ended December 31, 2017
resulting in the decline in investment income.
The Company modified the exercise price for 724,200 warrants
issued March 30, 2017 from $1.96 to $1.00 per common share and
issued an additional 724,200 warrants to the original holders at an
exercise price of $1.26 per common share to raise additional
capital. The Company incurred warrant modification expenses of
$764,932, which includes the increase in the fair value of the
warrants of $93,386 for the reduction in exercise price from $1.96
to $1.00 and the fair value of the new warrants of $671,546 in
accordance with FASB ASC 718-20-35.
Income Taxes
As of December 31, 2017 and 2016, the Company had Federal net
operating loss carry forwards of approximately $69,001,000 and
$60,100,000, respectively, expiring through the year ending
December 31, 2036. As of December 31, 2017 and 2016, the Company
had New Jersey state net operating loss carry forwards of
approximately $18,168,000 and $9,400,000, respectively, expiring
the year ending December 31, 2023.
The principal components of deferred tax assets and valuation
allowance as of December 31, 2017 and December 31, 2016 are as
follows:
Tax Rates & Benefits
The reconciliation of income taxes using the statutory U.S.
income tax rate and the benefit from income taxes for the years
ended December 31, 2017 and December 31, 2016 are as follows.
Years Ended December 31,
2017 2016
---------------- -------
(restated)
Statutory U.S. Federal Income Tax Rate (35.0%) (35.0%)
New Jersey State income taxes, net of U.S.
Federal tax effect (6.0%) (6.0%)
Tax rate change 122.0% 0.0%
Change in Valuation Allowance (81.0)% 41.0%
--------------- -------
Net 0.0% 0.0%
=============== =======
In December 2017, the Tax Cuts and Jobs Act was enacted, which
reduced the U.S. statutory corporate tax rate to 21% for tax years
beginning in 2018. This change resulted in a re-measurement of the
federal portion of the Company's deferred tax assets and the
valuation allowance as of December 31, 2017 from 35% to the new 21%
tax rate.
Deferred Tax Assets
The principle components of the deferred tax assets and related
valuation allowances as of December 31, 2017 and 2016 are as
follows:
Year Ended December 31,
---------------------------
2017 2016
------------ ------------
(restated)
Reserves and other $ 718,000 $ 865,000
Net operating loss carry-forwards $ 15,762,000 $ 21,618,000
Valuation Allowance $(16,480,000) $(22,483,000)
----------- -----------
Net $ - $ -
----------- -----------
The valuation allowance for deferred tax assets as of December
31, 2017 and 2016 was $16,480,000 and $22,483,000. The change in
the total valuation for the years ended December 31, 2017 and 2016
were a decrease of $6,003,000 and an increase of $751,000. In
assessing the realization of deferred tax assets, management
considers whether it is more likely than not that some portion or
all of the deferred tax assets will not be realized.
The ultimate realization of deferred tax assets is dependent
upon the generation of future taxable income during the periods in
which the net operating losses and temporary differences become
deductible. Management considered projected future taxable income
and tax planning strategies in making this assessment. The value of
the deferred tax assets was fully offset by a valuation allowance,
due to the current uncertainty of the future realization of the
deferred tax assets.
Liquidity and Capital Resources
For the years ended December 31, 2017 and 2016, the Company
generated a net loss attributable to shareholders of $7,366,310 and
$3,303,538, respectively. As of December 31, 2017 and 2016, the
Company has an accumulated deficit of $104,845,847 and $97,479,537
and had cash and cash equivalents totaling $438,432 and $72,700,
respectively The Company had marketable securities of $5,011,607
and $50,001 available as of December 31, 2017 and 2016.
Currently, our primary focus is to expand the domestic and
international distribution of our PIFA Heparin/PF4 rapid assays.
The Company continues initial commercialization tasks for METRON
and BreathScan Lync, as well as development activities for its PIFA
PLUSS(R) Infectious Disease single-use assays, BreathScan KetoChek,
and Breath PulmoHealth "Check" products, including advancement of
the steps required for FDA clearance or CE marking in the EU where
necessary.
We expect to continue to incur losses from operations for the
near-term. These losses could be attributed to product development,
clinical and regulatory activities, contract consulting and other
product development and commercialization related expenses. The
Company began implementing the 2017-19 Strategic Plan ("Strat
Plan") in January 2017 and management remains confident that the
objectives are achievable.
We expect that our primary expenditures will be to continue
development of PIFA PLUSS(R) Infectious Disease single-use assays,
BreathScan KetoChek and Breath PulmoHealth "Check" products and
enroll patients in clinical trials to support performance claims,
generate studies in peer-reviewed journals to support product
marketing, and provide data for the FDA 510(k) clearance/CE
certifications processes when required. We will also continue to
support commercialization and marketing activities of in-line
products (PIFA Heparin/PF4 rapid assays, PIFA PLUSS(R) PF4, breath
alcohol detectors, METRON and BreathScan Lync) in the U.S. and
internationally. Based upon our experience, clinical trial and
related regulatory expenses can be significant costs. Steps to
achieve commercialization of emerging products will be an ongoing
and evolving process with expected improvements and possible
subsequent generations being evaluated for commercialized and
emerging tests. Should we be unable to achieve FDA clearance for
products that require such regulatory "approval", develop
performance characteristics for rapid tests that satisfy market
needs, or generate sufficient revenue from commercialized products,
we would need to rely on other business or product opportunities to
generate revenue and costs that we have incurred for the patents
may be deemed impaired.
Capital expenditures, primarily for production, laboratory and
facility improvement costs for the year ending December 31, 2017
totaled $54,507 (2016: $123,301). As per the Company's lease
agreement, the owner of the facility will be handling the majority
of facility upgrades, and we anticipate financing any production
and laboratory capital expenditures through working capital.
The Company may enter into generally short-term consulting and
development agreements primarily for testing services and in
connection with clinical trials conducted as part of the Company's
development process which may include activities related to the
development of technical files for FDA 510(k) clearance
submissions. Such commitments at any point in time may be
significant but the agreements typically contain cancellation
provisions.
We lease our manufacturing facility which also contains our
administrative offices. Our current lease was executed January 1,
2013 and is effective through December 31, 2019. The Company has
leased this property from the current owner since 1997. The Company
executed a lease for a satellite office in Ramsey, New Jersey on
June 23, 2017 which is effective through May 31, 2019. The
satellite office supports members of executive management and the
sales and marketing team with convenient access to resources in the
metro New York area. Due to recent market events that have
adversely affected all industries and the economy as a whole,
management has placed increased emphasis on monitoring the risks
associated with the current environment, particularly the
recoverability of current assets, the fair value of assets, and the
Company's liquidity. At this point in time, there has not been a
material impact on the Company's assets and liquidity. Management
will continue to monitor the risks associated with the current
environment and their impact on the Company's results.
Operating Activities
The Company's net cash consumed by operating activities in the
year ended December 31, 2017 totaled $5,080,412, which was a 22%
increase as compared to $4,173,148 for the year ended December 31,
2016. The table below summarizes our net cash consumed for the
years ended December 31, 2017 and 2016 as well as the percentage of
change year-over-year:
Year Ended Year Ended Percent
Description December 31, 2017 December 31, 2016 Change
-------------------------------------------- ------------------- ------------------- -------
(restated)
Loss from Operations $ (7,366,310) $ (3,303,538) 123%
Adjustments
Non-Cash Activities 2,977,645 (738,868) (343)%
Cash Used in Operating Activities
Cash Consumed by Operating Activities (1,136,539) (531,220) 91%
Cash Contributed by Operating Activities 444,792 400,478 276%
--------------- --------------- -------
Net Cash Used in Operating Activities $ (5,080,412) $ (4,173,148) (22)%
=============== =============== =======
Net cash consumed by operating activities totaled $5,080,412
during the year ended December 31, 2017. Cash was consumed by the
loss of $7,366,310 and $1,412 for accrued income on marketable
securities offset by non-cash adjustment of $249,894 for
depreciation, amortization of non-current assets, $1,208,522 for a
reserve for obsolete inventory, $450,000 reserve for doubtful
accounts, $21,103 for amortization of deferred compensation and
$284,606 for non-cash share based compensation and services. For
the year ended December 31, 2017, decreases in deposits and other
receivables of $7,192, prepaid expense of $22,789, prepaid expense
- related parties of $101,066, decrease in trade receivables -
related parties of $31,892, and an increase in trade and other
payables of $281,853 provided cash, primarily related to routine
changes in operating activities. A net increase in inventory of
$119,613, trade receivables of $813,400, and other assets of $9,280
and a decrease in trade and other payables - related party of
$194,246 consumed cash from operating activities.
For the year ended December 31, 2016, cash was consumed by the
loss of $3,303,538 and non-operating gains of $1,153,413 offset by
a non-cash adjustment of $14,244 for accrued interest and
dividends, $286,162 for depreciation, amortization of non-current
assets, $32,333 for a reserve for obsolete inventory, $30,153 for
amortization of deferred compensation and $51,653 for non-cash
share based compensation and services. Decreases in deposits and
other receivables ($71,795), prepaid expenses ($17,689), prepaid
expenses - related party of ($76,927) and an increase in trade and
other payables - related party ($234,067) provided cash. Increases
in trade receivables ($138,272), trade receivables - related party
($380), inventories ($187,200) and a decrease in trade and other
payables ($205,368) consumed cash. The decrease in net cash used in
operating activities was related to improvements to the Company's
budgeting process, termination of several consulting agreements and
a significant reduction in legal expenses.
Investing and Financing Activities
The table below summarizes our cash flows from investing and
financing activities for the years ended December 31, 2017 and 2016
as well as the percentage of change year-over-year:
Year Ended Year Ended
Description December 31, 2017 December 31, 2016 Percent Change
-------------------------------------- ------------------- ------------------ --------------
Cash Flows from Investing Activities
Cash Consumed by Investing Activities (7,763,848) (159,245) 4,775%
Cash Contributed by Investing
Activities 2,749,147 4,003,034 (31)%
Cash Flows from Financing Activities
Cash Consumed by Financing
Activities - - -%
Cash Contributed by Financing
Activities 10,460,845 - -%
The Company's net cash provided by investing and financing
activities totaled $5,446,144 (2016: $3,843,789) during the year
ended December 31, 2017. Cash of $7,763,848 (2016: $159,245) was
consumed by capital expenditures and the purchase of marketable
securities. Proceeds from the sale of marketable securities
contributed cash of $2,749,147 (2016: $4,003,034) and net proceeds
from the public and private placements of common and Series B
preferred stock and the exercise of warrants for common stock
contributed $10,460,845 (2016: $-) for the year ended December 31,
2017.
Critical Accounting Policies
We intend to utilize the extended transition period provided in
Securities Act Section 7(a)(2)(B) as allowed by Section 107(b)(1)
of the JOBS Act for the adoption of new or revised accounting
standards as applicable to emerging growth companies. Under the
JOBS Act, emerging growth companies may delay adopting new or
revised accounting standards that have different effective dates
for public and private companies until such time as those standards
apply to private companies. We have elected to use the extended
transition period for complying with these new or revised
accounting standards. Since we will not be required to comply with
new or revised accounting standards on the relevant dates on which
adoption of such standards is required for other public companies,
our financial statements may not be comparable to the financial
statements of companies that comply with public company effective
dates. If we were to elect to comply with these public company
effective dates, such election would be irrevocable pursuant to
Section 107 of the JOBS Act.
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America (US GAAP) requires management to make estimates and
assumptions about future events that affect the amounts reported in
the financial statements and accompanying notes. Future events and
their effects cannot be determined with absolute certainty.
Therefore, the determination of estimates requires the exercise of
judgment. Actual results inevitably will differ from those
estimates, and such differences may be material to the financial
statements. The most significant accounting estimates inherent in
the preparation of our financial statements include estimates
associated with revenue recognition, impairment analysis of
intangibles and stock-based compensation.
The Company's financial position, results of operations and cash
flows are impacted by the accounting policies the Company has
adopted. In order to get a full understanding of the Company's
financial statements, one must have a clear understanding of the
accounting policies employed. A summary of the Company's critical
accounting policies follows:
Trade Receivables, Trade Receivables - Related Party 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. 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.
Fair Value Measurement - Marketable Securities:
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.
Intangible Assets:
Intangible assets primarily represent legal and filing costs
associated with obtaining patents on the Company's new discoveries
or acquiring patents for diagnostic technologies or tests that will
enhance the Company's product portfolio. The Company has developed
or acquired several diagnostic tests that can detect the presence
of various substances in a person's breath, blood, urine and
saliva. Propriety protection for the Company's products, technology
and process is important to its competitive position. Patents are
in the national phase of prosecution in many PCT participating
countries. Additional proprietary technology consists of numerous
different inventions. The Company intends to file additional patent
applications, where appropriate, relating to new products,
technologies and their use in the U.S., 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.
The Company has developed or acquired several diagnostic tests
that can detect the presence of various substances in a person's
breath, blood, urine and saliva. Propriety protection for the
Company's products, technology and process is important to its
competitive position. As of December 31, 2017, the Company has
eleven patents from the United States Patent Office in effect
(9,383,368; 7,896,167; 8,097,171; 8,003,061; 8,425,859; 8,871,521;
8,808,639; D691,056; D691,057; D691,058 and D786,872). Other
patents are in effect in Australia through the Design Registry
(348,310; 348,311 and 348,312), European Union Patents 1793906,
2684025, 002216895-0001; 002216895-0002; 002216895-0003;
3459700-0001 and 3459395-001), United Kingdom and France (2684025),
Germany (602012021524.0), Spain (E12755523), China (2016305495829),
in Hong Kong (HK11004006) and in Japan (1,515,170; 4,885,134;
4,931,821 5,775,790, and 6023096). Patents are in the national
phase of prosecution in many Patent Cooperation Treaty
participating countries. Additional proprietary technology consists
of numerous different inventions. The Company intends to file
additional patent applications, where appropriate, relating to new
products, 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.
Costs associated with applying for patents are capitalized as
patent costs. Once the patents are approved, the respective costs
are amortized over a period of twelve to seventeen years on a
straight-line basis. Patent pending costs for patents that are not
approved are charged to operations the year the patent is
rejected.
In addition, patents may be purchased from third parties. The
costs of acquiring the patent are capitalized as patent costs if it
represents a future economic benefit to the Company. Once a patent
is acquired it is amortized over its remaining life. The Company
amortizes these costs over the shorter of the legal life of the
patent or its estimated economic life using the straight-line
method. The Company tests intangible assets with finite lives upon
significant changes in the Company's business environment.
Long-Lived Assets:
In accordance with FASB ASC 360-10-35 "Impairment or Disposal of
Long-lived Assets", long-lived assets to be held and used are
analyzed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be fully
recoverable or that the useful lives of those assets are no longer
appropriate. The Company evaluates at each balance sheet date
whether events and circumstances have occurred that indicate
possible impairment.
The Company determines the existence of such impairment by
measuring the expected future cash flows (undiscounted and without
interest charges) and comparing such amount to the carrying amount
of the assets. An impairment loss, if one exists, is then measured
as the amount by which the carrying amount of the asset exceeds the
discounted estimated future cash flows. Assets to be disposed of
are reported at the lower of the carrying amount or fair value of
such assets less costs to sell. Asset impairment charges are
recorded to reduce the carrying amount of the long-lived asset that
will be sold or disposed of to their estimated fair values. Charges
for the asset impairment reduce the carrying amount of the
long-lived assets to their estimated salvage value in connection
with the decision to dispose of such assets.
Recognition and measurement:
Items of property, plant and equipment are measured at cost less
accumulated depreciation and accumulated impairment losses. Cost
includes expenditure that is directly attributable to the
acquisition of the asset. When parts of an item of property, plant
and equipment have different useful lives, they are accounted for
as separate items (major components) of property, plant and
equipment. 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 net within "other income" in profit or loss.
Revenue Recognition:
In accordance with FASB ASC 605, the Company recognizes revenue
when (i) persuasive evidence of a customer or distributor
arrangement exists, (ii) a retailer, distributor or wholesaler
receives the goods and acceptance occurs, (iii) the price is fixed
or determinable, and (iv) the collectability of the revenue is
reasonably assured. Subject to these criteria, the Company
recognizes revenue from product sales when title passes to the
customer based on shipping terms. The Company typically does not
accept returns nor offer charge backs or rebates except for certain
distributors. Revenue recorded is net of any discount, rebate or
sales return. In cases where the right of return is granted and the
Company does not have historical experience to reasonably estimate
the sales returns, the revenue is recognized when the return
privilege has substantially expired.
License fee revenue is recognized on a straight-line basis over
the term of the license agreement.
When the Company enters into arrangements that contain more than
one deliverable, the Company allocates revenue to the separate
elements under the arrangement based on their relative selling
prices in accordance with FASB ASC 605-25.
New Revenue Recognition Standards
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 and interim reporting
periods within annual reporting periods beginning after December
15, 2019. Early application is permitted as of annual reporting
periods beginning after December 15, 2016 including interim
reporting periods within that reporting period. The Company is
currently evaluating the effect of the amendments but it does not
anticipate a material impact of its financial statements. The
Company expects to use the modified retrospective adoption
method.
Stock-based Compensation
FASB ASC 718, Share-Based Payment, defines the fair-value-based
method of accounting for stock-based employee compensation plans
and transactions used by the Company to account for its issuances
of equity instruments to record compensation cost for stock-based
employee compensation plans at fair value as well as to acquire
goods or services from non-employees. Transactions in which the
Company issues stock-based compensation to employees, directors and
consultants and for goods or services received from non-employees
are accounted for based on the fair value of the equity instruments
issued. The Company utilizes pricing models in determining the fair
values of options and warrants issued as stock-based compensation.
The Black-Scholes model is utilized to calculate the fair value of
equity instruments.
Recently Issued and Adopted Accounting Pronouncements
The Company has evaluated all recently issued and adopted
accounting pronouncements and believes such pronouncements do not
have a material effect on the Company's financial statements.
Quantitative and Qualitative Disclosure About Market Risk
We have limited exposure to market risks from instruments that
may impact the Balance Sheets, Statements of Operations, and
Statements of Cash Flows. Such exposure is due primarily to
changing interest rates.
The primary objective for our investment activities is to
preserve principal while maximizing yields without significantly
increasing risk. This is accomplished by investing excess cash in
highly liquid debt and equity investments of highly rated entities
which are classified as trading securities.
Off-Balance Sheet Arrangements
We have no significant known off balance sheet arrangements.
Item 7A. Quantitative and Qualitative Disclosures About Market
Risk.
We do not hold any derivative instruments and do not engage in
any hedging activities.
Item 8. Financial Statements and Supplementary Data.
Our financial statements are contained in pages F-1 through F-33
which appear at the end of this Annual Report.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.
There have been no changes in or disagreements with accountants
on accounting and financial disclosure.
Item 9A. Controls and Procedures.
(a) Evaluation of Disclosure and Control Procedures
The Company maintains "disclosure controls and procedures", as
such terms are defined under Exchange Act Rule 13a-15(e), that are
designed to ensure that information required to be disclosed in our
Exchange Act reports is recorded, processed, summarized and
reported within the time periods specified in the SEC's rules and
forms, and that such information is accumulated and communicated to
our management, including our Chief Executive Officer and Principal
Accounting Officer, as appropriate, to allow timely decisions
regarding required disclosures. The Company acknowledges that any
controls and procedures can provide only reasonable assurances of
achieving the desired control objectives.
We have carried out an evaluation as required by Rule 13a-15(d)
under the supervision of and with the participation of our
management, including our Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and operation
of our disclosure controls and procedure as of December 31, 2017.
Based upon their evaluation, the Chief Executive Officer and
Principal Accounting Officer concluded that, as of December 31,
2017, the Company's disclosure controls and procedures were not
effective. Although we have determined that the existing controls
and procedures are not effective, the deficiencies identified were
not initially deemed material to our reporting disclosures.
Subsequent to the initial filing of the Company's annual report
on Form 10-K for the year ended December 31, 2017, a special
committee of the board of directors of the Company was formed. This
special committee engaged independent outside legal counsel who
engaged independent outside forensic accountants to assist it with
an investigation to gather certain facts relevant to the Company's
financial statements. The Audit Committee subsequently identified
misstatements relevant to the Company's historical revenue
recognition, expense accrual and inventory valuation policies and
procedures. These misstatements resulted in a material misstatement
of the financial statements and required restatement of the
financial statements included in the Company's Form 10-K for the
fiscal year ended December 31, 2017 and in the Company's Forms 10-Q
for the quarterly periods ended June 30, 2017 and September 30,
2017. These misstatements, which were not detected timely by
management, were the result of inadequate design of controls
pertaining to the Company's review and ongoing monitoring of its
revenue recognition, expense accrual and inventory valuation
policies. The deficiency represents a material weakness in the
Company's internal control over financial reporting.
Management is actively engaged in the planning for and
implementation of remediation efforts to address the material
weakness identified above. The remediation plan includes i) hiring
and/or engagement of additional qualified personnel, (ii) the
implementation of new controls designed to evaluate the
appropriateness of revenue recognition, inventory valuation, and
expense recognition policies and procedures, iii) the
implementation of review and monitoring of transactions to ensure
compliance with the new policies and procedures, and iv) the
training of personnel responsible for revenue and inventory.
Management believes the measures described above and others that
may be implemented will remediate the material weaknesses that we
have identified. As management continues to evaluate and improve
internal control over financial reporting, it may decide to take
additional measures to address control deficiencies or determine to
modify, or in appropriate circumstances not to complete, certain of
the remediation measures identified.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect all misstatements or
fraud. Any control system, no matter how well designed and
operated, is based upon certain assumptions and can provide only
reasonable, not absolute, assurance that its objectives will be
met.
(b) Management's Report on Internal Controls over Financial
Reporting
The Company's management is responsible for establishing and
maintaining adequate internal control over financial reporting, as
such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f).
Internal control over financial reporting refers to the process
designed by, or under the supervision of, our principal executive
officer and principal financial officer, and effected by our Board
of Directors, management and other personnel, 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.
Internal control over financial reporting cannot provide
absolute assurance of achieving their objectives. Internal control
over financial reporting is a process that involves human diligence
and compliance and is subject to lapses in judgement and breakdowns
resulting from human failures. Due to their inherent limitations,
there is a risk that material misstatements may not be prevented or
detected on a timely basis by internal control over financial
reporting. It is possible to design safeguards to reduce, but not
eliminate, this risk. Management is responsible for establishing
and maintaining adequate internal control over financial reporting
for the Company.
Management has used the framework set forth in the report
entitled Internal Control-Integrated Framework published by the
Committee of Sponsoring Organizations of the Treadway Commission
(2013 framework), known as COSO, to evaluate the effectiveness of
our internal control over financial reporting.
A material weakness is a deficiency, or a combination of
deficiencies, in internal control over financial reporting, such
that there is a reasonable possibility that a material misstatement
of the Company's annual or interim financial statements will not be
prevented or detected on a timely basis. Based on such evaluation,
our CEO and Principal Financial Officer have concluded that, as of
December 31, 2017, our internal controls over financial reporting
were not effective.
Management is actively engaged in the planning for and
implementation of remediation efforts to address the material
weakness identified above. The remediation plan includes i) hiring
and/or engagement of additional qualified personnel, (ii) the
implementation of new controls designed to evaluate the
appropriateness of revenue recognition, inventory valuation, and
expense recognition policies and procedures, iii) the
implementation of review and monitoring of transactions to ensure
compliance with the new policies and procedures, and iv) the
training of personnel responsible for revenue and inventory.
Management believes the measures described above and others that
may be implemented will remediate the material weaknesses that we
have identified. As management continues to evaluate and improve
internal control over financial reporting, it may decide to take
additional measures to address control deficiencies or determine to
modify, or in appropriate circumstances not to complete, certain of
the remediation measures identified.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect all misstatements or
fraud. Any control system, no matter how well designed and
operated, is based upon certain assumptions and can provide only
reasonable, not absolute, assurance that its objectives will be
met.
The Company's management is composed of a small number of
professionals resulting in a situation where limitations on
segregation of duties exists. Accordingly, as a result of the
material weakness identified above, we have concluded that the
control deficiencies result in a reasonable possibility that a
material misstatement of the annual or interim financial statements
will not be prevented on a timely basis by the Company's internal
controls. The addition of the Financial Controller will allow the
Company to implement the recommended changes to our internal
control procedures that were updated or developed with the
assistance of an independent accounting firm in 2015-16.
Implementation of these procedures will be completed during
2018.
This annual report does not include an attestation report of our
registered public accounting firm regarding internal control over
financial reporting. Management's report was not subject to
attestation by our registered public accounting firm pursuant to
the Dodd-Frank Wall Street Reform and Consumer Protection Act,
which permits us to provide only management's report in this annual
report.
(c) Changes in Internal Control over Financial Reporting
Other than the weaknesses as described above, there were no
changes in our internal control over financial reporting, as
defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act,
during our most recently completed fiscal quarter that have
materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting.
Item 9B. Other Information.
None.
PART III
Item 10. Directors, Executive Officers, and Corporate
Governance.
Executive Officers and Directors
The following table sets forth the names, ages and positions of
all of the directors and executive officers of the Company and the
positions they hold as of the date hereof. The directors of the
Company serve until their successors are elected and shall qualify.
Executive officers are elected by the Board of Directors and serve
at the discretion of the directors.
Name Age Position
------------------------- --- ------------------------------------------------------------------------
John J. Gormally 61 Chief Executive Officer, Director
Raymond F. Akers, Jr. PhD 59 Executive Chairman of the Board of Directors, Chief Scientific Director,
Secretary
Gary M. Rauch 62 Vice President, Finance and Treasurer
Bill J. White 56 Independent Director
Richard C. Tarbox 65 Independent Director
Christopher C. Schreiber 52 Independent Director
Set forth below is a brief description of the background and
business experience of each of our executive officers and
directors.
John J. Gormally, age 61, has served as the Company's Chief
Executive Officer since appointed to the position on November 16,
2015. Mr. Gormally has over 30 years of experience as a member of
senior management in the healthcare industry. He joined Becton,
Dickinson and Company ("Becton"), a medical technology company that
manufactures and sells a range of medical supplies and diagnostic
equipment, in 1978 as a senior sales representative. Mr. Gormally
served in a wide range of positions with Becton through 2013,
focusing primarily on commercialization of Becton's products and
fostering sales growth. From 1999 to 2001, Mr. Gormally served as
the Vice President of U.S. Sales and Operations for ConvaTec, a
former division of Bristol-Myers Squibb Company. From 2001 to 2002,
he served as the Vice President of Global Sales and Marketing for
BEI Medical Systems Company, Inc., prior to rejoining Becton from
2002 to 2013. In 2013, Mr. Gormally founded Gormally Elite Medical
LLC, a healthcare consulting firm that specializes in human
resources and developing go-to-market commercialization
strategies.
Mr. Gormally earned an undergraduate degree from DeSales
University in 1978 and is currently an MBA candidate at
Northeastern University.
Mr. Gormally was selected to serve on the Board in part because
of his significant experience running companies operating in the
medical device area.
Raymond F. Akers Jr., Ph.D., age 59, has been Executive Chairman
of the Board since August 10, 2017, served as Vice Chairman from
April 2016 through August 2017, and served as Executive Chairman
from December 31, 2009 through April 2016. Dr. Akers was appointed
Secretary on August 5, 2013. Dr. Akers founded the Company in 1989.
He has over 25 years of experience in the diagnostics industry
having co-founded Drug Screening Systems, Inc., a publicly listed
company, in 1987, and Akers Medical Technology Inc. in 1984. He was
Chief Executive Officer and vice president of research and
development of Drug Screening Systems, Inc. until the sale of that
company in 1989 and served as President and Chief Executive Officer
of Akers Medical Technology Inc. until 1987.
Dr. Akers holds a Ph.D. in Neurochemistry from Northwestern
University. Dr. Akers has either invented or directed the research
and development of all of the Company's products and
technologies.
The Company believes that Mr. Akers experience in assisting
diagnostic companies develop infrastructure; including but not
limited to general management and business development will
contribute to the Company's development of its own infrastructure
and growth as a public company.
Gary M. Rauch, age 62, has over 40 years of experience in
accounting, financial and information systems consulting, discrete
manufacturing, distribution and administration. Mr. Rauch has been
the Company's Controller then Vice President, Finance since March,
2010 and was appointed Treasurer on August 5, 2013. Mr. Rauch also
founded DataSys Solutions, LLC in 2004 and is currently the
managing member. DataSys Solutions LLC specializes in financial and
information systems consulting and technical support services. From
July, 2002 through March, 2010, Mr. Rauch was the controller for
Cold Star, Inc., a manufacturer of dairy dispensing equipment and a
dairy products distributor. Mr. Rauch also worked for six years as
consulting manager with Deloitte & Touche providing financial
system selection, development and implementation services for their
small to middle market clients.
Mr. Rauch has an associate degree from the University of South
Carolina.
Bill J. White, age 56, has more than 30 years of experience in
financial management, operations and business development. He
currently serves as Chief Financial Officer, Treasurer and
Secretary of Intellicheck Mobilisa, Inc., a technology company
listed on the NYSE MKT. Prior to working at Intellicheck Mobilisa,
Inc., he served 11 years as the Chief Financial Officer, Secretary
and Treasurer of FocusMicro, Inc. ("FM"). As co-founder of FM, Mr.
White played an integral role in growing the business from the
company's inception to over $36 million in annual revenue in a
five-year period. Mr. White has broad domestic and international
experience including managing rapid and significant growth,
import/export, implementing tough cost management initiatives,
exploiting new growth opportunities, merger and acquisitions,
strategic planning, resource allocation, tax compliance and
organization development. Prior to co-founding FM, he served 15
years in various financial leadership positions in the government
sector. Mr. White started his career in Public Accounting.
Mr. White holds a Bachelor of Arts in Business Administration
from Washington State University and is a Certified Fraud
Examiner.
Mr. White was selected to serve on the Board in part because of
his significant financial and accounting experience with public
companies.
Richard C. Tarbox III, age 65, combines over 40 years of
management experience in the medical device and diagnostics sector
of the healthcare industry. Mr. Tarbox presently serves as a
registered investment banker at Aquilo Partners, L.P., focusing his
practice on the needs of clients in the life science tools and
diagnostics sectors. Previously, he held executive roles, primarily
in business development and operations management, with Becton
Dickinson, Thermo Fisher Scientific and Cardinal Health, Baxter
International Inc. and American Hospital Supply Corporation. He has
also served a number of companies in the industry as an officer and
member of the board of directors including; Alverix, Inc., as Chief
Executive Officer and board member from 2010 to 2014, Quidel
Corporation, as Corporate Development Officer from 2007 to 2009,
ClearData Networks, as Chief Operating Officer and a board member
from 1999 to 2001, Bioseparations Inc., as Chief Executive Officer
and a board member from 1995 to 1998, Metrika Laboratories, as a
board member from 1994 to 1995, DenOptix, Inc., as a board member
from 1995 to 1998 and Ostex International Inc., as Chief Operating
Officer from 1992 to 1995. Mr. Tarbox currently serves as a member
of the advisory boards of Qorvo Inc. and Safeguard Scientifics,
Inc.
Mr. Tarbox is a graduate of the University of Washington, where
he received his Bachelor's Degree in Clinical Psychology and the
Kellogg School of Management at Northwestern University where he
earned a Master's degree in Business Management.
Mr. Tarbox was selected to serve on the Board in part because of
his significant experience in the medical device and diagnostics
industry, as well as his management experience.
Christopher C. Schreiber, age 52, combines over 30 years of
experience in the securities industry. As the Managing Director of
Capital Markets at Taglich Brothers, Inc., Mr. Schreiber builds
upon his extensive background in capital markets, deal structures,
and syndications. Prior to his time at Taglich Brothers, he was a
member of the board of directors of Paulson Investment Company, a
40-year-old full service Investment Banking firm. In addition, Mr.
Schreiber serves has a director and partner of Long Island Express
North, an elite lacrosse training organization for teams and
individuals. He also volunteers on the board of directors for Fox
Lane Youth Lacrosse, a community youth program.
Mr. Schreiber is a graduate of Johns Hopkins University, where
he received a Bachelor's Degree in Political Science.
Mr. Schreiber was selected to serve on the Board in part because
of his significant experience in capital markets and knowledge of
the Company.
Family Relationships
There are no family relationships between any of our officers or
directors.
Board Composition and Committees and Director Independence
On August 7, 2017, the shareholders of the Company reelected
Raymond F. Akers, Jr. Ph.D to the Board and elected John J.
Gormally, Bill J. White, Richard C. Tardbox III and Christopher C.
Shcreiber as members of the Board. Mr. White, Mr. Tarbox and Mr.
Schreiber comprise the Board's Audit Committee, Compensation
Committee, and Nominating and Corporate Governance Committee. Mr.
White acts as Chairman of the Audit Committee, Mr. Tarbox acts as
Chairman of the Nominating and Corporate Governance Committee, and
Mr. Schreiber acts as Chairman of the Compensation Committee.
The directors will serve until our next annual meeting and until
their successors are duly elected and qualified. The Company
defines "independent" as that term is defined in Rule 5605(a)(2) of
the Nasdaq listing standards.
In making the determination of whether a member of the board is
independent, our board considers, among other things, transactions
and relationships between each director and his immediate family
and the Company, including those reported under the caption
"Related Party Transactions". The purpose of this review is to
determine whether any such relationships or transactions are
material and, therefore, inconsistent with a determination that the
directors are independent. On the basis of such review and its
understanding of such relationships and transactions, our board
affirmatively determined that Mr. Bill J. White, Mr. Richard C. Tar
box and Mr. Christopher C. Schreiber are qualified as independent
and that none of them have any material relationship with us that
might interfere with his or her exercise of independent
judgment.
Meetings of the Board of Directors and Shareholders
Our board of directors met in person and telephonically ten
times during 2017 and also acted by unanimous written consent. Each
member of our board of directors was present at least 75% of the
board of directors meetings held. It is our policy that all
directors must attend all shareholder meetings, barring extenuating
circumstances. All directors were present at the 2017 Annual
Meeting of Shareholders, either in person or telephonically.
Board Committees
The Company has established an Audit Committee, a Compensation
Committee and a Nominating and Corporate Governance Committee. The
Audit Committee, Compensation Committee and Nominating and
Corporate Governance Committee met in person and telephonically
three times, two times and once, respectively, during 2017, and
also acted by unanimous written consents. Each committee has its
own charter, which is available on our website at www.akersbio.com.
Information contained on our website is not incorporated herein by
reference."
Audit Committee
We have a separately-designated standing Audit Committee
established in accordance with Section 3(a)(58)(A) of the Exchange
Act of 1934, as amended (the "Exchange Act"). The members of our
Audit Committee are Mr. White, Mr. Tarbox and Mr. Schreiber. Each
of these Committee members is "independent" within the meaning of
Rule 10A-3 under the Exchange Act and the Nasdaq Stock Market
Rules. Our board has determined that Mr. White is an "audit
committee financial expert", as such term is defined in Item
407(d)(5) of Regulation S-K. Mr. White serves as Chairman of our
Audit Committee. Each member of the Audit Committee was present at
100% of the Audit Committee meetings held during such director's
tenure as a member of the Audit Committee.
Our Audit Committee oversees our corporate accounting, financial
reporting practices and the audits and reviews of financial
statements. For this purpose, the Audit Committee has a charter
(which is reviewed annually). As summarized below, the Audit
Committee:
-- evaluates the independence and performance of, and assesses the qualifications of, our independent
auditor and engages such independent auditor;
-- approves the plan and fees for the annual audit, quarterly reviews, tax and other audit-related
services and approves in advance any non-audit service and fees therefor to be provided by
the independent auditor;
-- monitors the independence of the independent auditor and the rotation of partners of the independent
auditor on our engagement team as required by law;
-- reviews the financial statements to be included in our Annual Report on Form 10-K and Quarterly
Reports on Form 10-Q and reviews with management and the independent auditors the results
of the annual audit and reviews of our quarterly financial statements;
-- oversees all aspects of our systems of internal accounting and financial reporting control;
and
-- provides oversight in connection with legal, ethical and risk management compliance programs
established by management and the board, including compliance with requirements of Sarbanes-Oxley
and makes recommendations to the board of directors regarding corporate governance issues
and policy decisions.
Compensation Committee
The members of our Compensation Committee are Mr. Bill J. White,
Mr. Richard C. Tarbox and Mr. Christopher C. Schreiber. Each such
member is "independent" within the meaning of the Nasdaq Stock
Market Rules. In addition, each member of our Compensation
Committee qualifies as a "non-employee director" under Rule 16b-3
of the Exchange Act. Our Compensation Committee assists the board
of directors in the discharge of its responsibilities relating to
the compensation of the board of directors and our executive
officers. Mr. Schreiber will serve as Chairman of our Compensation
Committee.
The Committee's compensation-related responsibilities include,
but are not limited to:
-- reviewing and approving on an annual basis the corporate goals and objectives with respect
to compensation for our Chief Executive Officer;
-- reviewing, approving and recommending to our board of directors on an annual basis the evaluation
process and compensation structure for our other executive officers;
-- determining the need for an the appropriateness of employment agreements and change in control
agreements for each of our executive officers and any other officers recommended by the Chief
Executive Officer or board of directors;
-- providing oversight of management's decisions concerning the performance and compensation
of other company officers, employees, consultants and advisors;
-- reviewing our incentive compensation and other equity-based plans and recommending changes
in such plans to our board of directors as needed, and exercising all the authority of our
board of directors with respect to the administration of such plans;
-- reviewing and recommending to our board of directors the compensation of independent directors,
including incentive and equity-based compensation; and
-- selecting, retaining and terminating such compensation consultants, outside counsel or other
advisors as it deems necessary or appropriate.
The Compensation Committee has the authority to directly engage,
at our expense, any compensation consultants or other advisers as
it deems necessary to carry out its responsibilities in determining
the amount and form of employee, executive and director
compensation.
Nominating and Corporate Governance Committee
The members of our Nominating and Corporate Governance Committee
are Mr. Bill J. White, Mr. Richard C. Tarbox and Mr. Christopher C.
Schreiber. Each such member is "independent" within the meaning of
the Nasdaq Stock Market Rules. The purpose of the Nominating and
Corporate Governance Committee is to recommend to the board
nominees for election as directors and persons to be elected to
fill any vacancies on the board, develop and recommend a set of
corporate governance principles and oversee the performance of the
board. Mr. Tarbox serves as Chairman of our Nominating and
Corporate Governance Committee.
The Committee's responsibilities include:
-- recommending to the board of directors nominees for election as directors at any meeting of
shareholders and nominees to fill vacancies on the board;
-- considering candidates proposed by shareholders in accordance with the requirements in the
Committee charter;
-- overseeing the administration of the Company's Code of Ethics;
-- reviewing with the entire board of directors, on an annual basis, the requisite skills and
criteria for board candidates and the composition of the board as a whole;
-- the authority to retain search firms to assist in identifying board candidates, approve the
terms of the search firm's engagement, and cause the Company to pay the engaged search firm's
engagement fee;
-- recommending to the board of directors on an annual basis the directors to be appointed to
each committee of the board of directors;
-- overseeing an annual self-evaluation of the board of directors and its committees to determine
whether it and its committees are functioning effectively; and
-- developing and recommending to the board a set of corporate governance guidelines applicable
to the Company.
The Nominating and Corporate Governance Committee may delegate
any of its responsibilities to subcommittees as it deems
appropriate. The Nominating and Corporate Governance Committee is
authorized to retain independent legal and other advisors, and
conduct or authorize investigations into any matter within the
scope of its duties.
Management-Non-Executive Director Compensation
Currently, no director of the Company receives any cash
compensation for their services as such, but in the future
directors may receive stock options pursuant to the Company's stock
option plan and grants of the Company's common stock.
Legal Proceedings
To the best of our knowledge, none of our directors or executive
officers has, during the past ten years:
-- been convicted in a criminal proceeding or been subject to a pending criminal proceeding (excluding
traffic violations and other minor offenses);
-- had any bankruptcy petition filed by or against the business or property of the person, or
of any partnership, corporation or business association of which he was a general partner
or executive officer, either at the time of the bankruptcy filing or within two years prior
to that time;
-- been subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated,
of any court of competent jurisdiction or federal or state authority, permanently or temporarily
enjoining, barring, suspending or otherwise limiting, his involvement in any type of business,
securities, futures, commodities, investment, banking, savings and loan, or insurance activities,
or to be associated with persons engaged in any such activity;
-- been found by a court of competent jurisdiction in a civil action or by the Securities and
Exchange Commission or the Commodity Futures Trading Commission to have violated a federal
or state securities or commodities law, and the judgment has not been reversed, suspended,
or vacated;
-- been the subject of, or a party to, any federal or state judicial or administrative order,
judgment, decree, or finding, not subsequently reversed, suspended or vacated (not including
any settlement of a civil proceeding among private litigants), relating to an alleged violation
of any federal or state securities or commodities law or regulation, any law or regulation
respecting financial institutions or insurance companies including, but not limited to, a
temporary or permanent injunction, order of disgorgement or restitution, civil money penalty
or temporary or permanent cease-and-desist order, or removal or prohibition order, or any
law or regulation prohibiting mail or wire fraud or fraud in connection with any business
entity; or
-- been the subject of, or a party to, any sanction or order, not subsequently reversed, suspended
or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange
Act), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act),
or any equivalent exchange, association, entity or organization that has disciplinary authority
over its members or persons associated with a member.
Except as set forth in our discussion below in "Certain
Relationships and Related Transactions," none of our directors or
executive officers has been involved in any transactions with us or
any of our directors, executive officers, affiliates or associates
which are required to be disclosed pursuant to the rules and
regulations of the Commission.
Compliance with Section 16(A) of the Exchange Act
Section 16(a) of the Exchange Act requires the Company's
directors, executive officers and persons who beneficially own 10%
or more of a class of securities registered under Section 12 of the
Exchange Act to file reports of beneficial ownership and changes in
beneficial ownership with the SEC. Directors, executive officers
and greater than 10% shareholders are required by the rules and
regulations of the SEC to furnish the Company with copies of all
reports filed by them in compliance with Section 16(a).
Based solely upon a review of copies of Section 16(a) reports
and representations received by us from reporting persons, and
without conducting any independent investigation of our own, in
fiscal year 2017, all Forms 3, 4 and 5 were timely filed with the
SEC by such reporting persons, with exceptions of Mr. Bill J.
White, Mr. Richard C. Tarbox and Mr. Christopher C. Schreiber, each
of which did not file a Form 3, which were each due on August 7,
2017. Mr. Bill J. White, Mr. Richard C. Tarbox and Mr. Christopher
C. Schreiber will each file a Form 3 as soon as possible.
Shareholder Communications with Directors
Shareholders and other interested parties may send
correspondence by mail to the full Board or to individual
directors. Shareholders should address such correspondence to the
Board or the relevant Board members in care of: Akers Biosciences,
Inc., 201 Grove Road Thorofare, New Jersey USA 08086, Attention:
Secretary.
All such correspondence will be compiled by our Secretary and
forwarded as appropriate. In general, correspondence relating to
corporate governance issues, long-term corporate strategy or
similar substantive matters will be forwarded to the Board, one of
the committees of the Board, or a member thereof for review.
Correspondence relating to the ordinary course of business affairs,
personal grievances, and matters as to which we tend to receive
repetitive or duplicative communications are usually more
appropriately addressed by the officers or their designees and will
be forwarded to such persons accordingly.
Code of Ethics and Business of Conduct
We have adopted a Code of Business Conduct and Ethics, which
applies to our board of directors, our executive officers and our
employees, outlines the broad principles of ethical business
conduct we adopted, covering subject areas such as:
-- compliance with applicable laws and regulations,
-- handling of books and records,
-- public disclosure reporting,
-- insider trading,
-- discrimination and harassment,
-- health and safety,
-- conflicts of interest,
-- competition and fair dealing, and
-- protection of company assets.
A copy of our Code of Business Conduct and Ethics is available
without charge, to any person desiring a copy of the Code of
Business Conduct and Ethics, by written request to us at our
principal offices at 201 Grove Road, Thorofare, New Jersey USA
08086.
Item 11. Executive Compensation.
The compensation provided to our "named executive officers" for
2017 and 2016 is set forth in detail in the Summary Compensation
Table and other tables and the accompanying footnotes and narrative
that follow this section. This section explains our executive
compensation philosophy, objectives and design, our
compensation-setting process, our executive compensation program
components and the decisions made for compensation in respect of
2017 for each of our named executive officers.
Our named executive officers who appear in the 2017 Summary
Compensation Table are:
John J. Gormally Chief Executive Officer
Raymond F. Akers, Jr., PhD Vice Chairman, Secretary, Chief Scientific Director
Gary M. Rauch Vice President of Finance, Treasurer
Summary Compensation Table
The following table summarizes information regarding the
compensation awarded to, earned by or paid to, our Chief Executive
Officer, and our other most highly compensated executive officers
who earned in excess of $100,000 during 2017, 2016 and 2015.
Cash Stock Option All
Name and Salary Bonus Awards Awards Other Total
Principal
Position Year $ $ $ $ $ $
----------- ------ -------- ------ ------- ------ ----- -------
John J.
Gormally (1) 2017 322,115 50,000 132,000 - 7,800 (2) 511,915
Chief
Executive
Officer 2016 248,500 - 54,725 - 7,800 (2) 311,025
2015 24,038 - - - 650 (2) 24,688
Gary M. Rauch 2017 111,031 18,900 31,924 - - 161,855
Vice
President of
Finance and
Treasurer 2016 95,000 - - - - 95,000
2015 95,000 - 27,675 - - 122,675
Raymond F.
Akers, Jr
PhD (3) 2017 288,462 - - - 7,800 (4) 296,262
Secretary and
Chief
Scientific
Director 2016 269,231 7,800 (4) 277,031
2015 397,450 - 256,900 - 7,800 (4) 662,150
(1) Mr. Gormally was appointed as Chief Executive Officer on December 2, 2015.
(2) Other Compensation for Mr. Gormally consisted of a car allowance.
(3) Effective October 5, 2016, the Board approved certain incentive based salary adjustments (the
"Salary Adjustments") for Raymond Akers, the Company's Chief Scientific Director and member
of the Board. The Salary Adjustments will, upon the achievement of certain milestones by Dr.
Akers between October 5, 2016 and December 31, 2016, cause Dr. Akers' salary to increase up
to $200,000 above his current salary. Dr. Akers will receive his increased salary on a prorated
basis in 2016 only to the extent Dr. Akers achieves said milestones prior to December 31,
2016, each milestone representing a portion of the $200,000 salary increase, and his increased
salary will remain in effect going forward.
(4) Other Compensation for Dr. Akers consisted of a car allowance.
Employment Agreements
On December 2, 2015, the Company and John J. Gormally finalized
the terms of his employment and entered into an employment
agreement (the "Employment Agreement"), pursuant to which Mr.
Gormally will serve as the Company's Chief Executive Officer. Mr.
Gormally shall have such duties, responsibilities and authority as
are commensurate and consistent with the position of Chief
Executive Officer of a public company.
The Company shall pay Mr. Gormally a salary at a rate of Two
Hundred Fifty Thousand and 00/100 Dollars ($250,000) per year (the
"Base Salary"). On January 31, 2017, pursuant to the terms of the
Employment Agreement, the Board adjusted Mr. Gormally's salary to
Three Hundred Twenty-Five Thousand and 00/100 Dollars ($325,000)
effective as of January 1, 2017. In addition, subject to the
discretion of the Company's Compensation Committee and the Board,
provided that the Employment Agreement has not been terminated, Mr.
Gormally shall be eligible for an annual performance-based cash
bonus of up to 100% of the Base Salary (the "Cash Incentive
Bonus"). Mr. Gormally shall receive certain grants of the Company's
restricted common stock (each an "Incentive Award" and together
with the Cash Incentive Bonus, the "Incentive Compensation") on a
bi-annual basis, with such awards expected to be made on or about
February 15 and August 15 of each year, under the Company's Amended
and Restated 2013 Incentive Stock and Award Plan. Each Incentive
Award will vest or has vested as follows: (i) 1/3 vested on the
date of grant; (ii) 1/3 vest on the first anniversary of the date
of grant and (iii) 1/3 shall vest on the second anniversary of the
date of grant. The Incentive Awards will be made within the
following ranges, in the aggregate, for each such year: (i) for
2016, up to 140,000 shares of restricted common stock, but no less
than 27,500 shares of restricted common stock; (ii) for 2017, up to
125,000 shares of restricted common stock, but no less than 25,000
shares of restricted common stock; (iii) for 2018, up to 125,000
shares of restricted common stock, but no less than 25,000 shares
of restricted common stock; (iv) for 2019, up to 125,000 shares of
restricted common stock, but no less than 25,000 shares of
restricted common stock; and (v) for 2020, up to 125,000 shares of
restricted common stock, but no less than 25,000 shares of
restricted common stock.
The Employment Agreement may be terminated by either party upon
thirty (30) days' written notice to the other party or sooner upon
the parties' mutual written consent. In the event that Mr. Gormally
is terminated without Cause (as defined in the Employment
Agreement), including termination pursuant to thirty (30) days'
written notice, or Mr. Gormally terminates his employment for Good
Reason (as defined in the Employment Agreement) the Company shall
pay Mr. Gormally severance in accordance to the following: (i) if
the date of termination is prior to the four month anniversary of
the effective date of the Employment Agreement (the "Four Month
Anniversary"), Mr. Gormally shall receive no severance; (ii) if the
date of termination is after the Four Month Anniversary but prior
to the one year anniversary (the "One Year Anniversary") of the
effective date of the Employment Agreement, the Company shall pay
Mr. Gormally severance equal to one third (1/3) of his Base Salary;
(iii) if the date of termination is on or after the One Year
Anniversary but prior to the two year anniversary (the "Two Year
Anniversary") of the effective date of the Employment Agreement,
the Company shall pay Mr. Gormally severance equal to one half
(1/2) of the Mr. Gormally's then current Base Salary; and (iv) if
the date of termination is on or after the Two Year Anniversary,
the Company shall pay Mr. Gormally severance equal to one year of
Mr. Gormally's then current Base Salary. If Mr. Gormally is
terminated for Cause the Company will not pay any severance.
STOCK AWARDS
Number of Shares or Units of Stock That Have Not Vested (#)
Equity Incentive Plan Awards: Number of Unearned Shares, Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares,
Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options Units or Other Rights That Have Not Units or Other Rights
Name Number of Securities Underlying Unexercised Options (#) Exercisable Number of Securities Underlying Unexercised Options (#) Unexercisable (#) Option Exercise Price ($) Option Expiration Date (g) Market Value of Shares or Units of Stock That Have Not Vested ($) Vested (#) That Have Not Vested (#)
(a) (b) (c) (d) (e) (f) (9) (h) (i) (j)
------------ -------------------------------------------------------------------- --------------------------------------------------------------------- ------------------------------------------------------------------------------------------ ------------------------- ---------------------- ----------------------------------------------------------- ----------------------------------------------------------------- -------------------------------------------------------- ------------------------------------------------------------------------
Raymond F. Akers
Jr.
Chief Scientific
Officer,
Executive
Chairman,
Secretary 40,000 (1) - - 5.50 06/30/2019 - - - -
John J. Gormally
Chief Executive
Officer,
Director - - - - n/a 9,166 1,192 - -
Gary Rauch
VP of Finance,
Treasurer 15,000 - - 5.50 06/30/2019 - - - -
Christopher C.
Scheiber
Director
Bill J. White
Director
Richard C. Tarbox
Director
(1) Dr. Akers gifted such options to the Akers Family Trust, a
trust to which he is not a named beneficiary.
Effective October 5, 2016, the Board of Directors (the "Board")
of Akers Biosciences, Inc. (the "Company") amended (the
"Amendment"), upon recommendation from the Compensation Committee
of the Board, the Akers Biosciences, Inc. First Amended and
Restated 2013 Incentive Stock and Award Plan (the "Plan"). The
Amendment increases the number of authorized shares of common stock
subject to the Plan by 30,000 shares, or 3.75% of the amount of
shares previously authorized under the Plan.
Effective August 7, 2017, the shareholders of the Company, upon
the recommendation of the Board of Directors of the Company,
approved and adopted the Akers Biosciences, Inc. 2017 Equity
Incentive Plan (the "Plan") which supplemented the Company's
existing Amended and Restated 2013 Incentive Stock and Award Plan.
The Plan provides for the issuance of up to 1,350,000 shares of the
Company's common stock, no par value per share (the "Common
Stock"), through the grant of non-qualified options (the
"Non-qualified Options"), incentive options (the "Incentive
Options" and together with the Non-qualified Options, the
"Options"), restricted stock (the "Restricted Stock") and
unrestricted stock to directors, officers, consultants, attorneys,
advisors and employees. Through December 31, 2017, 1,054,893 are
shares reserved for future issuances under our Plan. All future
grants will be made pursuant to the Plan at the market price per
share on the date of issuance.
CEO Pay Ratio- 9.27
We believe our executive compensation program must be consistent
and internally equitable to motivate our employees to perform in
ways that enhance shareholder value. We are committed to internal
pay equity, and the Compensation Committee monitors the
relationship between the pay of our executive officers and the pay
of our non-executive employees. The Compensation Committee reviewed
a comparison of John J. Gormally's, our Chief Executive Officer
(which we refer to for these purposes as the CEO), annual total
compensation in fiscal year 2017 to that of all other company
employees for the same period. The calculation of annual total
compensation of all employees was determined in the same manner as
the "Total Compensation" shown for our CEO in the "Summary
Compensation Table" on page 66 of this Report. Pay elements that
were included in the annual total compensation for each employee
are:
-- salary received in fiscal year 2017;
-- annual bonus payment received for performance in fiscal year 2017;
-- grant date fair value of stock option exercises and RSU awards vested in fiscal year 2017;
-- company-paid insurance premiums during fiscal year 2017; and
-- auto allowance paid in fiscal year 2017.
Our calculation includes all employees as of December 31, 2017.
We determined the compensation of our median employee by: (i)
calculating the annual total compensation described above for each
of our employees, (ii) ranking the annual total compensation of all
employees except for the CEO from lowest to highest), and (iii)
since we have an even number of employees when not including the
CEO, determining the average of the annual total compensation of
the two employees ranked 13 and 15 on the list ("Median
Employee")].
The annual total compensation for fiscal year 2017 for our CEO
was $518,338 and for the Median Employee was $55,937. We estimate
that the resulting ratio of our CEO's pay to the pay of our Median
Employee for fiscal year 2017 is 9.27 to 1.
DIRECTOR COMPENSATION
The following sets forth the compensation awarded to, earned by,
or paid to the named director by us during the year ended December
31, 2017.
Non-
Fees equity
earned or incentive
paid in Stock Option plan All other
cash Awards Awards compensation compensation Total
Name ($) ($) ($) ($) ($) ($)
--------------- ---------- ------- ------- ------------- ------------- -----
Raymond Akers,
Jr. (1) - - - - - -
John J.
Gormally - - - - - -
Christopher
Schreiber - - - - - -
Richard Tarbox - - - - - -
William White - - - - - -
Thomas Knox (2) - - - - - -
Brandon Knox
(3) - - - - - -
Robert E.
Andrews (4) - - - - - -
Dr. Raza
Bokhari (5) - - - - - -
(1) Effective April 22, 2016, Dr. Akers resigned as Executive Chairman of the Board. Dr. Akers
was Vice Chairman from April 22, 2016 through August 10, 2017 when he resumed his position
as Executive Chairman.
(2) Effective July 1, 2013, Mr. Thomas Knox was appointed as Director and, on April 22, 2016,
was appointed sole Non-Executive Chairman of the Board. Mr. T. Knox did not seek reelection
to the Board and his term ended on August 10, 2017.
(3) Effective January 23, 2014, Mr. Brandon Knox was appointed as Director. Mr. B. Knox did not
seek reelection to the Board and his term ended on August 10, 2017.
(4) Effective June 29, 2015, Mr. Robert E. Andrews was appointed as Director. Mr. Andrews did
not seek reelection to the Board and his term ended on August 10, 2017.
(5) Effective November 11, 2015, Dr. Raza Bokhari was appointed as Director. Mr. Bokhari did not
seek reelection to the Board and his term ended on August 10, 2017.
Item 12. Security Ownership of Certain Beneficial Owners and
Management and Related Shareholder Matters.
The following table sets forth, as of March 15, 2018,
information regarding beneficial ownership of our capital stock
by:
-- each person, or group of affiliated persons, known by us to beneficially own more than 5%
of our common stock;
-- each of our named executive officers;
-- each of our directors; and
-- all of our current executive officers and directors as a group.
Beneficial ownership is determined according to the rules of the
SEC and generally means that a person has beneficial ownership of a
security if he, she or it possesses sole or shared voting or
investment power of the applicable security, including options that
are currently exercisable or exercisable within 60 days of April 5,
2017. Except as indicated by the footnotes below, we believe, based
on the information furnished to us, that the persons named in the
table below have sole voting and investment power with respect to
all shares of common stock shown that they beneficially own,
subject to community property laws where applicable.
Our calculation of the percentage of beneficial ownership is
based on 81,973,964 shares of our common stock issued and
outstanding as of March 15, 2018.
Common stock subject to stock options currently exercisable or
exercisable within 60 days of April 5, 2017, are deemed to be
outstanding for computing the percentage ownership of the person
holding these securities and the percentage ownership of any group
of which the holder is a member but are not deemed outstanding for
computing the percentage of any other person.
Unless otherwise indicated, the address of each beneficial owner
listed in the table below is c/o Akers Biosciences, Inc., 201 Grove
Road, Thorofare, New Jersey USA 08086.
Shares
Beneficially Percentage of
Owned as of Ownership as of
March 15, March 15,
2018 2018
--------------- -----------------
Name of Beneficial Owner:
5% Shareholders:
Empery Asset Management, LP 4,656,859 5.70%
Alpha Capital Anstalt 2,516,635 3.08%
Bigger Capital Funds, LP 1,953,006 2.39%
Named Executive Officers and Directors:*
Raymond F. Akers, Jr. Phd(1) - -%
Bill J. White - -%
Richard C. Tarbox III - -%
Christopher C. Schreiber - -%
John J. Gormally 180,000 0.22%
Gary M. Rauch(2) 78,777 0.10%
All executive officers and directors as a group (6 persons) 258,777 0.32%
(1) Dr. Akers previously gifted 70,000 shares of Common Stock to the Akers Family Trust, a trust
to which he is not a named beneficiary. On January 5, 2016, Dr. Akers' wife purchased 2,100
shares of Common Stock.
(2) Mr. Rauch owns 63,777 shares of common stock and has 15,000 vested options.
* Aside from Mr. Rauch, all other named executive officers and directors in the table above
only hold shares of common stock and do not have any options outstanding.
Changes in Control
We are not aware of any arrangements that may result in "changes
in control" as that term is defined by the provisions of Item
403(c) of Regulation S-K.
Item 13. Certain Relationships and Related Transactions, and
Director Independence.
Other than compensation arrangements, the following is a
description of transactions to which we were a participant or will
be a participant to, in which:
-- the amounts involved exceeded or will exceed the lesser of 1% of our total assets or $120,000;
and
-- any of our directors, executive officers or holders of more than 5% of our capital stock,
or any member of the immediate family of the foregoing persons, had or will have a direct
or indirect material interest.
Other than compensation arrangements, the following is a
description of transactions to which we were a participant or will
be a participant to, in which:
-- the amounts involved exceeded or will exceed the lesser of 1% of our total assets or $120,000;
and
-- any of our directors, executive officers or holders of more than 5% of our capital stock,
or any member of the immediate family of the foregoing persons, had or will have a direct
or indirect material interest.
Item 14. Principal Accounting Fees and Services.
The following table sets forth the aggregate fees billed for
each of the last two fiscal years for professional services
rendered by the principal accountant for the audit of the Company's
annual financial statements and review of financial statements
included in the Company's quarterly reports or services that are
normally provided by the accountant in connection with statutory
and regulatory filings or engagements for those fiscal years.
Audit-Related fees include services for the review of interim
financial statements, tax fees include the preparation of tax
returns and other fees include services performed in relation to
the preparation of various SEC Forms and advisory services.
All Other Fees includes services in support of the preparation
of the Company's Form S-1 and S-3. The firm performed due diligence
review and preparation of the Audit Comfort Letter for the
underwriter for the Company's public offering and shelf
registration filings.
2017 2016
-------- --------
Audit Fees $113,000 $100,000
Audit-Related Fees $ 97,000 $ 69,000
Tax Fees $ 9,500 $ 9,500
All Other Fees $ 44,795 $ 15,144
------- -------
TOTAL $264,295 $193,644
======= =======
PART IV
Item 15. Exhibits, Financial Statement Schedules.
Exhibit
Number Description of Exhibit
------- ---------------------------------------------------------------------------------------------------
3.1 Amended & Restated Certificate of Incorporation (incorporated herein by reference to Exhibit
3.1 to the Company's Registration Statement on Form S-1 filed with the Securities and Exchange
Commission on August 7, 2013).
3.2 Amendment to Certificate of Incorporation dated June 2, 2008 (incorporated herein by reference
to Exhibit 3.2 to the Company's Registration Statement on Form S-1 filed with the Securities
and Exchange Commission on August 7, 2013).
3.3 Amendment to Certificate of Incorporation, Certificate of Designation of Series A Preferred
Stock, dated September 21, 2012. (incorporated herein by reference to Exhibit 3.3 to the Company's
Registration Statement on Form S-1 filed with the Securities and Exchange Commission on August
7, 2013).
3.4 Amendment to Certificate of Incorporation dated January 22, 2013 (incorporated herein by reference
to Exhibit 3.4 to the Company's Registration Statement on Form S-1 filed with the Securities
and Exchange Commission on August 7, 2013).
3.5 Amended and Restated By-laws dated August 5, 2013 (incorporated herein by reference to Exhibit
3.5 to the Company's Registration Statement on Form S-1 filed with the Securities and Exchange
Commission on August 7, 2013).
3.6 Amendment to Restated By-laws dated May 11, 2016 (incorporated herein by reference to Exhibit
3.6 to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission
on May 18, 2016).
3.7 Certificate of Amendment to Certificate of Incorporation, Certificate of Designation of Series
B Convertible Preferred Stock, dated December 19, 2017 (incorporated herein by reference to
Exhibit 3.1 to the Company's Current Report on Form 8-K filed with the Securities and Exchange
Commission on December 26, 2017).
4.1 Form of Underwriters' Warrant (incorporated by reference to Exhibit 4.1 to the to the Company's
Registration Statement on Form S-1 filed with the Securities Exchange Commission on November
18, 2013).
4.2 Form of Warrant (incorporated herein by reference to Exhibit 4.1 to the Company's Current
Report on Form 8-K filed with the Securities and Exchange Commission on January 10, 2017).
4.3 Form of Purchaser Warrant (incorporated herein by reference to Exhibit 4.1 to the Company's
Current Report on Form 8-K filed with the Securities and Exchange Commission on April 5, 2017).
4.4 Form of Placement Agent Warrant (incorporated herein by reference to Exhibit 4.2 to the Company's
Current Report on Form 8-K filed with the Securities and Exchange Commission on April 5, 2017).
4.5 Form of Purchaser Warrant (incorporated herein by reference to Exhibit 4.1 to the Company's
Current Report on Form 8-K filed with the Securities and Exchange Commission on October 13,
2017).
4.6 Form of Underwriter's Warrant (incorporated herein by reference to Exhibit 4.1 to the Company's
Registration Statement on Form S-1 filed with the Securities and Exchange Commission on December
15, 2017).
4.7 Form of Common Stock Purchase Warrant (incorporated herein by reference to Exhibit 4.1 to
the Company's Registration Statement on Form S-1 filed with the Securities and Exchange Commission
on December 15, 2017).
10.1 Amended License and Supply Agreement by and between Akers Biosciences, Inc. and Chubeworkx
Guernsey Limited (as successor to Sono International Limited) ("Chubeworkx"), (EN)10 (Guernsey)
Limited (formerly BreathScan International (Guernsey) Limited) and (EN)10 Limited (formerly
BreathScan International Limited), dated June 12, 2013 (incorporated herein by reference to
Exhibit 10.4 to the Company's Registration Statement on Form S-1 filed with the Securities
and Exchange Commission on August 7, 2013).
10.2 Share Purchase Agreement by and between Akers Biosciences, Inc. and Chubeworkx, dated June
12, 2013. (incorporated herein by reference to Exhibit 10.5 to the Company's Registration
Statement on Form S-1 filed with the Securities and Exchange Commission on August 7, 2013).
10.3 Subscription Agreement by and between Akers Biosciences, Inc. and Chubeworkx, dated June 12,
2013(incorporated herein by reference to Exhibit 10.7 to the Company's Registration Statement
on Form S-1 filed with the Securities and Exchange Commission on August 7, 2013).
10.4 Subscription Agreement by and between Akers Biosciences, Inc. and Thomas J. Knox, dated September
14, 2012(incorporated herein by reference to Exhibit 10.8 to the Company's Registration Statement
on Form S-1 filed with the Securities and Exchange Commission on August 7, 2013).
10.5 Promissory Note entered into by Thomas J Knox issued in favor of Akers Biosciences, Inc.,
dated September 14, 2012. (incorporated herein by reference to Exhibit 10.9 to the Company's
Registration Statement on Form S-1 filed with the Securities and Exchange Commission on August
7, 2013).
10.6 License and Supply Agreement by and among the Company, Sono International Limited ("SIL"),
BreathScan International (Guersney) Limited and BreathScan International Limited, dated June
19, 2012 (incorporated herein by reference to Exhibit 10.10 to the Company's Registration
Statement on Form S-1/A filed with the Securities and Exchange Commission on October 8, 2013).
10.7 Distribution Agreement by and among the Company and Fisher Healthcare, and Amendment thereto,
dated June 15, 2010 and May 1, 2012, respectively. (incorporated herein by reference to Exhibit
10.11 to the Company's Registration Statement on Form S-1/A filed with the Securities and
Exchange Commission on October 8, 2013).
10.8 National Brand Distribution Agreement by and among the Company and Cardinal Health 2000, and
Amendment thereto, dated May 1, 2007 and June 1, 2008, respectively. (incorporated herein
by reference to Exhibit 10.12 to the Company's Registration Statement on Form S-1/A filed
with the Securities and Exchange Commission on October 8, 2013).
10.9 2013 Incentive Stock and Award Plan (incorporated herein by reference to Exhibit 10.14 to
the Company's Registration Statement on Form S-1/A filed with the Securities and Exchange
Commission on December 6, 2013).
10.10 Form of Nonqualified Stock Option Agreement (Non-Employee) (incorporated herein by reference
to Exhibit 10.15 to the Company's Registration Statement on Form S-1/A filed with the Securities
and Exchange Commission on December 6, 2013).
10.11 Form of Nonqualified Stock Option Agreement (Employee) (incorporated herein by reference to
Exhibit 10.16 to the Company's Registration Statement on Form S-1/A filed with the Securities
and Exchange Commission on December 6, 2013).
10.12 Form of Restricted Stock Agreement (incorporated herein by reference to Exhibit 10.17 to the
Company's Registration Statement on Form S-1/A filed with the Securities and Exchange Commission
on December 6, 2013).
10.13 Form of Incentive Stock Option (incorporated herein by reference to Exhibit 10.18 to the Company's
Registration Statement on Form S-1/A filed with the Securities and Exchange Commission on
December 6, 2013).
10.14 Letter Agreement, dated December 3, 2013, by and between the Company and Mr. Thomas Knox (incorporated
herein by reference to Exhibit 10.19 to the Company's Registration Statement on Form S-1/A
filed with the Securities and Exchange Commission on December 6, 2013).
10.15 Joint Venture Agreement, dated October 24, 2014, by and between Akers Biosciences, Inc., Hainan
Savy Investment Management Ltd, and Thomas Knox (incorporated herein by reference to Exhibit
10.1 to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission
on October 29, 2014).
10.16 Amended and Restated 2013 Incentive Stock and Award Plan (incorporated herein by reference
to Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the Securities and
Exchange Commission on January 9, 2015).
10.17 Form of Lock Up Agreement (incorporated herein by reference to Exhibit 10.1 to the Company's
Current Report on Form 8-K filed with the Securities and Exchange Commission on January 9,
2015).
10.18 Employment Agreement between the Company and John J Gormally, dated December 1, 2015. (incorporated
herein by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed with
the Securities and Exchange Commission on December 3, 2015).
10.19 First Amendment to the Amended and Restated 2013 Incentive Stock and Award Plan (incorporated
by referenced to Exhibit 10.2 to the Company's Current Report on Form 8-K filed with the Securities
and Exchange Commission on October 12, 2016).
10.20 Form of Placement Agency Agreement, dated March 30, 2017, by and between Akers Biosciences,
Inc. and Joseph Gunnar and Co., LLC (incorporated herein by reference to Exhibit 10.1 to the
Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on
April 5, 2017).
10.21 Form of Securities Purchase Agreement, dated March 30, 2017, by and between Akers Biosciences,
Inc. and various purchasers. (incorporated herein by reference to Exhibit 10.2 to the Company's
Current Report on Form 8-K filed with the Securities and Exchange Commission on April 5, 2017).
10.22 Form Registration Rights Agreement, dated March 30, 2017, by and between Akers Biosciences,
Inc. and various purchasers (incorporated herein by reference to Exhibit 10.3 to the Company's
Current Report on Form 8-K filed with the Securities and Exchange Commission on April 5, 2017).
10.23 Akers Biosciences, Inc. 2017 Equity Incentive Plan (incorporated herein by reference to Exhibit
10.1 to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission
on August 8, 2017).
10.24 Form Warrant Exercise Agreement, dated October 12, 2017 by and between Akers Biosciences,
Inc. and various holders (incorporated herein by reference to Exhibit 10.1 to the Company's
Current Report on Form 8-K filed with the Securities and Exchange Commission on October 13,
2017).
23.1* Consent of Independent Registered Accounting Firm.
31.1* Certification by the Principal Executive Officer of Registrant pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002 (Rule 13a-14(a) or Rule 15d-14(a)).
31.2* Certification by the 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 pursuant to 18 U.S.C. 1350 as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2* Certification by the 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
Item 16. Form 10-K Summary.
Not applicable
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
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: July 13, 2018 By: /s/ John J. Gormally
-----------------------------------------------------
Name: John J. Gormally
Title: Chief Executive Officer (Principal Executive Officer)
Date: July 13, 2018 By: /s/ Gary M. Rauch
-----------------------------------------------------
Name: Gary M. Rauch
Title: Vice President, Finance & Treasurer
(Principal Financial Officer)
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates
indicated.
Name Position Date
---------------------------- -------------------------------------------------------------- -------------
/s/ John J. Gormally Chief Executive Officer and Director July 13, 2018
----------------------------
John J. Gormally (Principal Executive Officer)
/s/ Gary M. Rauch Vice President, Finance & Treasurer July 13, 2018
----------------------------
Gary M. Rauch (Principal Financial Officer and Principal Accounting Officer)
/s/ Christopher C. Schreiber Director July 13, 2018
----------------------------
Christopher C. Schreiber
/s/ Bill J. White Director July 13, 2018
----------------------------
Bill J. White
/s/ Richard C. Tarbox III Director July 13, 2018
----------------------------
Richard C. Tarbox III
FINANCIAL STATEMENTS
Index to Consolidated Financial Statements
Page
----
Report of Independent Registered Public Accounting Firm F-2
Consolidated Balance Sheets F-3
Consolidated Statements of Operations and Comprehensive Loss F-4
Consolidated Statement of Changes in Shareholders' Equity F-5
Consolidated Statements of Cash Flows F-6
Notes to the Consolidated Financial Statements F-7
REPORT OF INDEPENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Shareholders of Akers Biosciences, Inc. and Subsidiaries
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of
Akers Biosciences, Inc. and Subsidiaries (the Company) as of
December 31, 2017 and 2016, and the related consolidated statements
of operations and comprehensive loss, changes in shareholders'
equity, and cash flows for each of the years in the two-year period
ended December 31, 2017, and the related notes (collectively
referred to as the consolidated financial statements). In our
opinion, the consolidated financial statements present fairly, in
all material respects, the financial position of the Company as of
December 31, 2017 and 2016, and the results of its operations and
its cash flows for each of the years in the two-year period ended
December 31, 2017, in conformity with accounting principles
generally accepted in the United States of America.
Restatement of 2017 consolidated financial statements
As discussed in Note 2 to the consolidated financial statements,
the accompanying December 31, 2017 consolidated financial
statements have been restated to correct misstatements.
Basis for Opinion
These consolidated financial statements are the responsibility
of the Company's management. Our responsibility is to express an
opinion on the Company's consolidated financial statements based on
our audits. We are a public accounting firm registered with the
Public Company Accounting Oversight Board (United States) (PCAOB)
and are required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and
the PCAOB.
We conducted our audits in accordance with the standards of the
PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement, whether due
to error or fraud. The Company is not required to have, nor were we
engaged to perform, an audit of its internal control over financial
reporting. As part of our audits, we are required to obtain an
understanding of internal control over financial reporting, but not
for the purpose of expressing an opinion on the effectiveness of
the Company's internal control over financial reporting.
Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of
material misstatement of the consolidated financial statements,
whether due to error or fraud, and performing procedures that
respond to those risks. Such procedures included examining, on a
test basis, evidence regarding the amounts and disclosures in the
consolidated financial statements. Our audits also included
evaluating the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation
of the consolidated financial statements. We believe that our
audits provide a reasonable basis for our opinion.
/s/ Morison Cogen LLP
We have served as the Company's auditor since 2010.
Blue Bell, Pennsylvania
April 2, 2018, (except for the effects of the restatement
described in Note 2, to which the date is July 13, 2018)
AKERS BIOSCIENCES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 2017 and 2016
2017 2016
------------- ------------
(restated)
ASSETS
Current Assets
Cash $ 438,432 $ 72,700
Marketable Securities 5,011,607 50,001
Trade Receivables, net 964,671 601,271
Trade Receivables - Related Party, net - 31,892
Deposits and other receivables 16,590 23,782
Inventories, net 947,612 2,036,521
Prepaid expenses 145,488 168,277
Prepaid expenses - Related Party 251,499 202,500
------------ -----------
Total Current Assets 7,775,899 3,186,944
------------ -----------
Non-Current Assets
Prepaid expenses - Related Party 120,118 270,183
Property, Plant and Equipment, net 235,113 259,392
Intangible Assets, net 1,130,667 1,301,775
Other Assets 76,093 66,813
------------ -----------
Total Non-Current Assets 1,561,991 1,898,163
------------ -----------
Total Assets $ 9,337,890 $ 5,085,107
============ ===========
LIABILITIES
Current Liabilities
Trade and Other Payables $ 1,745,216 $ 1,463,363
Trade and Other Payables - Related Party 39,821 234,067
------------ -----------
Total Current Liabilities 1,785,037 1,697,430
------------ -----------
Total Liabilities 1,785,037 1,697,430
------------ -----------
SHAREHOLDERS ' EQUITY
Convertible Preferred Stock, No par value, 50,000,000 shares authorized,
1,755 and 0 shares
issued and outstanding as of December 31, 2017 and 2016 1,755,000 -
Common Stock, No par value, 500,000,000 shares authorized, 44,220,552
and 5,452,545 issued
and outstanding as of December 31, 2017 and 2016 110,647,169 100,891,786
Deferred Compensation (3,469) (24,572)
Accumulated Deficit (104,845,847) (97,479,537)
Accumulated Other Comprehensive Income - -
------------ -----------
Total Shareholders' Equity 7,552,853 3,387,677
------------ -----------
Total Liabilities and Shareholders' Equity $ 9,337,890 $ 5,085,107
============ ===========
The accompanying notes are an integral part of these
consolidated financial statements.
AKERS BIOSCIENCES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations and Comprehensive Loss
For the years ended December 31, 2017 and 2016
Year ended
December 31,
-------------------------
2017 2016
----------- -----------
(restated)
Revenues :
Product Revenue $ 3,304,712 $ 2,956,782
Product Revenue - Related party - 380
License & Service Revenue 50,000 3,750
---------- ----------
Total Revenues 3,354,712 2,960,912
Cost of Sales:
Product Cost of Sales (2,406,132) (1,083,087)
---------- ----------
Gross Income 948,580 1,877,825
Administrative Expenses 4,082,313 3,008,811
Sales and Marketing Expenses 1,846,445 1,983,428
Sales and Marketing Expenses - Related Party 202,126 153,854
Research and Development Expenses 1,237,384 1,188,868
Research and Development Expenses - Related Party 22,994 -
Reversal of Allowance - Related parties - (1,299,609)
Amortization of Non-Current Assets 171,108 171,108
---------- ----------
Loss from Operations (6,613,790) (3,328,635)
---------- ----------
Other (Income)/Expenses
Foreign Currency Transaction Gain (1,659) (3,398)
Interest and Dividend Income (10,753) (21,699)
Warrant Modification Expense 764,932 -
---------- ----------
Total Other (Income)/Expense 752,520 (25,097)
---------- ----------
Loss Before Income Taxes (7,366,310) (3,303,538)
Income Tax Benefit - -
---------- ----------
Net Loss Attributable to Common Shareholders (7,366,310) (3,303,538)
---------- ----------
Other Comprehensive Income
Net Unrealized Gain on Marketable Securities - 6,231
---------- ----------
Total Other Comprehensive Income - 6,231
---------- ----------
Comprehensive Loss $(7,366,310) $(3,297,307)
========== ==========
Basic and Diluted loss per common share $ (0.78) $ (0.61)
========== ==========
Weighted average basic and diluted common shares outstanding 9,494,977 5,430,205
========== ==========
The accompanying notes are an integral part of these
consolidated financial statements.
AKERS BIOSCIENCES, INC. AND SUBSIDIARIES
Consolidated Statement of Changes in Shareholder's Equity
For the years ended December 31, 2017 and 2016
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, 2015 - $ - 5,425,045 $100,785,408 $ - $ (94,175,999) $ (6,231) $ 6,603,178
Net loss - - - - - (3,303,538) - (3,303,538)
Issuance of
restricted
common stock to
officers - - 27,500 54,725 (54,725) - - -
Amortization of
deferred
compensation - - - - 30,153 - - 30,153
Issuance of
non-qualified
stock options
to key
employees - - - 27,977 - - - 27,977
Issuance of
non-qualified
stock options for
services from
non-employees - - - 23,676 - - - 23,676
Net unrealized
gain on
marketable
securities - - - - - - 6,231 6,231
----------- ---------- ----------- ----------- ---------- ------------ ----------- ----------
Balance at December
31, 2016 - $ - 5,452,545 $100,891,786 $ (24,572) $ (97,479,537) $ - $ 3,387,677
Net loss
(restated) - - - - - (7,366,310) - (7,366,310)
Share register
adjustment - - (1) - - - - -
Public offering
of common
stock, net of
offering costs
of $494,406 - - 1,789,500 1,652,994 - - - 1,652,994
Private offering
of common
stock, net of
offering costs
of $267,443 - - 1,448,400 1,760,317 - - - 1,760,317
Public offering
of common and
preferred
stock, net of
offering costs
of $834,414 3,675 3,675,000 21,500,000 2,390,586 - - - 6,065,586
Warrant
Modification 764,932 764,932
Exercise of
warrants for
common stock - - 925,000 981,948 - - - 981,948
Conversion of
preferred stock
to common stock (1,920) (1,920,000) 12,800,001 1,920,000
Amortization of
deferred
compensation - - - - 21,103 - - 21,103
Issuance of
stock grants to
officers 186,277 163,924 163,924
Issuance of
stock grants to
key employees 108,830 95,770 95,770
Issuance of
non-qualified
stock options
to key
employees - - - 17,274 - - - 17,274
Issuance of
non-qualified
stock options
for services to
non-employees - - - 2,183 - - - 2,183
Issuance of
restricted
stock for
services for
non-employees - - 10,000 5,455 - - - 5,455
----------- ---------- ----------- ----------- ---------- ------------ ----------- ----------
Balance at December
31, 2017(restated) 1,755 $ 1,755,000 44,220,552 $110,647,169 $ (3,469) $(104,845,847) $ - $ 7,552,853
=========== ========== =========== =========== ========== ============ =========== ==========
The accompanying notes are an integral part of these
consolidated financial statements.
AKERS BIOSCIENCES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the years ended December 31, 2017 and 2016
2017 2016
----------- -----------
(restated)
Cash flows from operating activities
Net loss $(7,366,310) $(3,303,538)
Adjustments to reconcile net loss to net cash used in operating activities:
Accrued income on marketable securities (1,412) 14,244
Depreciation and amortization 249,894 286,162
Reserve and write-off for obsolete inventory 1,208,522 32,333
Allowance for /(Reversal) of doubtful accounts 450,000 (1,153,413)
Expenses related to modification of warrants 764,932 -
Amortization of deferred compensation 21,103 30,153
Share based compensation to employees - options 17,274 27,977
Share based compensation to employees - restricted stock 95,770 -
Share based compensation to officers - restricted stock 163,924 -
Share based compensation to non-employees - options 2,183 23,676
Share based compensation to non-employees - restricted stock 5,455 -
Changes in assets and liabilities:
Increase in trade receivables (813,400) (138,272)
Increase/(Decrease) in trade receivables - related party 31,892 (380)
Decrease in deposits and other receivables 7,192 71,795
Increase in inventories (119,613) (187,200)
Decrease in prepaid expenses 22,789 17,689
Decrease in prepaid expenses - related party 101,066 76,927
Increase in other assets (9,280) -
Increase/(decrease) in trade and other payables 281,853 (205,368)
Increase/(decrease) in trade and other payables - related party (194,246) 234,067
---------- ----------
Net cash used in operating activities (5,080,412) (4,173,148)
---------- ----------
Cash flows from investing activities
Purchases of property, plant and equipment (54,507) (123,301)
Purchases of marketable securities (7,709,341) (35,944)
Proceeds from sale of marketable securities 2,749,147 4,003,034
---------- ----------
Net cash provided by/(used in) investing activities (5,014,701) 3,843,789
---------- ----------
Cash flows from financing activities
Net proceeds from issuance of common stock 5,803,897 -
Proceeds from issuance of preferred stock 3,675,000 -
Net proceeds from exercise of warrants for common stock 981,948 -
---------- ----------
Net cash provided by financing activities 10,460,845 -
---------- ----------
Net increase/(decrease) in cash 365,732 (329,359)
Cash at beginning of year 72,700 402,059
---------- ----------
Cash at end of year $ 438,432 $ 72,700
========== ==========
Supplemental Schedule of Non-Cash Financing and Investing Activities
Issuance of restricted common stock grants to officers $ - $ 54,725
========== ==========
Net unrealized gains on marketable securities $ - $ 6,231
========== ==========
Settlement of note receivable in the form of inventory $ - $ 750,000
========== ==========
Settlement of note receivable in the form of prepaid expense $ - $ 549,609
========== ==========
The accompanying notes are an integral part of these
consolidated financial statements.
AKERS BIOSCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 1 - Nature of Business
(a) Reporting Entity
The accompanying financial statements have been prepared by
Akers Biosciences, Inc. ("Akers" or the "Company"), a company
domiciled in the United States of America. The address of the
Company's registered office is 201 Grove Road, West Deptford, New
Jersey, 08086. The Company is incorporated in the United States of
America under the laws of the State of New Jersey.
The consolidated financial statements include two dormant
subsidiaries, Akers Acquisition Sub, Inc. and Bout Time Marketing
Corporation. All material intercompany transactions have been
eliminated upon consolidation.
(b) Nature of Business
The Company's primary focus is the development and sale of
disposable diagnostic testing devices that can be performed in
minutes, to facilitate time sensitive therapeutic decisions. The
Company's main products are a disposable breathalyzer test that
measures the blood alcohol content of the user, a rapid test
detecting the antibody causing an allergic reaction to Heparin and
a disposable breathalyzer test that measures Free Radical activity
in the human body. When the Company enters into an agreement with a
new distributor it typically requires an upfront licensing fee to
be paid for the right to sell the Company's products in specific
markets.
Note 2 - Restatement of Previously Issued Financial
Statements
As previously disclosed, the Company determined that certain
revenue transactions did not qualify for revenue recognition under
generally accepted accounting principles. In the process of this
determination, the Company discovered information that existed at
December 31, 2017 which affected the revenue, certain obligations
and the value of certain inventory items reported in the year ended
December 31, 2017. The Company concluded that the impact of
applying corrections for these errors and misstatements on the
consolidated financial statements as of and for the year ended
December 31, 2017 is material. As a result, the Company is
restating its consolidated financial statements as of and for the
year ended December 31, 2017. See below for a reconciliation of the
previously reported amounts to the restated amounts.
The table below sets forth the consolidated balance sheets,
including the balances originally reported, corrections and the as
restated balances:
As of December 31, 2017
-------------------------------------------
As Reported Correction As Restated
------------- ----------- -------------
Trade Receivables, net $ 1,490,985 $ (526,314) $ 964,671
Trade Receivables - Related Party, net 125,001 (125,001) -
Inventories, net 1,845,281 (897,669) 947,612
Total Current Assets 9,324,883 (1,548,984) 7,775,899
Total Assets 10,886,874 (1,548,984) 9,337,890
Trade and Other Payables 1,733,216 12,000 1,745,216
Total Current Liabilities 1,773,037 12,000 1,785,037
Total Liabilities 1,773,037 12,000 1,785,037
Accumulated Deficit (103,284,863) (1,560,984) (104,845,847)
Total Stockholder's Equity 9,113,837 (1,560,984) 7,552,853
Total Liabilities and Stockholders' Equity 10,886,874 (1,548,984) 9,337,890
The table below sets for the consolidated statements of income,
including the balances originally reported, corrections, and the
restated amounts:
For the year ended December 31, 2017
------------------------------------------
As Reported Correction As Restated
-------------- ----------- -----------
Product revenue $ 3,754,896 $ (450,184) $ 3,304,712
Product revenue - Related party 124,631 (124,631) -
Product Cost of Sales (1,419,963) (986,169) (2,406,132)
Gross Income 2,509,564 (1,560,984) 948,580
Loss from Operations (5,052,806) (1,560,984) (6,613,790)
Loss Before Income Taxes (5,805,326) (1,560,984) (7,366,310)
Net Loss Attributable to Common Stockholders (5,805,326) (1,560,984) (7,366,310)
Comprehensive Loss (5,805,326) (1,560,984) (7,366,310)
Loss per Share (0.61) (0.17) (0.78)
The table below sets forth the consolidated statements of
shareholders' equity, including the balances originally reported,
corrections and the as restated balances:
As Reported Correction As Restated
------------- ----------- -------------
Net loss, for the year ended December 31, 2017 $ (5,805,326) $(1,560,984) $ (7,366,310)
Accumulated Deficit, as of December 21, 2017 (103,284,863) (1,560,984) (104,845,847)
Total Equity, as of December 31, 2017 9,113,837 (1,560,984) 7,552,853
The table below sets forth the consolidated statements of cash
flows from operating activities, including the balances originally
reported, corrections and the as restated balances:
For the year ended December 31, 2017
------------------------------------------
As Reported Correction As Restated
-------------- ----------- -----------
Net loss $ (5,805,326) $(1,560,984) $(7,366,310)
Reserve and write-off for absolute inventory 26,122 1,182,400 1,208,522
Increase in trade receivables (1,339,714) 526,314 (813,400)
(Increase)/decrease in trade receivables - related party (93,109) 125,001 31,892
Increase/(decrease) in inventories 165,118 (284,731) (119,613)
Increase/(decrease) in trade and other payables 269,853 12,000 281,853
Net cash used in operating activities 5,080,412 - 5,080,412
The restatement had no impact on cash flows from investing
activities or financing activities.
In addition to the restated consolidated financial statements,
the information contained in Notes 4, 7, 9, 12, 15, 16, 17, 18, 19,
and 22 has been restated.
Note 3 - Basis of Presentation
(a) Statement of Compliance
The 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).
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.
AKERS BIOSCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(c) Functional and Presentation Currency
These 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 loans and cash balances denominated in Foreign
Currencies, are recorded in the consolidated statement 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.
Note 4 - Significant Accounting Policies (restated)
(a) Cash and Cash Equivalents
Cash and cash equivalents comprise cash balances. 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.
Bank overdrafts are shown as part of trade and other payables in
the consolidated balance sheet.
(b) 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 fair value of
marketable securities is described in Note 3(c).
(c) Fair Value Measurement - Marketable Securities
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:
AKERS BIOSCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Level Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities
1 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 Inputs to the valuation methodology are unobservable and significant to the fair value measurement.
3
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.
(d) Trade Receivables, Trade Receivables - Related Party and Allowance for Doubtful Accounts (restated)
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 December 31, 2017 and 2016, allowances for doubtful
accounts for trade receivables were $596,196 and $1,010,196. Bad
debt expenses for trade receivables were $494,436 and $146,196 for
the years ended December 31, 2017 and 2016. The credit comprises
the reversal of an allowance for bad debts expense - related party
of $1,299,609 and an allowance for bad debts for an external party
of $146,195 included in the administrative expenses for the year
ended December 31, 2016. Included in the allowance for doubtful
accounts as of December 31, 2016 is $864,000 being an allowance for
doubtful account of a trade receivable from a related party written
off against the trade receivable in the year ended December 31,
2017.
AKERS BIOSCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of December 31, 2017 and 2016, the aging of trade receivables
and trade receivables - related party was as follows:
December 31,
Aging Period 2017 % 2016 %
--------------------------- ---------- -----------
(restated)
Current (Notes 6 & 16) 1,181,335 76% 464,365 28%
01-30 Days 79,535 5% 43,223 3%
31-60 Days 20,154 1% 39,203 2%
61-90 Days 25,100 2% 6,150 0%
>90 Days 254,743 16% 1,090,418 67%
--------- ----------
Subtotal 1,560,867 1,643,359
Bad Debts Allowance (596,196) (1,010,196)
--------- ----------
Total $ 964,671 $ 633,163
========= ==========
Average Days in Receivable 169.83 202.58
The aging above represents the number of days that the account
receivable balance exceeds the credit terms. Included in the
current category is accounts receivable of $470,000 and $- as of
December 31, 2017 and December 31, 2016 with payment terms extended
to 180 days.
(e) Concentration of Credit Risk (restated)
The Company is exposed to credit risk in the normal course of
business primarily related to trade receivables and cash and cash
equivalents.
All of the Company's cash is maintained with Fulton Bank of New
Jersey, Bank of America, NA and PayPal. The funds are insured by
the FDIC up to a maximum of $250,000, but are otherwise
unprotected. The Company placed $426,927 and $67,865 with Fulton
Bank of New Jersey, $7,915 and $795 with Bank of America, NA and
$3,590 and $4,040 with PayPal as of December 31, 2017 and 2016. No
losses have been incurred in these accounts.
Concentration of credit risk with respect to trade receivables
exists as approximately 73% of the Company's product revenue is
generated by three customers. These customers accounted for 72% of
trade receivables as of December 31, 2017. To limit such risks, the
Company performs ongoing credit evaluations of its customers'
financial condition.
(f) 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 overheads based on
normal operating capacity.
(g) 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 consolidated statement of
operations and comprehensive loss.
AKERS BIOSCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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.
The estimated useful lives for the current and comparative
periods are as follows:
Useful Life
(in years)
---------------------
Plant and equipment 5-12
Furniture and fixtures 5-10
Computer equipment & software 3-5
Shorter of the
Leasehold Improvements remaining lease or
estimated useful life
Depreciation methods, useful lives and residual values are
reviewed at each reporting date.
(h) Intangible Assets
(i) Patents and Trade Secrets
The Company has developed or acquired several diagnostic tests
that can detect the presence of various substances in a person's
breath, blood, urine and saliva. Propriety protection for the
Company's products, technology and process is important to its
competitive position. As of December 31, 2017, the Company has ten
patents from the United States Patent Office in effect (9,383,368;
7,896,167; 8,097,171; 8,003,061; 8,425,859; 8,871,521; 8,808,639;
D691,056; D691,057 and D691,058). Other patents are in effect in
Australia through the Design Registry (348,310; 348,311 and
348,312), European Union Patents 1793906, 2684025, 002216895-0001;
002216895-0002 and 002216895-0003), in Hong Kong (HK11004006) and
in Japan (1,515,170; 4,885,134; 4,931,821 5,775,790, and 6023096).
Patents are in the national phase of prosecution in many Patent
Cooperation Treaty participating countries. Additional proprietary
technology consists of numerous different inventions. The Company
intends to file additional patent applications, where appropriate,
relating to new products, technologies and their use in the U.S.,
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.
(ii) Patent Costs
Costs associated with applying for patents are capitalized as
patent costs. Once the patents are approved, the respective costs
are amortized over their estimated useful lives (maximum of 17
years) on a straight-line basis. Patent pending costs for patents
that are not approved are charged to operations the year the patent
is rejected.
In addition, patents may be purchased from third parties. The
costs of acquiring the patent are capitalized as patent costs if it
represents a future economic benefit to the Company. Once a patent
is acquired it is amortized over its remaining useful life.
AKERS BIOSCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(iii) Other Intangible Assets
Other intangible assets that are acquired by the Company, which
have definite useful lives, are measured at cost less accumulated
amortization and accumulated impairment losses.
(iv) Amortization
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. The estimated useful
lives for the current and comparative periods are as follows:
Useful Life
(in years)
-----------
Patents and trademarks 12-17
Customer lists 5
(i) Recoverability of Long Lived Assets
In accordance with FASB ASC 360-10-35 "Impairment or Disposal of
Long-lived Assets", long-lived assets to be held and used are
analyzed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be fully
recoverable or that the useful lives of those assets are no longer
appropriate. The Company evaluates at each balance sheet date
whether events and circumstances have occurred that indicate
possible impairment.
The Company determines the existence of such impairment by
measuring the expected future cash flows (undiscounted and without
interest charges) and comparing such amount to the carrying amount
of the assets. An impairment loss, if one exists, is then measured
as the amount by which the carrying amount of the asset exceeds the
discounted estimated future cash flows. Assets to be disposed of
are reported at the lower of the carrying amount or fair value of
such assets less costs to sell. Asset impairment charges are
recorded to reduce the carrying amount of the long-lived asset that
will be sold or disposed of to their estimated fair values. Charges
for the asset impairment reduce the carrying amount of the
long-lived assets to their estimated salvage value in connection
with the decision to dispose of such assets.
(j) Investments
In accordance with FASB ASC 323, the Company recognizes
investments in joint ventures based upon the Company's ability to
significantly influence the operational or financial policies of
the joint venture. An objective judgment of the level of influence
is made at the time of the investment based upon several factors
including, but not limited to the following:
a) Representation on the Board of Directors
b) Participation in policy-making processes
c) Material intra-entity transactions
d) Interchange of management personnel
e) Technological dependencies
f) Extent of ownership and the ability to influence decision making based upon the makeup of
other owners when the shareholder group is small.
AKERS BIOSCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The Company follows the equity method for valuating investments
in joint ventures when the existence of significant influence over
operational and financial policy has been established, as
determined by management; otherwise, the Company will valuate these
investments using the cost method.
Investments recorded using the cost method will be assessed for
any decrease in value that has occurred that is other than
temporary and the other than temporary decrease in value shall be
recognized. As and when circumstances and facts change, the Company
will evaluate the Company's ability to significantly influence
operational and financial policy to establish a basis for
converting the investment accounted for using the cost method to
the equity method of valuation.
On March 9, 2015, the Company contributed capital of $64,675 in
Hainan Savy Akers Biosciences, Ltd., a company incorporated in the
People's Republic of China, resulting in a 19.9% ownership
interest. The contribution was adjusted downward to $64,091 on
April 8, 2015; the net effect of the currency conversion when the
contribution was processed in Hainan. This is included in other
assets in the Consolidated Balance Sheet as of December 31, 2017
and 2016 and is accounted for using the cost method.
(k) Revenue Recognition (restated)
In accordance with FASB ASC 605, the Company recognizes revenue
when (i) persuasive evidence of a customer or distributor
arrangement exists, (ii) a retailer, distributor or wholesaler
receives the goods and acceptance occurs, (iii) the price is fixed
or determinable, and (iv) the collectability of the revenue is
reasonably assured. Subject to these criteria, the Company
recognizes revenue from product sales when title passes to the
customer based on shipping terms. The Company typically does not
accept returns nor offer charge backs or rebates except for certain
distributors. Revenue recorded is net of any discount, rebate or
sales return. The accrual for estimated sales returns was $- as of
December 31, 2017 and 2016. In cases where the right of return is
granted and the Company does not have historical experience to
reasonably estimate the sales returns, the revenue is recognized
when the return privilege has substantially expired.
The Company implemented a standard dealer cost model during the
year ended December 31, 2016 which includes a provision for rebates
to the distributors under limited circumstances. The Company
established an accrual of $126,471 and $41,120, which is a
reduction of revenue as of December 31, 2017 and 2016. Accounts
receivable will be reduced when the rebates are applied by the
customer. The Company recognized $296,164 and $471,949 during the
years ended December 31, 2017 and 2016 for rebates, which is
included as a reduction of product revenue in the Consolidated
Statement of Operations and Comprehensive Loss.
License fee revenue is recognized on a straight-line basis over
the term of the license agreement.
When the Company enters into arrangements that contain more than
one deliverable, the Company allocates revenue to the separate
elements under the arrangement based on their relative selling
prices in accordance with FASB ASC 605-25.
AKERS BIOSCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(l) Income Taxes
The Company follows FASB ASC 740 when accounting for income
taxes, which requires an asset and liability approach to financial
accounting and reporting for income taxes. Deferred income tax
assets and liabilities are computed annually for temporary
differences between the financial statements and tax bases of
assets and liabilities that will result in taxable or deductible
amounts in the future based on enacted tax laws and rates
applicable to the periods in which the differences are expected to
affect taxable income. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount expected to
be realized. Income tax expense or benefit is the tax payable or
refundable for the period plus or minus the change during the
period in deferred tax assets and liabilities.
(m) Shipping and Handling Fees and Costs (restated)
The Company charges actual shipping plus a handling fee to
customers, which amounted to $59,985 and $54,928 for the years
ended December 31, 2017 and 2016. These fees are classified as part
of product revenue in the Consolidated Statement of Operations and
Comprehensive Loss. Shipping and other related delivery costs,
including those for incoming raw materials are classified as part
of the cost of net revenue, which amounted to $136,145 and $138,662
for the years ended December 31, 2017 and 2016.
(n) Research and Development Costs
In accordance with FASB ASC 730, research and development costs
are expensed when incurred.
(o) Stock-based Payments
The Company accounts for stock-based compensation under the
provisions of FASB ASC 718, "Compensation-Stock Compensation",
which requires the measurement and recognition of compensation
expense for all stock-based awards made to employees and directors
based on estimated fair values on the grant date. The Company
estimates the fair value of stock-based awards on the date of grant
using the Black-Scholes model. The value of the portion of the
award that is ultimately expected to vest is recognized as expense
over shorter of the period over which services are to be received
or the vesting period.
The Company accounts for stock-based compensation awards to
non-employees in accordance with FASB ASC 505-50, "Equity-Based
Payments to Non-Employees". Under FASB ASC 505-50, the Company
determines the fair value of the stock warrants or stock-based
compensation awards granted as either the fair value of the
consideration received or the fair value of the equity instruments
issued, whichever is more reliably measurable.
The Company estimates the fair value of stock-based awards to
non-employees on the date of grant using the Black-Scholes model.
The value of the portion of the award that is ultimately expected
to vest is recognized as expense over the period which services are
to be received. At the end of each financial reporting period,
prior to vesting or prior to completion of services, the fair value
of equity based payments will be re-measured and the non-cash
expense recognized during the period will be adjusted accordingly.
Since the fair value of equity based payments granted to
non-employees is subject to change in the future, the amount of the
future expense will include fair value re-measurement until the
equity based payments are fully vested or the service is
completed.
AKERS BIOSCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(p) Basic and Diluted Earnings per Share of Common Stock
Basic earnings per common share are based on the weighted
average number of shares outstanding during the periods presented.
Diluted earnings per share are 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, i.e. the exercise prices of the
outstanding stock options were greater than the market price of the
common stock.
(q) Recently Adopted Accounting Pronouncements
As of December 31, 2017 and for the year then ended, there were
no recently adopted accounting pronouncements that had a material
effect on the Company's financial statements.
(r) Recently Issued Accounting Pronouncements Not Yet Adopted
As the Company is an emerging growth company, it has elected to
adopt recently issued standards based on effective dates applicable
to nonpublic entities. All effective dates as mentioned in the
following paragraphs refer to that applicable to nonpublic
entities.
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 and interim reporting
periods within annual reporting periods beginning after December
15, 2019. Early application is permitted as of annual reporting
periods beginning after December 15, 2016 including interim
reporting periods within that reporting period. The Company is
currently evaluating the effect of the amendments but it does not
anticipate a material impact of its financial statements. The
Company expects to use the modified retrospective adoption
method.
In November 2015, the FASB issued ASU No. 2015-17, Income Taxes
(Topic 740), Balance Sheet Classification of Deferred Taxes. The
amendments in this Update require that deferred tax liabilities and
assets be classified as noncurrent in a classified statement of
financial position. The amendments in this Update are effective for
financial statements issued for annual periods beginning after
December 15, 2017, and interim periods within annual periods
beginning after December 31, 2018. Earlier application is permitted
for all entities as of the beginning of an interim or annual
reporting period. The Company has no deferred tax balances as a
100% valuation allowance has been made. No material impact is
expected.
AKERS BIOSCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
In January 2016, the FASB issued ASU No. 2016-01, Financial
Instruments - Overall (Subtopic 825-10), Recognition and
Measurement of Financial Assets and Financial Liabilities. The
amendments in this Update require all equity investments to be
measured at fair value with changes in the fair value recognized
through net income (other than those accounted for under the equity
method of accounting or those that result in consolidation of the
investee). The amendments in this Update also require an entity to
present separately in other comprehensive income the portion of the
total change in the fair value of a liability resulting from a
change in the instrument-specific credit risk when the entity has
elected to measure the liability at fair value in accordance with
the fair value option for financial instruments. The amendments in
this Update are effective for fiscal years beginning after December
15, 2018, and interim periods within fiscal years beginning after
December 15, 2019. The Company is evaluating the effect of the
adoption of this Update on its financial statements.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic
842). The amendments in this Update specify the accounting for
leases. The core principle of Topic 842 is that a lessee should
recognize the assets and liabilities that arise from leases. The
amendments in this Update are effective for fiscal years beginning
after December 15, 2019, and interim periods within fiscal years
beginning after December 15, 2020. Early application of the
amendments in this Update is permitted. The Company is currently
evaluating the effect the amendments in this Update will have on
its financial statements and related disclosures.
In March 2016, the FASB issued ASU No. 2016-08, Revenue from
Contracts with Customers (Topic 606): Principal versus Agent
Considerations (Reporting Revenue Gross versus Net), which
clarifies certain aspects of the principal versus agent guidance in
the new revenue recognition standard. The effective date and
transition requirement for this ASU are the same as the effective
date and transition requirements of ASU 2014-09, Revenue from
Contracts with Customers (Topic 606), as amended by ASU 2015-14,
Revenue from Contracts with Customers (Topic 606): Deferral of the
Effective Date, which deferred the effective date to annual
reporting periods beginning after December 15, 2018. The Company is
currently evaluating the effect the amendments in this Update will
have on its financial statements and related disclosures.
In March 2016, the FASB issued ASU No. 2016-09, Compensation -
Stock Compensation (Topic 718): Improvements to Employee
Share-Based Payment Accounting, which simplifies several aspects of
the accounting for share-based payment award transactions,
including: (1) income tax consequences; (2) classification of
awards as either equity or liabilities, and (3) classification on
the statement of cash flows. The amendments in this ASU are
effective for annual periods beginning after December 15, 2017, and
interim periods within annual periods beginning after December 15,
2018. Early adoption is permitted in any interim or annual period.
The Company is currently evaluating the effect the amendments in
this Update will have on its financial statements and related
disclosures.
AKERS BIOSCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
In August 2016, the FASB issued ASU No. 2016-15, Statement of
Cash Flows (Topic 230), Classification of Certain Cash Receipts and
Cash Payments. The Update addresses eight specific changes to how
cash receipts and cash payments are presented and classified in the
statement of cash flows. The amendments in this Update are
effective for fiscal years beginning after December 15, 2018, and
interim periods within fiscal years beginning after December 15,
2019. Early adoption is permitted. An entity that elects early
adoption must adopt all of the amendments in the same period. The
amendments in this Update should be applied using a retrospective
transition method to each period presented. If it is impracticable
to apply the amendments retrospectively for some of the issues, the
amendments for those issues would be applied prospectively as of
the earliest date practicable. The Company is currently evaluating
the effect the amendments in this Update will have on its financial
statements and related disclosures.
In May 2017, the FASB issued ASU 2017-09, Compensation - Stock
Compensation (Topic 718), Scope of Modification Accounting. The
amendments in this Update provide guidance about which changes to
the terms or conditions of a share-based payment award require an
entity to apply modification accounting. The amendments in this
Update are effective for all entities for annual periods, and
interim periods within those annual periods, beginning after
December 15, 2017. Early adoption is permitted, including adoption
in any interim period, for (1) public business entities for
reporting periods for which financial statements have not yet been
issued and (2) all other entities for reporting periods for which
financial statements have not yet been made available for issuance.
The amendments in this Update should be applied prospectively to an
award modified on or after the adoption date.
Note 5 - Management Plan
Historically, the Company has relied upon public offerings and
private placements of common stock to raise operating capital.
During the year ended December 31, 2017, the Company raised
$9,478,897, net of expenses, in public and private offerings and an
additional $981,948, net of expenses, from the exercise of warrants
(Note 13). As of March 16, 2018, the Company had realized an
additional $4,909,081 from the exercise of warrants, had cash and
marketable securities of approximately $8.94 million and working
capital of approximately $11.19 million.
The 2017-19 Strategic Business Plan ("Strat Plan") was presented
to and approved by the Board of Directors on December 12, 2016. The
plan outlines the Company's business objectives for the next three
years and sets measurable targets for new product releases, sales
and marketing programs to increase market penetration for the
Company's products and operational expense management.
Implementation of the Strat Plan began in January 2017 and
management remains confident that the objectives are achievable.
The Company's Go To Market ("GTM") plan, revised annually, supports
the implementation of the Strat Plan by defining specific tasks,
products and customer targets designed to achieve the Plan's
revenue goals. The Company anticipates achieving a cash-flow
positive position during the second quarter of 2018 based upon the
revenue targets as outlined in the GTM and Strat Plan.
AKERS BIOSCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
During the year ended December 31, 2016, the Company
significantly reduced operating expenses through a systematic
review of operations throughout the organization. As a result, the
Company achieved a reduction in its weekly operating cash
requirements of approximately 19% to $80,253 (2015: $98,699).
The Company has achieved the reduction in weekly cash
requirements by renegotiating contracts with key consultants and
canceling consulting agreements where the cost-benefits are
negligible, working with vendors to reduce or eliminate minimum
purchasing requirements, to extend payment terms and re-sourcing
materials when necessary to reduce costs.
Production cost savings, especially direct manufacturing costs,
have been realized by utilizing sub-contractors to perform labor
intensive production processes. This improves efficiency for our
manufacturing staff, allowing them to concentrate their efforts on
more complex assembly and production tasks.
During the year ended December 31, 2017, the Company's average
weekly operating cash requirement increased to $97,700 (2016:
$80,253). The increase resulted from payments to vendors and
sub-contractors included in the December 31, 2016 accounts payable
balance, a significant royalty payment that had been deferred in
2016 as part of a legal settlement, significantly higher
professional service fees and other payments for contractual
obligations. The Company anticipates the cash requirements to
remain in the range of $95,000 to $100,000 per week throughout
2018.
Barring any unforeseen circumstances, the Company believes that
it is probable that it will be able to meet its obligations as they
fall due within one year after the financial statements are
issued.
Note 6 - Fair Value Measurement - Marketable Securities
Following is a description of the valuation methodologies used
for assets measured at fair value as of December 31, 2017 and
2016.
U.S. Agency Securities and Corporate and Municipal 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.
As of December 31, 2017
-------------------------------------------------------------
Accrued Unrealized Unrealized Fair
Cost Income Gains Losses Value
---------- --------- ------------ ------------ ----------
Level 2:
Money market funds $ 5,165 $ 161 $ - $ - $ 5,326
Municipal securities 5,005,000 1,281 - - 5,006,281
--------- ----- ----- ----- ----- ----- ---------
Total Level 2: 5,010,165 1,442 - - 5,011,607
--------- ----- ----- ----- ----- ----- ---------
Total: $5,010,165 $ 1,442 $ - $ - $5,011,607
========= ===== ===== ===== ===== ===== =========
AKERS BIOSCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of December 31, 2016
-----------------------------------------------------------
Cost Accrued Unrealized Unrealized Fair
Income Gains Losses Value
----------- --------- ------------ ------------ -------
Level 2:
Money market funds $ 29,657 $ 15 $ - $ - $29,672
Municipal securities 20,314 15 - - 20,329
------- --- ---- ----- ----- ----- ----- ------
Total Level 2: 49,971 30 - - 50,001
------- --- ---- ----- ----- ----- ----- ------
Total: $ 49,971 $ 30 $ - $ - $50,001
======= === ==== ===== ===== ===== ===== ======
Marketable securities 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 relating to the
available for sale investment securities were recorded in the
Consolidated Statement of Changes in Shareholders' Equity as
comprehensive income. These amounts were an unrealized gain of $-
and $6,231 (net of effect of income tax expense of $-) for the
years ended December 31, 2017 and 2016.
Proceeds from the sale of marketable securities in the years
ended December 31, 2017 and 2016 were $2,749,147 and $4,003,034.
Net gains of $3,375 and net losses of $85 resulted from these sales
for the years ended December 31, 2017 and 2016.
Note 7 - Trade Receivables - Related Party (restated)
Trade receivables - related party are made up of amounts due
from Hainan Savy Akers Biosciences Ltd ("Hainan"), a joint venture
between Akers, Thomas Knox, Akers' former Board Chairman, and
Hainan Savy Investment Management Ltd, located in the People's
Republic of China. The Company holds a 19.9% position in the joint
venture. The amount due is non-interest bearing, unsecured and
generally has a term of 30-90 days (Note 17).
Note 8 - Note Receivable - Related Parties
On December 31, 2014, a note of $1,475,766 was issued to the Company in exchange for the Company's
open trade receivables from ChubeWorkx Guernsey Limited ("ChubeWorkx"), a major shareholder.
It is payable in sixty equal installments of $27,734 commencing January 1, 2015 and has an
interest rate of 5% per annum.
As of December 31, 2015, the Company established an allowance for doubtful accounts for notes
receivable - related party of $1,299,609 which is reported as bad debt expense - related parties
in the Consolidated Statement of Operations and Comprehensive Loss for the year ended December
31, 2015.
On August 17, 2016, the Company entered into a Settlement Agreement with ChubeWorkx which
settled all pending claims between the companies. Under the terms of the Settlement Agreement,
the Company recovered the full outstanding principal amount in the current fiscal year in
the form of $750,000 of BreathScan(R) Alcohol Detector inventory - which the Company intends
to subsequently sell - and the balance of $549,609 as a prepaid royalty (Note 16). As a result
of the Settlement Agreement, the Company reversed the allowance for doubtful note in the amount
of $1,299,609 which is included in the Consolidated Statement of Operations and Comprehensive
Loss for the year ended December 31, 2016.
For the year ended December 31, 2017 and 2016, the Company has invoiced $21,600 and $- for
the BreathScan(R) Alcohol Detector inventory that was recovered as part of the Settlement.
Note 9 - Inventories (restated)
Inventories consists of the following categories:
December 31,
2017 2016
----------- ----------
(restated)
Raw Materials $ 458,441 $ 440,316
Sub-Assemblies 886,274 907,989
Finished Goods 815,505 749,488
Reserve for Obsolescence (1,212,608) (61,272)
---------- ---------
$ 947,612 $2,036,521
========== =========
The Company has been actively marketing, on a global basis, the
BreathScan Breath Alcohol products that were produced for and/or
acquired as part of the ChubeWorkx settlement agreement in August
2016. Unfortunately, the Company has not been successful in
securing buyers in sufficient volumes.
An extensive analysis of the market opportunity has been
performed and it was determined that the on-hand quantity of this
group of products exceeded the expected near term demand for the
product prior to its expiration. As such, the Company's management
elected to establish a reserve of $1,182,400 for the year ended
December 31, 2017.
Obsolete inventory charged to cost of goods during the years
ended December 31, 2017 and 2016 totaled $1,208,522 and
$32,333.
AKERS BIOSCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 10 - Property, Plant and Equipment
Property, plant and equipment consists of the following:
December 31,
2017 2016
---------- ----------
Computer Equipment $ 114,771 $ 114,771
Computer Software 40,681 40,681
Office Equipment 39,959 39,959
Furniture & Fixtures 38,356 29,939
Machinery & Equipment 1,138,134 1,126,134
Molds & Dies 868,570 834,480
Leasehold Improvements 222,593 222,593
--------- ---------
2,463,064 2,408,557
Less
Accumulated Depreciation 2,227,951 2,149,165
--------- ---------
$ 235,113 $ 259,392
========= =========
Depreciation expenses totaled $78,786 and $115,054 for the years
ended December 31, 2017 and 2016.
Note 11- Intangible Assets
Intangible assets as of December 31, 2017 and 2016 and the
movements for the periods then ended are as follows:
Distributor &
Patents & Customer
Trademarks Relationships Totals
---------- --------------- ----------
Cost or Deemed Cost
At December 31, 2015 $2,626,996 $ 1,270,639 $3,897,635
Additions - - -
Disposals - - -
--------- ----------- ---------
At December 31, 2016 $2,626,996 $ 1,270,639 $3,897,635
========= =========== =========
Accumulated Amortization
At December 31, 2015 $1,154,113 $ 1,270,639 $2,424,752
Amortization Charge 171,108 - 171,108
Disposals - - -
--------- ----------- ---------
At December 31, 2016 $1,325,221 $ 1,270,639 $2,595,860
========= =========== =========
Net Book Value
At December 31, 2015 $1,472,883 $ - $1,472,883
At December 31, 2016 $1,301,775 $ - $1,301,775
Cost or Deemed Cost
At December 31, 2016 $2,626,996 $ 1,270,639 $3,897,635
Additions - - -
Disposals - - -
--------- ----------- ---------
At December 31, 2017 $2,626,996 $ 1,270,639 $3,897,635
========= =========== =========
Accumulated Amortization
At December 31, 2016 $1,325,221 $ 1,270,639 $2,595,860
Amortization Charge 171,108 - 171,108
Disposals - - -
--------- ----------- ---------
At December 31, 2017 $1,496,329 $ 1,270,639 $2,766,968
========= =========== =========
Net Book Value
At December 31, 2016 $1,301,775 $ - $1,301,775
========= =========== =========
At December 31, 2017 $1,130,667 $ - $1,130,667
========= =========== =========
Amortization expense totaled $171,108 for the years ended
December 31, 2017 and 2016.
AKERS BIOSCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The estimated aggregate amortization expense for each of the
five succeeding fiscal years is as follows:
Period Amount
------- --------
2018 $171,108
2019 171,108
2020 171,108
2021 171,108
2022 171,108
Note 12 - Trade and Other Payables (restated)
Trade and other payables consists of the following:
December 31,
2017 2016
---------- ----------
(restated)
Trade Payables $ 948,951 $ 923,311
Accrued Expenses 736,515 480,302
Deferred Compensation 59,750 59,750
--------- ---------
$1,745,216 $1,463,363
========= =========
Trade and other payables - related party are as follows:
December 31,
2017 2016
------- --------
Trade Payables $39,821 $182,001
Accrued Expenses - 52,066
------ -------
$39,821 $234,067
====== =======
As of December 31, 2017 the Company owed ChubeWorkx Guernsey
Limited, previously a major shareholder, royalties of $36,661 (Note
16) which was paid on February 12, 2018.
As of December 31, 2017, the Company owed Hainan $670. Senior
management at Hainan are actively involved in Shenzhen Savy-Akers
Biosciences ("Shenzhen") which is therefore being included as a
related party. The Company owed Shenzhen $2,490 as of December 31,
2017.
Trade and other payables are non-interest bearing and are
normally settled on 30 - 60 day terms.
Note 13 - Share-based Payments
On January 23, 2014, upon effectiveness of the registration
statement filed with the SEC, the Company adopted the 2013 Stock
Incentive Plan (the "Plan") which will provide for the issuance of
up to 400,000 shares. The purpose of the Plan is to provide
additional incentive to those officers, employees, consultants and
non-employee directors of the Company and its parents, subsidiaries
and affiliates whose contributions are essential to the growth and
success of the Company's business.
AKERS BIOSCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
On January 9, 2015, the Board of Directors of the Company
approved, upon recommendation from the Compensation Committee of
the Board, by unanimous written consent the Amended and Restated
2013 Incentive Stock and Award Plan (the "Amended Plan"), which
increases the number of authorized shares of common stock subject
to the Plan to 800,000 shares.
On September 30, 2016, the Board of Directors increased the
number of authorized shares of common stock subject to the Amended
Plan to 830,000 shares. As of December 31, 2017, under the 2013
Amended Plan, grants of restricted stock and options to purchase
264,166 shares of common stock have been issued and are unvested or
unexercised and 7,292 shares of common stock remain available for
grants.
On August 7, 2017, the Shareholders approved and the Company
adopted the 2017 Equity Incentive Plan (the "Plan") which will
provide for the issuance of up to 1,350,000 shares. The purpose of
the Plan is to provide additional incentive to those officers,
employees, consultants and non-employee directors of the Company
and its parents, subsidiaries and affiliates whose contributions
are essential to the growth and success of the Company's business.
As of December 31, 2017, under the 2017 Plan, grants totaling
295,107 shares of restricted common stock have been issued and
1,054,893 shares of common stock remain available for grants.
The Plan may be administered by the board or a board-appointed
committee. Eligible recipients of option awards are employees,
officers, consultants or directors (including non-employee
directors) of the Company or of any parent, subsidiary or affiliate
of the Company. The board has the authority to grant to any
eligible recipient any options, restricted stock or other awards
valued in whole or in part by reference to, or otherwise based on,
the Company's common stock.
Qualified option holders may exercise their options at their
discretion. Each option granted may be exchanged for a prescribed
number of shares of common stock.
On January 1, 2016, the Company approved the issuance of 12,500
options to purchase common shares to a key consultant for services
at an exercise price of $3.70 per common share with vesting over
one year. The options carry a five-year expiration.
On August 9, 2016 the Company approved the issuance of 26,000
options to purchase common shares to two key employees at an
exercise price of $3.25 per common share with vesting over two
years. The options carry a five-year expiration.
The options issued under the above plan were valued using a
Black Scholes option pricing model. The assumptions utilized in
calculating the value of the issued options under Black Scholes are
as follows:
2017 2016
----- -----
Expected option term - 5 yrs
Expected volatility - 95.02%
Expected divident yeild - 0.00%
Risk free interest rate - 1.76%
The Company did not issue any options or warrants under the
above plan during the year ended December 31, 2017.
The following table summarizes the option activities for the
years ended December 31, 2017 and 2016:
Weighted
Weighted Average
Average Remaining Aggregate
Number of Exercise Contractual Intrinsic
Shares Price Term (years) Value
---------- ---------- ------------ -----------
Balance at December 31, 2015 220,500 $ 4.38 3.81 $ -
Granted 38,500 3.40 4.43 -
Exercised - - - -
Forfeited - - - -
Canceled/Expired - - - -
--------- ------
Balance at December 31, 2016 259,000 $ 4.23 3.05 $ 20,100
========= ======
Exercisable as of December 31, 2016 239,167 $ 4.31 2.92 $ 20,100
Balance at December 31, 2016 259,000 $ 4.23 3.05 $ 20,100
Granted - - - -
Exercised - - - -
Forfeited (4,000) 3.25 3.63 -
Canceled/Expired - - - -
--------- ------
Balance at December 31, 2017 255,000 $ 4.25 2.02 $ -
========= ======
Exercisable as of December 31, 2017 250,334 $ 4.27 1.99 $ -
========= ======
AKERS BIOSCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The aggregate intrinsic value is calculated as the difference
between the exercise price of the underlying awards and the closing
stock price of $0.13 and $1.90 for our common shares on December
31, 2017 and 2016.
A summary of the Company's non-vested shares as of December 31,
2017 and the changes during the period then ended are as
follows:
Weighted
Average Grant
Non-Vested Shares Shares Date Fair Value
-------------------------------- -------- -----------------
Non-vested at December 31, 2015 - $ -
Granted 38,500 1.98
Vested (18,666) 1.90
Forfeited - -
------- --- ------------
Non-vested at December 31, 2016 19,834 $ 2.36
======= === ============
Non-vested at December 31, 2016 19,834 $ 2.36
Granted - -
Vested (11,168) 2.07
Forfeited (4,000) 2.36
------- --- ------------
Non-vested at December 31, 2017 4,666 $ 2.36
======= === ============
Unrecognized compensation cost related to non-vested employee
stock options totaled $6,930 as of December 31, 2017. The cost is
to be recognized over a weighted average period of 0.62 years.
During the years ended December 31, 2017 and 2016, the Company
incurred stock option expenses totaling $19,457 and $51,653.
During the year ended December 31, 2017, the Company issued
50,415,571 warrants in conjunction with two public offerings and a
private placement of the Company's common shares. All warrants
carry a five-year expiration term. The table below summarizes the
warrant activity for the year ended December 31, 2017:
Weighted
Weighted Average
Average Remaining
Number of Exercise Contractual
Warrants Price Term (years)
----------- ---------- ------------
Balance at December 31, 2016 - $ - -
Granted 50,415,571 0.24 4.94
Exercised (925,000) 1.11 -
Forfeited - - -
Canceled/Expired - - -
---------- ------
Balance at December 31, 2017 49,490,571 $ 0.22 4.95
========== ======
Exercisable as of December 31, 2017 48,766,371 $ 0.22 4.95
========== ======
AKERS BIOSCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 14 - Equity
The holders of common shares are entitled to one vote per share
at meetings of the Company. Holders of Series B convertible
preferred shares have no voting rights at meetings of the
Company.
A restricted stock award is an award of common shares that are
subject to certain restrictions during a specified period.
Restricted stock awards are independent of option grants and are
generally subject to forfeiture if employment terminates prior to
the release of the restrictions. The grantee cannot transfer the
shares before the restricted shares vest. Shares on non-vested
restricted stock have the same voting rights as common stock, are
entitled to receive dividends and other distributions thereon and
are considered to be currently issued and outstanding. The Company
expenses the cost of the restricted stock awards, which is
determined to be the fair market value of the shares at the date of
grant, straight-line over the period during which the restrictions
lapse. For these purposes, the fair market value of the restricted
stock is determined based on the closing price of the Company's
common stock on the grant date.
On June 8, 2016, the Company issued 27,500 restricted common
shares to an officer in connection with his employment agreement.
These shares vest 1/3 immediately on the date of the grant and the
remaining 2/3 vests equally on March 1, 2017 and March 1, 2018. The
fair value of these shares was $54,725 and was based on the share
price on the date of the grant. $21,103 and $30,153 was recorded
during the years ended December 31, 2017 and 2016 as administrative
expense on the Consolidated Statement of Operations and
Comprehensive Loss and the remaining $3,469 is reported as deferred
compensation, a contra equity account, on the Condensed
Consolidated Balance Sheet as of December 31, 2017.
On January 13, 2017, the Company completed a public offering of
1,789,500 common shares, raising net proceeds of $1,652,994. Below
is a summary of the gross proceeds to net proceeds calculation.
Shares $ $
---------- --------- ---------
Common Shares
Base Offering 1,667,000 2,000,400
Over-Allotment 122,500 147,000
---------
Gross Proceeds 2,147,400
Underwriter/Gunnar Expenses
Discount 150,318
Legal Fees 60,000
Roadshow 1,783
Miscellaneous 34,005
---------
Total 246,106
Akers Biosciences Expenses
Legal & Accounting 197,813
Registration/Regulatory 50,487
---------
Total 248,300
---------
Net Proceeds 1,652,994
=========
In addition to the common shares issued, the Company also issued
894,750 warrants with an exercise price of $1.50 per common share.
All of the warrants issued have a five-year term.
AKERS BIOSCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
On March 30, 2017, the Company completed a private placement of
1,448,400 unregistered shares of common stock, raising net proceeds
of $1,760,317. The unregistered shares were admitted to trading on
September 30, 2017 upon notification from the Securities and
Exchange Commission that the Registration Statement, filed April
19, 2017, had been deemed effective. Below is a summary of the
gross proceeds to net proceeds calculation.
Shares $ $
---------- --------- ---------
Common Shares
Base Offering 1,448,400 2,027,760
---------
Gross Proceeds 2,027,760
Underwriter/Gunnar Expenses
Discount 141,943
Legal Fees 50,000
---------
Total 191,943
Akers Biosciences Expenses
Legal & Accounting 75,000
Filing Fees 500
---------
Total 75,500
---------
Net Proceeds 1,760,317
=========
In addition to the common shares issued, the Company also issued
796,620 warrants with an exercise price of $1.96 per common share
with a five-year term.
On April 11, 2017, the Company issued 10,000 restricted shares
to a consultant for services to be rendered during the year ending
December 31, 2017. These shares vested on the date of the grant.
The fair value of these shares was $18,000 and was based on the
share price on the date of the grant. The company recorded $5,455
during the year ended December 31, 2017 as sales and marketing
expenses on the Consolidated Statement of Operations and
Comprehensive Loss. The Company will recognize the remaining
expense of $12,545 during the year ending December 31, 2018.
On October 12, 2017, the Company entered into Warrant Exercise
Agreements with the existing holders of 724,200 warrants from the
March 2017 private placement with an original exercise price of
$1.96 per share to exercise their current warrants at $1.00 per
share and receive a new warrant which would be convertible into the
same number of common shares as the original warrant. The new
warrant has an exercise price of $1.26 and expire five years from
the date of issuance. The increase in fair value of the reduction
in the exercise price of the warrants from $1.96 to $1.00 was
$93,386. The Company used the Black-Scholes option pricing model to
calculate the increase in fair value with the following assumptions
for the decrease in exercise price: no dividend yield, expected
volatility of 97.16%, risk free interest rate of 1.95%, and
expected warrant life of 4.47 years. The fair value of the new
warrants issued of 724,200 was $671,546. The Company used the
Black-Scholes option pricing model to calculate the fair value with
the following assumptions for the issuance of the new warrants: no
dividend yield, expected volatility of 97.16%, risk free interest
rate of 1.95%, and expected warrant life of 5 years. In accordance
with FASB ASC 718-20-35, expenses related to the modification and
re-issue of the warrants totaled $764,932 which are included as
warrant modification expenses on the Consolidated Statement of
Operations and Comprehensive Loss. The Company received net
proceeds of $680,748 net of a solicitation fee of $43,452 from the
exercise of 724,200 warrants.
AKERS BIOSCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
On October 17, 2017, the Board of Directors issued 295,107
restricted shares of common stock to key employees and officers of
the Company as part of the 2017 Equity Incentive Plan. The
restricted stock vested immediately and were valued at the closing
stock price of $0.88 per share. The fair value of the restricted
shares totaled $259,694 and were expensed immediately. The expense
is included in the Consolidated Statement of Operations and
Comprehensive Loss for the year ending December 31, 2017 as
follows:
Expense Category 2017 2016
------------------------- -------- ------
General & Administrative $163,924 -
Sales & Marketing 95,770 -
-------
$259,694 $ -
=======
On December 21, 2017, the Company completed a public offering of
21,500,000 common shares and 3,675 Series B convertible preferred
shares, raising net proceeds of $6,065,586. Below is a summary of
the gross proceeds to net proceeds calculation.
Public Offering - December 21, 2017
Shares $ $
-------------- ----------- -------------
Common Shares
Base Offering 15,500,000 2,325,000
Over-Allotment 6,000,000 900,000
Series B Preferred Shares
Base Offering 3,675 3,675,000
-----------
Gross Proceeds 6,900,000
Underwriter/Gunnar Expenses
Discount 483,000
Non-Accountable Allowance 60,000
Legal Fees 75,000
Roadshow 2,558
Miscellaneous 36,500
-----------
Total 657,058
Akers Biosciences Expenses
Legal & Accounting 160,000
Registration/Regulatory 17,356
-----------
Total 177,356
-----------
Net Proceeds 6,065,586
===========
In addition to the common shares issued, the Company also issued
46,000,001 warrants with an exercise price of $0.1875 per common
share in support of the base offering. All the warrants issued have
a five-year term.
During the year ended December 31, 2017, warrant holders from
the January 13, 2017 public offering executed 200,800 warrants with
an exercise price of $1.50 per common share, raising net proceeds
of $301,200.
Note 15 - Loss per share (restated)
The calculation of basic and diluted loss per share at December
31, 2017 and 2016 was based on the loss attributable to common
shareholders of $7,366,310 and $3,303,538. The basic and diluted
weighted average number of common shares outstanding for 2017 and
2016 was 9,494,977 and 5,430,205.
Diluted net loss per share is computed using the weighted
average number of common and dilutive potential common shares
outstanding during the period.
Potential common shares consist of options, warrants and
unvested restricted stock. Diluted net loss per common share was
the same as basic net loss per common share for the years ended
December 31, 2017 and 2016 since the effect of options and warrants
would be anti-dilutive due to the net loss attributable to the
common shareholders. Instruments excluded from dilutive earnings
per share, because their inclusion would be anti-dilutive, were as
follows: incentive and award stock options - 255,000 and 259,000;
unvested restricted shares of common stock - 9,166 and 18,333;
warrants - 48,766,371 and - as of December 31, 2017 and 2016.
Note 16 - Income Tax Expense (restated)
The Company utilizes the asset and liability method of
accounting for income taxes in accordance with FASB ASC 740.
The Company's income tax (benefit)/provision is as follows:
Years Ended December 31,
2017 2016
---------------- ----------
(restated)
Current $ - $ -
Deferred (6,003,000) $ (751,000)
Change in Valuation Allowance 6,003,000 $ 751,000
----------- ---------
Income Tax Benefit $ - $ -
=========== =========
AKERS BIOSCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The reconciliation of income taxes using the statutory U.S.
income tax rate and the benefit from income taxes for the years
ended December 31, 2017 and 2016 are as follows:
Years Ended December 31,
2017 2016
---------------- -------
(restated)
Statutory U.S. Federal Income Tax Rate (35.0%) (35.0%)
New Jersey State income taxes, net of U.S.
Federal tax effect (6.0%) (6.0%)
Tax rate change 122.0% 0.0%
Change in Valuation Allowance (81.0)% 41.0%
--------------- -------
Net 0.0% 0.0%
=============== =======
In December 2017, the Tax Cuts and Jobs Act was enacted, which
reduced the U.S. statutory corporate tax rate to 21% for tax years
beginning in 2018. This change resulted in a re-measurement of the
federal portion of the Company's deferred tax assets and the
valuation allowance as of December 31, 2017 from 35% to the new 21%
tax rate.
As of December 31, 2017 and 2016, the Company had Federal net
operating loss carry forwards of approximately $69,001,000 and
$60,100,000, expiring through the year ending December 31, 2037. As
of December 31, 2017 and 2016, the Company had New Jersey state net
operating loss carry forwards of approximately $18,168,000 and
$9,400,000, expiring through the year ending December 31, 2024.
The principle components of the deferred tax assets and related
valuation allowances as of December 31, 2017 and 2016 are as
follows:
Years Ended December 31,
2017 2016
------------ ------------
(restated)
Reserves and other $ 718,000 $ 865,000
Net operating loss carry-forwards 15,762,000 21,618,000
Valuation Allowance (16,480,000) (22,483,000)
----------- -----------
Net $ - $ -
=========== ===========
The valuation allowance for deferred tax assets as of December
31, 2017 and 2016 was $16,480,000 and $22,483,000. The change in
the total valuation for the years ended December 31, 2017 and 2016
were a decrease of $6,003,000 and an increase of $751,000. In
assessing the realization of deferred tax assets, management
considers whether it is more likely than not that some portion or
all of the deferred tax assets will not be realized.
The ultimate realization of deferred tax assets is dependent
upon the generation of future taxable income during the periods in
which the net operating losses and temporary differences become
deductible. Management considered projected future taxable income
and tax planning strategies in making this assessment. The value of
the deferred tax assets was fully offset by a valuation allowance,
due to the current uncertainty of the future realization of the
deferred tax assets.
The Company's policy is to record interest and penalties
associated with unrecognized tax benefits as additional income
taxes in the statement of operations. As of January 1, 2017, the
Company had no unrecognized tax benefits and no charge during 2017,
and accordingly, the Company did not recognize any interest or
penalties during 2017 related to unrecognized tax benefits. There
is no accrual for uncertain tax positions as of December 31,
2017.
The Company files U.S. federal income tax returns and a state
income tax returns. The U.S. and state income tax returns filed for
the tax years ending on December 31, 2014 and thereafter are
subject to examination by the relevant taxing authorities.
AKERS BIOSCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 17 - Related Party Transactions (restated)
On June 19, 2012, the Company entered into a 3-year exclusive
License & Supply Agreement with ChubeWorkx Guernsey Limited (as
successor to SONO International Limited) ("ChubeWorkx") for the
purchase and distribution of Akers' proprietary breathalyzers
outside North America. ChubeWorkx paid a licensing fee of
$1,000,000 which was recognized over the term of the agreement
through September 30, 2015.
On June 13, 2013, the Company announced an expansion of the
License and Supply Agreement with ChubeWorkx to include worldwide
marketing and distribution of the "Be CHUBE" program using the
Company's breathalyzer.
On August 17, 2016, the Company entered into a Settlement
Agreement (the "Settlement Agreement") with ChubeWorkx Guernsey
Limited ("ChubeWorkx"), a major shareholder, 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").
Under the terms of the Settlement Agreement, the Company will
recover the full outstanding principal amount in the current fiscal
year in the form of $750,000 of BreathScan(R) Alcohol Detector
inventory - which the Company intends to subsequently sell - and
the balance of $549,609 as prepaid royalty. Akers' established an
allowance for this doubtful note in the Company's financial
statements for the year ended December 31, 2015. As a result of the
Settlement Agreement, the Company reversed the allowance for
doubtful note in the amount of $1,299,609 which was included in the
Consolidated Statement of Operations and Comprehensive Loss for the
year ended December 31, 2016. As of December 31, 2017, the Company
evaluated the net realizable value of this inventory and recorded a
reserve of $690,190, which is included in cost of goods sold in the
Consolidated Statement of Operations, and Comprehensive Loss for
the year ended in December 31, 2017.
In addition to addressing the promissory note described above,
the Settlement Agreement also allows the Company to market and sell
all of the Company's breath technology tests worldwide,
unencumbered by any past/future claims by ChubeWorkx under the
Licensing Agreement (entered into with ChubeWorkx in 2012 and
subsequently amended in 2013). Under the terms of the Settlement
Agreement, ChubeWorkx no longer holds any rights pertaining to
Akers' BreathScan(R) technology, which serves as the basis for a
number of commercialized products including BreathScan(R) Alcohol
Detector and BreathScan OxiChek(TM); and a number of products in
development.
AKERS BIOSCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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 $202,126 and $153,854 for the years ended December 31,
2017 and 2016 which are included in sales and marketing expenses -
related party on the Consolidated Statement of Operations and
Comprehensive Loss. As of December 31, 2017 and 2016, the Company
owed ChubeWorkx royalties of $36,661 and $17,953. The royalty owing
is subject to a monthly interest rate of 4.0% and is due in the
month following the end of each quarter.
Other terms of the Settlement include: 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.
The Company began purchasing manufacturing molds, plastic
components and the assembled BreathScan Lync(TM) device through
Hainan and its related party during the year ended December 31,
2016 (Note 11). The Company purchased a total of $41,731 and
$207,135 during the years ended December 31, 2017 and 2016. As of
December 31, 2017, the Company owed the Hainan and its related
party $3,160 which is included in trade and other payables -
related party on the Consolidated Balance Sheet. The amount owed is
interest free and has similar credit terms as other suppliers.
Trade receivables - related party as of December 31, 2017 and
2016 were $- and $31,892. The amounts due are non-interest bearing,
unsecured and generally have a term of 30-180 days (Note 6).
Product revenue - related party for the years ended December 31,
2017 and 2016 were $- and $380. The revenue was the result of sales
to Hainan and its related party.
AKERS BIOSCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 18 - Commitments (restated)
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 years ended December 31, 2017 and 2016 totaled
$161,807 and $161,160, 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 runs through May 31, 2019.
Rent expenses for the Ramsey Lease, including related CAM
charges totaled $15,166 and $- for the years ended December 31,
2017 and 2016. The Company posted a security deposit of $4,330
which is included in other assets on the Consolidated Balance
Sheet.
The Company entered into a 29-month lease for warehouse space
located in Pitman, New Jersey ("Pitman Lease") with annual rents of
$39,650. The lease took effect on August 1, 2017 and runs through
December 31, 2019.
Rent expenses for the Pitman Lease totaled $16,670 and $- for
the years ended December 31, 2017 and 2016. A security deposit of
$4,950 is included in other assets on the 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 Ramsey Pitman Equipment
Lease Lease Lease Lease Total
$ $ $ $ $
---------- ------ ------ --------- -------
Next 12 Months 132,000 25,980 39,650 6,156 203,786
Next 13-24 Months 132,000 10,825 39,650 5,130 187,605
On June 30, 2017, the Company signed the Third Amendment to the
exclusive Distribution Agreement with NovoTek Pharmaceuticals
Limited ('NovoTek') which expanded the geographic area of coverage
to include Poland and grants NovoTek the right to assemble certain
PIFA Heparin PF/4 products in their facilities from components
acquired from the Company.
AKERS BIOSCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The Company has agreed to provide PIFA Heparin/PF4 devices,
valued at approximately $88,500, at no charge to NovoTek for their
use and are to be shipped upon their request. During the year ended
December 31, 2017, the Company incurred a charge to product cost of
sales of $88,500 in connection with this product obligation and
included this amount as an accrued expense in trade and other
payables within the Company's consolidated balance sheets as of
December 31, 2017.
As of December 31, 2017, the Company had not shipped any goods
related to the program.
Note 19 - Major Customers (restated)
For the year ended December 31, 2017, three customers generated
10% or more of the Company's revenue. Sales to these customers
accounted for 73% of the Company's revenue. As of December 31,
2017, the amount due from these customers was $1,123,920. This
concentration makes the Company vulnerable to a near-term severe
impact should the relationships be terminated.
For the year ended December 31, 2016, three customers generated
10% or more of the Company's revenue. Sales to these customers
accounted for 75% of the Company's revenue. As of December 31,
2016, the amount due from these customers was $490,725.
Note 20 - Major Suppliers
For the year ended December 31, 2017, no suppliers accounted for
10% or more of the Company's purchases.
For the year ended December 31, 2016, one supplier accounted for
10% or more of the Company's purchases. This supplier accounted for
27% of the Company's total purchases. As of December 31, 2016, the
amount due to this supplier was $164,049.
Note 21 - Contingencies
On October 17, 2016 the Company was served with a notice that
Pulse Health LLC ("Pulse") filed a lawsuit against the Company on
September 30, 2016 in United States Federal District Court,
District of Oregon, alleging a breach of contract under the
settlement agreement entered into by the Company and Pulse on April
8, 2011 which settled all claims and disputes between the Company
and Pulse arising from a previously executed Technology Development
Agreement entered into by the Company and Pulse and damages
resulting from said alleged breach. Additionally, Pulse alleges
false advertising and unlawful trade practices in connection with
the Company's sales activities related to the Company's OxiChek(TM)
products.
The Company filed a series of motions with the Court seeking (1)
to dismiss the Pulse complaint for lack of jurisdiction or, in the
alternative, transfer the matter to the District Court for the
District of New Jersey, Camden Vicinage and (2) to dismiss the
unfair competition claims for failure to state a claim on which
relief could be granted. Oral arguments on these motions were heard
by the Court on March 10, 2017.
AKERS BIOSCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The Court decided by order dated April 14, 2017 in favor of the
Company and has dismissed with prejudice the claims brought by
Pulse for unfair competition (both federal and state counts). The
court decided against the Company in its motions for transfer of
venue and for lack of jurisdiction. As such, the case shall proceed
in the District Court of Oregon.
Pulse subsequently filed an Amended Complaint, in which Pulse
seeks not less than $500,000 in damages and, among other items, an
injunction prohibiting the Company from manufacture, use and sale
of the OxiChek product. The Company answered the Amended Complaint
on May 11, 2017. Discovery concluded on January 22, 2018. The Court
has received the Company's summary judgment motion. A trial date
may be set if Pulse's last remaining claim for breach of contract
survives the motion.
The Company intends to establish a rigorous defense of all
claims. The Company is unable to assess the potential outcome, so
no accrual for losses was made as of December 31, 2017. All legal
fees were expensed as and when incurred.
Note 22 - Segment Information (restated)
The Company is organized and operates as one operating segment.
In accordance with FASB ASC 280 "Segment Reporting", the Chief
Operating Officer is the chief operating decision-maker who reviews
operating results to make decisions on allocation of resources and
assessment of performance for the entire company.
The total revenue by different product lines was as follows:
Years ended
December 31,
----------------------
Product Line 2017 2016
------------------------------------------ ---------- ----------
(restated)
MicroParticle Catalyzed Biosensor ("MPC") $ 381,228 $ 282,516
Particle ImmunoFiltration Assay ("PIFA") 2,232,684 2,577,148
Rapid Enzymatic Assay ("REA") 133,848 -
Other 556,952 97,498
--------- ---------
Product Revenue Total $3,304,712 $2,957,162
License Fees 50,000 3,750
--------- ---------
Total Revenue $3,354,712 $2,960,912
========= =========
The total revenue by geographic area determined based on the
location of the customers was as follows:
Years ended
December 31,
Geographic Region 2017 2016
--------------------------- ---------- ----------
(restated)
United States $2,679,549 $2,330,723
People's Republic of China 502,131 502,998
Rest of World 173,032 127,191
--------- ---------
Total Revenue $3,354,712 $2,960,912
========= =========
The Company had long-lived assets totaling $59,830 and $61,081
located in the People's Republic of China and $1,305,950 and
$1,500,086 located in the United States as of December 31, 2017 and
2016, respectively.
AKERS BIOSCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 23 - Subsequent Events
1,755 shares of the Series B Convertible Preferred Stock
converted to 11,700,002 shares of common stock during the period of
January 2, 2018 through January 11, 2018.
During the period January 17, 2018 through March 30, 2018, the
Company received $5,717,345 from the exercise of 30,492,070
warrants.
CONSENT OF INDEPENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Amendment to No.
1 to Form S-3 dated November 15, 2016 of Akers Biosciences, Inc.
and the related Prospectus included therein, of our report dated
April 2, 2018, relating to our audit of the consolidated financial
statements of Akers Biosciences, Inc. appearing in the Company's
Annual Report on Form 10-K/A of Akers Biosciences, Inc. for the
year ended December 31, 2017.
/s/ Morison Cogen LLP
Blue Bell, Pennsylvania
July 13, 2018
Exhibit 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
I, John J. Gormally, certify that:
1. I have reviewed this Form 10-K/A 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. The registrant's other certifying officer(s) and I are 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. The registrant's other certifying officer(s) and 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: July 13, 2018 By: /s/ John J. Gormally
---------------------------
John J. Gormally
Principal Executive Officer
Akers Biosciences, Inc.
Exhibit 31.2
CERTIFICATION OF 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, Gary M. Rauch, certify that:
1. I have reviewed this Form 10-K/A 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. The registrant's other certifying officer(s) and I are 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. The registrant's other certifying officer(s) and 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:July 13, 2018 By: /s/ Gary M. Rauch
---------------------------
Gary M. Rauch.
Principal Financial Officer
Akers Biosciences, Inc.
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 Annual Report of Akers Biosciences, Inc.
(the "Company"), on Form 10-K/A for the fiscal year ended December
31, 2017, as filed with the U.S. Securities and Exchange Commission
on the date hereof, I, John J. Gormally, Principal Executive
Officer of the Company, certify to the best of my knowledge,
pursuant to 18 U.S.C. Sec. 1350, as adopted pursuant to Sec. 906 of
the Sarbanes-Oxley Act of 2002, that:
(1) Such Annual Report on Form 10-K/A for the fiscal year ended December 31, 2017, 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 such Annual Report on Form 10-K/A for the fiscal year ended December
31, 2017, fairly presents, in all material respects, the financial condition and results of
operations of the Company.
Date: July 13, 2018 By: /s/ John J. Gormally
---------------------------
John J. Gormally
Principal Executive Officer
Akers Biosciences, Inc.
Exhibit 32.2
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 Annual Report of Akers Biosciences, Inc.
(the "Company"), on Form 10-K/A for the fiscal year ended December
31, 2017, as filed with the U.S. Securities and Exchange Commission
on the date hereof, I, Gary M. Rauch, Principal Financial Officer
of the Company, certify to the best of my knowledge, pursuant to 18
U.S.C. Sec. 1350, as adopted pursuant to Sec. 906 of the
Sarbanes-Oxley Act of 2002, that:
(1) Such Annual Report on Form 10-K/A for the fiscal year ended December 31, 2017, 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 such Annual Report on Form 10-K/A for the fiscal year ended December
31, 2017, fairly presents, in all material respects, the financial condition and results of
operations of the Company.
Date: July 13, 2018 By: /s/ Gary M. Rauch
---------------------------
Gary M. Rauch
Principal Financial Officer
Akers Biosciences, Inc.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR BUGDRBSBBGIU
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