PART
I
Unless
the context provides otherwise, all references in this Annual Report to “Akers”, “ABI”, “Akers
Bio”, the “Company”, “we”, “our” and “us” refer to Akers Biosciences, Inc.
Item
1. Business.
We
were incorporated in 1989 in the state of New Jersey. Our principal executive offices are located at 201 Grove Road, Thorofare,
New Jersey USA 08086 and our telephone number is (856) 848-8698. Our corporate website address is www.akersbio.com.
On
March 23, 2020, we entered into a Membership Interest Purchase Agreement (the “MIPA”) with the members of Cystron
Biotech, LLC (individually, each a “Seller,” and collectively, the “Sellers”), pursuant to which the Company
will acquire 100% of the membership interests (the “Membership Interests”) of Cystron Biotech, LLC (“Cystron”).
Cystron is a party to license agreement with Premas Biotech PVT Ltd (“Premas) whereby Premas granted Cystron, amongst other
things, an exclusive license with respect to Premas’ vaccine platform for the development of a vaccine against COVID-19
and other corona virus infections.
We
also develop, manufacture, and supply rapid, point-of-care screening and testing products designed to bring health-related
information directly to the patient or clinician in a timely and cost-efficient manner. We believe that we have advanced the science
of diagnostics through the development of several proprietary platform technologies. Our current product offerings focus on delivering
diagnostic assistance in a variety of healthcare fields/specialties, including diagnostic rapid manual point-of-care tests for
the detection of allergic reactions to Heparin and for on- and off-the-job alcohol safety initiatives.
While we continue to
sell our rapid, point-of-care screening and testing products, as of December 31, 2019, we eliminated our sales force and we are
also experiencing a production backlog for some our diagnostic products as further described below. We are exploring ways to revitalize
our screening and testing products business, but, for the time being, we also intend to focus our efforts on the business of Cystron
and our exploration of strategic alternatives in the cannabinoid space announced in November 2019 and as further described below.
Recent
Developments
Acquisition
of Cystron
On
March 23, 2020, we acquired Cystron pursuant to the MIPA.
As
consideration for the Membership Interests, we will deliver to the Sellers: (1) that number of newly issued shares of our common
stock equal to 19.9% of the issued and outstanding shares of our common stock and pre-funded warrants as of the date of the MIPA,
but, to the extent that the issuance of the our common stock would result in any Seller owning in excess of 4.9% of our outstanding
common stock, then, at such Seller’s election, such Seller may receive “common stock equivalent” preferred shares
with a customary 4.9% blocker (with such common stock and preferred stock collectively referred to as “Common Stock Consideration”),
and (2) $1,000,000 in cash.
Additionally,
we shall (A) make an initial payment to the Sellers of up to $1,000,000 upon our receipt of cumulative gross proceeds from the
consummation of an initial equity offering after the date of the MIPA of $8,000,000, and (B) pay to Sellers an amount in cash
equal to 10% of the gross proceeds in excess of $8,000,000 raised from future equity offerings after the date of the MIPA until
the Sellers have received an aggregate additional cash consideration equal to $10,000,000. Upon the achievement of certain milestones,
including the completion of a Phase 2 study for a COVID-19 vaccine that meets its primary endpoints, Sellers will be entitled
to receive an additional 750,000 shares of our common stock or, in the event we are unable to obtain stockholder approval for
the issuance of such shares, 750,000 shares of non-voting preferred stock that are valued following the achievement of such milestones
and shall bear a 10% annual dividend (the “Milestone Shares”). Sellers will also be entitled to contingent payments
from us of up to $20,750,000 upon the achievement of certain milestones, including the approval of a new drug application by the
U.S. Food and Drug Administration (“FDA”).
We
shall also make quarterly royalty payments to Sellers equal to 5% of the net sales of a COVID-19 vaccine or combination product
by the Company (the “COVID-19 Vaccine”) for a period of five (5) years following the first commercial sale of the
COVID-19 Vaccine; provided, that such payment shall be reduced to 3% for any net sales of the COVID-19 Vaccine above $500 million.
In
addition, Sellers shall be entitled to receive 12.5% of the transaction value, as defined in the MIPA, of any change of control
transaction, as defined in the MIPA, that occurs prior to the fifth (5th) anniversary of the closing date of the MIPA, provided
that the Company is still developing the COVID-19 Vaccine at that time. Following the consummation of any change of control transaction,
the Sellers shall not be entitled to any payments as described above under the MIPA.
Support
Agreement
On
March 23, 2020, as an inducement to enter into the MIPA, and as one of the conditions to the consummation of the transactions
contemplated by the MIPA, the Sellers entered into a shareholder voting agreement with the Company (the “Support Agreement”),
pursuant to which each Seller agreed to vote their shares of our common stock or preferred stock in favor of each matter proposed
and recommended for approval by our management at every meeting of the stockholders and on any action or approval by written consent
of the stockholders.
Registration
Rights Agreement
To
induce the Sellers to enter into the MIPA, on March 23, 2020, we entered into a registration rights agreement (the “Registration
Rights Agreement”) with the Sellers, pursuant to which we shall by the 30th day following the closing of the transactions
contemplated by the MIPA, file with the United States Securities and Exchange Commission (the “SEC”) an initial Registration
Statement on Form S-3 (if such form is available for use by the Company at such time) or, otherwise, on Form S-1, covering all
of the shares of our common stock issued, or underlying the preferred stock issued, at closing under the MIPA and to subsequently
register the common stock issued or underlying the preferred stock issued at Milestone Shares.
License
Agreement
Cystron
is a party to a License and Development Agreement (the “Initial License Agreement”) with Premas Biotech PVT Ltd. (“Premas”).
As a condition to the Company’s entry into the MIPA, Cystron amended and restated the Initial License Agreement on March
19, 2020 (as amended and restated, the “License Agreement”). Pursuant to the License Agreement, Premas granted Cystron,
amongst other things, an exclusive license with respect to Premas’ vaccine platform for the development of a vaccine against
COVID-19 and other corona virus infections.
Upon
the achievement of certain developmental milestones by Cystron, Cystron shall pay to Premas a total of up to $2,000,000.
Series
D Convertible Preferred Stock
On
March 24, 2020, we filed the Certificate of Designation of Preferences, Rights and Limitations of Series D Convertible Preferred
Stock (the “Certificate of Designation”) with the Secretary of State of the State of New Jersey. Pursuant to the Certificate
of Designation, in the event of the Company’s liquidation or winding up of its affairs, the holders of our Series D Convertible
Preferred Stock (the “Preferred Stock”) will be entitled to receive the same amount that a holder of our common stock
would receive if the Preferred Stock were fully converted (disregarding for such purposes any conversion limitations set forth
in the Certificate of Designation) to common stock which amounts shall be paid pari passu with all holders of the Company’s
common stock. Each share of Preferred Stock has a stated value equal to $0.01 (the “Stated Value”), subject to increase
as set forth in Section 7 of the Certificate of Designation.
A
holder of Preferred Stock is entitled at any time to convert any whole or partial number of shares of Preferred Stock into shares
of our common stock determined by dividing the Stated Value of the Preferred Stock being converted by the conversion price of
$0.01 per share.
A
holder of Preferred Stock will be prohibited from converting Preferred Stock into shares of our common stock if, as a result of
such conversion, the holder, together with its affiliates, would own more than 4.99% of the total number of shares of our common
stock then issued and outstanding (with such ownership restriction referred to as the “Beneficial Ownership Limitation”).
However, any holder may increase or decrease such percentage to any other percentage not in excess of 9.99%, provided that any
increase in such percentage shall not be effective until 61 days after such notice to us.
Subject
to the Beneficial Ownership Limitation, on any matter presented to our stockholders for their action or consideration at any meeting
of our stockholders (or by written consent of stockholders in lieu of a meeting), each holder of Preferred Stock will be entitled
to cast the number of votes equal to the number of whole shares of our common stock into which the shares of Preferred Stock beneficially
owned by such holder are convertible as of the record date for determining stockholders entitled to vote on or consent to such
matter (taking into account all Preferred Stock beneficially owned by such holder). Except as otherwise required by law or by
the other provisions of our certificate of incorporation, the holders of Preferred Stock will vote together with the holders of
our common stock and any other class or series of stock entitled to vote thereon as a single class.
A
holder of Preferred Stock shall be entitled to receive dividends as and when paid to the holders of our common stock on an as-converted
basis.
Production
Backlog of PIFA® Heparin/PF4 and PIFA® Pluss/PF4
We are currently experiencing
a production backlog of our PIFA® Heparin/PF4 and PIFA® Pluss/PF4 rapid assays. While we believe that we will be able
to remedy the production backlog, we cannot be certain what impact this backlog will have on our business and it may have an adverse
effect on our 2020 revenues and results of operation.
Exploration
of Strategic Alternatives
On
November 7, 2018, we announced that our board of directors had initiated a process to evaluate strategic alternatives to maximize
shareholder value. The Company will continue its strategic alternatives review and has identified the hemp and minor cannabinoid
sectors as potential opportunities that could benefit from our core competencies. The Company continues to explore
how to leverage its 30 years of operational history in its medical device business, where its current products have FDA clearance,
its current operations practice Good Manufacturing Processes (cGMP), its medical device facility is certified under ISO 13485
– 2016 and the facility carries an Analytical Lab Certification for Schedules 2, 3, 4 and 5 controlled substances issued
by the U.S. Drug Enforcement Administration (DEA) and the State of New Jersey. The Company intends to pursue opportunities
in the extraction, testing, purification and formulation of safe cannabinoids within the hemp industry, including pathways
to consumer products with a focus on minor cannabinoids.
Our
Current Products
We
are commercialing our Particle Immuno-Filtration Assay (PIFA®)
Technology platform. PIFA® technology is a patented immunoassay method which rapidly and accurately detects target antigens
or antibodies. It is the technology platform utilized in the Company’s core commercialized products, the PIFA® Heparin/PF4
and PIFA® Pluss/PF4 rapid assays, which test for an allergic reaction to Heparin. These products account for the significant
majority of the Company’s current revenues.
Our
portfolio also includes the manufacture and sale of BreathScan Alcohol Detectors (based on the Company’s Micro Particle
Catalyzed (MPC) Biosensor technology platform). In September 2019, we determined that it was no longer economically appropriate
to offer our Tri- Cholesterol products (which was based on the Company’s Rapid Enzymatic Assay (REA™) technology platform).
Furthermore, we determined that it was not economically appropriate to further develop or pursue approval of the PIFA PLUSS Chlamydia
Rapid Assay device. As of December 31, 2019, the Company’s marketed products consist of its PIFA® Heparin/PF4, PIFA
PLUSS® PF4 and BreathScan Alcohol Detector families of products.
All
of Akers’ rapid, single-use tests are performed in vitro (outside the body) and are designed to enhance patient well-being
and reduce the cost of healthcare. Our current product offerings focus on delivering diagnostic assistance in a variety of healthcare
fields/specialties, including diagnostic rapid manual point-of-care tests for the detection of allergic reactions to Heparin and
for on- and off-the-job alcohol safety initiatives.
Akers
believes that low-cost, single-use testing not only saves time and money, but allows for more frequent, near-patient testing which
may save lives. We believe that our FDA-cleared rapid diagnostic tests help facilitate targeted diagnoses and real-time treatment.
We also believe that our 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 a medical condition can be performed on 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
result in 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:
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cost
pressures/efficiency of healthcare delivery; and
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need
for easy to use, accurate at-home tests for individuals to monitor their personal health and wellness
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Strategy
Akers’
strategy for the medical device business is to leverage where possible our distributor relationships, while exploring strategies
for further reducing our costs.
Akers
has developed and currently maintains strategic relationships with established companies in the clinical laboratory market.
Current
Testing Platform Technologies
Particle
ImmunoFiltration Assay (PIFA ®) Technology
PIFA
® 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 or serum) 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, we have two international
patents and one US patent granted in force.
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 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.
Current
Sample Preparation Technology
Rapid
Blood Cell Separation Technology
Akers’
Rapid Blood Cell Separation (“Separator”) Technology, labeled under the brand name seraSTAT ®, 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 through a venous blood draw. Akers has obtained the appropriate US FDA regulatory
clearances for seraSTAT ® as a stand-alone device and the technology is currently integrated into PIFA PLUSS PF4
devices. The seraSTAT ® Rapid Blood Cell Separation Technology is currently protected by two U.S. patents and three
international patents.
Current
Product Portfolio
Akers
is positioned as a provider of rapid diagnostic solutions.
At
present, Akers’ commercialized product portfolio incorporates the three aforementioned proprietary platform testing and
sample preparation technologies: PIFA ®, MPC Biosensor and Rapid Blood Cell Separation Technology.
The
following table sets forth our marketed products, identifies the appropriate “prescription use” or “OTC”
designation and the required clearance that has been obtained.
Our
marketed products include:
Product
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Platform
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Marketed/Pipe
line
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FDA
Clearance
Required
Prescription
Use/OTC
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FDA
Clearance
Status
Obtained/Needed
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Description
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BreathScan
TM
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MPC
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Marketed
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OTC
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Obtained
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Disposable
breath alcohol detector
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PIFA
® Heparin/PF4 & PIFA PLUSS ® PF4
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PIFA
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Marketed
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Prescription
Use
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Obtained
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Rapid
tests for Heparin/PF4 antibodies to detect an allergy to the widely used blood thinner, Heparin
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seraSTAT
®
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seraSTAT
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Marketed
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Prescription
Use
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Obtained
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Rapid
Blood Cell Separator, marketed under the brand name seraSTAT ®, further accelerates the rate at which a test
result is obtained as the often-required sample preparation step is abbreviated drastically.
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PIFA
® Technology
The
core products marketed under the PIFA ® platform are the PIFA ® Heparin/PF4 Rapid Assay, and the
PIFA PLUSS ® PF4.
PIFA
® Heparin/PF4 Rapid Assay and PIFA PLUSS ® 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. 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 our convenient,
rapid tests.
The
PIFA ® 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.
We
have also introduced PIFA PLUSS ® PF4 to U.S. hospitals to further improve the rate at which healthcare professionals
can obtain a HIT-antibody result. This PIFA ® 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 ®.
The marriage of these two technologies condenses the sample preparation and analysis procedures as the precise micro-volume of
a seraSTAT ® -prepared patient specimen is delivered directly into the PIFA ® 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, we do 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 ® and PIFA PLUSS PF4 ® will also be used to support Akers’
CE-marking self-certification process for potential sales in the EU; the PIFA Heparin/PF4 Rapid Assay is already CE-marked.
MPC
Biosensor Technology
Breath
Alcohol Products
BreathScan
® 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 ® results are not used to diagnose any medical
conditions. Our 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.
Our
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.
Sample
Preparation Technology
Rapid
Blood Cell Separation Technology
In
addition to our testing platforms, Akers’ patented Rapid Blood Cell Separation (“Separator”) Technology, marketed
under the brand name seraSTAT ® , which 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
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.
Currently,
seraSTAT ® is integrated into PIFA PLUSS PF4 devices. We have modified one of our prescription use, 510(k)-cleared
devices, specifically the PIFA Heparin/PF4 Rapid Assay to include our seraSTAT device. 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 were 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. The seraSTAT ® Rapid Blood
Cell Separation Technologies is 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., Immucor, Inc., OraSure Technologies,
Inc., and Quidel Corporation.
We
believe the primary criteria for determining competitiveness within the rapid point-of-care sector are cost, ease-of-use, speed,
readability, accuracy and flexibility.
That
said, our competitors have significantly greater financial, technical, marketing and other resources than we have and may be better
able to:
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respond
to new technologies or technical standards;
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devote
resources to the development, production, promotion, support and sale of products;
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acquire
other companies to gain new technologies or products that may displace our product lines;
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react
to changing customer requirements and expectations;
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manufacture,
market and sell products; and
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deliver
a broad range of competitive products at lower prices.
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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
Our
revenue comes from selling rapid, screening and testing products, largely through our distributor networks. Most 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 level.
Our
Current Markets
Regarding
our test for the heparin drug allergy, the testing market largely resides within the clinical hospital laboratories of medical
facilities.
The
markets for alcohol breathalyzers are reached through a network of large and small distributors. These markets include industrial
safety, education, social responsibility and retail.
COVID-19
Many
pharmaceutical and biotechnology companies are seeking to develop vaccines and other treatments for COVID-19. Several of them
are large, multi-national pharmaceutical companies with significantly more resources than us.
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, personnel, 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 our flexible manufacturing capabilities and unused current capacity generally translate into relatively short production
timelines.
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. From time to time, we are required to source and requalify raw materials from new suppliers, when
an existing supplier discontinues a product. We have from time to time we have experienced short-term difficulties in locating
and obtaining the materials necessary to fulfill our production requirements.
Effective
February 2, 2018, our quality management system was certified as compliant with the International Standards Organization’s
(“ISO”) 13485:2016 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 indirect distribution channels in the U.S.
with, among others, Cardinal Health 200, Inc. (“Cardinal Health”) and Fisher Healthcare, a Division of Thermo Fisher
Scientific Inc. (“Fisher Healthcare”) for our PIFA Heparin/PF4 assays. The relationships with Cardinal Health and
Fisher Healthcare provide us with access to most U.S. hospitals.
Our
PIFA Heparin/PF4 assays are also sold direct to certain hospitals and buying groups.
With
respect to our breath alcohol product, Akers has focused its commercial attention within the on-the-job safety/human resources
sector. Access was and currently is largely achieved through designated BreathScan ® distributors and limited arrangements
in which we serve in an OEM capacity.
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 ®,
PIFA ® , PIFA PLUSS ® , seraSTAT ® .
The
following table summarizes the U.S. and international utility patents that currently protect Akers intellectual property for actually
marketed products:
Description
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Jurisdiction
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Utility
Patent No.
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Type
of
Protection
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Expiration
Date
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Product(s)
To Which
They Relate
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blood
separator
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US
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7,896,167
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Manufacture
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9/7/2026
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seraSTAT
® ; PIFA PLUSS ® PF4; PIFA PLUSS ® Rapid Assays
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method
of separating fluid fraction from whole blood
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US
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8,097,171
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Process
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8/5/2025
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seraSTAT
® ; rapid blood cell separator also integrated into PIFA PLUSS ® PF4 and PIFA PLUSS ®
Rapid Assays
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blood
separator and method of separating fluid fraction from whole blood
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Japan
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4,885,134
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Manufacture
|
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8/5/2025
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seraSTAT
® ; rapid blood cell separator also integrated into PIFA PLUSS ® PF4 and PIFA PLUSS ®
Rapid Assays
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blood
separator
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European
Union
|
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1793906
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Manufacture
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8/5/2025
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seraSTAT
® ; rapid blood cell separator also integrated into PIFA PLUSS ® PF4 and PIFA PLUSS ®
Rapid Assays
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blood
separator
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Hong
Kong
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1104006
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Manufacture
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8/5/2025
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seraSTAT
® ; rapid blood cell separator also integrated into PIFA PLUSS ® PF4 and PIFA PLUSS ®
Infectious Diseases Rapid Assays
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methods
for detecting heparin platelet factor 4 antibodies
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US
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9,383,368
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Process
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10/4/2024
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PIFA
® Heparin/PF4 Rapid Assay; PIFA PLUSS ® PF4
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methods
and kits for detecting heparin/platelet factor 4 antibodies
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Japan
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4,931,821
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Manufacture
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10/4/2025
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PIFA
® Heparin/PF4 Rapid Assay; PIFA PLUSS ® PF4
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Methods
and kits for detecting heparin platelet factor 4 antibodies
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Japan
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5775790
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Manufacture
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10/4/2025
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PIFA
® Heparin/PF4 Rapid Assay; PIFA PLUSS ® PF4
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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’
PIFA Heparin/PF4 Rapid Assay is 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.
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 its commercialized products/product components: PIFA Heparin/PF4
Rapid Assay and Heparin/PF4 Serum Panels.
Other
U.S. Regulation
We
must also comply with numerous federal, state and local laws relating to matters such as healthcare fraud and abuse, anti-kickback,
false claims, HIPAA, environmental protection, safe working conditions, manufacturing practices, fire hazard control and, among
other things, the generation, handling, transportation and disposal of hazardous substances.
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.
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 Annual Report on Form 10-K. 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 12 full-time equivalent employees, contractors or consultants, which include five in general and administrative,
three in regulatory compliance and four 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
An
investment in our securities is speculative involves a high degree of risk. Before deciding whether to invest in our securities,
you should consider carefully the risks described below, together with other information in this Annual Report and the
other information and documents we file with the SEC. The occurrence of any of the following risks could have a material and adverse
effect on our business, reputation, financial condition, results of operations and future growth prospects, as well as our ability
to accomplish our strategic objectives. As a result, the trading price of our common stock could decline and you could lose all
or part of your investment. Additional risks and uncertainties not presently known to us or that we currently deem immaterial
may also impair our business operations and stock price.
Risks
Related to Our Acquisition
We
may fail to realize the anticipated benefits of our acquisition of Cystron and those benefits may take longer to realize than
expected.
On
March 23, 2020, we entered into the MIPA with the Sellers, pursuant to which we will acquire the Membership Interests of Cystron.
Cystron is a party to the Initial License Agreement with Premas. As a condition to the Company’s entry into the MIPA, Cystron
amended and restated the Initial License Agreement on March 19, 2020 (as amended and restated, the “License Agreement”).
Pursuant to the License Agreement, Premas granted Cystron, amongst other things, an exclusive license with respect to Premas’
vaccine platform for the development of a COVID-19 vaccine or combination product by the Company (the “COVID-19 Vaccine”).
Our ability to realize the anticipated benefits of the acquisition will depend, to a large extent, on our ability to produce a
vaccine that successfully treats coronavirus (“COVID-19”). The development of the COVID-19 Vaccine is in very early
stages and there is no assurance that we will be able to produce an effective vaccine. The failure to produce the COVID-19 Vaccine
could adversely affect our business, financial condition and results of operations. In addition, we expect to incur significant
expenses related to the acquisition. These expenses include, but are not limited to, the Common Stock Consideration, a cash consideration
of $1.0 million, related contingent fees, legal fees and other related fees and expenses. Many of these expenses will be payable
by us regardless of our ability to successfully develop the COVID-19 Vaccine, and we will not be able to recover these expenses
in the event that we fail to develop the COVID-19 Vaccine.
Our
acquisition of Cystron could result in additional costs, integration or operating difficulties, dilution and other adverse consequences.
In
connection with the acquisition of the Cystron and in pursuit of developing the COVID-19 Vaccine, we may:
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issue
equity securities that may substantially dilute our stockholders’ percentage of ownership;
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be
obligated to make milestone, royalty or other contingent or non-contingent payments; and
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incur
debt or non-recurring and other charges, or assume liabilities.
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In
addition, the process of integrating Cystron may create operating difficulties and expenditures and pose numerous additional risks
to our operations, including:
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failure
to develop, manufacture or supply the COVID-19 Vaccine economically or successfully commercialize or achieve market acceptance
of the COVID-19 Vaccine;
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exposure
to liabilities of Cystron, including known or unknown risks relating to the validity or enforceability of exclusivity rights
and generic competition;
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adverse
effects on our operating results or financial condition, including due to expenditures or acquisition-related costs, costs
of commercialization or amortization or impairment costs for acquired goodwill and other intangible assets;
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impairment
of relationships with key suppliers and manufacturers due to changes in management and ownership and difficulty in maintaining
existing agreements, licenses and other arrangements or rights on substantially similar terms as existed prior to the acquisition;
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regulatory
changes and market dynamics after the acquisition; and
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potential
loss of key employees, particularly those of the acquired entity.
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If
any of the above events (or more) occur, or if we cannot effectively manage or respond to such events following the acquisition,
they may have material adverse effect on our business, results of operations and financial condition.
Cystron
is dependent on technologies that is has licensed, and Cystron may need to license in the future, and if Cystron fails to obtain
licenses it needs, or fails to comply with its payment obligations in the agreements under which Cystron in-license intellectual
property and other rights from third parties, Cystron could lose its ability to develop a COVID-19.
Cystron
currently is dependent on a license from Premas for its key technologies. Any failure to make the payments required by the license
agreement may permit Premas to terminate the license. If Cystron were to lose or otherwise be unable to maintain the license for
any reason, it would halt Cystron’s ability to develop a COVID-19 vaccine. The foregoing could result in a material adverse
effect on our business or results of operations.
In
addition, Cystron does not own the patents or patent applications that it licenses, and as such, Cystron may need to rely upon
Premas to properly prosecute and maintain those patent applications and prevent infringement of those patents. If Premas is unable
to adequately protect their proprietary intellectual property Cystron licenses from legal challenges, or Cystron is unable to
enforce such licensed intellectual property against infringement or alternative technologies, we will not be able to compete effectively
in the drug discovery and development business.
Cystron
will face intense competition.
We
believe that many other pharmaceutical and biotechnologies are working on vaccines and treatments for COVID—19. Some of
them are large, multi-national pharmaceutical companies with significantly greater resources than Cystron. If one of these other
companies develops an effective vaccine or treatment for COVID-19 before Cystron, then even if Cystron successfully develops a
vaccine it may never gain market acceptance.
Risks
Related to 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 stockholders in most reporting periods since our inception. Our net losses for
the years ended December 31, 2019 and 2018 were $3,888,249 and $10,849,034, respectively. Our accumulated deficit at December
31, 2019 was $119,583,130. Our strategy for the medical device business is to leverage where possible our distributor relationships,
while exploring strategies for further reducing our costs. Overall, we are working to reduce our cash burn in order to have sufficient
cash funds available to execute on a transaction which would result from our pursuit of strategic alternatives. There can be no
assurance of success in reducing our loss, becoming profitable, or having sufficient cash to complete a strategic alternative
transaction.
Our
pursuit of the COVID-19 Vaccine is at an early stage. We have not previously tested our rapid response capability and may be unable
to produce a vaccine that successfully treats the virus in a timely manner, if at all.
In
response to the global outbreak of COVID-19, we are pursuing the rapid development of the COVID-19 Vaccine. Our development of
the vaccine is in early stages, and we may be unable to produce a vaccine that successfully treats the virus in a timely manner,
if at all. Additionally, our ability to develop an effective vaccine depends on the success of our rapid response capability,
which we have not previously tested and which will need to be funded by third parties in order to enable us to have sufficient
capacity to respond to a global health challenge. If the outbreak is effectively contained or the risk of coronavirus infection
is diminished or eliminated before we can successfully develop and manufacture the COVID-19 Vaccine, we may be unable to successfully
generate revenue from the manufacturing of the COVID-19 Vaccine. We are also committing financial resources and personnel to the
development of the COVID-19 Vaccine which may cause delays in or otherwise negatively impact our other business operations, despite
uncertainties surrounding the longevity and extent of coronavirus as a global health concern. Our business could be negatively
impacted by our allocation of significant resources to a global health threat that is unpredictable and could rapidly dissipate
or against which our vaccine, if developed, may not be partially or fully effective.
Furthermore,
the biotechnology market is highly competitive, is subject to rapid technological change and is significantly affected by existing
rival drugs and medical procedures, new product introductions and the market activities of other participants. Pharmaceutical
and biotechnology companies, academic institutions, governmental agencies and other public and private research organizations
may pursue the research and development of a vaccine to treat COVID-19. Our competitors may develop products more rapidly or more
effectively than us. If our competitors are more successful in commercializing their products than us, their success could adversely
affect our competitive position and harm our business prospects and may also lead to the diversion of funding away from us and
toward other companies.
If
we are successful in producing the COVID-19 Vaccine, we may need to devote significant resources to its scale-up and development
including for use by the U.S. government.
In
the event that the preclinical and clinical trials for the COVID-19 Vaccine are perceived to be successful, we may need to work
toward the large scale technical development, manufacturing scale-up and larger scale deployment of this potential vaccine through
a variety of U.S. government mechanisms such as an Expanded Access Program or an Emergency Use Authorization program. In this
case we may need to divert significant resources to this program, which would require diversion of resources from our other businesses.
In addition, since the path to licensure of any vaccine against COVID-19 is unclear, if use of the vaccine is mandated by the
U.S. government, we may have a widely used vaccine in circulation in the United States or another country prior to our full validation
of the overall long term safety and efficacy profile of our vaccine platform and technology. Unexpected safety issues in these
circumstances could lead to significant reputational damage for the Company going forward and other issues, including delays in
our other programs, the need for re-design of our clinical trials and the need for significant additional financial resources.
We
may be unable to advance the COVID-19 Vaccine successfully through the preclinical and clinical development process.
Our
ability to develop, obtain regulatory approval for, and ultimately commercialize, the COVID-19 Vaccine effectively will depend
on many factors, including the following:
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successful
completion of preclinical studies and clinical trials;
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successful
achievement of the objectives of planned preclinical studies and clinical trials;
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receipt
of marketing approvals from the FDA and similar regulatory authorities outside the United States;
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establishing
efficient and effective commercial manufacturing, supply and distribution arrangements;
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establishing
sufficient market share and promoting acceptance of the product by patients, the medical community and third-party payors;
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successfully
executing an effective pricing and reimbursement strategy;
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maintaining
a continued acceptable safety and adverse event profile following regulatory approval; and
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qualifying
for, identifying, registering, maintaining, enforcing and defending intellectual property rights and claims.
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The
COVID-19 Vaccine will require additional non-clinical and clinical development, regulatory review and approval, substantial investment,
access to sufficient commercial manufacturing capacity and significant marketing efforts before we can be in a position to generate
any revenue from product sales. We are not permitted to market or promote any vaccine before we receive regulatory approval from
the FDA or comparable foreign regulatory authorities, and we may never receive such regulatory approval. If we are unable to develop
or receive marketing approval in a timely manner or at all, we could experience significant delays or an inability to commercialize
the COVID-19 vaccine, which would materially and adversely affect our business, financial condition and results of operations.
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, 2019, 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. For the year ended December 31, 2019, Cardinal Health and Fisher accounted for approximately 79% of our 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 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, 2019, five customers accounted for 83% of trade receivables net of customer credits and allowance for doubtful
accounts, as compared to December 31, 2018, where two customers accounted for 99% of such trade receivables. 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.
Our
business would suffer if we 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 our company. We
work closely with our suppliers to ensure continuity of supply while maintaining high quality and reliability. Any prolonged inability
to obtain certain materials or components could have an adverse effect on our financial condition or results of operations and
could result in damage to our relationships with our customers and, accordingly, adversely affect our business.
We
expect to require additional capital in the future in order to pursue strategic alternative transactions. If we do not obtain
any such additional financing, it may be difficult to effectively realize our long-term strategic goals and objectives.
To
execute our long-term business strategy, we expect to require additional financing and in connection therewith to issue
additional equity securities in public or private offerings. If we cannot secure this additional funding when such funds are required,
we may be forced to forego certain strategic opportunities.
Any
additional capital raised through the sale of equity or equity-backed securities may dilute our stockholders’ ownership
percentages and could also result in a decrease in the market value of our equity securities.
The
terms of any securities issued by us in future capital transactions may be more favorable to new investors, and may include preferences,
superior voting rights and the issuance of warrants or other derivative securities, which may have a further dilutive effect on
the holders of any of our securities then outstanding.
In
addition, we may incur substantial costs in pursuing future capital financing, including investment banking fees, legal fees,
accounting fees, securities law compliance fees, printing and distribution expenses and other costs. We may also be required to
recognize non-cash expenses in connection with certain securities we issue, such as convertible notes and warrants, which may
adversely impact our financial condition.
Because
we may not be able to maintain or obtain necessary regulatory clearances 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 existing products are subject to regulation in the U.S. by the FDA 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 and may not be able to maintain
the necessary regulatory clearances for some of our products.
The
process of obtaining required approvals or clearances for a potential new product 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 the 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 ongoing regulation by various government agencies, and, if we are unable to comply with such regulations, our products
could be subject to restrictions or withdrawal from the market and/or we could be subject to a wide-range of enforcement actions,
any of which would materially affect our business.
In
the United States, medical devices, including in vitro diagnostics, are subject to extensive regulation by FDA under the
Federal Food, Drug, and Cosmetic (“FD&C”) Act and its implementing regulations, along with other federal and state
statutes and regulations. To be lawfully marketed in the United States, medical devices must generally receive 510(k) clearance
or premarket approval (“PMA”) from the FDA. All of our currently commercial devices have received 510(k) clearance.
After
the FDA permits a device to enter commercial distribution, numerous regulatory requirements apply. These include: compliance with
the Quality System Regulation (“QSR”), which requires manufacturers to follow elaborate design, testing, control,
documentation and other quality assurance procedures during the manufacturing process; labeling regulations; the FDA’s general
prohibition against promoting products for unapproved or “off-label” uses; the reports of Corrections and Removals
regulation, which requires manufacturers to report recalls and field actions to the FDA if initiated to reduce a risk of health
posed by the device or to remedy a violation of the FD&C Act; and the Medical Device Reporting (“MDR”) regulation,
which requires that manufacturers report to the FDA if their device may have caused or contributed to a death or serious injury
or malfunctioned in a way that would likely cause or contribute to a death or serious injury if it were to reoccur. Manufacturers
are also required to register and list their devices with the FDA, based on which the FDA will conduct inspections to ensure continued
compliance with applicable regulatory requirements.
The
FDA has broad post-market and regulatory and enforcement powers. Failure to comply with the applicable U.S. medical device regulatory
requirements could result in, among other things, warning letters; fines; injunctions; consent decrees; civil penalties; repairs,
replacements or refunds; recalls, corrections or seizures of products; total or partial suspension of production; the FDA’s
refusal to grant future premarket clearances or approvals; withdrawals or suspensions of current product applications; and criminal
prosecution. Regulatory enforcement or inquiries, or other increased scrutiny on us, could dissuade some people with brain related
disorders from using our products and adversely affect our reputation and the perceived accuracy and safety of our products. If
any of these events were to occur, they could have a material adverse effect on our business, financial condition and results
of operations.
Additionally,
as a U.S. medical device manufacturer, we must operate our production facility in accordance with the QSR requirements established
by the FDA under the FD&C Act. The QSR requires a quality system for the design, manufacture, packaging, labeling, storage,
installation and servicing of marketed devices, and it includes extensive requirements with respect to quality management and
organization, device design, buildings, equipment, purchase and handling of components or services, production and process controls,
packaging and labeling controls, device evaluation, distribution, installation, complaint handling, servicing, and recordkeeping.
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. 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. If the FDA believes that our manufacturing practices are not compliant
with applicable QSR requirements, it can shut down our manufacturing operations, require recall of our products, refuse to approve
new marketing applications, institute legal proceedings to detain or seize products, enjoin future violations or assess civil
and criminal penalties against us or our officers or other employees.
If
we fail to obtain regulatory approval in foreign jurisdictions, then we cannot market our products in those jurisdictions.
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. 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:
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In
accordance with the specifications of the foreign purchaser;
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Not
in conflict with the laws of the country to which they are intended for export;
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Labeled
on the outside of the shipping package that they are intended for export; and
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Not
sold or distributed in the U.S.
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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.
Modifications
to our devices may require additional FDA clearance or 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”).
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. 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, among other enforcement actions. We have modified one of our prescription
use, 510(k)-cleared devices, specifically the PIFA Heparin/PF4 Rapid Assay, to include our seraSTAT device. 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, a new 510(k)
clearance was 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, which could harm
our operating results and require us to redesign the product.
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:
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fines,
injunctions and civil penalties;
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recall,
detention or seizure of our products;
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the
issuance of public notices or warnings;
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operating
restrictions, partial suspension or total shutdown of production;
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refusing
our requests for a 510(k) clearance of new products;
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withdrawing
a 510(k) clearance already granted; and
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criminal
prosecution.
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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.
Our
marketed products may be used by physicians for indications that are not cleared by the FDA. If the FDA finds that we promoted
one or more of our products for off-label use(s), we may be subject to civil or criminal penalties.
Under
the FD&C Act and other laws, we are prohibited from promoting our products for “off-label” uses. This means that
we may not make claims about the use of any of our marketed medical device products outside of their cleared indications, and
that our website, advertising promotional materials and training methods may not promote or encourage any unapproved uses. Therefore,
we may not provide information to physicians or patients that promote off-label uses, except in limited circumstances. Should
the FDA determine that we have engaged in the promotion of any of our device products for off-label uses, the FDA could bring
a wide range of enforcement actions against us and/or our executives. In addition, failure to follow FDA rules and guidelines
relating to promotion and advertising can result in, among other things, the FDA’s refusal to approve or clear products,
the withdrawal of an approved product from the market, product recalls, fines, disgorgement of profits, operating restrictions,
injunctions or criminal prosecutions. Any of these adverse regulatory actions could result in substantial costs and could significantly
and adversely impact our reputation and divert management’s attention and resources, which could have a material adverse
effect on our business.
In
addition to potential FDA enforcement, the Department of Justice, as well as state attorneys general, may work with the FDA or
on their own to bring enforcement action against us and/or our executives in connection with any off-label promotion of our products.
Such action may include civil and criminal penalties, including significant fines, among other serious consequences. Even if we
are successful in resolving such matters without incurring penalties, responding to investigations or prosecutions will likely
result in substantial costs and could significantly and adversely impact our reputation and divert management’s attention
and resources, which could have a material adverse effect on our business, operating results, financial condition, and ability
to finance our operations. In addition, the off-label use of our products may increase the risk of injury to patients, and, in
turn, the risk of product liability claims. Product liability claims are expensive to defend and could divert our management’s
attention and result in substantial damage awards against us.
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, we
would have to conduct clinical protocols that are designed to yield data suitable for publication in peer-reviewed journals. These
studies are often time-consuming, labor-intensive and expensive to execute. We have not had the resources to effectively implement
such clinical programs within our 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.
If
we fail to establish, maintain and expand relationships with distributors, sales of our products would decline.
We
do not control the efforts of our distributors and our distributors are not prohibited from selling competing products. Our ability
to sell our products depends largely on our 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. In addition, we rely on our distribution network to negotiate pricing arrangements and contracts with Group Purchasing
Organizations and their affiliated hospitals and other members. For the year ended December 31, 2019, two customers generated
48 % and 31 %, or 79 % in the aggregate, of our revenue. For the year ended December 31, 2018, two customers generated 57%, and
14%, or 71% in the aggregate, of our revenue. In the future, if we are unable to maintain existing relationships, our competitive
position would likely suffer and our business would be harmed.
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.
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.
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 prices 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, 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 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.
We
may experience delays in any phase of the preclinical or clinical development of a product, including during its research and
development.
The
completion of any of these studies may be delayed or halted for numerous reasons, including, but not limited to, the following:
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the
FDA or other regulatory authorities do not approve a clinical study protocol or place a clinical study on hold;
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patients
do not enroll in a clinical study or results from patients are not received at the expected rate;
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patients
discontinue participation in a clinical study prior to the scheduled endpoint at a higher than expected rate;
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patients
experience adverse events from a product we develop;
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third-party
clinical investigators do not perform the studies in accordance with the anticipated schedule or consistent with the study
protocol and good clinical practices or other third-party organizations do not perform data collection and analysis in a timely
or accurate manner;
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third-party
clinical investigators engage in activities that, even if not directly associated with our studies, result in their debarment,
loss of licensure, or other legal or regulatory sanction;
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regulatory
inspections of manufacturing facilities, which may, among other things, require us to undertake corrective action or suspend
the preclinical or clinical studies;
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changes
in governmental regulations or administrative actions;
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the
interim results of the preclinical or clinical study, if any, are inconclusive or negative; and
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the
study design, although approved and completed, is inadequate to demonstrate effectiveness and safety.
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If
the preclinical and clinical studies that we are required to conduct to gain regulatory approval are delayed or unsuccessful,
we may not be able to market any product that we develop in the future. Preclinical studies and clinical trials are expensive
and difficult to design and implement and any delays or prolongment in our preclinical and clinical studies will require additional
capital. There is no assurance that we will be able to acquire additional capital to support our studies. The failure to obtain
additional capital would have a material adverse effect on the Company.
We
anticipate that we will rely completely on third parties to manufacture certain preclinical and all clinical drug supplies. Our
business could be harmed if those third parties fail to provide us with sufficient quantities of drug product, or fail to do so
at acceptable quality levels or prices.
We
do not currently have, nor do we plan to acquire, the infrastructure or capability internally to manufacture our preclinical and
clinical drug supplies for use in the conduct of our clinical studies, and we lack the resources and the capability to manufacture
any of our product candidates on a clinical or commercial scale. In order to develop products, apply for regulatory approvals
and commercialize our products, we will need to develop, contract for, or otherwise arrange for access to the necessary manufacturing
capabilities. We anticipate that we will rely on CMOs, or contract manufacturing organizations, and other third party contractors,
some of whom may have limited cGMP experience, to manufacture formulations and produce larger scale amounts of drug substance
and the drug product required for any clinical trials that we initiate.
The
manufacturing process for any vaccine candidate is subject to the FDA and foreign regulatory authority approval process, and we
will need to contract with manufacturers who can meet all applicable FDA and foreign regulatory authority requirements on an ongoing
basis. In addition, if we receive the necessary regulatory approval for any product candidate, we also expect to rely on third
parties to produce materials required for commercial supply. We may experience difficulty in obtaining adequate manufacturing
capacity for our needs. Furthermore, it is our responsibility to ensure that all of our third-party contractors meet cGMP laws,
regulations and guidance. Due to their failure to comply with applicable regulatory requirements, we may face fines and civil
penalties, suspension of production, suspension or delay in product approval, product seizure or recall, or withdrawal of product
approval. These actions could have a material impact on the availability of products. If we are unable to obtain or maintain contract
manufacturing for these product candidates, or to do so on commercially reasonable terms, we may not be able to successfully develop
and commercialize our products.
To
the extent that we enter into manufacturing arrangements with third parties, we will depend on these third parties to perform
their obligations in a timely manner and consistent with regulatory requirements, including those related to quality control and
quality assurance. The failure of a third-party manufacturer to perform its obligations as expected could adversely affect our
business in a number of ways, including:
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we
may not be able to initiate or continue preclinical and clinical trials of products that are under development;
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we
may need to repeat pivotal clinical trials;
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we
may be delayed in submitting regulatory applications, or receiving regulatory approvals, for our product candidates;
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we
may lose the cooperation of our collaborators;
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our
products could be the subject of inspections by regulatory authorities;
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we
may be required to cease distribution or recall some or all batches of our products; and
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ultimately,
we may not be able to meet commercial demands for our products.
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If
a third-party manufacturer with whom we contract fails to perform its obligations, we may be forced to seek out one or more other
third-party manufacturers to manufacture our preclinical and/or clinical trial materials, which could cause delays in the FDA
approval process. Further, should our vaccine candidate be approved for marketing by the FDA, a change in a third-party manufacturer
could cause significant delays to meeting the demand of patients. In some cases, the technical skills required to manufacture
our product may be unique to the original manufacturer and we may have difficulty transferring such skills to a back-up or alternate
manufacturer, or we may be unable to transfer such skills at all. In addition, if we are required to change manufacturers for
any reason, we will be required to verify that the new manufacturer maintains facilities and procedures that comply with quality
standards and with all applicable regulations and guidelines. We will also be required to demonstrate that the newly manufactured
material is the same or similar to the previously manufactured material, or we may need to repeat clinical trials with the newly
manufactured material. The delays associated with the verification of a new manufacturer could negatively affect our ability to
develop product candidates in a timely manner or within budget. Furthermore, a manufacturer may possess technology related to
the manufacture of our product candidate that such manufacturer owns independently, which would increase our reliance on such
manufacturer or require us to obtain a license from such manufacturer in order to have another third party manufacture our products.
We
intend to rely on third parties to conduct our preclinical studies and clinical trials and perform other tasks for us. If these
third parties do not successfully carry out their contractual duties, meet expected deadlines, or comply with regulatory requirements,
we may not be able to obtain regulatory approval for or commercialize our product candidates and our business, financial condition
and results of operations could be substantially harmed.
We
plan to rely upon third-party contract research organizations, or CROs, medical institutions, clinical investigators and contract
laboratories to monitor and manage data for our licensed ongoing preclinical and clinical programs. We expect to continue to rely
on these parties for execution of our preclinical studies and clinical trials, and we control only certain aspects of their activities.
Nevertheless, we maintain responsibility for ensuring that each of our clinical trials and preclinical studies is conducted in
accordance with the applicable protocol, legal, regulatory, and scientific standards and our reliance on these third parties does
not relieve us of our regulatory responsibilities. We and our CROs and other vendors are required to comply with cGMP, current
Good Clinical Practices or cGCP, and current Good Laboratory Practices, or cGLP, which are a collection of laws and regulations
enforced by the FDA or comparable foreign authorities for all of our product candidates in clinical development. Regulatory authorities
enforce these regulations through periodic inspections of manufacturing facilities, preclinical study and clinical trial sponsors,
principal investigators, preclinical study and clinical trial sites, and other contractors. If we or any of our CROs or vendors
fails to comply with applicable regulations, the data generated in our preclinical studies and clinical trials may be deemed unreliable
and the FDA or comparable foreign authorities may require us to perform additional preclinical studies and clinical trials before
approving our marketing applications. We cannot assure that upon inspection by a given regulatory authority, such regulatory authority
will determine that any of our clinical trials comply with GCP regulations. In addition, our clinical trials must be conducted
with products manufactured consistently with cGMP regulations. Failure by us or our third party CRO to comply with these regulations
may require us to repeat clinical trials, which would delay the development and regulatory approval processes.
If
any of our relationships with these third-party CROs, medical institutions, clinical investigators or contract laboratories terminate,
we may not be able to enter into arrangements with alternative CROs on commercially reasonable terms, or at all. In addition,
our CROs are not our employees, and except for remedies available to us under our agreements with such CROs, we cannot control
whether or not they devote sufficient time and resources to our ongoing preclinical and clinical programs. If CROs do not successfully
carry out their contractual duties, or comply with cGCP laws, regulations and guidance, or obligations or meet expected deadlines,
if they need to be replaced or if the quality or accuracy of the data they obtain is compromised due to the failure to adhere
to our protocols, regulatory requirements, or for other reasons, our clinical trials may be extended, delayed or terminated and
we may not be able to obtain regulatory approval for or successfully commercialize our product candidates. CROs may also generate
higher costs than anticipated. As a result, our business, financial condition and results of operations and the commercial prospects
for our product candidates could be materially and adversely affected, our costs could increase, and our ability to generate revenue
could be delayed.
Switching
or adding additional CROs, medical institutions, clinical investigators or contract laboratories involves additional cost and
requires management time and focus. In addition, there is a natural transition period when a new CRO commences work replacing
a previous CRO. As a result, delays occur, which can materially impact our ability to meet our desired clinical development timelines.
The
COVID-19 Vaccine that we develop in the future will be subject to extensive governmental regulations relating to development,
clinical trials, manufacturing and commercialization.
Rigorous
preclinical studies, clinical trials and extensive regulatory approval processes are required to be successfully completed in
the United States and in many foreign jurisdictions before a new product may be offered and sold in any of these countries or
regions. Satisfaction of these and other regulatory requirements is costly, time-consuming, uncertain and subject to unanticipated
delays.
In
the United States, the products that we intend to develop and market are regulated by the FDA under its drug development and review
process. The time required to obtain FDA and other approvals for any product that we develop in the future is inherently unpredictable.
Before such products can be marketed, we must obtain clearance from the FDA first through submission of an investigational new
drug (“IND”), then through successful completion of human testing under three phases of clinical trials and finally
through submission of a new drug application (“NDA”). Even after successful completion of clinical testing, there
is a risk that the FDA may request further information from us, disagree with our findings or otherwise undertake a lengthy review
of our NDA submission.
There
can be no assurance that the FDA will grant a license for any NDA that we may submit. It is possible that none of the products
that we develop in the future will obtain the appropriate regulatory approvals necessary for us to commence the offer and sale
of such products. Any delay or failure in obtaining required approvals could have a material adverse effect on our ability to
generate revenues from a particular prospective product.
If
we decide to market any drug that we develop in jurisdictions in addition to the United States, we may incur the same costs or
more in satisfying foreign regulatory requirements governing the conduct of preclinical and clinical trials, manufacturing and
marketing and commercialization of any product that we develop in the future. Approval by the FDA by itself does not assure approval
by regulatory authorities outside the United States. Each of these foreign regulatory approval processes includes all of the risks
associated with the FDA approval process, as well as risks attributable to having to satisfy local regulations within each of
these foreign jurisdictions. Our inability to obtain regulatory approval outside the United States may adversely compromise our
business prospects
We
may fail to retain qualified personnel.
We
have substantially reduced the number of our employees in order to reduce our costs. Accordingly, retaining our remaining personnel
in the future will be critical to our success. If we fail to retain and motivate these highly skilled personnel, we may be unable
to continue our operating activities, and this could have a material adverse effect on our business, financial condition, results
of operations and future prospects.
We
rely on the key executive officer of the management team.
We
are dependent on our management team to execute against our 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.
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 products or 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.
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 we have no knowledge of any claims against
us, we may be subject to claims that these employees or we 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 be at risk that our former employees may wrongfully use or disclose our trade secrets.
In
addition to patent protection, we rely heavily upon know-how and trade secret protection, as well as non-disclosure agreements
and invention assignment agreements with our employees, consultants, and third parties, to protect our confidential and proprietary
information, especially where we do not believe patent protection is appropriate or obtainable. In addition to contractual measures,
we try to protect the confidential nature of our proprietary information using physical and technological security measures. Such
measures may not, for example, in the case of misappropriation of a trade secret by an employee, former employee, consultant,
former consultant or third party with authorized access, provide adequate protection for our proprietary information. Our security
measures may not prevent an employee or consultant from misappropriating our trade secrets and providing them to a competitor,
and recourse we take against such misconduct may not provide an adequate remedy to protect our interests fully. Enforcing a claim
that a party illegally disclosed or misappropriated a trade secret can be difficult, expensive, and time-consuming, and the outcome
is unpredictable. In addition, trade secrets may be independently developed by others in a manner that could prevent legal recourse
by us. If any of our confidential or proprietary information, such as our trade secrets, were to be disclosed or misappropriated,
or if any such information was independently developed by a competitor, our competitive position could be harmed.
The
marketing, sale, and use of our PIFA products and any other devices we currently manufacture or may manufacture in the future
could result in serious injuries, product liability claims, regulatory enforcement action, and/or recalls or market withdrawals,
any of which would likely subject us to substantial costs and reputational harm and have a material adverse effect on our business.
Our
success depends on the market’s confidence that we can continue to provide reliable, high-quality diagnostic tests. We believe
that our customers are likely to be particularly sensitive to test defects and errors, as the conditions that the PIFA products
are designed to identify may cause limb- and life-threatening complications if not accurately diagnosed in a timely manner. As
a result, the failure of our tests or services to perform as expected could impair our reputation and the public image of our
tests and services, and we may be subject to legal claims arising from any defects or errors.
The
marketing, sale, and use of our PIFA products and our other products could lead to product liability (and other similar) claims
against us if someone were to allege that one of our tests failed to perform as it was designed or as claimed in our promotional
materials, was performed pursuant to incorrect or inadequate laboratory procedures, if we delivered incorrect or incomplete test
results, or if someone were to misinterpret test results. In addition, we may be subject to liability for errors in, a misunderstanding
of, or inappropriate reliance upon, the information we provide, or for failure to provide such information, in connection with
our marketing and promotional activities or as part of the results generated by our products. A product liability or professional
liability claim could result in substantial damages and be costly and time-consuming for us to defend.
While
our PIFA products are highly accurate, they are not 100% accurate and may generate erroneous results that could cause patient
harm. For example, PIFA could provide a so-called “false negative” result upon which a patient or physician may rely
to make a conclusion about how to proceed with the patient’s treatment. If the false negative causes, or exacerbates, a
patient injury or condition, the patient (and/or the patient’s family) may file a lawsuit against us based on product liability.
On July 25, 2019, we received a product-liability petition, alleging that multiple false-negative PIFA Heparin/PF4 Rapid Assay
results caused a patient’s treating hospital to delay the appropriate diagnosis by several days, which, the petition argues,
was a substantial contributing factor in the ultimate amputation of the patient’s left leg. We are contesting this action
vigorously and believe our product liability insurance will be adequate to cover any costs incurred in connection with this matter.
However, we cannot guarantee that our insurance will fully protect us from the financial impact of defending against product liability
claims or any judgments, fines, or settlement costs arising out of any such claims.
Any
product liability or professional liability claim brought against us, with or without merit, could increase our insurance rates,
cause our insurance coverage to be terminated or prevent us from securing insurance coverage in the future. Additionally, any
product liability or professional liability lawsuit could harm our reputation, result in a cessation of our services or cause
our partners to terminate our agreements with them, any of which could adversely impact our results of operations.
Further,
under the FDA’s MDR regulations, we are required to report to the FDA any incident in which our product may have caused
or contributed to a death or serious injury or in which our product malfunctioned and, if the malfunction were to recur, would
likely cause or contribute to death or serious injury. For example, once brought to our attention, we reported the injury described
above in connection with alleged false-negative PIFA Heparin/PF4 Rapid Assay results. Repeated product malfunctions may result
in a voluntary or involuntary product recall, which could divert managerial and financial resources, impair our ability to manufacture
our products in a cost-effective and timely manner and have an adverse effect on our reputation, financial condition and operating
results.
Any
adverse event involving our products could result in future voluntary corrective actions, such as recalls or customer notifications,
or regulatory agency action, which could include inspection, mandatory recall or other enforcement action. Any corrective action,
whether voluntary or involuntary, will require the dedication of our time and capital, distract management from operating our
business and may harm our reputation and financial results.
We
currently manufacture our products at a single location. Any disruption at this facility could adversely affect our business and
results of operations.
We
currently manufacture all our products at our manufacturing plant. If our manufacturing plant were damaged or destroyed, or otherwise
subject to disruption, it would require substantial lead-time to replace or rebuild the facility for the manufacture of our products.
In such event, we would be forced to rely entirely on third-party contract manufacturers for an indefinite period of time. We
do not currently have established relationships with any back-up manufacturers. Even if we are able to establish a relationship
with a third-party manufacturer, there is no assurance that such manufacturer will be able to meet our needs from a technical,
timing, or cost effective manner.
We
are currently subject to a number of securities litigations and we may be subject to similar or other litigation in the future.
We
are currently subject to a number of litigations as described in the “Legal Proceedings” section. In connection with
certain of these litigations, we have entered into settlements of claims for significant monetary damages. We may also be subject
to judgements or enter into additional settlements of claims for significant monetary damages for the securities litigations that
we have yet to enter into settlement agreements. Defending against the current litigations is or can be time-consuming, expensive
and cause diversion of our management’s attention.
With
respect to any litigation, our insurance may not reimburse us or may not be sufficient to reimburse us for the expenses or losses
we may suffer in contesting and concluding such lawsuit. Substantial litigation costs, including the substantial self-insured
retention that we are required to satisfy before any insurance applies to a claim, unreimbursed legal fees or an adverse result
in any litigation may adversely impact our business, operating results or financial condition. We believe that our directors’
and officers’ liability insurance will cover our potential liability with respect to the securities class-action lawsuit;
however, the insurer has reserved its rights to contest the applicability of the insurance to such claims and the limits of the
insurance may be insufficient to cover our eventual liability.
We
face substantial competition from other companies and our operating results may suffer if we fail to compete effectively.
Competition
among providers of rapid, point-of-care screening and testing products is intense and subject to rapid technological change and
evolving industry requirements and standards. We compete with many companies that have greater financial, product development,
sales and marketing resources and experience than we do. Furthermore, new product development and technological change characterize
the areas in which we compete. Our present or future products could be rendered obsolete or uneconomical as a result of technological
advances by one or more of our present or future competitors. We must continue to develop and commercialize new products and technologies
to remain competitive in the diagnostic testing industry. We believe that we compete primarily on the basis of our single-use
testing. Customer and clinical support, and data that demonstrate both improvement in a patient’s quality of life and a
product’s cost-effectiveness are additional aspects of competition.
We
are aware of other rapid, point-of-care screening and diagnostic testing products in the U.S., Canada, and Europe. Specifically,
Abbott, ACON Laboratories, Inc., Immucor, Inc., OraSure Technologies, Inc., and Quidel Corporation are companies that develop
rapid, point-of-care screening and diagnostic testing products and currently maintain dominant market positions within the diagnostic
testing market.
If
we market products or interact with health care practitioners in a manner that violates healthcare fraud or abuse laws, we may
be subject to civil or criminal penalties, including exclusion from participation in government healthcare programs.
We
receive payments directly from or bill directly to Medicare, Medicaid or other national or third-party payers for our current
product, U.S. federal and state healthcare laws and regulations pertaining to fraud or abuse are and will be applicable to our
business. We are subject to healthcare fraud and abuse regulation by the U.S. federal government and the states in which we conduct
our business.
The
laws that may affect our ability to operate include the federal healthcare program anti-kickback statute, which prohibits, among
other things, knowingly and willfully offering, paying, soliciting, or receiving remuneration to induce, or in return for, the
purchase, lease or order, or arrangement for the purchase, lease or order of any healthcare item or service reimbursable under
Medicare, Medicaid or other federally financed healthcare programs. This statute applies to arrangements between pharmaceutical
manufacturers and prescribers, purchasers and formulary managers. Although there are a number of statutory exceptions and regulatory
safe harbors protecting certain common activities, the exceptions and safe harbors are drawn narrowly, and practices that involve
remuneration intended to induce prescribing, purchases or recommendations may be subject to scrutiny if they do not qualify for
an exception or safe harbor.
Federal
false claims laws prohibit any person from knowingly presenting, or causing to be presented, a false claim for payment to the
federal government, or knowingly making, or causing to be made, a false statement to get a false claim paid. Pharmaceutical companies
have been prosecuted under these laws for a variety of alleged promotional and marketing activities, such as providing free product
to customers with the expectation that the customers would bill federal programs for the product, reporting to pricing services
inflated average wholesale prices that were then used by federal programs to set reimbursement rates, engaging in off-label promotion
that caused claims to be submitted to Medicaid for non-covered off-label uses and submitting inflated best price information to
the Medicaid Drug Rebate Program.
The
Health Insurance Portability and Accountability Act of 1996 also created prohibitions against 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 payers. The false statements statute immediately noted above 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.
In
addition, there has been a recent trend of increased federal and state regulation of payments made to physicians. The ACA, through
the Physician Payment Sunshine Act of 2010, imposed new requirements on manufacturers of drugs, devices, biologics and medical
supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program (with certain
exceptions) to report annually to the Centers for Medicare and Medicaid Services (“CMS”) information related to payments
or other “transfers of value” made to physicians (defined to include doctors, dentists, optometrists, podiatrists
and chiropractors) and teaching hospitals, and applicable manufacturers and group purchasing organizations to report annually
to CMS ownership and investment interests held by physicians (as defined above) and their immediate family members and payments
or other “transfers of value” to such physician owners and their immediate family members. Manufacturers are required
to report such data to the government by the 90th calendar day of each year.
The
majority of states also have statutes or regulations similar to these federal laws, which apply to items and services reimbursed
under Medicaid and other state programs, or, in several states, apply regardless of the payer. In addition, some states have laws
that require pharmaceutical companies to adopt comprehensive compliance programs. For example, under California law, pharmaceutical
companies must comply with both the April 2003 Office of Inspector General Compliance Program Guidance for Pharmaceutical Manufacturers
and the PhRMA Code on Interactions with Healthcare Professionals, as amended. Moreover, certain states mandate the tracking and
reporting of gifts, compensation and other remuneration paid by us to physicians and other healthcare providers.
Although
compliance programs can mitigate the risk of investigation and prosecution for violations of these laws, the risks cannot be entirely
eliminated. Any action against us for violation of these laws, even if we successfully defend against it, could cause us to incur
significant legal expenses, cause reputational harm and divert our management’s attention from the operation of our business.
Moreover, achieving and sustaining compliance with applicable U.S. federal and state laws may prove costly.
Data
security breaches may disrupt our operations and adversely affect our operating results.
Our
network security and data recovery measures and those of third parties with which we contract, may not be adequate to protect
against computer viruses, cyber-attacks, breaches, and similar disruptions from unauthorized tampering with our computer systems.
The misappropriation, theft, sabotage or any other type of security breach with respect to any of our proprietary and confidential
information that is electronically stored, including patient data, could cause interruptions in our operations, could result in
a material disruption of our business operations and could expose us to third-party legal claims. Furthermore, we could be required
to make substantial expenditures of resources to remedy the cause of cyber-attacks or break-ins. This disruption could have a
material adverse impact on our business, operating results and financial condition.
Our
business processes personal medical information. The use of this information is critical to our operations and innovation. New
and evolving regulations could bring increased scrutiny of our data management in the future. Any cyber-attacks or other failure
to protect critical and sensitive systems and information could damage our reputation, prompt litigation or lead to regulatory
sanctions, all of which could materially affect our financial condition and results of operation.
We
are subject to various internal control reporting requirements under the Sarbanes-Oxley Act. We can provide no assurance that
we will at all times in the future be able to report that our internal controls over financial reporting are effective.
As
a public company, we are required to comply with Section 404 of the U.S. Sarbanes-Oxley Act of 2002 (“Section 404”).
In any given year, we cannot be certain as to the time of completion of our internal control evaluation, testing and remediation
actions or of their impact on our operations. Upon completion of this process, we may identify control deficiencies of varying
degrees of severity under applicable SEC and Public Company Accounting Oversight Board (U.S.) rules and regulations. Our management,
including our chief executive officer and principal financial officer, does not expect that our internal controls and disclosure
controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only
reasonable, not absolute, assurance that the objectives of the control system are met. In addition, the design of a control system
must reflect the fact that there are resource constraints and the benefit of controls must be relative to their costs. Because
of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control
issues and instances of fraud, if any, in our company have been detected. These inherent limitations include the realities that
judgments in decision-making can be faulty and that breakdowns can occur because of simple errors or mistakes. Further, controls
can be circumvented by individual acts of some persons, by collusion of two or more persons, or by management override of the
controls. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events,
and there can be no assurance that any design will succeed in achieving our stated goals under all potential future conditions.
Over time, a control may be inadequate because of changes in conditions, such as growth of the company or increased transaction
volume, or the degree of compliance with the policies or procedures may deteriorate. Because of inherent limitations in a cost-effective
control system, misstatements due to error or fraud may occur and not be detected.
In
addition, as a public company, we are required to report, among other things, control deficiencies that constitute material weaknesses
or changes in internal controls that, or that are reasonably likely to, materially affect internal controls 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 our annual consolidated financial statements will
not be prevented or detected on a timely basis. If we fail to comply with the requirements of Section 404 or if we report a material
weakness, we might be subject to regulatory sanction and investors may lose confidence in our consolidated financial statements,
which may be inaccurate if we fail to remedy such material weakness.
We
incur increased costs and demands on management as a result of compliance with laws and regulations applicable to public companies,
which could harm our operating results.
As
a public company, we incur significant legal, accounting and other expenses that we did not incur as a private company, including
costs associated with public company reporting requirements. In addition, the Sarbanes-Oxley Act of 2002 and the Dodd-Frank Act
of 2010, as well as rules implemented by the SEC and the Nasdaq Stock Market, impose a number of requirements on public companies,
including with respect to corporate governance practices. Our management and other personnel need to devote a substantial amount
of time to these compliance and disclosure obligations. Moreover, compliance with these rules and regulations has increased our
legal, accounting and financial compliance costs and has made some activities more time-consuming and costly. It is also more
expensive for us to obtain director and officer liability insurance.
Our
business may be materially adversely affected by the recent coronavirus (COVID-19) outbreak.
The
outbreak of the COVID-19 could disrupt our operations due to absenteeism by infected or ill members of management or other employees,
or absenteeism by members of management and other employees who elect not to come to work due to the illness affecting others
in our office or laboratory facilities, or due to quarantines. COVID-19 illness could also impact members of our Board of Directors
resulting in absenteeism from meetings of the directors or committees of directors, and making it more difficult to convene the
quorums of the full Board of Directors or its committees needed to conduct meetings for the management of our affairs.
Supplies
could be disrupted if the manufacturers or suppliers of our products experience absenteeism due to illness of their employees
or due to local quarantines. Absenteeism due to coronavirus illness could also impact companies that the suppliers use to ship
products to us. We cannot presently predict the extent to which the virus may impact our operations.
The
anticipated economic consequences of the COVID-19 pandemic have adversely impacted financial markets, resulting in high share
price volatility, reduced market liquidity, and substantial declines in the market prices of the shares of most publicly traded
companies, including Akers. Volatile or declining markets for equities could adversely affect our ability to raise capital when
needed through the sale of shares of common stock or other equity securities. While these market conditions persist when we need
to raise capital, and if we are able to sell shares of our common stock under then prevailing market conditions, we might have
to accept lower prices for our shares and issue a larger number of shares than might have been the case under better market conditions,
resulting in significant dilution of the interests of our shareholders.
Risks
Related to our Pursuit of Strategic Alternatives
We
may opportunistically review strategic transactions and there can be no assurance that that any such strategic transaction we
may purse will result in additional value for our stockholders.
In
November 2018, we announced that our Board of Directors had initiated a process to evaluate strategic alternatives to maximize
shareholder value. The Company sought to explore how to leverage its 30 years of operational history in its medical device business,
where its current products have FDA clearance, its current operations practice Good Manufacturing Processes (cGMP), its medical
device facility is certified under ISO 13485 – 2016 and the facility carries an Analytical Lab Certification for Schedules
2, 3, 4 and 5 controlled substances issued by the U.S. Drug Enforcement Administration (DEA) and the State of New Jersey. The
Company intends to pursue opportunities in the extraction, testing, purification and formulation of safe cannabinoids within the
hemp industry, including pathways to consumer products with a focus on minor cannabinoids. To the extent we engage in other strategic
transactions, the process may be time consuming and disruptive to our business operations and, our business, financial condition
and results of operations could be adversely affected. We could incur substantial expenses associated with evaluating and negotiating
potential strategic alternatives. 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. There can be no assurance that any potential transaction, if consummated, will provide greater value to
our stockholders than that reflected in the current price of our common stock.
If
we are unable to make acquisitions and investments, or successfully integrate them into our business, our business could be harmed.
As
part of our business strategy, we may acquire other companies or businesses. However, we may not be able to find suitable acquisition
candidates, and we may not be able to complete acquisitions on favorable terms, if at all. Acquisitions involve numerous risks,
any of which could harm our business and negatively affect our operating results, including:
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difficulties
in integrating the technologies, operations, existing contracts and personnel of an acquired company;
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difficulties
in supporting and transitioning clients and suppliers, if any, of an acquired company;
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diversion
of financial and management resources from existing operations or alternative acquisition opportunities;
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failure
to realize the anticipated benefits or synergies of a transaction;
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failure
to identify all of the problems, liabilities or other shortcomings or challenges of an acquired company or technology, including
issues related to intellectual property, regulatory compliance practices, revenue recognition or other accounting practices,
or employee or client issues;
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risks
of entering new markets in which we have limited or no experience;
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potential
loss of key employees, clients, vendors and suppliers from either our current business or an acquired company’s business;
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inability
to generate sufficient revenue to offset acquisition costs;
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additional
costs or equity dilution associated with funding the acquisition; and
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possible
write-offs or impairment charges relating to acquired businesses.
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If
we acquire a new business, or retain individuals with expertise in a new industry to pursue a strategic alternative, we will have
a limited operating history in such new industry, specifically the cannabis industry, and may not succeed.
We
will have a limited operating history within the cannabis industry and may not succeed. We will be subject to all risks inherent
in a developing business enterprise. The likelihood of our continued viability must be considered in light of the problems, expenses,
difficulties, complications, and delays frequently encountered in connection with manufacturing specialty products and the competitive
and regulatory environment in which we operate. For example, the cannabis industry is a new industry that, as a whole, may not
succeed, particularly if the Federal government changes course and decides to prosecute those dealing in cannabis under Federal
law. If that happens, there may not be an adequate market for our products. As a new industry, there are not established players
on whose business models we can follow or build upon. Similarly, there is limited information about comparable companies available
for potential investors to review in making a decision about whether to invest in our company. Furthermore, as the industrial
hemp industry is a new market, it is ripe for technological advancements that could limit or eliminate the need for our products.
Furthermore, unanticipated expenses, problems, and technical difficulties may occur and they may result in material delays in
the operation of our business, in particular with respect to our new products. We may not be able to successfully address these
risks and uncertainties or successfully implement our operating strategies. If we fail to do so, such failure could materially
harm our business to the point of having to cease operations and could impair the value of our common stock to the point investors
may lose their entire investment.
If
we acquire a business in the cannabis industry or otherwise pursues a strategic alternative, we would face additional unique and
evolving risks.
Further
legislative development beneficial to the cannabis industry is not guaranteed
If
we acquire a business in the cannabis industry or otherwise pursues a strategic alternative, the success of such business would
depend on the continued development of the cannabis industry and the activity of commercial business and government regulatory
agencies within the industry. The continued development of the cannabis industry is dependent upon continued legislative and regulatory
authorization of cannabis at the state level and a continued laissez-faire approach by federal enforcement agencies. Any number
of factors could slow or halt progress in this area. Further regulatory progress beneficial to the industry cannot be assured.
While there may be ample public support for legislative action, numerous factors impact the legislative and regulatory process,
including election results, scientific findings or general public events. Any one of these factors could slow or halt progressive
legislation relating to cannabis and the current tolerance for the use of cannabis by consumers, which could adversely affect
the business we may acquire or pursue. These changes may require us, should we acquire a business or otherwise pursues a strategic
alternative in the cannabis industry, to incur substantial costs associated with legal and compliance fees and ultimately require
us to alter our business plan. Furthermore, violations of these laws, or alleged violations, could disrupt our business and result
in a material adverse effect on our operations. In addition, we cannot predict the nature of any future laws, regulations, interpretations
or applications, and it is possible that regulations may be enacted in the future that will be directly applicable to the business
we may acquire or pursue.
The
cannabis industry could face strong opposition from other industries
We
believe that established businesses in other industries may have a strong economic interest in opposing the development of the
cannabis industry. Cannabis may be seen by companies in other industries as an attractive alternative to their products, including
recreational marijuana as an alternative to alcohol, and medical marijuana as an alternative to various commercial pharmaceuticals.
Many industries that could view the emerging cannabis industry as an economic threat are well established, with vast economic
and federal and state lobbying resources. It is possible that companies within these industries could use their resources to attempt
to slow or reverse legislation legalizing cannabis. Any inroads these companies make in halting or impeding legislative initiatives
that would be beneficial to the cannabis industry could have a detrimental impact on our potential business.
The
legality of marijuana could be reversed in one or more states
There
is a substantial amount of change occurring in the U.S. regarding the use of medical and recreational marijuana products. While
federal law prohibits the sale and distribution of cannabis products not approved or authorized by the FDA, at least 30 jurisdictions
and the District of Columbia have enacted state laws to enable possession and use of marijuana in some form for medical purposes,
and at least ten jurisdictions for recreational purposes. However, notwithstanding the permissive regulatory environment in some
states, marijuana continues to be classified as a Schedule I controlled substance under the federal Controlled Substances Act
and, thus, engaging in commercial activities involving such products violates federal law. Further, the voters or legislatures
of states in which marijuana has already been legalized could potentially repeal applicable laws which permit the operation of
both medical and retail marijuana businesses. These actions might force our potential business to cease operations in one or more
states entirely.
Banking
regulations could limit access to banking services
Since
the use of marijuana is illegal under federal law, there is a compelling argument that banks cannot lawfully accept for deposit
funds from businesses involved with marijuana. Consequently, businesses involved in the cannabis industry often have trouble finding
a bank willing to accept their business. The inability to open bank accounts may make it difficult for our potential business
to operate and our reliance on cash could result in a heightened risk of theft. Additionally, some courts have denied marijuana-related
businesses bankruptcy protection, thus, making it very difficult for lenders to recoup their investments, which may limit the
willingness of banks to lend to us.
Insurance
risks
In
the United States, many marijuana-related businesses are subject to a lack of adequate insurance coverage. In addition, many insurance
companies may deny claims for any loss relating to marijuana or marijuana-related operations based on their illegality under federal
law, noting that a contract for an illegal transaction is unenforceable. Thus, if we acquire a business or otherwise pursues a
strategic alternative in the cannabis industry, we may have a difficult time obtaining certain insurances that are desired to
operate our business, which may expose us to additional risks and financial liabilities.
Risks
Related to our Common Stock and our Company Generally
The
market price for our common stock may be volatile, and your investment in our common stock could decline in value.
The
stock market in general has experienced extreme price and volume fluctuations. The market prices of the securities of biotechnology
and specialty pharmaceutical companies, particularly companies like ours without product revenues and earnings, have been highly
volatile and may continue to be highly volatile in the future. This volatility has often been unrelated to the operating performance
of particular companies. The following factors, in addition to other risk factors described in this section, may have a significant
impact on the market price of our common stock:
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announcements
of technological innovations or new products by us or our competitors;
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announcement
of FDA approval or disapproval of our product candidates or other product-related actions;
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developments
involving our discovery efforts and clinical studies;
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developments
or disputes concerning patents or proprietary rights, including announcements of infringement, interference or other litigation
against us or our potential licensees;
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announcements
concerning our competitors, or the biotechnology, pharmaceutical or drug delivery industry in general;
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public
concerns as to the safety or efficacy of our products or our competitors’ products;
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changes
in government regulation of the pharmaceutical or medical industry;
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changes
in the reimbursement policies of third party insurance companies or government agencies;
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actual
or anticipated fluctuations in our operating results;
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changes
in financial estimates or recommendations by securities analysts;
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developments
involving corporate collaborators, if any;
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changes
in accounting principles; and
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the
loss of any of our key scientific or management personnel.
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In
the past, securities class action litigation has often been brought against companies that experience volatility in the market
price of their securities. Whether or not meritorious, litigation brought against us could result in substantial costs and a diversion
of management’s attention and resources, which could adversely affect our business, operating results and financial condition.
Our
failure to meet the continued listing requirements of The NASDAQ Capital Market could result in a delisting of 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. We cannot assure you that we will continue to meet
the continued listing requirements in the future.
If
NASDAQ delists our common stock from trading on its exchange, due to failure to meet its continued listing requirements, and we
are not able to list our common stock on another national securities exchange, we expect our securities could be quoted on an
over-the-counter market. If this were to occur, we could face significant material adverse consequences, including:
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a
limited availability of market quotations for our common stock;
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reduced
liquidity for our common stock;
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a
determination that our common stock is a “penny stock” which will require brokers trading in our common stock
to adhere to more stringent rules and possibly result in a reduced level of trading activity in the secondary trading market
for our common stock;
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a
limited amount of news and analyst coverage; and
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a
decreased ability to issue additional securities or obtain additional financing in the future.
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If
we sell shares of our common stock in future financings, stockholders may experience immediate dilution and, as a result, our
stock price may decline.
We
may from time to time issue additional shares of common stock at a discount from the current market price of our common stock.
As a result, our stockholders would experience immediate dilution upon the purchase of any shares of our common stock sold at
such discount. In addition, as opportunities present themselves, we may enter into financing or similar arrangements in the future,
including the issuance of debt securities, preferred stock or common stock. If we issue common stock or securities convertible
or exercisable into common stock, our common stockholders would experience additional dilution and, as a result, our stock price
may decline.
An
active trading market for our common stock may not be sustained.
Although
our common stock is listed on the NASDAQ, the market for our shares has demonstrated varying levels of trading activity. There
has been limited trading of our common stock in the U.S since we began trading on NASDAQ in January 2014. Furthermore, the current
level of trading may not be sustained in the future. The lack of an active market for our common stock may impair investors’
ability to sell their shares at the time they wish to sell them or at a price that they consider reasonable, may reduce the fair
market value of their shares and may impair our ability to raise capital to continue to fund operations by selling shares and
may impair our ability to acquire additional intellectual property assets by using our shares as consideration.
We
do not anticipate paying dividends on our common stock and, accordingly, stockholders must rely on stock appreciation for any
return on their investment.
We
have never declared or paid cash dividends on our common stock and do not expect to do so in the foreseeable future. The declaration
of dividends is subject to the discretion of our Board of Directors and limitations under applicable law, and will depend on various
factors, including our operating results, financial condition, future prospects and any other factors deemed relevant by our Board
of Directors. You should not rely on an investment in our company if you require dividend income from your investment in our company.
The success of your investment will likely depend entirely upon any future appreciation of the market price of our common stock,
which is uncertain and unpredictable. There is no guarantee that our common stock will appreciate in value.
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 stockholders 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.
We
may issue additional series of preferred stock that rank senior or equally to the Series C Preferred Stock as to dividend payments
and liquidation preference.
Neither
our certificate of incorporation nor the Certificate of Designation for the Series C Preferred Stock prohibits us from issuing
additional series of preferred stock that would rank senior or equally to the Series C Preferred Stock as to dividend payments
and liquidation preference. Our certificate of incorporation provides that we have the authority to issue up to 50,000,000 shares
of preferred stock, no shares of which are outstanding prior to this offering. The issuances of other series of preferred stock
could have the effect of reducing the amounts available to the Series C Preferred Stock in the event of our liquidation, winding-up
or dissolution. It may also reduce cash dividend payments on the Series C Preferred Stock if we do not have sufficient funds to
pay dividends on all Series C Preferred Stock outstanding and outstanding parity preferred stock.
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.
Item
1B. Unresolved Staff Comments
Not
applicable.
Item
2. Property
Our
corporate headquarters which houses our 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 twelve years, we have leased this facility at this location.
The current lease term is effective from January 1, 2020 through December 31, 2021 with an annual rent of $132,000.
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.
Faulkner
v. Akers Biosciences, Inc., No. 2:18-cv-10521 (D.N.J.) and Gleason v. Akers Biosciences, Inc., No. 2:18-cv-10805 (D.N.J.)
On
June 13, 2018, Plaintiff Tim Faulkner filed a class action complaint alleging securities violations against our company, John
J. Gormally and Gary M. Rauch (“Individual Defendants” and together with our company, “Defendants”) on
behalf of all persons and entities who purchased publicly traded Akers securities from May 15, 2017 through June 5, 2018 (the
“Faulkner Action”). The complaint alleged violations of Section 10(b) of the Exchange Act and Rule 10b-5 against all
Defendants, and violations of Section 20(a) of the Exchange Act against the Individual Defendants. In particular, the complaint
alleged that Defendants made false and/or misleading statements and/or failed to disclose in our first, second, and third quarter
2017 10-Qs and our 2017 10-K that: (1) Akers was improperly recognizing revenue for the fiscal year ended December 31, 2017; and,
(2) Akers had downplayed weaknesses in our internal controls over financial reporting and failed to disclose the true extent of
those weaknesses. On June 20, 2018, Plaintiff David Gleason filed a class action complaint under the caption Gleason v. Akers
Biosciences, Inc., No. 2:18-cv-10805 (D.N.J.) based on the same allegations and causes of action (the “Gleason Action”).
On November 21, 2018, the Faulkner and Gleason Actions were consolidated under the Faulkner Action docket. The parties conducted
a mediation on January 10, 2019, and agreed to a settlement in principle disposing of the consolidated action as to all Defendants,
including the Individual Defendants. On March 8, 2019, the parties signed a settlement agreement, subject to approval by the Court,
whereby we agreed to pay $2,250,000 in exchange for full releases and discharge of all claims against us. On the same day, Plaintiffs
Tim Faulkner and David Gleason filed a motion for preliminary approval of the settlement and to establish notice procedures. On
July 3, 2019, the Court granted the motion for preliminary approval and scheduled a final settlement hearing for November 8, 2019.
On or about July 24, 2019, our directors and officers’ insurer sent the settlement payment of $2,250,000 to the settlement
agent for the class. On September 20, 2019, the Court granted the parties’ request to adjourn the final settlement hearing
and scheduled a final settlement hearing for December 20, 2019, at 11:00 a.m. On October 11, 2019, Lead Plaintiffs filed motions
for final approval of the proposed settlement and award of attorneys’ fees, and reimbursement of expenses. On December 20,
2019, the Court granted final approval of the settlement and award of attorneys’ fees, and reimbursement of expenses.
Watts
v. Gormally, et al., No. 2:18-15992 (D.N.J.) and Chan v. Gormally, et al., No. 2:19-cv-4989 (D.N.J.)
On
November 9, 2018, Cale Watts (“Watts Plaintiff”) filed a verified shareholder derivative complaint alleging violations
of the Securities Exchange Act of 1934, breach of fiduciary duty, unjust enrichment, and waste of corporate assets based on alleged
material weaknesses in controls, management, and documentation (the “Watts Action”). On January 14, 2019, the parties
reached an agreement in principle to settle the Watts Action that included corporate reforms and a payment of attorneys’
fees of $200,000. The parties finalized a Stipulation of Settlement on March 4, 2019. On February 7, 2019, Tiffany Chan, Jasmine
Henderson, and Don Danesh (“Chan Plaintiffs”) filed a verified shareholder derivative complaint alleging violations
of Section 14(a) of the Exchange Act and SEC Rule 14a-9, breach of fiduciary duty, unjust enrichment, and waste of corporate assets
based on the same circumstances as the Watts Action (the “Chan Action”). The Chan Action further alleged that we should
not have settled the Watts Action because the Watts Action plaintiffs lacked standing and the settlement would cause irreparable
harm to us and our shareholders. On March 22, 2019, the Watts Plaintiff filed a motion for preliminary approval of the proposed
settlement, approving the proposed form and method of providing notice of the settlement, scheduling a hearing for final approval
of the settlement (“Watts Motion for Preliminary Approval”). On April 1, 2019, the Chan Plaintiffs filed an Opposition
to the Motion for Preliminary Approval and a Motion to Intervene and Stay Proceedings (“Motion to Intervene and Stay”).
Subsequently, the Watts Plaintiff, Chan Plaintiffs, and Defendants reached an agreement in principle to settle the Watts and Chan
Actions that included corporate reforms and a payment of attorneys’ fees of $325,000. On October 2, 2019, the Watts Plaintiff
filed an Unopposed Motion for Preliminary Approval of the Settlement (the “Omnibus Motion for Preliminary Approval”).
The Omnibus Motion for Preliminary Approval was granted on January 8, 2020. Plaintiffs must file a motion for final approval of
the proposed settlement by May 7, 2020. The Final Settlement hearing is scheduled for May 28, 2020.
NovoTek
Therapeutics Inc. and NovoTek Pharmaceuticals Limited v. Akers Biosciences, Inc.
On
June 21, 2019, we received a complaint, filed by Novotek Therapeutics Inc., and Novotek Pharmaceuticals Limited (collectively,
“Novotek”), Beijing-based entities, in the United States District Court for the District of New Jersey, alleging,
among other things, breach of contract. Novotek is seeking, among other things, damages in the amount of $1,551,562, plus interest,
disbursements and attorneys’ fees. We vigorously dispute the allegations in the complaint and has retained counsel to defend
it. On September 16, 2019, we filed a partial motion to dismiss the complaint which was submitted on November 4, 2019. We are
not yet able to determine the amount of our exposure, if any.
Neelima
Varma v. Akers Biosciences, Inc. and St. David’s Healthcare Partnership, L.P., LLP CAUSE NO: D-1-GN-19-004262
On
July 25, 2019, we were notified that on July 23, 2019, a complaint was filed by Neelima Varma, against our company and St. David’s
Healthcare Partnership, L.P., LLP (“St. David’s”), in the district court of Travis County, Texas, alleging,
among other things, negligence, gross negligence and strict product liability, breach of express warranty, breach of implied warranty
and fraudulent misrepresentation and omission in connection with allegedly erroneous results generated by the PIFA Heparin/PF4
Rapid Assay. The complaint argues that the allegedly erroneous results caused St. David’s to continue with a course of treatment
that ultimately contributed to the loss of the plaintiff’s left leg. Ms. Varma is seeking aggregate monetary relief from
us and St. David’s in excess of $1,000,000. On September 20, 2019, we filed the original answer to plaintiff’s original
petition and on October 1, 2019, we received from plaintiff their first interrogatories and request for production of documents.
We carry product liability insurance. The insurance carrier has provided notice that it has reserved certain rights. We and our
insurance carrier will contest this complaint vigorously. We believe that our product liability insurance coverage will be adequate
to cover the potential exposure from defending against this matter and any judgments, fines, or settlement costs directly resulting
from this matter.
Douglas
Carrara v. Akers Biosciences, Inc., John Does 1-10, and XYZ Corp. 1-10, Docket No. ESX-L-5272-19 (N.J. Super. Ct., Essex County):
Douglas
Carrara, a former executive, has sued the Company over the termination of his employment. The executive seeks contractual severance
pay in the amount of $200,000. The executive asserts that the termination was without cause within the meaning of his employment
agreement, which provides for severance of one year’s salary in the event of termination without cause. The executive also
seeks indemnification for approximately $10,000 in attorneys’ fees that he contends he incurred in regard to company business.
On August 29, 2019, the Company filed an answer to the second amended complaint and the parties have exchanged documents and interrogatories
as part of the discovery process. No trial date or discovery cutoff has been set. With regard to both claims, the executive seeks
to recover his attorneys’ fees under a fee-shifting provision in his employment agreement. With respect to the matter, the
Company believes that the ultimate liability from the resolution of this matter will not be material to the Company’s consolidated
financial statements. Discover in the case is continuing and is expected to conclude this summer. No trial date has
been set.
The
Company intends to establish a rigorous defense of all claims. All legal fees were expensed as and when incurred.
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.
Our
common stock began trading on the NASDAQ Capital Market under the symbol “AKER” on January 23, 2014. Prior to that,
our common stock traded on the OTCQB of the OTC Markets Group Inc. under the same symbol.
As
of March 20, 2020, there were approximately 698 holders of record of our common stock. This figure does not include
shareholders whose certificates are held in the name of the broker-dealers of other nominees.
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
and development of our business.
|
(d)
|
Securities
Authorized for Issuance Under Equity Compensation Plans
|
The
following table shows information with respect to this plan as of the fiscal year ended December 31, 2019.
Equity
Compensation Plan Information
Plan
category
|
|
Number
of securities to be issued upon exercise of outstanding options, warrants and rights (a)
|
|
|
Weighted-average
exercise
price of outstanding options, warrants and rights (b)
|
|
|
Number
of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column
(a)) (c)
|
|
Equity
compensation plans approved by security holders
|
|
|
40
|
|
|
$
|
236.16
|
|
|
|
67,959
|
|
Equity
compensation plans not approved by security holders
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
Total
|
|
|
40
|
|
|
$
|
236.16
|
|
|
|
67,959
|
|
Transfer
Agent
Our
transfer agent is VStock Transfer LLC, 18 Lafayette Place, Woodmere, NY 11598.
|
(e)
|
Recent
Sales of Unregistered Securities
|
We
issued 1,667 blank shares of our Common Stock to Typenex Medical, LLC on December 3, 2019. The shares of Common Stock were issued
to Typenex pursuant to an exemption from registration afford by Section 4(a)(2) of the Securities Act of 1933, as amended. Except
for the foregoing, During the year ended December 31, 2019,
we have not issued any securities which were not registered under the Securities Act and not previously disclosed in our Quarterly
Reports on Form 10-Q or Current Reports on Form 8-K.
|
(f)
|
Purchases
of Equity Securities by Issuer and Affiliated Purchasers
|
During
the year ended December 31, 2019, we and to our knowledge our affiliated purchasers have not purchased any securities which were
not previously disclosed in our Quarterly Reports on Form 10-Q or Current Reports on Form 8-K.
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 Annual 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 “Cautionary Note Regarding Forward-Looking
Statements” and “Risk Factors” and those included elsewhere in this Annual Report.
Overview
Akers
develops, manufactures, and supplies rapid, point-of-care screening and testing products designed to bring health-related information
directly to the patient or clinician in a timely and cost-efficient manner. Akers believes it has advanced the science of diagnostics
through the development of several proprietary platform technologies.
All
of Akers’ rapid, single-use tests are performed in vitro (outside the body) and are designed to enhance patient well-being
and reduce the cost of healthcare. Our current product offerings focus on delivering diagnostic assistance in a variety of healthcare
fields/specialties, including diagnostic rapid manual point-of-care tests for the detection of allergic reactions to Heparin,
for cholesterol screening and for on- and off-the-job alcohol safety initiatives.
Akers
believes that low-cost, single-use testing not only saves time and money, but allows for more frequent, near-patient testing which
may save lives. We believe that our FDA-cleared rapid diagnostic tests help facilitate targeted diagnoses and real-time treatment.
On
March 23, 2020, we entered into a Membership Interest Purchase Agreement (the “MIPA”) with the members of Cystron
Biotech, LLC (individually, each a “Seller,” and collectively, the “Sellers”), pursuant to which the Company
will acquire 100% of the membership interests (the “Membership Interests”) of Cystron Biotech, LLC (“Cystron”).
Cystron is a party to license agreement with Premas Biotech PVT Ltd (“Premas) whereby Premas granted Cystron, amongst other
things, an exclusive license with respect to Premas’ vaccine platform for the development of a vaccine against COVID-19
and other corona virus infections.
Recent
Developments
Acquisition
of Cystron
On
March 23, 2020, we acquired Cystron pursuant to the MIPA.
As
consideration for the Membership Interests, we will deliver to the Sellers: (1) that number of newly issued shares of our common
stock equal to 19.9% of the issued and outstanding shares of our common stock and pre-funded warrants as of the date of the MIPA,
but, to the extent that the issuance of the our common stock would result in any Seller owning in excess of 4.9% of our outstanding
common stock, then, at such Seller’s election, such Seller may receive “common stock equivalent” preferred shares
with a customary 4.9% blocker (with such common stock and preferred stock collectively referred to as “Common Stock Consideration”),
and (2) $1,000,000 in cash.
Additionally,
we shall (A) make an initial payment to the Sellers of up to $1,000,000 upon our receipt of cumulative gross proceeds from the
consummation of an initial equity offering after the date of the MIPA of $8,000,000, and (B) pay to Sellers an amount in cash
equal to 10% of the gross proceeds in excess of $8,000,000 raised from future equity offerings after the date of the MIPA until
the Sellers have received an aggregate additional cash consideration equal to $10,000,000. Upon the achievement of certain milestones,
including the completion of a Phase 2 study for a COVID-19 vaccine that meets its primary endpoints, Sellers will be entitled
to receive an additional 750,000 shares of our common stock or, in the event we are unable to obtain stockholder approval for
the issuance of such shares, 750,000 shares of non-voting preferred stock that are valued following the achievement of such milestones
and shall bear a 10% annual dividend (the “Milestone Shares”). Sellers will also be entitled to contingent payments
from us of up to $20,750,000 upon the achievement of certain milestones, including the approval of a new drug application by the
U.S. Food and Drug Administration (“FDA”).
We
shall also make quarterly royalty payments to Sellers equal to 5% of the net sales of a COVID-19 vaccine or combination product
by the Company (the “COVID-19 Vaccine”) for a period of five (5) years following the first commercial sale of the
COVID-19 Vaccine; provided, that such payment shall be reduced to 3% for any net sales of the COVID-19 Vaccine above $500 million.
In
addition, Sellers shall be entitled to receive 12.5% of the transaction value, as defined in the MIPA, of any change of control
transaction, as defined in the MIPA, that occurs prior to the fifth (5th) anniversary of the closing date of the MIPA, provided
that the Company is still developing the COVID-19 Vaccine at that time. Following the consummation of any change of control transaction,
the Sellers shall not be entitled to any payments as described above under the MIPA.
Support
Agreement
On
March 23, 2020, as an inducement to enter into the MIPA, and as one of the conditions to the consummation of the transactions
contemplated by the MIPA, the Sellers entered into a shareholder voting agreement with the Company (the “Support Agreement”),
pursuant to which each Seller agreed to vote their shares of our common stock or preferred stock in favor of each matter proposed
and recommended for approval by our management at every meeting of the stockholders and on any action or approval by written consent
of the stockholders.
Registration
Rights Agreement
To
induce the Sellers to enter into the MIPA, on March 23, 2020, we entered into a registration rights agreement (the “Registration
Rights Agreement”) with the Sellers, pursuant to which we shall by the 30th day following the closing of the transactions
contemplated by the MIPA, file with the United States Securities and Exchange Commission (the “SEC”) an initial Registration
Statement on Form S-3 (if such form is available for use by the Company at such time) or, otherwise, on Form S-1, covering all
of the shares of our common stock issued, or underlying the preferred stock issued, at closing under the MIPA and to subsequently
register the common stock issued or underlying the preferred stock issued at Milestone Shares.
License
Agreement
Cystron
is a party to a License and Development Agreement (the “Initial License Agreement”) with Premas Biotech PVT Ltd. (“Premas”).
As a condition to the Company’s entry into the MIPA, Cystron amended and restated the Initial License Agreement on March
19, 2020 (as amended and restated, the “License Agreement”). Pursuant to the License Agreement, Premas granted Cystron,
amongst other things, an exclusive license with respect to Premas’ vaccine platform for the development of a vaccine against
COVID-19 and other corona virus infections.
Upon
the achievement of certain developmental milestones by Cystron, Cystron shall pay to Premas a total of up to $2,000,000.
Series
D Convertible Preferred Stock
On
March 24, 2020, we filed the Certificate of Designation of Preferences, Rights and Limitations of Series D Convertible Preferred
Stock (the “Certificate of Designation”) with the Secretary of State of the State of New Jersey. Pursuant to the Certificate
of Designation, in the event of the Company’s liquidation or winding up of its affairs, the holders of our Series D Convertible
Preferred Stock (the “Preferred Stock”) will be entitled to receive the same amount that a holder of our common stock
would receive if the Preferred Stock were fully converted (disregarding for such purposes any conversion limitations set forth
in the Certificate of Designation) to common stock which amounts shall be paid pari passu with all holders of the Company’s
common stock. Each share of Preferred Stock has a stated value equal to $0.01 (the “Stated Value”), subject to increase
as set forth in Section 7 of the Certificate of Designation.
A
holder of Preferred Stock is entitled at any time to convert any whole or partial number of shares of Preferred Stock into shares
of our common stock determined by dividing the Stated Value of the Preferred Stock being converted by the conversion price of
$0.01 per share.
A
holder of Preferred Stock will be prohibited from converting Preferred Stock into shares of our common stock if, as a result of
such conversion, the holder, together with its affiliates, would own more than 4.99% of the total number of shares of our common
stock then issued and outstanding (with such ownership restriction referred to as the “Beneficial Ownership Limitation”).
However, any holder may increase or decrease such percentage to any other percentage not in excess of 9.99%, provided that any
increase in such percentage shall not be effective until 61 days after such notice to us.
Subject
to the Beneficial Ownership Limitation, on any matter presented to our stockholders for their action or consideration at any meeting
of our stockholders (or by written consent of stockholders in lieu of a meeting), each holder of Preferred Stock will be entitled
to cast the number of votes equal to the number of whole shares of our common stock into which the shares of Preferred Stock beneficially
owned by such holder are convertible as of the record date for determining stockholders entitled to vote on or consent to such
matter (taking into account all Preferred Stock beneficially owned by such holder). Except as otherwise required by law or by
the other provisions of our certificate of incorporation, the holders of Preferred Stock will vote together with the holders of
our common stock and any other class or series of stock entitled to vote thereon as a single class.
A
holder of Preferred Stock shall be entitled to receive dividends as and when paid to the holders of our common stock on an as-converted
basis.
Production
Backlog of PIFA® Heparin/PF4 and PIFA® Pluss/PF4
As
of March 20, 2020, we are experiencing a production backlog of our PIFA® Heparin/PF4 and PIFA® Pluss/PF4 rapid assays.
As a result, one of our distributors notified us that the distributor is informing its customers that the PIFA® Heparin/PF4
and PIFA® Pluss/PF4 rapid assays are temporarily unavailable. While we believe that we will be able to remedy the production
backlog in several weeks, we cannot be certain what impact this backlog will have on our business and it may have an adverse effect
on our 2020 revenues and results of operation.
Key
Events, Management’s Plans and Basis of Presentation
Board’s
Evaluation of Strategic Alternatives
On
November 7, 2018, we announced that our board of directors had initiated a process to evaluate strategic alternatives to maximize
shareholder value. The Company continues to explore how to leverage its 30 years of operational history in its medical device
business, where its current products have FDA clearance, its current operations practice Good Manufacturing Processes (cGMP),
its medical device facility is certified under ISO 13485 – 2016 and the facility carries an Analytical Lab Certification
for Schedules 2, 3, 4 and 5 controlled substances issued by the U.S. Drug Enforcement Administration (DEA) and the State of New
Jersey. The Company intends to pursue opportunities in the extraction, testing, purification and formulation of safe cannabinoids
within the hemp industry, including pathways to consumer products with a focus on minor cannabinoids.
Further
to our pursuit of strategic alternatives, pursuant to an unsecured promissory note date July 4, 2019, on July 25, 2019 we advanced
$100,000 to a company in the hemp related industry with which we had been considering a potential business transaction. Discussions
with this party toward a potential transaction have been suspended. The unsecured promissory note became due on October 2, 2019
and we are pursuing collection of the obligation.
Delisting
from AIM
On
December 19, 2018, we announced our intent to delist from the AIM Market of the London Stock Exchange. We believed that due to
the relatively low liquidity in our common stock, reaming listed on the AIM did not merit the ongoing costs and regulatory complexities
associated with maintaining the AIM listing. On March 5, 2019, we held a special meeting of shareholders who then voted in favor
of our delisting from the AIM Market. The delisting took effect on March 29, 2019.
Board
Compensation
On
March 29, 2019, the Compensation Committee of the Board of Directors approved payments to the members of the Board of Directors,
which were paid as follows (i) lump sum payment of $64,000 to each of Mr. Schreiber and Mr. White and a lump sum payment of $56,000
to Mr. Silverman, (ii) each of Mr. Schreiber, Mr. White and Mr. Silverman were granted 5,201 Restricted Stock Units (“RSUs”),
which vested on January 1, 2020, and (iii) beginning April 2019, each serving director who is not also holding a position as an
executive officer shall be paid $8,000 per month. The lump sum payments were paid during April 2019 and the monthly payments to
directors have been paid each month. There was no other compensation for directors during the year ended December 31, 2019.
Amendments
to Articles of Incorporation or Bylaws; Change in Fiscal Year.
We
filed two certificates of amendment (each a “Certificate of Amendment”, collectively, the “Certificates of Amendment”)
to our Amended and Restated Certificate of Incorporation with the Secretary of State of the State of New Jersey, each to be effective
as of November 25, 2019, to reduce our authorized common stock at a ratio of one-for-eight then effect a reverse stock split of
our authorized and outstanding common stock at a ratio of one-for-twenty four. The reduction and the reverse stock split affected
all stockholders uniformly and did not alter any stockholder’s percentage interest in our equity, except to the extent that
the reverse stock split would have resulted in a stockholder owning a fractional share. Fractional shares have not been issued
as a result of the reverse stock split; instead, the Board of Directors determined to effect an issuance of shares to holders
that would otherwise have been entitled to a fractional share such that any fractional shares were rounded up to the nearest whole
number. The Certificates of Amendment reduced the number of outstanding shares of our common stock to 521,676 and the number of
shares of common stock we are authorized to issue to 2,604,167. On December 30, 2019, our shareholders approved an increase
to 100,000,000 of the number of the authorized shares of our Common Stock.
Appointment
of Christopher C. Schreiber as Executive Chairman of the Board of Directors
On
November 1, 2019, the Board of Directors appointed Christopher C. Schreiber, a current director of our company, as Executive Chairman
of the Board of Directors of our company, effective immediately. Due to Mr. Schreiber’s appointment as Executive Chairman
of the Board of Directors, Mr. Schreiber is no longer “independent” within the meaning of the Nasdaq Stock Market
Rules and under Rule 10A-3(b)(1)(i) of the Securities Exchange Act of 1934 and is no longer a “non-employee director”
under Rule 16b-3 of the Securities Exchange Act of 1934. As such, on November 1, 2019, Mr. Schreiber resigned from our Audit Committee,
Compensation Committee and Nominating and Corporate Governance Committee. In order to fill the vacancy occasioned by the resignation
of Mr. Schreiber as the Chairman of the Compensation Committee, Mr. Joshua Silverman, a current director and member of the Compensation
Committee, was appointed as the Chairman of the Compensation Committee.
Appointment
of Robert C. Schroeder as a Director
On
November 1, 2019, the Board of Directors appointed Robert C. Schroeder as a director and as a member of our Audit Committee, effective
immediately.
Reverse
Stock Split
On
November 15, 2019, the Board of Directors approved a reverse stock split of our authorized and issued and outstanding common stock
at a ratio of 1-for-24, effective on Monday, November 25, 2019 at 8:00 a.m. Trading on our common stock on a post-reverse stock
split basis began at market open on November 25, 2019 (the “Reverse Stock Split”). No fractional shares have been
issued in the Reverse Stock Split and the remaining fractions were rounded up to the next whole share. On November 22, 2019, the
Board of Directors approved an amendment to the amended and restated certificate of incorporation to reduce the number of authorized
shares of common stock, prior to the Reverse Stock Split, at a ratio of 1-for-8.
In
connection with the Reverse Stock Split, all shares of our common stock subject to all outstanding equity awards and the exercise
price of any such award (if applicable) have been reduced by the 1-for-24 ratio. The number of shares remaining available
for issuance under the 2018 Akers Biosciences, Inc. Equity Incentive Plan were not reduced by the 1-for-24 ratio.
Advisory
Board
On
December 4, 2019, we formed an advisory board (the “Advisory Board”) with expertise in the hemp and minor cannabinoid
sectors. We will continue our strategic alternatives review and have identified the hemp and minor cannabinoid sectors
as potential opportunities that could benefit from our core competencies. We are exploring how to leverage its 30 years of operational
history in our medical device business, where our current products have U.S. Food and Drug Administration (FDA) clearance, our
current operations practice Good Manufacturing Processes (cGMP), our medical device facility is certified under ISO 13485 –
2016 and the facility carries an Analytical Lab Certification for Schedules 2, 3, 4 and 5 controlled substances issued by the
U.S. Drug Enforcement Administration (DEA) and the State of New Jersey. The Advisory Board will assist the Board of Directors
in its strategic review including, potentially, the extraction, testing, purification and formulation of safe cannabinoids within
the hemp industry. The Advisory Board may also explore a pathway to consumer products with a focus on minor cannabinoids.
Summary
of Statements of Operations for the Fiscal Years Ended December 31, 2019 and 2018
Revenue
The
Company’s revenue for the year ended December 31, 2019
totaled $1,577,033, a 5% decrease from the same period in 2018. The table below summarizes our revenue by product line for the
years ended December 31, 2019 and 2018, as well as the percentage of change year-over-year:
|
|
For
the Years Ended
December 31,
|
|
|
|
|
Product
Lines
|
|
2019
|
|
|
2018
|
|
|
Percent
Change
|
|
|
|
|
|
|
|
|
|
|
|
Particle
ImmunoFiltration Assay (“PIFA”)
|
|
$
|
1,327,752
|
|
|
$
|
1,422,361
|
|
|
|
(7
|
)%
|
MicroParticle
Catalyzed Biosensor (“MPC”)
|
|
|
126,150
|
|
|
|
123,941
|
|
|
|
2
|
%
|
Rapid
Enzymatic Assay (“REA”)
|
|
|
85,000
|
|
|
|
68,750
|
|
|
|
24
|
%
|
Other
|
|
|
38,131
|
|
|
|
50,518
|
|
|
|
(25
|
)%
|
Total
Revenue
|
|
$
|
1,577,033
|
|
|
$
|
1,665,570
|
|
|
|
(5
|
)%
|
Revenue
from the Company’s PIFA products decreased 7% to $1,327,752 (2018: $1,422,361) during the year ended December 31, 2019,
as compared to the same period of 2018. The decrease was attributable to both a decline in shipments of the PIFA products as well
as increase in customer rebates.
The
Company’s largest U.S. distribution partners are Cardinal
Health and Thermo Fisher Scientific. Domestic net sales for the year ended December 31, 2019 for these two distributors accounted
for $1,249,913 of the total PIFA related product revenue as compared to $1,104,533 for the same period of 2018.
The
Company’s MPC product sales increased by 2% to $126,150 (2018: $123,941) during the year ended December 31, 2019.
The
Company’s REA products generated $85,000 (2018: $68,750) during the year ended December 31, 2019, principally on account
of a large order by a customer during the 2019 period.
Other
revenue, consisting primarily of shipping and handling charges, decreased to $38,131 (2018: $50,518) during the year ended December
31, 2019 due to a decline in orders shipped.
Gross
Margin
The
Company’s gross profit percentage improved to 30% (2018: 8%), and the gross margin improved to $478,747 (2018: $127,285)
for the year ended December 31, 2019, principally due to our focus on a more narrowed and higher margin product lineup. Furthermore,
improvements in gross margin were attributable to cost reductions, including reduced headcount .
Cost
of sales for the year ended December 31, 2019 decreased to $1,098,286 (2018: $1,538,285) primarily as a result of decreases in
manufacturing personnel costs ($286,187 (2018: $471,563)), inventory obsolescence ($336,349 (2018: $453,761)) and shipping expenses
($46,534 (2018: 93,558)).
Administrative
Expenses
Administrative
expenses for the year ended December 31, 2019, totaled $3,728,514 which was a 34% decrease as compared to $5,666,018 for the year
ended December 31, 2018.
The
table below summarizes our administrative expenses for the years ended December 31, 2019 and 2018 as well as the percentage of
change year-over-year:
|
|
For
the Years Ended
December 31,
|
|
|
|
|
Description
|
|
2019
|
|
|
2018
|
|
|
Percent
Change
|
|
Personnel
Costs
|
|
$
|
722,111
|
|
|
$
|
998,605
|
|
|
|
(28
|
)%
|
Professional
Service Costs
|
|
|
911,063
|
|
|
|
2,455,933
|
|
|
|
(63
|
)%
|
Stock
Market & Investor Relations Costs
|
|
|
415,637
|
|
|
|
681,545
|
|
|
|
(39
|
)%
|
Other
Administrative Costs
|
|
|
1,679,703
|
|
|
|
1,529,935
|
|
|
|
10
|
%
|
Total
Administrative Expense
|
|
$
|
3,728,514
|
|
|
$
|
5,666,018
|
|
|
|
(34
|
)%
|
Personnel
expenses decreased by 28% for the year ended December 31, 2019 as compared to the same period of 2018 on account of a reduction
bonus expense, benefits, payroll service fees and auto allowances during 2019, as compared to December 31, 2018.
Professional
service costs decreased 63% for the year ended December 31, 2019 as compared to the same period of 2018, principally on account
of reduced legal fees ($699,118 (2018: $1,551,798)) and accounting and audit expenses ($51,381 (2018: $657,045)). The higher costs
in 2018 were principally attributable to the investigation and restatement of the financial statements, and certain litigation
defense costs.
Stock
market and investor fees decreased 39% for the year ended December 31, 2019. The decrease in these fees was principally associated
with the costs savings generated by the withdrawal from the London Stock Exchange.
Other
administrative expenses increased by 10%, principally attributable to increased Director’s fees and expenses ($706,964 (2018:
$409,910)), including the amortization of RSU awards, of ($362,005 (2018: $0)).
Sales
and Marketing Expenses
Sales
and marketing expenses for the year ended December 31, 2019 totaled $238,036 which was an 87% decrease compared to $1,782,315
for the year ended December 31, 2018.
The
table below summarizes our sales and marketing expenses for the years ended December 31 and 2018 as well as the percentage of
change year-over-year:
|
|
For
the Years Ended
December 31,
|
|
|
|
|
Description
|
|
2019
|
|
|
2018
|
|
|
Percent
Change
|
|
Personnel
Costs
|
|
$
|
65,718
|
|
|
$
|
1,001,781
|
|
|
|
(93
|
)%
|
Professional
Service Costs
|
|
|
71,401
|
|
|
|
258,484
|
|
|
|
(72
|
)%
|
Royalties
and Outside Commission Costs
|
|
|
71,943
|
|
|
|
296,154
|
|
|
|
(76
|
)%
|
Other
Sales and Marketing Costs
|
|
|
28,974
|
|
|
|
225,896
|
|
|
|
(87
|
)%
|
Total
Sales and Marketing Expenses
|
|
$
|
238,036
|
|
|
$
|
1,782,315
|
|
|
|
(87
|
)%
|
During
the first quarter of 2019, as part of our cost savings measures, we eliminated the personnel within the sales and marketing departments,
including employees, consultants and third-party related representatives.
Personnel
expenses decreased by 93% for the year ended December 31, 2019 as compared to the same period of 2018 on account of the reduction
in the sales and marketing headcount to zero as of December 31, 2019, as compared to four as of December 31, 2018.
Professional
service costs decreased by 72% for year ended December 31, 2019, as compared to the same period of 2018 primarily on account of
reductions in marketing and sales related consultants.
Royalties
and outside commission costs decreased by 76%, principally on account of ISR costs incurred for approximately two months in 2019
as compared to twelve months in the 2018 period. An evaluation of the ISR program determined it to be ineffective and, as a result,
all ISR’s agreements were terminated effective February 19, 2019.
Other
sales and marketing costs declined to $28,974 (2018: $225,896) principally due to the reductions in travel and entertainment for
the sales and marketing personnel.
Compliance,
Research and Development Expenses
Compliance,
research and development expenses for the year ended December 31, 2019 totaled $276,788, which was a 74% decrease as compared
to $1,063,253 for the year ended December 31, 2018.
The
table below summarizes our compliance, research and development expenses for the years ended December 31, 2019 and 2018 as well
as the percentage of change year-over-year:
|
|
For
the Years Ended
December 31,
|
|
|
|
|
Description
|
|
2019
|
|
|
2018
|
|
|
Percent
Change
|
|
Personnel
Costs
|
|
$
|
244,255
|
|
|
$
|
670,117
|
|
|
|
(64
|
)%
|
Clinical
Trial Costs
|
|
|
-
|
|
|
|
1,845
|
|
|
|
(100
|
)%
|
Professional
Service Costs
|
|
|
20,666
|
|
|
|
207,366
|
|
|
|
(90
|
)%
|
Other
Compliance, Research and Development Costs
|
|
|
11,867
|
|
|
|
183,925
|
|
|
|
(94
|
)%
|
Total
Compliance, Research and Development Expenses
|
|
$
|
276,788
|
|
|
$
|
1,063,253
|
|
|
|
(74
|
)%
|
Personnel
expenses decreased by 64% for the year ended December 31, 2019 as compared to the same period of 2018 due to a reduction in the
headcount to three as of December 31, 2019, as compared to four as of December 31, 2018. These staff reductions eliminated the
research & development functions, with the remaining personnel maintaining regulatory and quality assurance (compliance) functions.
Professional
service costs, principally third-party engineering costs, declined by 90% for the year ended December 31, 2019, as compared to
the same period of 2018, principally on account of the elimination of research & development activities.
Other
compliance, research and development costs declined by 94%, for the year ended December 31, 2019, as compared to the same period
of 2018, principally on account of reduction in research and development activities, as discussed above.
Litigation
Settlement Expense
Litigation
settlement expenses for the year ended December 31, 2019, were $141,478 as compared to $1,505,000 for the year ended December
31, 2018.
Litigation
settlement expenses for the year ended December 31, 2018 principally consisted of the settlement of the Pulse Litigation which
resulted in a one-time charge of $930,000 and $500,000 in connection with the class action and derivative lawsuits.
Amortization
of Non-Current Assets
Amortization
of non-current assets for the year ended December 31, 2019 totaled $40,008, which was a 77% decrease as compared to $171,108 for
the year ended December 31, 2018. The 2019 amount was less on account of impairment of intellectual property recorded in 2018,
principally connected with the settlement of the Pulse Litigation.
Other
Income and Expense
Other
income, net of expense, for the year ended December 31, 2019 totaled $57,828 as compared to other expenses, net of income of $788,625
for the year ended December 31, 2018.
The
table below summarizes our other income and expenses for the years ended December 31, 2019 and 2018 as well as the percentage
of change year-over-year:
|
|
For
the Years Ended
December 31,
|
|
|
|
|
Description
|
|
2019
|
|
|
2018
|
|
|
Percent
Change
|
|
Impairment
of Intangible Assets
|
|
$
|
32,980
|
|
|
$
|
716,148
|
|
|
|
95
|
%
|
Impairment
of Other Assets
|
|
|
-
|
|
|
|
64,092
|
|
|
|
100
|
%
|
Loss
on Disposal of Property and Equipment
|
|
|
9,576
|
|
|
|
156,493
|
|
|
|
94
|
%
|
Foreign
Currency Transaction (Gain)/Loss
|
|
|
5,051
|
|
|
|
6,726
|
|
|
|
25
|
%
|
Other
Income
|
|
|
-
|
|
|
|
(4,172
|
)
|
|
|
100
|
%
|
(Gain)/Loss
on Investments
|
|
|
(3,952
|
)
|
|
|
15,178
|
|
|
|
126
|
%
|
Interest
and Dividend Income
|
|
|
(101,483
|
)
|
|
|
(165,840
|
)
|
|
|
(39
|
)%
|
Total
Other (Income)/Expense
|
|
$
|
(57,828
|
)
|
|
$
|
788,625
|
|
|
|
107
|
%
|
Impairment
of intangible assets, for the year ended December 31, 2019 totaled $32,980 as compared to $716,418 for the year ended December
31, 2018. The 2018 amount included the impairment of intellectual property principally as a result of the settlement of the Pulse
Litigation.
Loss
on disposal of property and equipment, for the year ended December 31, 2019 totaled $9,576 as compared to $156,493 for the year
ended December 31, 2018. The 2018 amount included the write-off of computer equipment, computer software and production molds
no longer in use by the Company.
Income
Taxes
As
of December 31, 2019, and 2018, the Company had Federal net operating loss carry forwards of approximately $79,678,000 and $80,500,000,
respectively, expiring through the year ending December 31, 2039. As of December 31, 2019, and 2018, the Company had New Jersey
state net operating loss carry forwards of approximately $28,855,000 and $29,700,000, respectively, expiring the year ending December
31, 2025.
Liquidity
and Capital Resources
As
of December 31, 2019, the Company’s cash on hand was $632,538 (which included restricted cash of $115,094
and its marketable securities were $9,164,273. The Company has incurred net losses of $3,888,249 and $10,849,034
for the years ended December 31, 2019 and 2018, respectfully. As of December 31, 2019, the Company had working capital of $8,781,049
and a stockholder’s deficit of $119,583,130. During the year ended December 31, 2019, cash flows used in operating activities
were $3,074,283, consisting primarily of a net loss of $3,888,249, which includes non-cash stock-based compensation charges
of $400,174. Since inception, the Company has met its liquidity requirements principally through the sale of its common stock
in public and private placements.
On
December 9, 2019, the Company raised proceeds of $6,965,635 net of offering costs of $994,227 in connection with a registered
offering of its common stock.
However,
our current cash resources will not be sufficient to fund the development of our COVID-19 Vaccine candidate through all of the
required clinical trials to receive regulatory approval and commercialization. While we do not currently have an estimate of all
of the costs that we will incur in the development of the COVID-19 Vaccine, we anticipate we will need to raise significant additional
funds in order to continue the development of the our COVID-19 Vaccine candidate during the next 12-months. In addition, we could
also have increased capital needs if we were to engage in a strategic transaction in the cannabinoid space.
The
Company believes that its current financial resources as of the date of the issuance of these consolidated financial statements,
are sufficient to fund its current twelve month operating budget, alleviating any substantial doubt raised by our historical operating
results and satisfying our estimated liquidity needs for twelve months from the issuance of these consolidated financial statements.
Capital
expenditures for the year ended December 31, 2019 were $0 (2018: $68,214).
Operating
Activities
Our
net cash consumed by operating activities totaled $3,074,283 during the year ended December 31, 2019. Cash was consumed
by the loss of $3,888,249 reduced by non-cash adjustments principally consisting of $3,353 for accrued interest on marketable
securities, $74,064 for depreciation and amortization of non-current assets, $32,980 for impairment of intangible assets, $9,576
for the loss on the disposal of fixed assets, $371,997 for charge for obsolescence, $105,325 for the allowance of doubtful accounts
and other receivables and $400,174 for share based compensation. For the year ended December 31, 2019, within changes of assets
and liabilities, cash provided consisted of a decrease in trade receivables of $128,120, a decrease in deposits and other receivables
of $9,347, a decrease in inventories of $14,285, a decrease in prepaid expenses of $103,152 and a decrease in other assets of
$9,280, off-set by a decrease in trade and other payables of $443,735.
Our
net cash consumed by operating activities totaled $8,502,192 during the year ended December 31, 2018. Cash was consumed
by the loss of $10,849,034 reduced by non-cash adjustments principally consisting of impairment of intangible assets of $716,148,
reserve for obsolete inventory of $279,029, $234,486 for depreciation and amortization of non-current assets, $156,835 for the
allowance of doubtful accounts, $50,647 for share based compensation less $11,011 for accrued interest and dividends on marketable
securities. For the year ended December 31, 2019, within changes of assets and liabilities, cash provided consisted of a decrease
in trade receivables of $631,510, a decrease in inventories of $83,316, an increase in trade and other payables of $188,462, off-set
by an increase in prepaid expenses of $225,586.
Investing
Activities
The
Company’s net cash provided by investing totaled $3,940,627, as compared to $359,685 during the years ended
December 31, 2019 and 2018, respectively. Net cash provided by investing activities for the year ended December 31, 2019 consisted
of proceeds from the sale of marketable securities of $2,857,960 and the sale of equipment of $6,250 offset by $6,704,837
consumed by the purchase of marketable securities and $100,000 for the issuance of a short-term note receivable. During the year
ended December 31, 2018, investing activities consisted of proceeds from the sale of marketable securities of $6,313,330 offset
by $6,604,801 consumed by the purchase of marketable securities and $68,214 for capital expenditures.
Financing
Activities
The
Company’s net cash provided by financing activities in 2019 was $6,965,693 (2018: $9,105,200). Net cash provided during
the 2019 period consisted of $2,147,778 of net proceeds from the issuance of common shares, $4,817,857 of net proceeds for the
issuance of prepaid equity forward contracts for the purchase of common shares and $58 of net proceeds for the exercise of prepaid
equity forward contracts for common shares Net cash provided during the 2018 period consisted of $1,950,000 of net proceeds for
the issuance of common shares and $7,155,200 for the exercise of warrants for common shares.
Critical
Accounting Policies
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.
Our
financial position, results of operations and cash flows are impacted by the accounting policies we have adopted. In order to
get a full understanding of our financial statements, one must have a clear understanding of the accounting policies employed.
A summary of our critical accounting policies is presented within the footnotes in the consolidated financial statements presented
with in the Annual Report.
Quantitative
and Qualitative Disclosure About Market Risk
Not
required.
Off-Balance
Sheet Arrangements
We
have no significant known off balance sheet arrangements.
Item
7A. Quantitative and Qualitative Disclosures About Market Risk.
Not
required.
Item
8. Financial Statements and Supplementary Data.
Our
financial statements are contained in pages F-1 through F-44 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 Controls and Procedures
We
maintain disclosure controls and procedures (as defined in paragraph (e) of Rules 13a-15 and 15d-15 under the Exchange Act) designed
to ensure that the information we are required to disclose in reports that we file or submit under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified under the rules and forms of the SEC. Disclosure controls
and procedures include, without limitation, controls and procedures designed to ensure that such information is accumulated and
communicated to our management, including our Chief Executive Officer and our Executive Chairman, as appropriate to allow timely
decisions regarding required disclosures. As required by paragraph (b) of Rules 13a-15 and 15d-15 under the Exchange Act, our
Executive Chairman (our principal executive officer) and our interim Chief Financial Officer (our principal financial officer)
carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of December
31, 2019. Based on this evaluation, our Executive Chairman and our interim Chief Financial Officer concluded that
our disclosure controls and procedures were effective at the reasonable assurance level as of December 31, 2019.
(b)
Management’s Report on Internal Controls over Financial Reporting
Our
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 our
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 our annual or interim financial statements will not be prevented or
detected on a timely basis. Based on such evaluation, our Principal Executive Officer and our Principal Financial Officer have
concluded that, as of December 31, 2019, our internal controls over financial reporting were effective.
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.
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
During
the three months ended December 31, 2019, our Board of Directors appointed Christopher C. Schreiber, an existing director, to
the additional role of Executive Chairman (principal executive officer) and we implemented additional controls in connection with
the accounting for inventory.
Item
9B. Other Information.
None.
PART
III
Item
10. Directors, Executive Officers, and Corporate Governance.
Directors
and Executive Officers
The
following table sets forth the names, ages and positions of all of our directors and executive officers and the positions they
hold as of the date hereof. Our directors 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
|
Howard
R. Yeaton
|
|
|
65
|
|
Interim
Chief Financial Officer
|
Christopher
C. Schreiber
|
|
|
54
|
|
Executive
Chairman of the Board of Directors and Director
|
Joshua
Silverman
|
|
|
49
|
|
Lead
Independent Director
|
Bill
J. White
|
|
|
58
|
|
Independent
Director
|
Robert
C. Schroeder
|
|
|
53
|
|
Independent
Director
|
Set
forth below is a brief description of the background and business experience of each of our executive officers and directors.
Howard
R. Yeaton, has been our interim Chief Financial Officer since October 5, 2018. Mr. Yeaton has been the Managing Principal
of Financial Consulting Strategies, LLC since 2003, a firm serving principally early stage public companies with financial reporting
support and other related strategic services. Until November 2019, Mr. Yeaton served as a director, Vice Chairman and Chairman
of the audit committee for Stewardship Financial Corporation, a community bank. From 2014 to 2019, Mr. Yeaton served as Interim
Chief Financial Officer of Propel Media, Inc. and from July 2014 to July 2015, Mr. Yeaton served as Interim Chief Financial Officer
of Energous Corporation, a public company listed on the Nasdaq Capital Market; both clients of Financial Consulting Strategies,
LLC. In addition, prior to founding Financial Consulting Strategies, LLC, Mr. Yeaton served in various financial leadership positions
for Konica and Teco Energy. Mr. Yeaton began his career with Deloitte, an international accounting and auditing firm. Mr. Yeaton
has a BS in accounting from Florida State University in Tallahassee, FL, and a Master’s in Business Administration from
the University of Connecticut in Storrs, CT.
Christopher
C. Schreiber, has been a director of our company since August 8, 2017 and currently serves as our Executive Chairman. Mr.
Schreiber 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 as 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 of Directors in part because of his significant experience in capital
markets and knowledge of our company.
Joshua
Silverman, has been a director of our company since September 6, 2018. Mr. Silverman currently serves as the Managing Member
of Parkfield Funding LLC. Mr. Silverman was the co-founder, and a Principal and Managing Partner of Iroquois Capital Management,
LLC, an investment advisory firm. Since its inception in 2003 until July 2016, Mr. Silverman served as Co-Chief Investment Officer
of Iroquois. While at Iroquois, he designed and executed complex transactions, structuring and negotiating investments in both
public and private companies and has often been called upon by the companies solve inefficiencies as they relate to corporate
structure, cash flow, and management. From 2000 to 2003, Mr. Silverman served as Co-Chief Investment Officer of Vertical Ventures,
LLC, a merchant bank. Prior to forming Iroquois, Mr. Silverman was a Director of Joele Frank, a boutique consulting firm specializing
in mergers and acquisitions. Previously, Mr. Silverman served as Assistant Press Secretary to The President of the United States.
Mr. Silverman currently serves as a director of DropCar, Inc., Protagenic Therapeutics, and Neurotrope, Inc., all of which are
public companies. He previously served as a Director of National Holdings Corporation from July 2014 through August 2016 and
as a Director of Marker Therapeutics, Inc. from August 2016 until October 2018. Mr. Silverman received his B.A. from Lehigh
University in 1992.
Bill
J. White, has been a director of our company since August 8, 2017. Mr. White 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 of Directors in part because of his significant financial and accounting experience with public companies.
Robert
C. Schroeder, has been a director of our company since November 1, 2019. Mr. Schroeder is currently the Vice President of
Investment Banking at Taglich Brothers, a brokerage firm, and specializes in advisory services and capital raising for small public
and private companies. Prior to his time at Taglich Brothers, Mr. Schroeder served as a Senior Equity Analyst publishing sell-side
research on publicly traded companies and served in various other positions in the brokerage and public accounting industry. Mr.
Schroeder currently serves on the board of directors of publicly traded Intellinetics, Inc., a document solutions software development,
sales and marketing company, Air Industries Group (NYSE:AIRI), a manufacturer of aerospace parts and assemblies, and Decisionpoint
Systems, Inc., a leading provider and integrator of Enterprise Mobility, Wireless Applications and RFID solutions. Mr. Schroeder
received a B.S. degree in accounting and economics from New York University. The Board of Directors believes Mr. Schroeder is
well qualified to serve on the Board of Directors due to his leadership skills, capital markets expertise, and extensive experience
as a director of the board for other public companies.
Family
Relationships
There
are no family relationships between any of our officers or directors.
Board
Composition and Committees and Director Independence
On
December 30, 2019, our shareholders reelected Christopher C. Schreiber, Joshua Silverman, and Bill J. White, and elected Robert
C. Schroeder as members of the Board. Mr. Silverman, Mr. Schroeder, and Mr. White comprise the Board’s Audit Committee,
Compensation Committee, and Nominating and Corporate Governance Committee. Mr. White acts as Chairman of the Audit Committee,
and Mr. Silverman 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. We define “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 of Directors is independent, our Board of Directors consider, among
other things, transactions and relationships between each director and his immediate family and us, 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 of Directors affirmatively determined that
Mr. Joshua Silverman, Mr. Bill J. White and Mr. Robert C. Schroeder 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 5 times during 2019 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, while such individual was a
member. It is our policy that all directors must attend all shareholder meetings, barring extenuating circumstances. All directors
were present at the 2019 Annual Meeting of Shareholders, either in person or telephonically.
Board
Committees
We
have 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 4 times, 1
time and 1 time, respectively, during 2019, 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. Silverman and Mr. Schroeder.
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 of Directors 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:
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evaluates
the independence and performance of, and assesses the qualifications of, our independent auditor and engages such independent
auditor;
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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;
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monitors
the independence of the independent auditor and the rotation of partners of the independent auditor on our engagement team
as required by law;
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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;
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oversees
all aspects of our systems of internal accounting and financial reporting control; and
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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.
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Compensation
Committee
The
members of our Compensation Committee are Mr. Joshua Silverman, and Mr. Bill White. 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. Silverman will
serve as Chairman of our Compensation Committee.
The
Committee’s compensation-related responsibilities include, but are not limited to:
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reviewing
and approving on an annual basis the corporate goals and objectives with respect to compensation for our Chief Executive Officer;
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reviewing,
approving and recommending to our Board of Directors on an annual basis the evaluation process and compensation structure
for our other executive officers;
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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 Executive Chairman or Board of Directors;
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providing
oversight of management’s decisions concerning the performance and compensation of other company officers, employees,
consultants and advisors;
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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;
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reviewing
and recommending to our Board of Directors the compensation of independent directors, including incentive and equity-based
compensation; and
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selecting,
retaining and terminating such compensation consultants, outside counsel or other advisors as it deems necessary or appropriate.
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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. Josh Silverman and Mr. Bill White. 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.
The
Committee’s responsibilities include:
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recommending
to the Board of Directors nominees for election as directors at any meeting of shareholders and nominees to fill vacancies
on the board;
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considering
candidates proposed by shareholders in accordance with the requirements in the Committee charter;
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overseeing
the administration of our Code of Ethics;
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reviewing
with the entire Board of Directors, on an annual basis, the requisite skills and criteria for Board of Director candidates
and the composition of the Board of Directors as a whole;
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the
authority to retain search firms to assist in identifying Board of Director candidates, approve the terms of the search firm’s
engagement, and cause us to pay the engaged search firm’s engagement fee;
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recommending
to the Board of Directors on an annual basis the directors to be appointed to each committee of the Board of Directors;
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overseeing
an annual self-evaluation of the Board of Directors and its committees to determine whether it and its committees are functioning
effectively; and
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developing
and recommending to the Board of Directors a set of corporate governance guidelines applicable to us.
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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
On
March 29, 2019, the Compensation Committee of the Board of Directors approved payments to the members of the Board of Directors,
payable as follows (i) lump sum payment of $64,000 to each of Mr. Schreiber and Mr. White and a lump sum payment of $56,000 to
be paid to Mr. Silverman, (ii) each of Mr. Schreiber, Mr. White and Mr. Silverman were granted 5,201 Restricted Stock Units (“RSUs”),
which vested on January 1, 2020, and (iii) beginning April 2019, each director was paid $8,000 per month. The lump sum payments
were paid during April 2019 and the monthly payments to directors have been paid each month. There was no other compensation for
directors during the year ended December 31, 2019.
Legal
Proceedings
To
the best of our knowledge, none of our directors or executive officers has, during the past ten years:
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been
convicted in a criminal proceeding or been subject to a pending criminal proceeding (excluding traffic violations and other
minor offenses);
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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;
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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;
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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;
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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
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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.
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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 our 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 us 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 2019, all Forms 3, 4 and 5 were timely filed with the SEC
by such reporting persons, with exceptions of Mr. Howard R. Yeaton, who did not timely file a Form 4 that was due on which was
due on October 15, 2019 until October 16, 2019.
Shareholder
Communications with Directors
Shareholders
and other interested parties may send correspondence by mail to the full Board of Directors or to individual directors. Shareholders
should address such correspondence to the Board of Directors or the relevant Board of Directors 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:
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compliance
with applicable laws and regulations,
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handling
of books and records,
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public
disclosure reporting,
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insider
trading,
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discrimination
and harassment,
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health
and safety,
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conflicts
of interest,
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competition
and fair dealing, and
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protection
of company assets.
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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 2019 and 2018 is set forth in detail in the Summary Compensation
Table and other tables and the accompanying footnotes and narrative that follow this section.
Our
named executive officers who appear in the 2019 Summary Compensation Table are:
|
Howard
R. Yeaton
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Interim
Chief Financial Officer
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Christopher
C. Schreiber
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Executive
Chairman of the Board of Directors
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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 $100,000 during 2019 and 2018.
Name
and
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Salary
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Cash
Bonus
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Stock
Awards
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Option
Awards
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All
Other Compensation
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Total
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Principal
Position
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Year
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$
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$
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$
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$
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$
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$
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Howard
R. Yeaton (1)
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Interim
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2019
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300,000
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-
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26,302
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-
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-
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326,302
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Chief
Financial Officer
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2018
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71,774
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-
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20,941
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-
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-
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92,715
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Christopher
C. Schreiber (2)
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Executive
Chairman of the
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2019
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50,000
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-
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-
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-
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-
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50,000
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Board
of Directors
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2018
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-
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-
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-
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-
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-
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-
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(1)
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Mr.
Yeaton was appointed as Chief Executive Officer and interim Chief Financial Officer on October 5, 2018. During the years ended
December 31, 2019 and 2018, both before and after Mr. Yeaton’s appointment, FCS, a consulting firm owned by Mr. Yeaton,
provided services to us valued at $38,888 and $104,749, respectively. On January 6, 2020, Mr. Yeaton entered into a new employment
agreement with us whereby he would serve solely as the interim Chief Financial Officer.
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(2)
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Mr.
Schreiber was appointed as a director of our company on August 8, 2017. On November 1, 2019, he was appointed as our Executive
Chairman. On January 24, 2020, Mr. Schreiber entered into an employment agreement, under which he would receive an annual
salary of $300,000.
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Employment
Agreements
Effective
on October 5, 2018, the Board of Directors appointed Howard R. Yeaton, who through Financial Consulting Strategies LLC (“FCS”)
served previously as a consultant to us, to serve as our Chief Executive Officer and interim Chief Financial Officer. Mr. Yeaton
is the managing principal of FCS and our relationship with FCS shall continue, with FCS continuing to provide accounting services
to us. During the year ended December 31, 2019, we paid a total of $49,972to FCS in connection with these services. In connection
with his appointment as our Chief Executive Officer and interim Chief Financial Officer, we and Mr. Yeaton entered into an offer
of employment, dated October 5, 2018 (the “Employment Agreement”) which terminated December 31, 2019. The Employment
Agreement provided for the following compensation for Mr. Yeaton: (i) twenty-five thousand dollars ($25,000) per month in base
salary, (ii) a monthly grant of one hundred fifty six (156) unrestricted shares of the our common stock pursuant to the Plan,
(iii) Mr. Yeaton will be afforded other employee benefits including, health insurance, dental insurance, basic life and accidental
death and dismemberment insurance, long and short term disability insurance and participation in our 401(k) Plan, and (iv) will
be reimbursed for reasonable and necessary travel and business expenses including the expenses of travel and hotel stays in or
near Thorofare, New Jersey.
On
January 6, 2020, the Board of Directors appointed Howard R. Yeaton as our interim Chief Financial Officer. In connection with
his appointment as our interim Chief Financial Officer, we and Mr. Yeaton entered into a new offer of employment, dated January
6, 2020 for a period of ninety days. Pursuant to such agreement, Mr. Yeaton will receive: (i) twenty-five thousand dollars ($25,000)
per month in base salary, (ii) Mr. Yeaton will be afforded other employee benefits including, health insurance, dental insurance,
basic life and accidental death and dismemberment insurance, long and short term disability insurance and participation in our
401(k) Plan, and (iii) will be reimbursed for reasonable and necessary travel and business expenses including the expenses of
travel and hotel stays in or near Thorofare, New Jersey. We may terminate the Employment Agreement for any reason or no reason,
and Mr. Yeaton may voluntarily resign for any reason or no reason with thirty (30) days’ notice.
On
January 24, 2020, we and Christopher C. Schreiber entered into an executive chairman agreement with Mr. Christopher C. Schreiber
(the “Executive Chairman Agreement”). Pursuant to the Executive Chairman Agreement, Mr. Schreiber shall continue to
serve as the Executive Chairman of the Board as long as he is a member of the Board of Directors, or until termination of the
Executive Chairman Agreement (as described below) or upon his earlier death, incapacity, removal, or resignation. Mr. Schreiber
is entitled to receive: (i) an annual base salary of $300,000, payable monthly in equal installments, paid retroactively as of
November 1, 2019 (it being agreed that such fee shall be inclusive of any fees associated with Schreiber’s services as both
a director of our company and in the capacity of Executive Chairman), (ii) employee benefits including, health insurance, dental
insurance, basic life and accidental death and dismemberment insurance, long and short term disability insurance and participation
in our 401(k) Plan, (iii) annual or other bonuses in cash and/or in securities of our company and/or otherwise, which bonuses,
if any, shall be awarded in the complete discretion of the Board of Directors or a designated committee thereof and (iv) reimbursements
for pre-approved reasonable business-related expenses incurred in good faith in the performance of the Mr. Schreiber’s duties
for us.
The
Executive Chairman Agreement establishes an “at will” employment relationship pursuant to which Mr. Schreiber serves
as Executive Chairman. We may terminate the Executive Chairman Agreement for any reason or no reason, and Mr. Schreiber may voluntarily
resign for any reason or no reason with sixty (60) days’ notice. The Executive Chairman Agreement also provides that Mr.
Schreiber may not compete against us or solicit our employees or customers for a period of one (1) year after termination of the
Executive Chairman Agreement or his association with us for any reason.
STOCK
AWARDS
Name
(a)
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Number
of Securities Underlying Unexercised Options (#) Exercisable
(b)
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Number
of Securities Underlying Unexercised Options (#) Unexercisable
(c)
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Equity
Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned
Options (#)
(d)
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Option
Exercise Price ($)
(e)
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Option
Expiration Date
(f)
|
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Number
of Shares or Units of Stock That Have Not Vested (#)
(g)
(9)
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Market
Value of Shares or Units of Stock That Have Not Vested ($)
(h)
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Equity
Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#)
(i)
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Equity
Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not
Vested (#)
(j)
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Howard
R. Yeaton
Interim Chief Financial Officer
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-
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-
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-
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-
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-
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-
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-
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-
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|
Christopher
C. Schreiber
Executive Chairman of the Board of Directors and Director
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-
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-
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-
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-
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5,201
|
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121,080
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-
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-
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Josh
Silverman
Lead Independent Director
|
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-
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-
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-
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-
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5,201
|
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|
121,080
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-
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-
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Bill
J. White
Director
|
|
|
-
|
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|
|
-
|
|
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|
-
|
|
|
|
-
|
|
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|
5,201
|
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|
121,080
|
|
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|
-
|
|
|
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-
|
|
|
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|
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|
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Robert
C. Schroeder
Director
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
On
January 23, 2014, the Company adopted the 2013 Stock Incentive Plan (“2013 Plan”). The 2013 Plan was amended by the
Board on January 9, 2015 and September 30, 2016, and such amendments were ratified by shareholders on December 7, 2018. The 2013
Plan provides for the issuance of up to 4,323 shares of the Company’s common stock.
On
August 7, 2017, the shareholders approved, and the Company adopted the 2017 Stock Incentive Plan (“2017 Plan”). The
2017 Plan provides for the issuance of up to 7,031 shares of the Company’s common stock. The purpose of the 2017 Plan is
to provide additional incentive to those of our officers, employees, consultants and non-employee directors and our parents, subsidiaries
and affiliates whose contributions are essential to the growth and success of our business. As of December 31, 2019, grants of
restricted stock and options to purchase totaling 3,064 shares of common stock have been issued pursuant to the 2017 Plan and
3,967 shares of common stock remain available for grants under the 2017 Plan.
The
2017 Plan provides for the issuance of shares of our common stock through the grant of non-qualified options, incentive options,
restricted stock and unrestricted stock to directors, officers, consultants, attorneys, advisors and employees.
On
December 7, 2018, the shareholders approved, and the Company adopted the 2018 Stock Incentive Plan (“2018 Plan”).
The 2018 Plan provides for the issuance of up to 78,125 shares of the Company’s common stock. As of December 31, 2019, grants
of RSUs to purchase 15,603 shares of Common Stock have been issued pursuant to the 2018 Plan, and 62,522 shares of Common Stock
remain available for issuance.
On
March 29, 2019, the Compensation Committee of the Board of Directors approved the grant of 5,201 RSUs to each of the three directors.
Each RSU had a grant date fair value of $23.28 which shall be amortized on a straight-line basis over the vesting period into
administrative expenses within the Consolidated Statement of Operations and Comprehensive Loss. Such RSUs were granted under the
2018 Plan, and vested on January 1, 2020.
Director
Compensation
The
following sets forth the compensation awarded to, earned by, or paid to the named director by us during the year ended December
31, 2019.
Name
|
|
Fees
earned or
paid in
cash
($)
|
|
|
Stock
Awards
($)
|
|
|
Option
Awards
($)
|
|
|
Non-
equity
incentive
plan
compensation
($)
|
|
|
All
other
compensation
($)
|
|
|
Total
($)
|
|
Christopher
C. Schreiber (2)
|
|
|
136,000
|
|
|
|
121,079
|
(1)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
136,000
|
|
Josh
Silverman (3)
|
|
|
128,000
|
|
|
|
121,079
|
(1)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
128,000
|
|
Bill
J. White (4)
|
|
|
136,000
|
|
|
|
121,079
|
(1)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
136,000
|
|
Robert
Schroeder (5)
|
|
|
8,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
8,000
|
|
(1) On March 29, 2019, we
granted each director restricted stock units to purchase 5,201 shares of our common stock, which vested in full on January 1,
2020.
(2) As of December 31, 2019,
Mr. Schreiber had 5,201 outstanding RSUs.
(3) As of December 31, 2019,
Mr. Silverman had 5,201 outstanding RSUs.
(4) As of December 31, 2019,
Mr. White had 5,201 outstanding RSUs.
(5) Mr. Schroeder was appointed
as a director, effective November 1, 2019. As of December 31, 2019, Mr. Schroeder did not have any stock awards or option awards
outstanding.
Narrative Disclosure
to Director Compensation Table
On March 29, 2019,
the Compensation Committee of the Board of Directors approved payments to the members of the Board of Directors, which were paid
as follows (i) lump sum payment of $64,000 to each of Mr. Schreiber and Mr. White and a lump sum payment of $56,000 to Mr. Silverman,
(ii) each of Mr. Schreiber, Mr. White and Mr. Silverman were granted 5,201 Restricted Stock Units (“RSUs”), which
vested on January 1, 2020, and (iii) beginning April 2019, each serving director who is not also holding a position as an executive
officer shall be paid $8,000 per month. The lump sum payments were paid during April 2019 and the monthly payments to directors
have been paid each month. There was no other compensation for directors during the year ended December 31, 2019.
Item
12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters.
The
following table shows information with respect to the Company’s Equity Compensation Plan as of the fiscal year ended December
31, 2019.
Equity
Compensation Plan Information
Plan
category
|
|
Number
of securities to be issued upon exercise of outstanding options, warrants and rights (a)
|
|
Weighted-average
exercise
price of outstanding options, warrants and rights (b)
|
|
Number
of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column
(a)) (c)
|
Equity
compensation plans approved by security holders
|
|
|
40
|
|
|
$
|
236.16
|
|
|
|
67,959
|
|
Equity
compensation plans not approved by security holders
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
Total
|
|
|
40
|
|
|
$
|
236.16
|
|
|
|
67,959
|
|
The
following table sets forth, as of March 20, 2020, 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 March 20, 2020. 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 2,288,837 shares of our common stock issued and outstanding
as of March 20, 2020.
Common
stock subject to stock options currently exercisable or exercisable within 60 days of March 20, 2020, 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
Owned as of
March 20, 2020
|
|
|
Percentage
of
Ownership as of
March 20, 2020
|
|
Name
of Beneficial Owner:
|
|
|
|
|
|
|
|
|
5%
Shareholders:
|
|
|
|
|
|
|
|
|
Armstice
Capital, LLC(3)
|
|
|
190,174
|
|
|
|
8.31
|
%
|
Iroquois
Capital Management LLC(4)
|
|
|
205,787
|
|
|
|
8.99
|
%
|
Hudson
Bay Capital Management LP (5)
|
|
|
269,243
|
|
|
|
11.76
|
%
|
Named
Executive Officers and Directors:
|
|
|
|
|
|
|
|
|
Bill
J. White(2)
|
|
|
5,201
|
|
|
|
*
|
%
|
Joshua
Silverman(2)
|
|
|
5,201
|
|
|
|
*
|
%
|
Christopher
C. Schreiber(2)
|
|
|
5,201
|
|
|
|
*
|
%
|
Robert
C. Schroeder
|
|
|
-
|
|
|
|
-
|
%
|
Howard
R. Yeaton (1)
|
|
|
2,345
|
|
|
|
*
|
%
|
All
executive officers and directors as a group (4 person)
|
|
|
17,948
|
|
|
|
*
|
%
|
*
|
Less
than 1%.
|
(1)
|
In
connection with his appointment as our Chief Executive Officer and interim Chief Financial Officer, we and Mr. Yeaton entered
into an offer of employment, dated October 5, 2018 and terminated on December 31, 2019 (the “Employment Agreement”).
The Employment Agreement provided for, among other compensation, a monthly grant of one hundred fifty six (156) unrestricted
shares of our common stock pursuant to the 2017 Plan. Forty-Five Thousand (1,877) unrestricted shares of the common stock
have to date been issued to Mr. Yeaton pursuant to the 2017 Plan.
|
(2)
|
On
March 29, 2019, the Compensation Committee of the Board of Directors granted to each of Mr. Schreiber, Mr. White and Mr. Silverman
5,201 RSUs, which vested on January 1, 2020, for services as directors of our company.
|
(3)
|
According
to a Schedule 13G filed with the SEC on December 13, 2019, Armstice Capital, LLC, a Delaware
limited liability company, Armstice Capital Master Fund Ltd., a Cayman Islands exempted
company, and Steven Boyd, a citizen of the United States, share voting and dispositive
power over the 190,174 shares of common stock reported. The business address for each
reporting person is 510 Madison Avenue, 7th Floor, New York, NY 10022.
|
(4)
|
According
to a Schedule 13G filed with the SEC on December 18, 2019, Iroquois Capital Management
L.L.C., a Delaware limited liability company (“Iroquois”), Richard Abbe,
an individual who is a citizen of the United States of America and Kimberly Page, an
individual who is a citizen of the United States of America (“Mr. Abbe” and
“Ms. Page,” together with Iroquois, the “Reporting Persons”).
As of the Schedule 13G, Iroquois Master Fund Ltd. (“Iroquois Master Fund”)
held 88,000 shares of common stock, Reported Pre-Funded Warrants to purchase 12,000 shares
of Common Stock and Reported Warrants to purchase 105,787 shares of common stock and
Iroquois Capital Investment Group LLC (“ICIG”) held 22,000 shares of common
stock, Reported Pre-Funded Warrants to purchase 3,000 shares of Common Stock and Reported
Warrants to purchase 33,681 shares of Common Stock. Mr. Abbe shares authority and responsibility
for the investments made on behalf of Iroquois Master Fund with Ms. Kimberly Page, each
of whom is a director of the Iroquois Master Fund. Each of the Reporting Persons hereby
disclaims any beneficial ownership of any such shares of Common Stock except to the extent
of their pecuniary interest therein. The principal business office of all of the Reporting
Persons is 125 Park Avenue, 25th Floor New York, NY 10017.
|
(5)
|
According
to a Schedule 13G filed with the SEC on January 9, 2020, Hudson Bay Capital Management
LP, a Delaware limited partnership and Sander Gerber, a citizen of the United Stated,
share voting and dispositive power over 269,243 shares of common stock reported. Hudson
Bay Capital Management LP serves as the investment manager to Hudson Bay Master Fund
Ltd., in whose name the shares of common stock are held, may be deemed to be the beneficial
owner of all shares of common stock held by Hudson Bay Master Fund Ltd and Mr. Gerber
serves as the managing member of Hudson Bay Capital GP LLC, which is the general partner
of the Hudson Bay Capital Management LP. Mr. Gerber disclaims beneficial ownership of
these securities. The address of the business office of each of the reporting persons
is 777 Third Avenue, 30th Floor, New York, NY 10017.
|
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.
|
Employment
of Howard Yeaton
Effective
on October 5, 2018, the Board of Directors appointed Howard R. Yeaton, who through Financial Consulting Strategies LLC (“FCS”)
served previously as a consultant to us, to serve as our Chief Executive Officer and interim Chief Financial Officer. Mr. Yeaton
is the managing principal of FCS and we have an ongoing relationship with FCS, with FCS continuing to provide accounting services
to us. FCS is considered to be a related party. During the year ended December 31, 2019, we expensed to $38,888 to FCS. During
the year ended December 31, 2018, we expensed $104,749 to FCS (including fees incurred prior to the date that Mr. Yeaton began
to serve as an officer of our company) in connection with these services. As of December 31, 2019, we owed FCS $18,323. On November
1, 2019, the Board of Directors provided Mr. Howard R. Yeaton with sixty (60) days’ notice of its intent to terminate him
from each of his officer positions as our Chief Executive Officer and interim Chief Financial Officer.
On
January 6, 2020, the Board of Directors appointed Howard R. Yeaton as our interim Chief Financial Officer. In connection with
his appointment as our interim Chief Financial Officer, we and Mr. Yeaton entered into a new offer of employment, dated January
6, 2020 for a period of ninety days. Pursuant to such agreement, Mr. Yeaton will receive: (i) twenty-five thousand dollars ($25,000)
per month in base salary, (ii) Mr. Yeaton will be afforded other employee benefits including, health insurance, dental insurance,
basic life and accidental death and dismemberment insurance, long and short term disability insurance and participation in our
401(k) Plan, and (iii) will be reimbursed for reasonable and necessary travel and business expenses including the expenses of
travel and hotel stays in or near Thorofare, New Jersey. We may terminate the Employment Agreement for any reason or no reason,
and Mr. Yeaton may voluntarily resign for any reason or no reason with thirty (30) days’ notice.
Employment
of Christopher C. Schreiber
On
January 24, 2020, the Board of Directors independently reviewed and approved entering into an executive chairman agreement with
Christopher C. Schreiber (the “Executive Chairman Agreement”). Pursuant to the Executive Chairman Agreement, Mr. Schreiber
shall continue to serve as the Executive Chairman of the Board of Directors as long as he is a member of the Board of Directors,
or until termination of the Executive Chairman Agreement (as described below) or upon his earlier death, incapacity, removal,
or resignation. Pursuant to the Executive Chairman Agreement, Mr. Schreiber is entitled to receive: (i) an annual base salary
of $300,000, payable monthly in equal installments, paid retroactively as of November 1, 2019 (it being agreed that such fee shall
be inclusive of any fees associated with Schreiber’s services as both a director of our company and in the capacity of Executive
Chairman), (ii) employee benefits including, health insurance, dental insurance, basic life and accidental death and dismemberment
insurance, long and short term disability insurance and participation in our 401(k) Plan, (iii) annual or other bonuses in cash
and/or in securities of our company and/or otherwise, which bonuses, if any, shall be awarded in the complete discretion of the
Board of Directors or a designated committee thereof and (iv) reimbursements for pre-approved reasonable business-related expenses
incurred in good faith in the performance of Mr. Schreiber’s duties for us. The Executive Chairman Agreement established
an “at will” employment relationship pursuant to which Mr. Schreiber serves as Executive Chairman. We may terminate
the Executive Chairman Agreement for any reason or no reason, and Mr. Schreiber may voluntarily resign for any reason or no reason
with sixty (60) days’ notice. The Executive Chairman Agreement also provides that Mr. Schreiber may not compete against
us or solicit our employees or customers for a period of one (1) year after termination of the Executive Chairman Agreement or
his association with us for any reason.
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 our annual financial statements and review of financial statements included in our
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.
Tax
fees includes services for the preparation of the Company’s income tax returns.
All
Other Fees includes included principally due diligence review and preparation of the Audit Comfort Letter for the underwriter
for our public offering and shelf registration filings. In 2018, we incurred other fees in support of the preparation of our 2018
restatements of Forms 10-Q/A and 10-K/A and Form S-1 and S-3, as well as due diligence review and preparation of the Audit Comfort
Letter for the underwriter for our public offering and shelf registration filings.
|
|
2019
|
|
|
2018
|
|
Audit
Fees
|
|
$
|
80,000
|
|
|
$
|
100,000
|
|
Audit-Related
Fees
|
|
$
|
59,000
|
|
|
$
|
232,100
|
|
Tax
Fees
|
|
$
|
10,000
|
|
|
$
|
10,000
|
|
All
Other Fees
|
|
$
|
37,450
|
|
|
$
|
4,369
|
|
TOTAL
|
|
$
|
186,450
|
|
|
$
|
346,469
|
|
Pre
Approval Policies and Procedures
The
audit and permissible non-audit services were pre-approved in accordance with the pre-approval policy and procedures adopted by
the audit committee. The policy requires that requests for all services must be submitted to the audit committee for specific
pre-approval and cannot commence until such approval has been granted.
Notes
to Consolidated Financial Statements
Note
1 – Organization and Description of Business
Akers
Biosciences, Inc. (“Akers”), is a New Jersey corporation. These consolidated financial statements include two wholly
owned subsidiaries, Akers Acquisition Sub, Inc. and Bout Time Marketing Corporation, (together, the “Company”). All
material intercompany transactions have been eliminated in consolidation.
On
November 7, 2018, the Company announced its intention to explore strategic alternatives in order to maximize shareholder value.
As announced, this process will consider a range of potential strategic alternatives including, but not limited to, business combinations
and developing new businesses through hiring key personnel, while simultaneously supporting the Company’s management and
employees in the execution of the Company’s current business activities.
Furthermore,
the Company has undertaken steps to reduce its expenses, including reducing the number of personnel, reducing its office and warehouse
footprint, eliminating services from non-critical vendors and has withdrawn its shares from registration on the AIM exchange in
the United Kingdom.
The
Company’s medical device business has as its current focus the production and sale of disposable diagnostic testing devices
that can be performed in minutes, to facilitate time sensitive therapeutic decisions. The Company’s principal products are
a rapid test detecting the antibody causing an allergic reaction to Heparin and breath alcohol detectors used for health and safety.
Note
2 – Significant Accounting Policies
|
(a)
|
Basis
of Presentation
|
|
|
The
accompanying consolidated financial statements for the years ended December 31, 2019 and 2018 have been prepared in accordance
and in conformity with the accounting principles generally accepted in the United States of America (“U.S. GAAP”)
and the applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding consolidated
financial information.
|
|
|
|
|
|
On
November 25, 2019, the Company effectuated a reverse stock split of its shares of Common Stock whereby every twenty-four (24)
pre-split shares of Common Stock were exchanged for one (1) post-split share of the Company’s Common Stock (“Reverse
Stock Split”). No fractional shares were issued in connection with the Reverse Stock Split and the remaining fractions
were rounded up to the next whole share. Shareholders who would otherwise have held a fractional share of the Common Stock
were given one additional full share of the Company’s Common Stock. Share amounts presented in these consolidated financial
statements have been adjusted to reflect the Reverse Stock Split.
|
AKERS
BIOSCIENCES, INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
Note
2 - Significant Accounting Policies, continued
|
(b)
|
Use
of Estimates and Judgments
|
|
|
The
preparation of financial statements in conformity with US GAAP requires management to make judgments, estimates and assumptions
that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual
results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions
to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.
Information about significant areas of estimation, uncertainty and critical judgments in applying accounting policies that
have the most significant effect on the amounts recognized in the financial statements are included in the following notes
for revenue recognition, allowances for doubtful accounts, inventory valuations, impairment of intangible assets and valuation
of share-based payments.
|
|
(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 cash balances denominated in Foreign Currencies, are recorded in the consolidated statements of operations
and comprehensive loss.
|
|
(d)
|
Comprehensive
Income (Loss)
|
|
|
The
Company follows Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”) 220 in reporting
comprehensive income (loss). Comprehensive income is a more inclusive financial reporting methodology that includes disclosure
of certain financial information that historically has not been recognized in the calculation of net income.
|
|
(e)
|
Cash
and Cash Equivalents
|
|
|
The
Company considers all highly liquid investments, which include short-term bank deposits (up to 3 three months from date of
deposit) that are not restricted as to withdrawal date or use, to be cash equivalents.
|
|
|
At
December 31, 2019, restricted cash included in non-current assets on the Company’s consolidated balance sheet was $115,094
representing cash in trust for the purpose of funding legal fees for certain litigations.
|
AKERS
BIOSCIENCES, INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
Note
2 - Significant Accounting Policies, continued
|
(g)
|
Fair
Value of Financial Instruments
|
|
|
The
Company’s financial instruments consist of cash and cash equivalents, marketable securities, receivables and trade and
other payables. The carrying value of cash and cash equivalents, receivables and trade and other payables approximate their
fair value because of their short maturities.
|
|
|
|
|
|
The
framework for measuring fair value provides a fair value hierarchy that prioritizes the inputs to valuation techniques used
to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical
assets or liabilities (level 1) and the lowest priority to unobservable inputs (level 3). The three levels of the fair value
hierarchy under FASB ASC 820 are described as follows:
|
|
Level
1
|
Inputs
to the valuation methodology are unadjusted quoted prices for identical assets or liabilities
in active markets that the Company has the ability to access.
|
|
|
|
|
Level
2
|
Inputs
to the valuation methodology include:
|
|
●
|
quoted
prices for similar assets or liabilities in active markets;
|
|
|
|
|
●
|
quoted
prices for identical or similar assets or liabilities in inactive markets;
|
|
|
|
|
●
|
inputs
other than quoted prices that are observable for the asset or liability;
|
|
|
|
|
●
|
inputs
that are derived principally from or corroborated by observable market data by correlation
or other means
|
|
|
|
|
If
the asset or liability has a specified (contractual) term, the level 2 input must be
observable for substantially the full term of the asset or liability.
|
|
Level
3
|
Inputs
to the valuation methodology are unobservable and significant to the fair value measurement.
|
|
|
The
asset or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of input
that is significant to the fair value measurement. Valuation techniques maximize the use of relevant observable inputs and
minimize the use of unobservable inputs.
|
AKERS
BIOSCIENCES, INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
Note
2 - Significant Accounting Policies, continued
|
(g)
|
Fair
Value of Financial Instruments, continued
|
|
|
Following
is a description of the valuation methodologies used for assets measured at fair value as of December 31, 2019 and December
31, 2018.
|
|
|
|
|
|
U.S.
Agency Securities: Valued using pricing models maximizing the use of observable inputs for similar securities. This includes
basing value on yields currently available on comparable securities of issuers with similar credit ratings.
|
|
|
|
Quoted
Prices in Active Markets for Identical Assets or Liabilities
(Level 1)
|
|
|
Quoted
Prices for Similar Assets or Liabilities in Active Markets
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Marketable
securities at December 31, 2019
|
|
|
$
|
-
|
|
|
$
|
9,164,273
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable
securities at December 31, 2018
|
|
|
$
|
-
|
|
|
$
|
5,272,998
|
|
|
$
|
-
|
|
|
|
Marketable
securities comprise debt securities and include U.S. agency securities, which are classified as available for
sale. The debt securities are valued at fair market value. Maturities of the securities are less than one year. Unrealized
gains and losses relating to the available for sale investment securities were recorded in the Consolidated Statement of Changes
in Shareholders’ Equity as comprehensive (loss) income. These amounts were an increase of $43,799 in unrealized gains
for the year ended December 31, 2019 and $25,913 in unrealized losses for the year ended December 31, 2018.
|
|
|
|
|
|
Gains
and losses resulting from these sales amounted to a gain of $3,952 and a loss of $15,178 for the years ended December 31,
2019 and 2018, respectively.
|
|
|
|
|
|
For
the years ended December 31, 2019 and 2018, proceeds from the sale of marketable securities were $2,857,960 and $6,313,330,
respectively.
|
AKERS
BIOSCIENCES, INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
Note
2 - Significant Accounting Policies, continued
|
(h)
|
Trade
Receivables and Allowance for Doubtful Accounts
|
|
|
The
carrying amounts of current trade receivables is stated at cost, net of allowance for doubtful accounts and approximate their
fair value given their short-term nature.
|
|
|
|
|
|
The
normal credit terms extended to customers ranges between 30 and 90 days. Credit terms longer than these may be extended after
considering the credit worthiness of the customers and the business requirements. The Company reviews all receivables that
exceed terms and establishes an allowance for doubtful accounts based on management’s assessment of the collectability
of trade and other receivables. A considerable amount of judgment is required in assessing the amount of allowance. The Company
considers the historical level of credit losses, makes judgments about the credit worthiness of each customer based on ongoing
credit evaluations and monitors current economic trends that might impact the level of credit losses in the future.
|
|
|
|
|
|
As
of December 31, 2019, and 2018, allowances for doubtful accounts for trade receivables were $458,902 and $606,835. Bad debt
expenses for trade receivables were $5,325 and $185,335 for the years ended December 31, 2019 and 2018.
|
|
(i)
|
Deposits
and Other Receivables
|
|
|
Further
to the Company’s pursuit of strategic alternatives, pursuant to an unsecured promissory note dated July 4, 2019, on
July 25, 2019 the Company advanced $100,000 to a company in the hemp related industry with which the Company had been considering
a potential business transaction. Discussions with this party toward a potential transaction have been suspended. The unsecured
promissory note became due on October 2, 2019 and the Company is pursuing collection of the obligation.
|
|
|
|
|
|
For
the year ended December 31, 2019, the Company established a reserve of $100,000 which is included in Administrative Expenses
in the Consolidated Statement of Operations and Comprehensive Loss.
|
AKERS
BIOSCIENCES, INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
Note
2 - Significant Accounting Policies, continued
|
|
Financial
instruments which potentially subject the Company to concentrations of credit risk consist principally of cash on deposit
with financial institutions and accounts receivable. At times, the Company’s cash in banks is in excess of the FDIC
insurance limit. The Company has not experienced any loss as a result of these cash deposits. These cash balances are maintained
with two banks.
|
|
|
|
|
|
Major
Customers
|
|
|
|
|
|
For
the year ended December 31, 2019, two customers generated 48% and 31% or 79% in the aggregate, of the Company’s revenues.
For the year ended December 31, 2018, two customers generated 57% and 14%, or 71% in the aggregate, of the Company’s
revenue.
|
|
|
|
|
|
Five
customers accounted for 30%, 18%, 12%, 12% and 11%, or 83% in the aggregate, and two customers accounted for 62% and
37%, or 99% in the aggregate, of trade receivables net of customer credits and allowances for doubtful accounts as of December
31, 2019 and 2018, respectively. These concentrations make the Company vulnerable to a near-term severe impact should these
relationships be terminated. To limit such risks, the Company performs ongoing credit evaluations of its customers’
financial condition.
|
|
|
|
|
|
Major
Suppliers
|
|
|
|
|
|
One
supplier accounted for 43% and 14% of the Company’s purchases for the years ended December 31, 2019 and 2018, respectively.
|
|
|
|
|
|
None
of the Company’s suppliers accounted for more than 10% of the Company’s outstanding accounts payable as of December
31, 2019 and 2018.
|
|
|
|
AKERS
BIOSCIENCES, INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
Note
2 - Significant Accounting Policies, continued
|
(k)
|
Property,
Plant and Equipment
|
|
|
Items
of property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses. Costs
include expenditures that are directly attributable to the acquisition of the asset.
|
|
|
|
|
|
Gains
and losses on disposal of an item of property, plant and equipment are determined by comparing the proceeds from disposal
with the carrying amount of property, plant and equipment and are recognized within “other (income)/expense” in
the Consolidated Statement of Operations and Comprehensive Loss.
|
|
|
|
|
|
Depreciation
is recognized in profit and loss on the accelerated basis over the estimated useful lives of the property, plant and equipment.
Leased assets are depreciated over the shorter of the lease term or their useful lives.
|
|
|
|
|
|
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
|
Leasehold Improvements
|
|
Shorter
of the
remaining lease or
estimated useful life
|
|
|
Depreciation
methods, useful lives and residual values are reviewed at each reporting date.
|
AKERS
BIOSCIENCES, INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
Note
2 - Significant Accounting Policies, continued
The
Company’s long-lived intangible assets, other than goodwill, are assessed for impairment when events or circumstances indicate
there may be an impairment. These assets were initially recorded at their estimated fair value at the time of acquisition and
assets not acquired in acquisitions were recorded at historical cost. However, if their estimated fair value is less than the
carrying amount, other intangible assets with indefinite lives are reduced to their estimated fair value through an impairment
charge to our Consolidated Statements of Operations and Comprehensive Loss.
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, 2019, the Company has ten patents from the United States Patent Office in effect
Other patents are in effect in Australia through the Design Registry European Union Patents, in Hong Kong and in Japan. Patents
are in the national phase of prosecution in many Patent Cooperation Treaty participating countries. Additional proprietary technology
consists of numerous different inventions. Management intends to protect all other intellectual property (e.g. copyrights, trademarks
and trade secrets) using all legal remedies available to the Company.
Patent
Costs
Costs
associated with applying for patents are capitalized as patent costs. Once the patents are approved, the respective costs are
amortized over their estimated useful lives (maximum of 17 years) on a straight-line basis and assessed for impairment when necessary.
Patent pending costs for patents that are not approved are charged to the consolidated statements of operations and comprehensive
loss 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
and assessed for impairment when necessary.
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.
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
|
AKERS
BIOSCIENCES, INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
Note
2 - Significant Accounting Policies, continued
|
(m)
|
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.
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.
|
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.
AKERS
BIOSCIENCES, INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
Note
2 - Significant Accounting Policies, continued
Beginning
on January 1, 2019, the Company recognizes revenue under ASC 606, Revenue from Contracts with Customers. The core principle of
the revenue standard is that a company should recognize revenue to depict the transfer of promised goods or services to customers
in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services.
The Company only applies the five-step model to contracts when it is probable that the Company will collect the consideration
it is entitled to in exchange for the goods and services transferred to the customer. The following five steps are applied to
achieve that core principle:
Step
1: Identify the contract with the customer
Step
2: Identify the performance obligations in the contract
Step
3: Determine the transaction price
Step
4: Allocate the transaction price to the performance obligations in the contract
Step
5: Recognize revenue when the company satisfies a performance obligation
The
Company does not have any significant contracts with customers requiring performance beyond delivery. Shipping and handling activities
are performed before the customer obtains control of the goods and therefore represent a fulfillment activity rather than a promised
service to the customer. Revenue and costs of sales are recognized when control of the product transfers to our customer, which
generally occurs upon delivery to the customer but can also occur when goods are shipped by the Company, depending on the shipment
terms of the contract. The Company’s performance obligations are satisfied at that time. The Company has not historically
experienced customer returns of its products.
The
Company uses the most likely amount approach to determine the variable consideration of the transaction price in order to account
for the contractual rebates and incentives that are estimated and adjusted for over time. The Company provides for rebates to
its distributors. The Company’s accrued rebates and incentives were $20,002 and $23,179, as of December 31, 2019 and 2018,
respectively. Accounts receivable will be reduced when the rebates are applied by the customer. The Company recognized $130,577
and $105,247 for the years ended December 31, 2019 and 2018 for rebates, respectively, which is included as a reduction of product
revenue in the Consolidated Statement of Operations and Comprehensive Loss.
See
Note 13 for disaggregation of revenue by product line and geographic region.
The
Company utilizes an asset and liability approach for financial accounting and reporting for income taxes. The provision for income
taxes is based upon income or loss after adjustment for those permanent items that are not considered in the determination of
taxable income. Deferred income taxes represent the tax effects of differences between the financial reporting and tax basis of
the Company’s assets and liabilities at the enacted tax rates in effect for the years in which the differences are expected
to reverse.
The
Company evaluates the recoverability of deferred tax assets and establishes a valuation allowance when it is more likely than
not that some portion or all the deferred tax assets will not be realized. Management makes judgments as to the interpretation
of the tax laws that might be challenged upon an audit and cause changes to previous estimates of tax liability. In management’s
opinion, adequate provisions for income taxes have been made. If actual taxable income by tax jurisdiction varies from estimates,
additional allowances or reversals of reserves may be necessary.
AKERS
BIOSCIENCES, INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
Note
2 - Significant Accounting Policies, continued
|
(p)
|
Income
Taxes, continued
|
Tax
benefits are recognized only for tax positions that are more likely than not to be sustained upon examination by tax authorities.
The amount recognized is measured as the largest amount of benefit that is greater than 50 percent likely to be realized upon
settlement. A liability for “unrecognized tax benefits” is recorded for any tax benefits claimed in the Company’s
tax returns that do not meet these recognition and measurement standards. For the years ended December 31, 2019 and 2018, no liability
for unrecognized tax benefits was required to be reported.
There
is no income tax benefit for the losses for the years ended December 31, 2019 and 2018 since management has determined that the
realization of the net deferred assets is not assured and has created a valuation allowance for the entire amount of such tax
benefits.
The
Company’s policy for recording interest and penalties associated with tax audits is to record such items as a component
of general and administrative expense. There were no amounts accrued for penalties and interest for the years ended December 31,
2019 and 2018. The Company does not expect its uncertain tax position to change during the next twelve months. Management is currently
unaware of any issues under review that could result in significant payments, accruals or material deviations from its position.
|
(q)
|
Shipping
and Handling Fees and Costs
|
The
Company charges actual shipping costs plus a handling fee to customers, which amounted to $38,131 and $50,518 for the years ended
December 31, 2019 and 2018. These fees are classified as 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 product cost of
sales, which amounted to $46,534 and $93,558 for the years ended December 31, 2019 and 2018, respectively.
|
(r)
|
Research
and Development Costs
|
In
accordance with FASB ASC 730, research and development costs are expensed when incurred.
AKERS
BIOSCIENCES, INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
Note
2 - Significant Accounting Policies, continued
The
Company accounts for stock-based compensation under the provisions of Financial Accounting Standards Board (FASB) Accounting Standards
Codification (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 the requisite service periods using the straightline
method. In June 2018, the FASB issued ASU No. 2018-07, Compensation – Stock Compensation (Topic 718), Improvements to Nonemployee
Share-Based Payment Accounting. The amendments in this Update expand the scope of Topic 718 to include share-based payment transactions
for acquiring goods and services from nonemployees. Prior to this Update, Topic 718 applied only to share-based transactions to
employees. Consistent with the accounting requirement for employee share-based payment awards, nonemployee share-based payment
awards within the scope of Topic 718 are measured at grant-date fair value of the equity instruments that an entity is obligated
to issue when the good has been delivered or the service has been rendered and any other conditions necessary to earn the right
to benefit from the instruments have been satisfied.
The
Company has elected to account for forfeiture of stock based awards as they occur.
AKERS
BIOSCIENCES, INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
Note
2 - Significant Accounting Policies, continued
|
(t)
|
Basic
and Diluted Earnings per Share of Common Stock
|
Basic
earnings per common share is based on the weighted average number of shares outstanding during the periods presented. Diluted
earnings per share is computed using the weighted average number of common shares plus dilutive common share equivalents outstanding
during the period. Potential common shares that would have the effect of increasing diluted earnings per share are considered
anti-dilutive.
Diluted
net loss per share is computed using the weighted average number of common and dilutive potential common shares outstanding during
the period. The following securities are excluded from the calculation of weighted average dilutive common shares because their
inclusion would have been anti-dilutive:
|
|
For
the Years Ended December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Stock
Options
|
|
|
40
|
|
|
|
443
|
|
Restricted
Stock Units
|
|
|
15,603
|
|
|
|
-
|
|
Warrants
to purchase Common Stock
|
|
|
247,215
|
|
|
|
88,015
|
|
Pre-funded
Warrants to purchase Common Stock
|
|
|
795,000
|
|
|
|
-
|
|
Warrants
to purchase Series C Preferred stock
|
|
|
1,990,000
|
|
|
|
-
|
|
Total
potentially dilutive shares
|
|
|
3,047,858
|
|
|
|
88,458
|
|
AKERS
BIOSCIENCES, INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
Note
2 - Significant Accounting Policies, continued
|
(u)
|
Recently
Issued Accounting Pronouncements
|
Recently
Issued Accounting Pronouncements Adopted
As
an emerging growth company (“EGC”), Akers had elected to adopt recently issued accounting pronouncements based on
effective dates applicable to other than public business entities. The Company lost its EGC status on December 31, 2019 as it
was the last day of the fiscal year following the fifth anniversary of the effective date of its registration statement on January
23, 2014. Accordingly, effective January 1, 2020, Akers will adopt recently issued accounting pronouncements on dates applicable
to public companies.
In
May 2014 and April 2016, the FASB issued ASU No. 2014-09 and ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606).
The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services
to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods
or services. In August 2015, FASB issued ASU 2015-14 which deferred the effective date of Update 2014-09 to annual reporting periods
beginning after December 15, 2018 for entities other than public business entities, and to annual reporting periods beginning
after December 15, 2017, including interim reporting periods within that reporting period for public business entities.
The
Company has elected to apply the modified retrospective method and the impact was determined to be immaterial on the consolidated
financial statements. Accordingly, the new revenue standard was applied prospectively in our consolidated financial statements
from January 1, 2019 forward and reported financial information for historical comparable periods will not be revised and will
continue to be reported under the accounting standards in effect during those historical periods.
The
Company determined that its methods of recognizing revenues were not impacted by the new guidance.
In
June 2018, the FASB issued ASU 2018-07, Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based
Payment Accounting, which expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services
from nonemployees. The guidance is effective for public business entities, certain not-for-profit entities, and certain employee
benefit plans for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. For all other
entities, ASU 2018-07 is effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years
beginning after December 15, 2020. Early adoption is permitted, but no earlier than an entity’s adoption date of Topic 606.
The Company early adopted ASC 2018-07 effective January 1, 2019. There was no material impact on the Company’s consolidated
financial statements upon this adoption.
In
July 2018, the FASB issued ASU No. 2018-09, Codification Improvements, to makes changes to a variety of topics to clarify, correct
errors in, or make minor improvements to the Accounting Standards Codification. Certain items of the amendments in ASU 2018-09
will be effective for the Company in annual periods beginning after December 15, 2018. The adoption of ASU 2018-09 did not have
a material impact on the Company’s consolidated financial statements.
AKERS
BIOSCIENCES, INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
Note
2 - Significant Accounting Policies, continued
|
(u)
|
Recently
Issued Accounting Pronouncements, continued
|
Recently
Issued Accounting Pronouncements Not Adopted
In
February 2016, the FASB issued ASU 2016-02—Leases (Topic 842) (“ASU-2016-02”), which requires an entity to recognize
right-of-use assets and lease liabilities on its balance sheet and disclose key information about leasing arrangements. ASU 2016-02
offers specific accounting guidance for a lessee, a lessor, and sale and leaseback transactions. Lessees and lessors are required
to disclose qualitative and quantitative information about leasing arrangements to enable a user of the financial statements to
assess the amount, timing and uncertainty of cash flows arising from leases. Leases will be classified as either finance or operating,
with classification affecting the pattern of expense recognition in the income statement. ASU 2016-02 is effective for annual
reporting periods beginning after December 15, 2019, including interim periods within that reporting period, and requires a modified
retrospective adoption, with early adoption permitted. The Company is currently evaluating the effect this guidance will have
on its consolidated financial statements and related disclosure, and anticipates the guidance to result in increases in its assets
and liabilities as its operating lease commitment will be subject to the new standard and recognized as right-of-use assets and
lease liabilities.
In
June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on
Financial Instruments (“ASU-2016-13”). ASU 2016-13 affects loans, debt securities, trade receivables, and any other
financial assets that have the contractual right to receive cash. The ASU requires an entity to recognize expected credit losses
rather than incurred losses for financial assets. ASU 2016-13 is effective for the fiscal year beginning after December 15, 2022,
including interim periods within that fiscal year. The Company expects that there would be no material impact on the Company’s
consolidated financial statements upon the adoption of this ASU.
Certain reclassifications were
made to the reported amounts in these consolidated financial statements as of December 31, 2018 to conform to the presentation
as of December 31, 2019.
AKERS
BIOSCIENCES, INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
Note
3 – Recent Developments, Liquidity and Management’s Plans
On
December 19, 2018, the Company announced its intent to delist from the AIM Market of the London Stock Exchange. The Company believed
that due to the relatively low liquidity in the Company’s common stock, remaining listed on the AIM Market did not merit
the ongoing costs and regulatory complexities associated with maintaining the AIM listing. On March 5, 2019, the Company held
a special meeting of shareholders who then voted in favor of the Company delisting from the AIM Market. The delisting took effect
on March 29, 2019.
On
November 7, 2018, the Company announced that its board of directors had initiated a process to evaluate strategic alternatives
to maximize shareholder value. This process will consider a range of potential strategic alternatives including, but not limited
to, business combinations, while simultaneously supporting the Company’s management and employees in the execution of the
Company’s current business activities. Such alternatives shall also be to consider initiatives that include making strategic
hires of consultants or personnel who would be instrumental to developing new business opportunities. On November 19, 2018, the
Company further announced that in its evaluation of strategic alternatives it will consider a range of potential strategic alternatives
including, but not limited to, business combinations in sectors different than that currently engaged in, including cannabis and
hemp related industries.
On
March 23, 2020, the Company entered into a Membership Interest Purchase Agreement with the members of Cystron Biotech, LLC, pursuant to
which the Company will acquire 100% of the membership interests of Cystron Biotech, LLC. See Note 15 for discussion of the acquisition
of Cystron Biotech, LLC.
Historically,
the Company has relied upon public offerings and private placements of common stock to raise operating capital. As of March
19, 2020, the Company had cash and marketable securities of approximately $8.8 million (excluding restricted cash of
$115,094) and working capital of approximately $8.3 million, which the Company believes will be sufficient to fund its
operations and obligations through approximately March 2021.
Note
4 – Inventories
Inventories
are measured at the lower of cost or net realizable value. The cost of inventories is based on the weighted-average principle,
and includes expenditures incurred in acquiring the inventories, production or conversion costs and other costs incurred in bringing
them to their existing location and condition. In the case of manufactured inventories and work in progress, costs include an
appropriate share of production overhead based on normal operating capacity.
Inventories
consist of the following:
|
|
December
31,
|
|
|
|
2019
|
|
|
2018
|
|
Raw
Materials
|
|
$
|
274,551
|
|
|
$
|
542,761
|
|
Sub-Assemblies
|
|
|
303,461
|
|
|
|
711,181
|
|
Finished
Goods
|
|
|
28,223
|
|
|
|
635,565
|
|
Reserve
for Obsolescence
|
|
|
(407,250
|
)
|
|
|
(1,304,240
|
)
|
|
|
$
|
198,985
|
|
|
$
|
585,267
|
|
During
the year ended December 31, 2019, incurred charges in the aggregate amount of $371,997 to reserve for the write down to fair value
of certain obsolete raw materials, sub-assemblies and finished goods inventory, which is included in cost of goods sold. During
the year ended December 31, 2019, the Company disposed of and wrote-off against the reserve $1,268,987 of inventory, resulting
in a net decrease of $896,990 in the reserve for obsolescence as of December 31, 2019 as compared to the balance of the reserve
for inventory obsolescence as of December 31, 2018.
AKERS
BIOSCIENCES, INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
For
the year ended December 31, 2018, the Company reserved $279,031 of inventory, principally in connection with the removal of OxiChek
from the market, which is included in cost of goods sold and wrote-off, against the reserve, $187,399 of inventory, principally
the expired BreathScan Alcohol products, resulting in a net increase of $91,632 in the reserve for obsolescence as of December
31, 2018 compared to that as of December 31, 2017.
Note
5 – Property, Plant and Equipment
Property,
plant and equipment consists of the following:
|
|
December
31,
|
|
|
|
2019
|
|
|
2018
|
|
Computer
Equipment
|
|
$
|
17,514
|
|
|
$
|
17,514
|
|
Computer
Software
|
|
|
7,806
|
|
|
|
7,806
|
|
Office
Equipment
|
|
|
39,959
|
|
|
|
39,959
|
|
Furniture
& Fixtures
|
|
|
38,357
|
|
|
|
38,357
|
|
Machinery
& Equipment
|
|
|
1,138,004
|
|
|
|
1,153,830
|
|
Molds
& Dies
|
|
|
645,272
|
|
|
|
645,272
|
|
Leasehold
Improvements
|
|
|
249,960
|
|
|
|
249,960
|
|
|
|
|
2,136,872
|
|
|
|
2,152,698
|
|
Less
|
|
|
|
|
|
|
|
|
Accumulated
Depreciation
|
|
|
2,103,298
|
|
|
|
2,069,242
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
33,574
|
|
|
$
|
83,456
|
|
Depreciation
expense totaled $34,056 and $63,378 for the years ended December 31, 2019 and 2018, respectively.
AKERS
BIOSCIENCES, INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
Note
6 – Intangible Assets
Intangible
assets as of December 31, 2019 and 2018 are as follows:
|
|
December
31, 2019
|
|
|
|
Cost
or
|
|
|
Accumulated
|
|
|
Net
|
|
|
|
Deemed
|
|
|
Amortization
|
|
|
Book
|
|
|
|
Cost
|
|
|
and
Impairment
|
|
|
Value
|
|
Patents
& Trademarks
|
|
$
|
2,626,996
|
|
|
$
|
(2,456,573
|
)
|
|
$
|
170,423
|
|
Distributors
& Customer Relationships
|
|
|
1,270,639
|
|
|
|
(1,270,639
|
)
|
|
|
-
|
|
Total
|
|
$
|
3,897,635
|
|
|
$
|
(3,727,212
|
)
|
|
$
|
170,423
|
|
|
|
December
31, 2018
|
|
|
|
Cost
or
|
|
|
Accumulated
|
|
|
Net
|
|
|
|
Deemed
|
|
|
Amortization
|
|
|
Book
|
|
|
|
Cost
|
|
|
and
Impairment
|
|
|
Value
|
|
Patents
& Trademarks
|
|
$
|
2,626,996
|
|
|
$
|
(2,383,585
|
)
|
|
$
|
243,411
|
|
Distributors
& Customer Relationships
|
|
|
1,270,639
|
|
|
|
(1,270,639
|
)
|
|
|
-
|
|
Total
|
|
$
|
3,897,635
|
|
|
$
|
(3,654,224
|
)
|
|
$
|
243,411
|
|
Effective
on October 9, 2018, the Company pulled the OxiChek product line from the market. This served as a triggering event for testing
whether or not our intangible assets were impaired. The Company then performed a recoverability analysis and determined that as
of December 31, 2018, there was an impairment of $716,148.
The
Company performed an impairment analysis during 2019 and as a result, recorded an impairment charge of $32,980 during the year
ended December 31, 2019.
Amortization
is recognized on a straight-line basis over the estimated useful lives of intangible assets, other than goodwill, from the date
that they are available for use. Amortization expense (not including impairment charges) was $40,008 and $171,108 for the years
ended December 31, 2019 and 2018, respectively.
The
following is an annual schedule of approximate future amortization of the Company’s intangible assets:
Period
|
|
Amount
|
|
2020
|
|
|
35,497
|
|
2021
|
|
|
35,497
|
|
2022
|
|
|
35,497
|
|
2023
|
|
|
28,414
|
|
2024
|
|
|
28,414
|
|
Thereafter
|
|
|
7,104
|
|
Total
|
|
$
|
170,423
|
|
AKERS
BIOSCIENCES, INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
Note
7 - Trade and Other Payables
Trade
and other payables consist of the following:
|
|
December
31,
|
|
|
|
2019
|
|
|
2018
|
|
Trade
Payables
|
|
$
|
657,293
|
|
|
$
|
686,578
|
|
Accrued
Expenses
|
|
|
812,722
|
|
|
|
1,227,172
|
|
Deferred
Compensation
|
|
|
59,750
|
|
|
|
59,750
|
|
|
|
$
|
1,529,765
|
|
|
$
|
1,973,500
|
|
See
also Note 12 for related party information.
AKERS
BIOSCIENCES, INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
Note
8 - Share-based Compensation
Equity
incentive Plans
2013
Stock Incentive Plan
On
January 23, 2014, the Company adopted the 2013 Stock Incentive Plan (“2013 Plan”). The 2013 Plan was amended by the
Board on January 9, 2015 and September 30, 2016, and such amendments were ratified by shareholders on December 7, 2018. The 2013
Plan provides for the issuance of up to 4,323 shares of the Company’s common stock. As of December 31, 2019, grants
of restricted stock and options to purchase 2,853 shares of Common Stock have been issued pursuant to the 2013 Plan, and
1,470 shares of Common Stock remain available for issuance.
2017
Stock Incentive Plan
On
August 7, 2017, the shareholders approved, and the Company adopted the 2017 Stock Incentive Plan (“2017 Plan”). The
2017 Plan provides for the issuance of up to 7,031 shares of the Company’s common stock. As of December 31, 2019, grants
of restricted stock and options to purchase 3,064 shares of Common Stock have been issued pursuant to the 2017 Plan, and 3,967
shares of Common Stock remain available for issuance.
2018
Stock Incentive Plan
On
December 7, 2018, the shareholders approved, and the Company adopted the 2018 Stock Incentive Plan (“2018 Plan”).
The 2018 Plan provides for the issuance of up to 78,125 shares of the Company’s common stock. As of December 31, 2019, grants
of RSUs to purchase 15,603 shares of Common Stock have been issued pursuant to the 2018 Plan, and 62,522 shares of Common Stock
remain available for issuance.
AKERS
BIOSCIENCES, INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
Note
8 - Share-based Compensation, continued
Stock
Options
The
following table summarizes the option activities for the years ended December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Weighted
|
|
|
Remaining
|
|
|
|
|
|
|
Number
|
|
|
Average
|
|
|
Average
|
|
|
Contractual
|
|
|
Aggregate
|
|
|
|
of
|
|
|
Exercise
|
|
|
Grant
Date
|
|
|
Term
|
|
|
Intrinsic
|
|
|
|
Shares
|
|
|
Price
|
|
|
Fair
Value
|
|
|
(years)
|
|
|
Value
|
|
Balance
at December 31, 2018
|
|
|
443
|
|
|
$
|
729.41
|
|
|
$
|
417.88
|
|
|
|
0.43
|
|
|
$
|
-
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
(284
|
)
|
|
|
703.15
|
|
|
|
374.92
|
|
|
|
0.74
|
|
|
|
-
|
|
Canceled/Expired
|
|
|
(119
|
)
|
|
|
957.90
|
|
|
|
609.87
|
|
|
|
-
|
|
|
|
-
|
|
Balance
at December 31, 2019
|
|
|
40
|
|
|
$
|
236.16
|
|
|
$
|
151.68
|
|
|
|
0.99
|
|
|
$
|
-
|
|
Exercisable
as of December 31, 2019
|
|
|
40
|
|
|
$
|
236.16
|
|
|
$
|
151.68
|
|
|
|
0.99
|
|
|
$
|
-
|
|
The
aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the closing
stock price of $3.20 for the Company’s common shares on December 31, 2019. As the closing stock price on December 31, 2019
is lower than the exercise price, there is no intrinsic value to disclose.
As
of December 31, 2019, all the Company’s outstanding stock options were fully vested and exercisable.
During
the years ended December 31, 2019 and 2018, the Company incurred stock option expenses totaling $0 and $6,931, respectively.
AKERS
BIOSCIENCES, INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
Note
8 - Share-based Compensation, continued
Restricted
Stock Units
On
March 29, 2019, the Compensation Committee of the Board of Directors approved the grant of 5,201 Restricted Stock Units (“RSU”)
to each of the three directors. Each RSU had a grant date fair value of $23.28 which shall be amortized on a straight-line basis
over the vesting period into administrative expenses within the Consolidated Statement of Operations and Comprehensive Loss. Such
RSUs were granted under the 2018 Plan, and vested on January 1, 2020. Upon vesting, such RSUs shall be settled with the issuance
of common stock. The Company stock underlying these RSUs was subject to a lock-up through March 3, 2020.
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
Number
of
|
|
|
Grant
Date
|
|
|
|
RSUs
|
|
|
Fair
Value
|
|
Balance
at December 31, 2018
|
|
|
-
|
|
|
$
|
-
|
|
Granted
|
|
|
15,603
|
|
|
|
23.28
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
Canceled/Expired
|
|
|
-
|
|
|
|
-
|
|
Balance
at December 31, 2019
|
|
|
15,603
|
|
|
$
|
23.28
|
|
Exercisable
as of December 31, 2019
|
|
|
-
|
|
|
$
|
-
|
|
During
the year ended December 31, 2019, the Company incurred RSU expense of $362,005.
AKERS
BIOSCIENCES, INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
Note
8 - Share-based Compensation, continued
Common
Stock Warrants
The
table below summarizes the warrant activity for the year ended December 31, 2019:
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
|
Number
of
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
|
Warrants
|
|
|
Price
|
|
|
Term
(years)
|
|
|
Value
|
|
Balance
at December 31, 2018
|
|
|
|
88,015
|
|
|
$
|
74.65
|
|
|
|
4.20
|
|
|
$
|
-
|
|
Granted
|
|
|
|
159,200
|
|
|
|
5.00
|
|
|
|
5.00
|
|
|
|
-
|
|
Exercised
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Canceled/Expired
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Balance
at December 31, 2019
|
|
|
|
247,215
|
|
|
$
|
29.79
|
|
|
|
4.72
|
|
|
$
|
-
|
|
Exercisable
as of December 31, 2019
|
|
|
|
247,215
|
|
|
$
|
29.79
|
|
|
|
4.72
|
|
|
$
|
-
|
|
The
aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the closing
stock price of $3.20 for the Company’s common shares on December 31, 2019. All warrants were vested on date of grant.
AKERS
BIOSCIENCES, INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
Note
8 - Share-based Compensation, continued
Pre-funded
Common Stock Warrants
The
table below summarizes the pre-funded warrant activity for the year ended December 31, 2019:
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
|
Number
of
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
|
Warrants
|
|
|
Price
|
|
|
Term
(years)
|
|
|
Value
|
|
Balance
at December 31, 2018
|
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
Granted
|
|
|
|
1,376,500
|
|
|
|
0.0001
|
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
|
(581,500
|
)
|
|
|
0.0001
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Canceled/Expired
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Balance
at December 31, 2019
|
|
|
|
795,000
|
|
|
$
|
0.0001
|
|
|
|
-
|
|
|
$
|
-
|
|
Exercisable
as of December 31, 2019
|
|
|
|
795,000
|
|
|
$
|
0.0001
|
|
|
|
-
|
|
|
$
|
-
|
|
All
pre-funded warrants were vested on date of grant and are exercisable at any time.
Preferred
Series ‘C’ Stock Warrants
The
table below summarizes the activity for the warrants issued in December 2019 in connection with a capital raise, for the purchase
of preferred series C shares, for the year ended December 31, 2019:
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
|
Number
of
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
|
Warrants
|
|
|
Price
|
|
|
Term
(years)
|
|
|
Value
|
|
Balance
at December 31, 2018
|
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
Granted
|
|
|
|
1,990,000
|
|
|
|
4.00
|
|
|
|
5.00
|
|
|
|
-
|
|
Exercised
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Canceled/Expired
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Balance
at December 31, 2019
|
|
|
|
1,990,000
|
|
|
$
|
4.00
|
|
|
|
5.00
|
|
|
$
|
-
|
|
Exercisable
as of December 31, 2019
|
|
|
|
1,990,000
|
|
|
$
|
4.00
|
|
|
|
5.00
|
|
|
$
|
-
|
|
The
aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the closing
stock price of $3.20 for the Company’s common shares on December 31, 2019. All preferred series ‘C’ warrants
were vested on date of grant.
AKERS
BIOSCIENCES, INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
Note
9 – Equity
The
holders of common shares are entitled to one vote per share at meetings of the Company. On December 30, 2019, the Company’s
shareholders approved an increase to 100,000,000 of the number of the authorized shares of Common Stock.
During
the years ended December 31, 2019 and 2018, pursuant to his October 2018 employment agreement, the Company issued 1,563 and 314
shares of Common Stock under the 2017 Plan to Mr. Yeaton, with a fair value on the date of grant, of $27,367 and $16,702, respectively.
During
the year ended December 31, 2018, the Company issued 131 shares of Common Stock to a former executive officer of the Company.
These shares had a fair value of $11,000 on date of grant.
On
November 2, 2018, the Company entered into the Purchase Agreement pursuant to which the Company agreed to sell an aggregate of
30,070 shares of Common Stock and warrants to purchase approximately 28,937 shares of Common Stock (the “November 2018 Warrants”).
The combined purchase price for one share of Common Stock and each Warrant was priced at $69.12 (the “Offering”).
The Purchase Agreement contained customary representations, warranties, and covenants by the Company. Through the Offering, which
closed on November 2, 2018, the Company raised proceeds of $1,950,000, net of offering costs of $50,000.
Each
November 2018 Warrant has an initial exercise price of $90.24 per share, became exercisable immediately after the date of issuance
and expires on November 1, 2023. Subject to limited exceptions, a holder of the November 2018 Warrants will not have the right
to exercise any portion of such securities if the holder, together with its affiliates, would beneficially own in excess of 4.99%
of the number of shares of the Company’s Common Stock outstanding immediately after the exercise. The exercise price of
the November 2018 Warrants, and in some cases the number of shares of Common Stock issuable upon exercise of the November Warrants,
will be subject to adjustment in the event of stock splits, stock dividends, combinations, rights offerings and similar events
affecting the Common Stock.
AKERS
BIOSCIENCES, INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
Note
9 – Equity, continued
In
addition, the November 2018 Warrants provide that, in the event of a fundamental transaction (as such term is described in the
November 2018 Warrant), the holder of such November 2018 Warrant, at the holder’s option, may receive, for each warrant
share (as such term is described in the November 2018 Warrant) that would have been issuable upon such exercise immediately prior
to the occurrence of such fundamental transaction, the number of shares of Common Stock of the successor or acquiring corporation
or of the Company, if it is the surviving corporation, and any additional consideration receivable as a result of such fundamental
transaction by a holder of the number of shares of Common Stock for which the November 2018 Warrant is exercisable immediately
prior to such fundamental transaction. If holders of Common Stock are given any choice as to the securities, cash or property
to be received in a fundamental transaction, then the holder shall be given the same choice as to the alternate consideration
it receives upon any exercise of the November 2018 Warrant following such fundamental transaction. The Company shall cause any
successor entity (as such term is described in the November 2018 Warrant), at the option of the holder, to deliver to the holder
in exchange for the November 2018 Warrant a security of the successor entity evidenced by a written instrument substantially similar
in form and substance to the November 2018 Warrant which is exercisable for a corresponding number of shares of capital stock
of such successor entity (or its parent entity) equivalent to the shares of Common Stock acquirable and receivable upon exercise
of the November 2018 Warrant (without regard to any limitations on the exercise of this November 2018 Warrant) prior to such fundamental
transaction, and with an exercise price which applies the exercise price hereunder to such shares of capital stock.
The
Offering was made pursuant to a shelf registration statement on Form S-3 (File No. 333-214214), previously filed with the Securities
and Exchange Commission on October 24, 2016 and declared effective on November 16, 2016.
During
the year ended December 31, 2018, 1,755 shares of the Company’s Series B Preferred Stock, no par value, were converted into
60,943 shares of Common Stock.
During
the year ended December 31, 2018, warrant holders from the December 21, 2017 public offering exercised warrants for the purchase
of 199,055 shares of Common Stock with an exercise price of $34.58 per common share, raising net proceeds of $7,155,200.
AKERS
BIOSCIENCES, INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
Note
9 – Equity, continued
On
December 9, 2019, the Company entered into that certain “Purchase Agreement” pursuant to which the Company agreed
to sell an aggregate of 613,500 shares of Common Stock, 1,376,500 pre-funded warrants (the “Pre-funded Warrants”),
Preferred ‘C’ warrants to purchase approximately 1,990,000 shares of Common Stock (the “Preferred ‘C’
Warrants”) and Underwriter’s Warrants to purchase approximately 159,200 shares of Common Stock (the “Underwriter’s
Warrants”). The combined purchase price for one share of Common Stock was $4.00 and each Pre-funded Warrant was priced at
$3.9999 with (the “Offering”). The Purchase Agreement contains customary representations, warranties, and covenants
by the Company. Through the Offering, the Company raised proceeds of $6,965,636, net of offering costs of $994,227. Offering
costs were allocated on a pro rata basis to the proceeds from the sale of each of the Common Stock and the pre-funded warrants.
Each
Pre-Funded Warrant has an initial exercise price of $0.0001 per share, and is exercisable immediately after the date of issuance.
Subject to limited exceptions, a holder of the Pre-Funded Warrants will not have the right to exercise any portion of such securities
if the holder, together with its affiliates, would beneficially own in excess of 4.99% of the number of shares of the Company’s
Common Stock outstanding immediately after the exercise. The exercise price of the Pre-Funded Warrants, and in some cases the
number of shares of Common Stock issuable upon exercise of the Pre-Funded Warrants, will be subject to adjustment in the event
of stock splits, stock dividends, combinations, rights offerings and similar events affecting the Common Stock. The pre-funded
warrants represented prepaid equity forward contracts that were equity classified, as they were not subject to ASC 480 and did
not meet the definition of a derivative under ASC 815 due to their requiring a substantial upfront payment.
Each
Preferred ‘C’ Warrant has an initial exercise price of $4.00 per share, is exercisable immediately after the date
of issuance and will expire five years from December 30, 2019, the date it became exercisable. Subject to limited exceptions,
a holder of the Preferred ‘C’ Warrants will not have the right to exercise any portion of such securities if the holder,
together with its affiliates, would beneficially own in excess of 4.99% of the number of shares of the Company’s Common
Stock outstanding immediately after the exercise. The exercise price of the Preferred ‘C’ Warrants, and in some cases
the number of shares of Common Stock issuable upon exercise of the Preferred ‘C’ Warrants, will be subject to adjustment
in the event of stock splits, stock dividends, combinations, rights offerings and similar events affecting the Common Stock.
Each
Underwriter’s Warrant has an initial exercise price of $5.00 per share, will be exercisable immediately after the date of
issuance and will expire five years from December 30, 2019, the date it became exercisable. Subject to limited exceptions, a holder
of the Underwriter’s Warrants will not have the right to exercise any portion of such securities if the holder, together
with its affiliates, would beneficially own in excess of 4.99% of the number of shares of the Company’s Common Stock outstanding
immediately after the exercise. The exercise price of the Underwriter’s Warrants, and in some cases the number of shares
of Common Stock issuable upon exercise of the Underwriter’s Warrants, will be subject to adjustment in the event of stock
splits, stock dividends, combinations, rights offerings and similar events affecting the Common Stock.
AKERS
BIOSCIENCES, INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
Note
9 – Equity, continued
In
addition, the Warrants provide that, in the event of a fundamental transaction (as such term is described in the Warrant), the
holder of such Warrant, at the holder’s option, may receive, for each warrant share (as such term is described in the Warrant)
that would have been issuable upon such exercise immediately prior to the occurrence of such fundamental transaction, the number
of shares of Common Stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and
any additional consideration receivable as a result of such fundamental transaction by a holder of the number of shares of Common
Stock for which the Warrant is exercisable immediately prior to such fundamental transaction. If holders of Common Stock are given
any choice as to the securities, cash or property to be received in a fundamental transaction, then the holder shall be given
the same choice as to the alternate consideration it receives upon any exercise of the Warrant following such fundamental transaction.
The Company shall cause any successor entity (as such term is described in the Warrant), at the option of the holder, to deliver
to the holder in exchange for the Warrant a security of the successor entity evidenced by a written instrument substantially similar
in form and substance to the Warrant which is exercisable for a corresponding number of shares of capital stock of such successor
entity (or its parent entity) equivalent to the shares of Common Stock acquirable and receivable upon exercise of the Warrant
(without regard to any limitations on the exercise of this Warrant) prior to such fundamental transaction, and with an exercise
price which applies the exercise price hereunder to such shares of capital stock.
The
Offering was made pursuant to a registration statement on Form S-1 (Files No. 333-234447 and 333-235359 previously
filed with the Securities and Exchange Commission on November 1, 2019 and declared effective on December 5, 2019. Such securities
are being offered only by means of a prospectus.
During
the year ended December 31, 2019, Pre-Funded Warrant holders from the December 9, 2019 public offering exercised warrants for
the purchase of 581,500 shares of Common Stock, with an exercise price of $0.0001 per common share, raising net
proceeds of $58.
AKERS
BIOSCIENCES, INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
Note
10 – Income Taxes
The
Company’s income tax (benefit)/provision is as follows:
|
|
Years
Ended December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Current
|
|
$
|
-
|
|
|
$
|
-
|
|
Deferred
|
|
|
(738,000
|
)
|
|
|
(2,941,000
|
)
|
Change
in Valuation Allowance
|
|
|
738,000
|
|
|
|
2,941,000
|
|
Income
Tax Benefit
|
|
$
|
-
|
|
|
$
|
-
|
|
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, 2019 and 2018 are as follows:
|
|
Years
Ended December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
Statutory
U.S. Federal Income Tax Rate
|
|
|
(21.0
|
)%
|
|
|
(21.0
|
)%
|
New
Jersey State income taxes, net of U.S.
|
|
|
|
|
|
|
|
|
Federal
tax effect
|
|
|
(5.1
|
)%
|
|
|
(5.1
|
)%
|
True-up
for prior year deferred tax assets
|
|
|
5.9
|
%
|
|
|
(0.9
|
)%
|
Other
|
|
|
1.2
|
%
|
|
|
(0.1
|
)%
|
Change
in Valuation Allowance
|
|
|
19.0
|
%
|
|
|
27.1
|
%
|
Net
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
As
of December 31, 2019 and 2018, the Company had Federal net operating loss carry forwards of approximately $79,678,000 and
$80,500,000, expiring through the year ending December 31, 2039. As of December 31, 2019 and 2018, the Company had New Jersey
state net operating loss carry forwards of approximately $28,855,000 and $29,700,000, expiring through the year ending
December 31, 2026. The timing and manner in which the Company can utilize operating loss carryforwards in any year may be limited
by provisions of the Internal Revenue Code regarding changes in ownership of corporations. Such limitation may have an impact
on the ultimate realization of its carryforwards and future tax deductions.
The
principal components of the deferred tax assets and related valuation allowances as of December 31, 2019 and 2018 are as follows:
|
|
Years
Ended December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
Reserves
and other
|
|
$
|
508,000
|
|
|
$
|
523,000
|
|
Net
operating loss carry-forwards
|
|
|
19,196,000
|
|
|
|
18,417,000
|
|
Research
and development tax credit
|
|
|
455,000
|
|
|
|
481,000
|
|
Valuation
Allowance
|
|
|
(20,159,000
|
)
|
|
|
(19,421,000
|
)
|
Net
|
|
$
|
-
|
|
|
$
|
-
|
|
AKERS
BIOSCIENCES, INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
Note
10 - Income Tax Expense, continued
The
valuation allowance for deferred tax assets as of December 31, 2019 and 2018 was $20,159,000 and $19,421,000. The change
in the total valuation for the years ended December 31, 2019 and 2018 were increases of $738,000 and $2,941,000, respectively.
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. Furthermore, during December 2019, the shares issued to investors in the capital
raise resulted in a greater than 50% change in ownership under the Internal Revenue Service regulations. This change in ownership
will result in limitations to the amount of net operating loss carryforwards that may be utilized in future years to offset future
taxable income. 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, 2019, the Company had no unrecognized tax benefits and no charge during 2019,
and accordingly, the Company did not recognize any interest or penalties during 2019 related to unrecognized tax benefits. There
is no accrual for uncertain tax positions as of December 31, 2019.
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, 2016 and thereafter are subject to examination by the relevant taxing authorities.
Note
11 – Commitments and Contingencies
Lease
Commitments
The
Company leases its facility in West Deptford, New Jersey under an operating lease (“Thorofare Lease”) which went into
effect during 2008 and was amended in January 2013. On November 11, 2019, the Company entered into an extension of the Thorofare
Lease extending the term to December 31, 2021 and effective January 1, 2020, providing for an early termination option of the
lease with a 150 day notice period. Rent expense for the Thorofare Lease, including related CAM charges for the years ended December
31, 2019 and 2018 totaled $164,233 and $164,996, respectively.
The
Company previously maintained an office lease in Ramsey, New Jersey and a warehouse lease in Pitman, New Jersey. These two leases
ended during 2019.
Lease
expense during the years ended December 31, 2019 and 2018 was $54,761 and $66,225, respectively.
The
schedule of lease commitments is as follows:
|
|
Thorofare
|
|
|
|
Lease
|
|
Next
12 months
|
|
$
|
132,000
|
|
Next
13-24 months
|
|
|
139,200
|
|
|
|
$
|
271,200
|
|
Advisory
Board
On
December 4, 2019, the Company formed an advisory board (the “Advisory Board”) with expertise in the hemp and minor
cannabinoid sectors. The Advisory Board will assist the Board of Directors in its strategic review including, potentially, the
extraction, testing, purification and formulation of safe cannabinoids within the hemp industry. During December 2019, the
Company appointed two members to the Advisory Board. Compensation over the term of service shall consist of an award of shares
of the Company’s stock with a value of $25,000 for each advisor.
AKERS
BIOSCIENCES, INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
Note
11 – Commitments and Contingencies, continued
Litigation
and Settlements
ChubeWorkx
On
August 17, 2016, pursuant to a Settlement Agreement (the “Settlement Agreement”) with ChubeWorkx Guernsey Limited
(“ChubeWorkx”), which settled all pending claims between the Company and ChubeWorkx. Specifically, the Company and
ChubeWorkx agreed to voluntarily dismiss (i) the action in the United States Federal Court, District of New Jersey brought by
the Company against ChubeWorkx for outstanding amounts due to the Company under a promissory note and (ii) the action in The High
Court of Justice, Queen’s Bench Division Commercial Court, Royal Courts of Justice, United Kingdom brought by ChubeWorkx
against the Company arising from an exclusive licensing agreement between ChubeWorkx and the Company (“Licensing Agreement”).
In
return for the Company regaining the full rights to sell breath technology products, under the terms of the Settlement Agreement,
ChubeWorkx is entitled to receive a royalty of 5% of the Company’s gross revenues (the “ChubeWorkx Royalty”)
until ChubeWorkx has earned an aggregate $5,000,000, after which point ChubeWorkx will no longer be entitled to receive any royalties
from the Company and the Company shall have no further obligation to ChubeWorkx. The Settlement Agreement further allows the Company
to retain 50% of the ChubeWorkx Royalty until the full $549,609 cash component of the monies owed by ChubeWorkx to the Company
as described above has been satisfied. The Company recorded royalty expenses of $86,519 and $59,584 for the years ended December
31, 2019 and 2018, respectively, which are included in sales and marketing expenses on the Consolidated Statement of Operations
and Comprehensive Loss. As of December 31, 2019, the Company owed ChubeWorkx royalties of $4,906 which is included in trade and
other payables.
Other
terms of the Settlement included: 1) the pledge as security of all earned but unpaid royalties by the Company to ChubeWorkx, all
Company assets, worthy to satisfy its obligations, including all inventory and receivables, with the exception of (i) distribution
contracts of the Company or any of its affiliates, (ii) customer lists, (iii) manufacturing processes (including all intellectual
property required to use those processes and exploit products made thereby), and (iv) all equipment required to perform said manufacturing
processes and other equipment; 2) the pledge as security of the settlement sum which remains unpaid by the Company to ChubeWorkx
all Company (i) distribution contracts of the Company or any of its affiliates, (ii) customer lists, (iii) manufacturing processes
(including all intellectual property required to use those processes and exploit products made thereby), and (iv) all equipment
required to perform said manufacturing processes and other equipment; and 3) the grant of voting proxy by ChubeWorkx to the Company
which allows the Company to vote ChubeWorkx’s shares for corporate formalities under certain conditions.
The
pledged assets are only at risk in the event that the Company cannot satisfy any outstanding royalty payment obligations subject
to various cure periods and/or through a restructuring and/or liquidation under the United States Bankruptcy laws of the Company
in favor of payment of said obligation.
AKERS
BIOSCIENCES, INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
Note
11 – Commitments and Contingencies, continued
Litigation
and Settlements
Pulse
Health LLC v Akers Biosciences, Inc. No.: 3:16-cv-01919-HZ
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 alleged false advertising and unlawful trade practices in
connection with the Company’s sales activities related to the Company’s OxiChek™ 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.
The
Court decided by order dated April 14, 2017 in favor of the Company and 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 proceeded in the District Court of Oregon.
The
Company filed a Motion for Summary Judgment on January 24, 2018. On June 21, 2018, the Court ruled in favor of the Company on
some issues and determined that other issues warranted a trial. The Court further determined that equitable relief, such as an
injunction, “may be warranted.” Following such rulings, the Company discovered certain deficiencies in its discovery
responses and took appropriate steps to supplement the record and correct these deficiencies.
On
September 17, 2018, the Company and Pulse entered into a settlement. Pursuant to the settlement reached between Pulse and the
Company, on October 9, 2018 the Company paid $930,000 to Pulse. The Company has also agreed to a permanent injunction and not
to make, use, sell or offer to sell the BreathScan OxiChek™ product, any product that detects aldehydes or oxidative stress
in exhaled human breath or breath condensate using either basic fuchsin or sodium metabisulfite or any form, analog or equivalent
thereof, and the BreathScan Lync device, or any equivalent thereof, as part of a test for aldehydes or oxidative stress in human
exhaled breath or breath condensate. There was no material impact on our revenues as a result of the withdrawal of the BreathScan
OxiChek™ product from sale. The Settlement Agreement does not contain any admission of liability, wrongdoing, or responsibility
by any of the parties.
AKERS
BIOSCIENCES, INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
Note
11 – Commitments and Contingencies, continued
Litigation
and Settlements
Faulkner
v. Akers Biosciences, Inc., No. 2:18-cv-10521 (D.N.J.) and Gleason v. Akers Biosciences, Inc., No. 2:18-cv-10805 (D.N.J.)
On
June 13, 2018, Plaintiff Tim Faulkner filed a class action complaint alleging securities violations against the Company, John
J. Gormally, and Gary M. Rauch (“Individual Defendants”) (together with the Company, “Defendants”) on
behalf of all persons and entities who purchased publicly traded Akers securities from May 15, 2017 through June 5, 2018 (the
“Faulkner Action”). The complaint alleged violations of Section 10(b) of the Exchange Act and Rule 10b-5 against all
Defendants, and violations of Section 20(a) of the Exchange Act against the Individual Defendants. In particular, the complaint
alleged that Defendants made false and/or misleading statements and/or failed to disclose in its first, second, and third quarter
2017 10-Qs and its 2017 10-K that: (1) Akers was improperly recognizing revenue for the fiscal year ended December 31, 2017; and,
(2) Akers had downplayed weaknesses in its internal controls over financial reporting and failed to disclose the true extent of
those weaknesses. On June 20, 2018, Plaintiff David Gleason filed a class action complaint under the caption Gleason v. Akers
Biosciences, Inc., No. 2:18-cv-10805 (D.N.J.) based on the same allegations and causes of action (the “Gleason Action”).
On November 21, 2018, the Faulkner and Gleason Actions were consolidated under the Faulkner Action docket. The parties conducted
a mediation on January 10, 2019, and agreed to a settlement in principle disposing of the consolidated action as to all Defendants,
including the Individual Defendants. On March 8, 2019, the parties signed a settlement agreement, subject to approval by the Court,
whereby the Company agreed to pay $2,250,000 in exchange for full releases and discharge of all claims against the Company. On
the same day, Plaintiffs Tim Faulkner and David Gleason filed a motion for preliminary approval of the settlement and to establish
notice procedures. On July 3, 2019, the Court granted the motion for preliminary approval and scheduled a final settlement hearing
for November 8, 2019. On or about July 24, 2019, the Company’s D&O insurer sent the settlement payment of $2,250,000
to the settlement agent for the class. On September 20, 2019, the Court granted the parties’ request to adjourn the final
settlement hearing and scheduled a final settlement hearing for December 20, 2019, at 11:00 a.m. On October 11, 2019, Lead
Plaintiffs filed motions for final approval of the proposed settlement and award of attorneys’ fees, and reimbursement
of expenses. On December 20, 2019, the Court granted final approval of the settlement and award of attorneys’ fees, and
reimbursement of expenses.
AKERS
BIOSCIENCES, INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
Note
11 – Commitments and Contingencies, continued
Litigation
and Settlements
Watts
v. Gormally, et al., No. 2:18-15992 (D.N.J.) and Chan v. Gormally, et al., No. 2:19-cv-4989 (D.N.J.)
On
November 9, 2018, Cale Watts (“Watts Plaintiff”) filed a verified shareholder derivative complaint alleging violations
of the Securities Exchange Act of 1934, breach of fiduciary duty, unjust enrichment, and waste of corporate assets based on alleged
material weaknesses in controls, management, and documentation (the “Watts Action”). On January 14, 2019, the parties
reached an agreement in principle to settle the Watts Action that included corporate reforms and a payment of attorneys’
fees of $200,000. The parties finalized a Stipulation of Settlement on March 4, 2019. On February 7, 2019, Tiffany Chan, Jasmine
Henderson, and Don Danesh (“Chan Plaintiffs”) filed a verified shareholder derivative complaint alleging violations
of Section 14(a) of the Exchange Act and SEC Rule 14a-9, breach of fiduciary duty, unjust enrichment, and waste of corporate assets
based on the same circumstances as the Watts Action (the “Chan Action”). The Chan Action further alleged that the
Company should not have settled the Watts Action because the Watts Action plaintiffs lacked standing and the settlement would
cause irreparable harm to the Company and its shareholders. On March 22, 2019, the Watts Plaintiff filed a motion for preliminary
approval of the proposed settlement, approving the proposed form and method of providing notice of the settlement, scheduling
a hearing for final approval of the settlement (“Watts Motion for Preliminary Approval”). On April 1, 2019, the Chan
Plaintiffs filed an Opposition to the Motion for Preliminary Approval and a Motion to Intervene and Stay Proceedings (“Motion
to Intervene and Stay”). Subsequently, the Watts Plaintiff, Chan Plaintiffs, and Defendants reached an agreement
in principle to settle the Watts and Chan Actions that included corporate reforms and a payment of attorneys’ fees of $325,000.
On October 2, 2019, the Watts Plaintiff filed an Unopposed Motion for Preliminary Approval of the Settlement (the “Omnibus
Motion for Preliminary Approval”). The Omnibus Motion for Preliminary Approval was granted on January 8, 2020. Plaintiffs
must file a motion for final approval of the proposed settlement by May 7, 2020. The Final Settlement hearing is scheduled for
May 28, 2020.
Faulkner,
Gleason, Watts and Chan Matters
With
respect to the Faulkner, Gleason, Watts and Chan matters, the Company maintains D&O liability insurance coverage, with a company
retention of $500,000. The D&O liability insurance coverage provides insurance coverage to both the Company and the Directors
and Officers for covered defense and indemnification. Through December 31, 2018, the Company recorded a cumulative charge of $500,000,
representing the insurance carrier retention requirement. The insurance carrier has provided notice that it has reserved certain
rights, and through the date of the filing of this Annual Report on Form 10-K, the Company may incur additional costs related
to these matters, the amounts of which are not able to be determined at this time.
AKERS
BIOSCIENCES, INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
Note
11 – Commitments and Contingencies, continued
Litigation
and Settlements
Typenex
Medical, LLC v. Akers Biosciences, Inc., JAMS Ref. No. 1450005929
On
November 15, 2018, Typenex Medical LLC (“Typenex”), a telemarketing entity with whom the Company had entered into
a marketing and commission agreement dated September 30, 2016 (the “Marketing Contract”), filed an arbitration against
the Company before JAMS ADR (the “Arbitration”), and an arbiter was appointed to the Arbitration on December 14, 2018.
In the Arbitration, Typenex stated that it was seeking “at least” $220,500 based on the allegation that the Marketing
Contract entitles Typenex to a commission on sales of certain of the Company’s heparin-related products in the period two
years from the Marketing Contract’s expiration, and in the alternative, Typenex was seeking relief for breach of the implied
covenant of good faith and fair dealing, and/or unjust enrichment. On July 19, 2019, the Company and Typenex executed a settlement
agreement. Pursuant to the settlement agreement on December 2, 2019, the Company paid Typenex $50,000 in cash and issued 1,667
shares of the Company’s common stock, valued at $10,802.
NovoTek
Therapeutics Inc. and NovoTek Pharmaceuticals Limited v. Akers Biosciences, Inc.
On
June 21, 2019, the Company received a complaint, filed by Novotek Therapeutics Inc., and Novotek Pharmaceuticals Limited (collectively,
“Novotek”), Beijing-based entities, in the United States District Court for the District of New Jersey, alleging,
among other things, breach of contract. Novotek is seeking, among other things, damages in the amount of $1,551,562, plus interest,
disbursements and attorneys’ fees. The Company vigorously disputes the allegations in the complaint and has retained counsel
to defend it. On September 16, 2019, the Company filed a partial motion to dismiss the complaint, which was fully submitted as
of November 4, 2019. The Company is not yet able to determine the amount of the Company’s exposure, if any.
Neelima
Varma v. Akers Biosciences, Inc. and St. David’s Healthcare Partnership, L.P., LLP CAUSE NO: D-1-GN-19-004262
On
July 25, 2019, the Company was notified that on July 23, 2019, a complaint was filed by Neelima Varma, against the Company and
St. David’s Healthcare Partnership, L.P., LLP (“St. David’s”), in the district court of Travis County,
Texas, alleging, among other things, negligence, gross negligence and strict product liability, breach of express warranty, breach
of implied warranty and fraudulent misrepresentation and omission, with respect to a medical device which the Company had sold
through one its distributors to St. David’s. Ms. Varma is seeking aggregate monetary relief from the Company and St. David’s
in excess of $1,000,000. On September 20, 2019, the Company filed the original answer to plaintiff’s original petition and
on October 1, 2019, the Company received from plaintiff their first interrogatories and request for production of documents. The
Company carries product liability insurance. The insurance carrier has provided notice that it has reserved certain rights. The
Company and its insurance carrier will contest this complaint vigorously. The Company believes that its product liability insurance
coverage will be adequate to cover the potential exposure for this matter.
AKERS
BIOSCIENCES, INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
Note
11 – Commitments and Contingencies, continued
Douglas
Carrara v. Akers Biosciences, Inc., John Does 1-10, and XYZ Corp. 1-10, Docket No. ESX-L-5272-19 (N.J. Super. Ct., Essex County):
Douglas
Carrara, a former executive, has sued the Company over the termination of his employment. The executive seeks contractual severance
pay in the amount of $200,000. The executive asserts that the termination was without cause within the meaning of his employment
agreement, which provides for severance of one year’s salary in the event of termination without cause. The executive also
seeks indemnification for approximately $10,000 in attorneys’ fees that he contends he incurred in regard to company business.
On August 29, 2019, the Company filed an answer to the second amended complaint and the parties have exchanged documents and interrogatories
as part of the discovery process. No trial date or discovery cutoff has been set. With regard to both claims, the executive seeks
to recover his attorneys’ fees under a fee-shifting provision in his employment agreement. With respect to the matter, the
Company believes that the ultimate liability from the resolution of this matter will not be material to the Company’s consolidated
financial statements. Discovery in the case is continuing and is expected to conclude this summer.
The
Company intends to establish a rigorous defense of all claims. All legal fees were expensed as and when incurred.
AKERS
BIOSCIENCES, INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
Note
12 – Related Parties
Hainan
Savvy
On
March 9, 2015, the Company contributed capital of $64,091 to Hainan Savy Akers Biosciences, Ltd. (“Hainan”), a company
incorporated in the People’s Republic of China, resulting in an initial 19.9% ownership interest. On December 31, 2018,
the Company recorded a charge of $64,092 for the full impairment of its investment in Hainan. This investment was included in
other assets in the Consolidated Balance Sheet as of December 31, 2018 and the investment was accounted for using the cost method.
The
Company began purchasing manufacturing molds and plastic components through Hainan and its related party during the year ended
December 31, 2016. The Company purchased a total of $- and $20,936 in such components during the years ended December 31, 2019
and 2018, respectively. As of December 31, 2019, the Company owed Hainan and its related party $0 which was included in trade
and other payables.
CEO
and Interim CFO
Effective
on October 5, 2018 and through December 31, 2019, the Board appointed Howard R. Yeaton, to serve as the Chief Executive Officer
and interim Chief Financial Officer of the Company. Effective on January 1, 2020, Mr. Yeaton entered into a new agreement with
the Company whereby he serves as the Company’s Interim Chief Financial Officer. Mr. Yeaton is the managing principal of
FCS and the Company’s relationship with FCS shall continue, with FCS continuing to provide accounting services to the Company.
FCS is considered to be a related party. During the years ended December 31, 2019 and 2018, the Company expensed
$38,888 and $104,749, respectively, to FCS in connection with these services. As of December 31, 2019 and 2018,
the Company owed FCS $18,323 and $29,407, respectively, which were included in trade and other payables on the Company’s
Consolidated Balance Sheet.
Note
13 – Revenue Information
Revenue
by product lines was as follows:
|
|
Years
Ended
|
|
|
|
December
31,
|
|
Product
Line
|
|
2019
|
|
|
2018
|
|
MicroParticle
Catalyzed Biosensor (“MPC”)
|
|
$
|
126,150
|
|
|
$
|
123,941
|
|
Particle
ImmunoFiltration Assay (“PIFA”)
|
|
|
1,327,752
|
|
|
|
1,422,361
|
|
Rapid
Enzymatic Assay (“REA”)
|
|
|
85,000
|
|
|
|
68,750
|
|
Other
|
|
|
38,131
|
|
|
|
50,518
|
|
Total
Revenue
|
|
$
|
1,577,033
|
|
|
$
|
1,665,570
|
|
The
total revenue by geographic area determined based on the location of the customers was as follows:
|
|
Years
Ended
|
|
|
|
December
31,
|
|
Geographic
Region
|
|
2019
|
|
|
2018
|
|
United
States
|
|
$
|
1,559,533
|
|
|
$
|
1,576,765
|
|
Rest
of World
|
|
|
17,500
|
|
|
|
88,805
|
|
Total
Revenue
|
|
$
|
1,577,033
|
|
|
$
|
1,665,570
|
|
AKERS
BIOSCIENCES, INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
The
Company had long-lived assets totaling $194,174 and $312,572 located in the United States and $9,823 and $14,295 located in the
Rest of the World as of December 31, 2019 and 2018, respectively.
Note
14 – Employee Benefit Plan
The
Company maintains a defined contribution benefit plan under section 401(k) of the Internal Revenue Code covering substantially
all qualified employees of the Company (the “401(k) Plan”). Under the 401(k) Plan, the Company matches 100% up to
a 3% contribution, and 50% over a 3% contribution, up to a maximum of 5%.
During
the years ended December 31, 2019 and 2018, the Company made matching contributions to the 401(k) Plan of $37,252 and $55,360,
respectively.
Note
15 – Subsequent Events
Novel
Coronavirus
In
March 2020, the World Health Organization declared the outbreak of a novel coronavirus (COVID-19) as a pandemic which continues
to spread throughout the United States. On March 21, 2020 the Governor of New Jersey declared a health emergency and issued an
order to close all nonessential businesses until further notice. As a maker of medical devices, Akers is deemed to be an essential
business. Nonetheless, out of concern for our workers and pursuant to the government order, Akers has reduced the scope of its
operations and where possible, certain workers are telecommuting from their homes. While the Company expects this matter to negatively
impact its results of operations, cash flows and financial position, the related impact cannot be reasonably estimated at this
time.
Acquisition
of Cystron
On
March 23, 2020, the Company entered into a Membership Interest Purchase Agreement (the “MIPA”) with the members of Cystron
Biotech, LLC (individually, each a “Seller,” and collectively, the “Sellers”), pursuant to which the Company
will acquire 100% of the membership interests (the “Membership Interests”) of Cystron Biotech, LLC (“Cystron”).
As consideration for the Membership Interests, the Company will
deliver to the Sellers: (1) that number of newly issued shares of its common stock equal to 19.9% of the issued and outstanding
shares of its common stock and pre-funded warrants as of the date of the MIPA, but, to the extent that the issuance of the Company’s
common stock would result in any Seller owning in excess of 4.9% of its outstanding common stock, then, at such Seller’s
election, such Seller may receive “common stock equivalent” preferred shares with a customary 4.9% blocker (with such
common stock and preferred stock collectively referred to as “Common Stock Consideration”), and (2) $1,000,000.
Additionally, the Company shall (A) make an initial payment to the
Sellers of up to $1,000,000 upon its receipt of cumulative gross proceeds from the consummation of an initial equity offering after
the date of the MIPA of $8,000,000, and (B) pay to Sellers an amount in cash equal to 10% of the gross proceeds in excess of $8,000,000
raised from future equity offerings after the date of the MIPA until the Sellers have received an aggregate additional cash consideration
equal to $10,000,000. Upon the achievement of certain milestones, including the completion of a Phase 2 study that meets its primary
endpoints, Sellers will be entitled to receive an additional 750,000 shares of the Company’s common stock or, in the event
the Company is unable to obtain stockholder approval for the issuance of such shares, 750,000 shares of non-voting preferred stock
that are valued following the achievement of such milestones and shall bear a 10% annual dividend (the “Milestone Shares”).
Sellers will also be entitled to contingent payments from the Company of up to $20,750,000 upon the achievement of certain milestones,
including the approval of a new drug application by the U.S. Food and Drug Administration (“FDA”).
The Company shall also make quarterly royalty payments to Sellers
equal to 5% of the net sales of a COVID-19 vaccine or combination product by the Company (the “COVID-19 Vaccine”) for
a period of five (5) years following the first commercial sale of the COVID-19 Vaccine; provided, that such payment shall be reduced
to 3% for any net sales of the COVID-19 Vaccine above $500 million.
In
addition, Sellers shall be entitled to receive 12.5% of the transaction value, as defined in the MIPA, of any change of control
transaction, as defined in the MIPA, that occurs prior to the fifth (5th) anniversary of the closing date of the MIPA, provided
that the Company is still developing the COVID-19 Vaccine at that time. Following the consummation of any change of control transaction,
the Sellers shall not be entitled to any payments as described above under the MIPA.
Support
Agreement
On March 23, 2020, as an inducement to enter into the MIPA, and
as one of the conditions to the consummation of the transactions contemplated by the MIPA, the Sellers entered into a shareholder
voting agreement with the Company (the “Support Agreement”), pursuant to which each Seller agreed to vote their shares
of the Company’s common stock or preferred stock in favor of each matter proposed and recommended for approval by the Company’s
management at every meeting of the stockholders and on any action or approval by written consent of the stockholders.
Registration
Rights Agreement
To induce the Sellers to enter into the MIPA, on March 23, 2020,
the Company entered into a registration rights agreement (the “Registration Rights Agreement”) with the Sellers, pursuant
to which it shall by the 30th day following the closing of the transactions contemplated by the MIPA, file with the United States
Securities and Exchange Commission (the “SEC”) an initial Registration Statement on Form S-3 (if such form is available
for use by the Company at such time) or, otherwise, on Form S-1, covering all of the shares of our common stock issued, or underlying
the preferred stock issued, at closing under the MIPA and to subsequently register the common stock issued or underlying the preferred
stock issued at Milestone Shares.
License
Agreement
Cystron
is a party to a License and Development Agreement (the “Initial License Agreement”) with Premas Biotech PVT Ltd. (“Premas”).
As a condition to the Company’s entry into the MIPA, Cystron amended and restated the Initial License Agreement on March
19, 2020 (as amended and restated, the “License Agreement”). Pursuant to the License Agreement, Premas granted Cystron,
amongst other things, an exclusive license with respect to Premas’ vaccine platform for the development of a vaccine against
COVID-19 and other corona virus infections.
Upon
the achievement of certain developmental milestones by Cystron, Cystron shall pay to Premas a total of up to $2,000,000.
Series
D Convertible Preferred Stock
On March 24, 2020, the Company filed the Certificate of Designation
of Preferences, Rights and Limitations of Series D Convertible Preferred Stock (the “Certificate of Designation”) with
the Secretary of State of the State of New Jersey. Pursuant to the Certificate of Designation, in the event of the Company’s
liquidation or winding up of its affairs, the holders of its Series D Convertible Preferred Stock (the “Preferred Stock”)
will be entitled to receive the same amount that a holder of the Company’s common stock would receive if the Preferred Stock
were fully converted (disregarding for such purposes any conversion limitations set forth in the Certificate of Designation) to
common stock which amounts shall be paid pari passu with all holders of the Company’s common stock. Each share of Preferred
Stock has a stated value equal to $0.01 (the “Stated Value”), subject to increase as set forth in Section 7 of the
Certificate of Designation.
A holder of Preferred Stock is entitled at any time to convert any
whole or partial number of shares of Preferred Stock into shares of the Company’s common stock determined by dividing the
Stated Value of the Preferred Stock being converted by the conversion price of $0.01 per share.
A holder of Preferred Stock will be prohibited from converting Preferred
Stock into shares of the Company’s common stock if, as a result of such conversion, the holder, together with its affiliates,
would own more than 4.99% of the total number of shares of the Company’s common stock then issued and outstanding (with such
ownership restriction referred to as the “Beneficial Ownership Limitation”). However, any holder may increase or decrease
such percentage to any other percentage not in excess of 9.99%, provided that any increase in such percentage shall not be effective
until 61 days after such notice to the Company.
Subject to the Beneficial Ownership Limitation, on any matter presented
to our stockholders for their action or consideration at any meeting of the Company’s stockholders (or by written consent
of stockholders in lieu of a meeting), each holder of Preferred Stock will be entitled to cast the number of votes equal to the
number of whole shares of the Company’s common stock into which the shares of Preferred Stock beneficially owned by such
holder are convertible as of the record date for determining stockholders entitled to vote on or consent to such matter (taking
into account all Preferred Stock beneficially owned by such holder). Except as otherwise required by law or by the other provisions
of the Company’s certificate of incorporation, the holders of Preferred Stock will vote together with the holders of the
Company’s common stock and any other class or series of stock entitled to vote thereon as a single class.
A holder of Preferred Stock shall be entitled to receive dividends
as and when paid to the holders of the Company’s common stock on an as-converted basis.